Deep Value Dividend Growth Index Week 36 Update: The 24 Most Undervalued High-Quality Dividend Growth Stocks To Buy Right Now

Posted On July 31, 2017 12:43 am

Click here to read up on the intro to this portfolio, the theory behind it, and its methodology.

Weekly Economic Data Review

A busy week in both economic news and earnings releases that resulted in a flat week for the S&P 500 but that’s not bad considering the index is up 10.6% year-to-date and after a solid 10% return in 2016.

New home sales and consumer confidence were stronger than expected, but of course what really mattered was the strong 2.6% GDP growth in Q2. That was slightly above the projections of both the New York and Atlanta Fed, though weaker than analysts were expecting.

Still it’s a solid number and combined with excellent earnings (200 companies reported last week) points to the bull market continuing.

Specifically, as of Friday, July 28th, 57% of companies in the S&P 500 have reported, and 73% of them have beaten on both the top and bottom lines.

Overall the blended average Sales and EPS growth rate is 5.2%, and 9.1% YoY, with 10/12 sectors reporting growth.

Better yet? only 26 companies have issued negative guidance for the year, 52% of those who are updating guidance, much lower than the usual 75%.

The tech sector especially is bullish with positive guidance updates/negative updates running at about 2:1.

Looking forward here’s how analysts see the rest of the year playing out:

  • Q3: sales and earnings growth of 4.8% and 6.1%, respectively
  • Q4: sales and earnings growth of 5.2% and 11.7%, respectively
  • Full Year 2017 sales and earnings growth of 5.5% and 9.5%, respectively

Given the slow rate of economic growth, wage growth, overall weakness in consumer spending, and no tax reform, this is a very promising outlook. Of course it also means there’s more downside potential if the next two earnings seasons disappoint.

Meanwhile here is how the Atlanta and New York Fed’s real time GDP growth models look now:

New York Fed GDP NowCast: 1.9% for Q3 (down 0.1% from last week)

Atlanta Fed GDPNow: 2.8% for Q2

Of course while the Atlanta Fed model was pretty much spot on last quarter (2.5% projection vs 2.6% actual) we need to keep in mind that the Atlanta Fed’s model is notorious for reducing expecations as the quarter progresses.

The good news is that the risk of a recession in the next three to four months remains very low (2.49%) and the longer-term (9 month) risk of a recession is also insignifigant.

Meanwhile bond markets are pricing in long-term inflation right around the Fed’s 2% goal, meaning that there is almost no risk of the Fed having to do emergency (faster than expected) rate hikes later that would likely trigger a recession.

About author

Dividend Sensei
Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I currently write for both Seeking Alpha, Simply Safe Dividends, and DividendSensei.com My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams, and enrich their lives. With 22 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams. I'm currently on an epic quest to build a broadly diversified, high-quality, high-yield dividend growth portfolio that: 1. Pays a 5% yield 2. Offers 7% annual dividend growth 3. Pays dividends AT LEAST on a weekly, but preferably, daily basis

Related Articles