Hi, I'm Jimmy in this video we're looking at the Dividend Aristocrats ETF to try to
see if dividend stocks are overvalued or undervalued relative to the market. We're going to break
them out by sector and then once again by individual company, do a quick run through
it to see if we can find any dividend stocks that look like they could be a decent value
by today. Okay. So let's start with the big picture. So right now, the S&P 500 has an
average P E multiple of about 21 times earnings. While the dividend tourist corrects ETF. Well,
they have an average P E multiple of 20 times earnings. So at first glance, it looks like
dividend stocks are not too overvalued compared to the market. We'll call it they're about
fairly valued. Now we go sector by sector. Here's what that looks like. And ultimately
what I did here is I took I broke out the S&P 500 by sector and and OBL by sector and
then compare them so we can get an idea how the sectors compare to each other. To me,
the most interesting sectors are communication services, which has a PE multiple of about
16 X versus the S&P 500 for the same group of about 20 to X consumer discretionary. That's
interesting as well with OBL coming in just short of twenty one X and the S&P 500 coming
in slightly above 20 forex. So there could be some value there. Then finally, health
care looks interesting there and OBL comes in about 19 X and the S&P 500 comes in at
about twenty one and a half times profits. So that could be another interesting spot
to look. Now some of these numbers 4 and OBL are skewed a bit. And the perfect example
of that is the communications services sector that we mentioned. First, when we go to the
next level with all of the companies from and OBL, what we can see that AT&T is the
only company in and be from the communications services sector. So for me, that's a real
bad representation of what dividend stocks from that sector are doing. It could say something
about the interest in AT&T. That could be something you want to dove into later. Now,
I've actually done some videos on AT&T. If you're interested, they'll be a link in the
description below. But for now, let's just focus on the other two sectors, which is consumer
discretionary and health care. So when we limit to those companies that are in and OBL
from those two sectors. Well, the first thing I did is I added the current P E multiple
for each company and then I went ahead and got the five year average PE multiple that
were we have something to compare our company to compared to its own history and based on
justice information so far. Well, genuine part. So it's interesting since it's currently
trading at less than its five year average. And Lowe's looks like it could be a decent
value when we compare that to its own five year history. And when we skip down to the
health care sector, well, here it looks like AD V and second Cardinal Health both look
like they could be undervalued relative to their own history. But this brings us to another
important point I wanted to bring out, and that's how price to earnings is actually calculated
or really how earnings per share is actually calculate and AD V is the perfect example
for this. So right now I have AbbVie listed as the current PE of about 12 X. But if we
head over to Yahoo! Finance, where we can see that Yahoo! Finance has their current
PE, their trailing 12 month PE at about 40 X. So why the huge disconnect we might ask?
Well, the primary reason is that I personally like to use adjusted earnings per share versus
the US gap earnings per share that Yahoo! Finance uses. So just to illustrate as an
example, back in twenty net twenty eighteen. Well Yahoo! Finance shows adjusted earnings
per share of three dollars and sixty six cents and the number I'm using is actually seven
dollars and twenty two cents. Now Ed, they made this simple for us because in their earnings
press release they give us this table. Now this is the adjustments made from the three
dollars and sixty six cents all the way down to the seven dollars and ninety one cents.
Now, the concept here is that we as potential investors should adjust gap. Earnings gap
is generally accepted accounting principles. We adjust those earnings based on maybe onetime
expenses or onetime revenues that aren't really core to the company's business. So as an example,
we take these impairment charges here. Well, these are things that the company believes
should be added back to get a better understanding of what the core earnings actually were. And
then if we were to look at these these negative numbers here, well, these negative numbers
are they happen in the opposite direction. There are deductions that are happening. So
in theory, there are tax benefits. Those tax benefits likely won't happen next year. So
you deduct those from this year's current profits. Now, if we want to, we could just
take the seven thousand ninety one sense as is and use that. But personally, I like to
remove intangible assets and organization since that one's a bit trickier and it's much
more reoccurring than some of these other ones. So I like to remove that one. And if
we remove. Sixty nine cents. Impact from that number. Or we end up with the EPA that I'm
using of seven dollars and twenty two cents. So that's how we get a PE ratio of 12 X because
we take the eighty seven or so dolls that add these currently trading at. We divide
that by seven dollars and twenty two cents and we get about twelve X. Now I know that
this can be a pain to look at and a pain to go through the process of it. And I've actually
thought about doing a video on the popular adjustments that should probably occur from
most earnings reports. Many companies snap it up just like Avi did. So that's something
to watch for. But if that be something you're interested in that type of video, please let
me know in the comments below. Okay. Now, going back to our list here now, I didn't
just want to use the P E ratio and stop there. I was also trying to use the dividend discount
model that I discussed in a recent video where we're where we talk about trying not to overpay
for dividend stocks. Now, what I did is I took a generic required rate of return of
8 percent for this entire list. Well, when I applied that formula to all of the companies
on the list, this is what it looked like. And I hate to say this, but actually found
the results of this to be mostly unusable, to get this formula to really work. We need
to break down each company. We have to come up with a much more accurate dividend growth
rate. We need a more customized, required rate of return for each company based on the
level of risk. So I found that it didn't really work when applying it to a whole list of dividend
stocks. So I actually think that our best move is to take what we learned from the PE
ratio analysis, which is basically for us to go fishing in the consumer discretionary
and the health care sectors and possibly look at AT&T as well and see if we can find at
least a few undervalued dividend stocks that seem like they could be good right now relative
to their own history, relative to the sector and relative to the overall market. Now, it
could make sense for us to analyze each of the companies in and OBL to get much more
in the trenches and figure out what each company is potentially worth. Try instead of trying
do it in a list format like this really dove in and see what we think, sort of like we
did with the Dow 30 series that we did on this channel. If you're curious about that
series, well, in that series we analyzed all 30 companies in the Dow Jones Industrial Average
with the goal of creating three different portfolios. Evaluate for you a dividend portfolio
and a growth portfolio. This is a dividend portfolio that came out of that analysis.
So if you'd be curious to see us break down the all the companies in and OBL as more of
a specialized dividend company analysis series, please let me know in the comments below.
We could do something just like we did for the Dow 30. And if you're curious, that could
be a good next video to watch. Watch the dividend portfolio and then you can go back and look
at the analysis that we have done for each company to sort of see how we got there. To
be interested in seeing some like that. Please let me know in the comments below. You haven't
done so yet. Please hit the thumbs up. Hit the subscribe button. Thank you so much for
stick with me all the way into the video. I really do appreciate it. Thank you. And
I'll see in the next video.