Buy Cipla; target of Rs 600: JM Financial

JM Financial's research report on Cipla

Cipla disappointed in 4QFY18, in-line with previous years�� trend, with Revenues/EBITDA/PAT being 6%/28%/50% below our estimates, mainly due to negative operating leverage on account of lower sales as well as one-time costs related to sales and distribution (INR 450- 500mn), employee recruitment, disposal of Yemen subsidiary (FX loss of INR 512mn) and provisions (INR 775mn) towards ongoing DPCO overcharging litigation.

Outlook

Cipla��s targets crossing USD 1bn of domestic sales in FY19, implying an ambitious low-teen growth rate which could be difficult to achieve organically. We cut our FY19/20 EPS estimates by 12%/11% to incorporate lower revenues and slower margin expansion going forward and arrive at a Mar��19 TP of INR 600. Maintain BUY.

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Disclaimer:�The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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Zacks: Analysts Anticipate FIS (FIS) Will Post Earnings of $1.20 Per Share

Brokerages expect that FIS (NYSE:FIS) will announce earnings per share (EPS) of $1.20 for the current quarter, according to Zacks. Ten analysts have made estimates for FIS’s earnings, with the lowest EPS estimate coming in at $1.12 and the highest estimate coming in at $1.23. FIS posted earnings of $1.02 per share in the same quarter last year, which indicates a positive year-over-year growth rate of 17.6%. The firm is scheduled to issue its next earnings report on Wednesday, August 1st.

According to Zacks, analysts expect that FIS will report full year earnings of $5.22 per share for the current financial year, with EPS estimates ranging from $5.17 to $5.26. For the next year, analysts expect that the company will report earnings of $5.80 per share, with EPS estimates ranging from $5.68 to $5.90. Zacks’ earnings per share calculations are a mean average based on a survey of analysts that cover FIS.

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FIS (NYSE:FIS) last released its quarterly earnings data on Tuesday, May 1st. The information technology services provider reported $1.09 earnings per share (EPS) for the quarter, beating the consensus estimate of $1.05 by $0.04. FIS had a net margin of 15.26% and a return on equity of 14.98%. The business had revenue of $2.07 billion during the quarter, compared to analyst estimates of $2.04 billion. During the same quarter in the previous year, the business earned $0.86 EPS. FIS’s quarterly revenue was down 3.8% compared to the same quarter last year.

Several equities research analysts recently issued reports on FIS shares. Royal Bank of Canada reaffirmed a “buy” rating and issued a $116.00 price objective on shares of FIS in a research note on Wednesday, February 7th. Stephens reaffirmed a “buy” rating and issued a $114.00 price objective on shares of FIS in a research note on Thursday, April 5th. Zacks Investment Research raised shares of FIS from a “hold” rating to a “buy” rating and set a $108.00 price objective for the company in a research note on Friday, February 9th. Citigroup lifted their price objective on shares of FIS from $112.00 to $114.00 and gave the company a “buy” rating in a research note on Wednesday, May 2nd. Finally, ValuEngine raised shares of FIS from a “hold” rating to a “buy” rating in a research note on Wednesday, May 2nd. Two equities research analysts have rated the stock with a hold rating, twelve have given a buy rating and one has given a strong buy rating to the company. The stock has a consensus rating of “Buy” and a consensus target price of $111.75.

Shares of FIS stock traded down $0.34 on Friday, hitting $103.46. The company’s stock had a trading volume of 837,610 shares, compared to its average volume of 2,044,482. The company has a current ratio of 0.98, a quick ratio of 0.98 and a debt-to-equity ratio of 0.76. FIS has a fifty-two week low of $83.36 and a fifty-two week high of $105.02. The firm has a market cap of $34.36 billion, a PE ratio of 23.41, a PEG ratio of 1.66 and a beta of 0.91.

The company also recently announced a quarterly dividend, which will be paid on Friday, June 29th. Shareholders of record on Friday, June 15th will be given a dividend of $0.32 per share. This represents a $1.28 dividend on an annualized basis and a yield of 1.24%. The ex-dividend date is Thursday, June 14th. FIS’s dividend payout ratio is 28.96%.

In other FIS news, EVP Lenore D. Williams sold 7,843 shares of the business’s stock in a transaction on Wednesday, May 16th. The shares were sold at an average price of $104.56, for a total transaction of $820,064.08. The transaction was disclosed in a document filed with the Securities & Exchange Commission, which is available at this link. Also, EVP James W. Woodall sold 87,195 shares of the business’s stock in a transaction on Tuesday, March 13th. The stock was sold at an average price of $100.60, for a total transaction of $8,771,817.00. The disclosure for this sale can be found here. In the last three months, insiders have sold 781,112 shares of company stock valued at $77,884,336. Company insiders own 2.08% of the company’s stock.

Institutional investors have recently added to or reduced their stakes in the business. Calton & Associates Inc. acquired a new position in FIS during the 4th quarter worth $123,000. Cerebellum GP LLC acquired a new position in shares of FIS during the fourth quarter valued at about $126,000. Virtu Financial LLC acquired a new position in shares of FIS during the fourth quarter valued at about $201,000. Bell & Brown Wealth Advisors LLC acquired a new position in shares of FIS during the fourth quarter valued at about $203,000. Finally, Penbrook Management LLC acquired a new position in shares of FIS during the fourth quarter valued at about $212,000. 86.34% of the stock is owned by hedge funds and other institutional investors.

FIS Company Profile

Fidelity National Information Services, Inc operates as a financial services technology company in the United States and internationally. It operates through Integrated Financial Solutions and Global Financial Solutions segments. The Integrated Financial Solutions segment offers core processing and ancillary applications; digital solutions, including Internet, mobile, and e-banking; fraud, risk management, and compliance solutions; electronic funds transfer and network services; card and retail solutions; corporate liquidity and wealth management services; item processing and output services; government payments solutions; and e-payment solutions.

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Exxon Mobil: Sometimes The Turtle Beats The Hare

Over the past 15 years, the average difference between the bottom-up EPS estimate...and the final EPS number for that year has been +10.3%. In other words, analysts on average have overestimated the final EPS number by about 10% one year in advance. Analysts overestimated the final value...in ten of the fifteen years and underestimated the final value...in the other five years. [When correcting for the effects of recession events] final EPS number for that year has [overstated actual earnings by a rate of] +5.5% over the past 15 years.

Exxon-Mobil (XOM) missed the consensus in Q1 by $0.03, which equates to a miss of just under 3%, which in the grand scheme of things represents statistical noise. And while the long term tendency for analysts is to overstate earnings, there can also be non-synchronistic pessimism as it relates to laggards. This fact creates an imbalance between optimism and pessimism in financial markets, as analysts are not immune to the social pressure to pander to itching ears. In other words, analysts are prone to deliver rosy outlooks to well-performing sector peers, with inimical outlooks to underperformers.

The energy sector��and the oil sector in particular��have encountered a rather lengthy downturn. Swift increases have given way to retracements, and the market clearing price per barrel has (over the past four years) rapidly eroded due to the varied dynamics of oil shale. This, in itself, should not have a long term impact on profitability. In the short term (measured over a handful of years) it has been disruptive.

The question from an investment thesis is why invest in a laggard in the industry? ExxonMobil has underperformed the market on the basis of share price over the past few months. Reviewing fundamentals is a good place to start, but ultimately is not the answer for investors seeking to outperform the risk-adjusted market index (there is a concise aggregator to the myriad of fundamental ratios: price per share - which is to say that the equity price already largely reflects fundamental aspects). It is not therefore surprising to find some headwinds in the Exxon fundamental sail, given the relative stagnation of share price during a wild readjustment in the energy segment.

Exxon is by far the biggest U.S. integrated oil company. There is little question that Exxon is at the mature phase as far as the business cycle goes, which means that production growth will be low (with EPS dynamically tied to price per barrel), and a relatively substantial portion of investor return will take place in the form of the dividend. A considerable aspect for share growth lays in the ability to increase dividend payments, which Exxon has done reliably for 36-years. The 6.5% dividend increase this year represents definite added value to the long term investor, as long as such dividend growth can be maintained in the future.

Downside in the Oil Industry

There has been increasing indications that future technologies will become progressively less dependent on fossil fuels. The clearest market indication of this is Tesla (TSLA) who, at a Market Cap of $47B, is just $5B below GM. This is a remarkable statement of support by the market in favor of the long term necessity and sustainability of electric vehicles, given the fact that GM revenues are well over ten times Tesla��s; Ford��s net income is currently $10B more than Tesla��s -2.3B (GM recently took a massive write-off due to taxes, so the comparative is less contiguous).

The potential demise of oil would, of course, decrease investor value in the oil side of the energy sector. Consider this particular condition to be something of a nebulous risk; the degree to which we need to adjust our energy sources is a matter of great debate, and even if transportation predominantly shift to electric, this will merely increase demand for natural gas. There is no consensus forecast the has renewables capable of handling the majority of energy demand in the next twenty years.

It is possible that we will move entirely away from oil, engage in a hybrid energy source, or discover a cleaner formula (either with oil, or hydrogen, or some other source) which the energy sector can pivot to. If the future of energy ends up being in chemical production on a large scale (which in some form or fashion seems likely) it seems likely that the energy infrastructure will provide the basis for new production. Think of Apple (AAPL) and Microsoft (MSFT) pivoting to the cloud, among other paradigm shifting technologies.

The future of energy consumption exists on the unpredictable long term horizon. Shorter term dilemmas relate to the dynamics between oil shale and traditional oil wells. Shale is much easier to deploy on the basis of relatively short term increases in oil price, as shale (though more expensive to drill) has a more compressed lifespan, which means it is less sensitive to price shocks. An increase back to $100 plus oil is not likely short term. It is probably not in the cards for the next several years. But a range of $70-$85 certainly is. A prolonged decrease to sub $50 oil is possible as well, though it is becoming progressively less and less likely at outlooks progress.

Exxon Upside

The contrarian method revolves primarily around the idea that persistent, negative sentiment will sometimes give way to misevaluation of an equity. If the broad market is convinced that a stock is on its way up (which is the case anytime price is increasing) it becomes difficult for analysts to not succumb to the temptation to tell the people what they want to hear: if you tell people what they want to hear and are wrong, there is generally little consequence. If you tell them something that they do not want to hear (that they will lose money) you had better be right, and even then you will not necessarily be liked. This is a universal form of human peculiarity.

When an entity in a beleaguered industry stagnates comparative to its peers, pessimism becomes more natural. The long state of underperformance can create an internal reluctance among the broad analytical population which will poison (or at least temper) projections. ExxonMobil, as a part of the integrated oil sector, has emerged from a multi-year hiatus to significant underperformance as compared to the broad market. Topped onto this, the new corporate tax rate (which is broadly beneficial to corporate bottom line) is not producing an immediate positive for Exxon. The current earnings call disclosed somewhere between $700-900M per quarter in hits associated with the tax change throughout the remainder of the year.

On the contrary, companies more invested in refining such as Phillips 66 (PSX) and HollyFrontier Corp (HFC) have found themselves in a much more advantageous position to realize significant earnings growth, while simultaneously capturing tax gains. Still, increases in oil prices traditionally produce headwinds for refiners�� margins. If you are not already holding shares, now may not be the time to gain entry (at least as far as a contrarian is concerned) in a refiner.

This is not to say that a pure contrarian will outperform the market (if they did, we would soon all become contrarian), just that under certain circumstances a contrarian can. So can a value investor, or a technical trader, or any of the other hundred techniques. You do not use a wrench for every job. Sometimes a screw driver is superior, or a hammer. So the question here is not what the contrarian position is with regards to Exxon (and, frankly, a decision to buy Exxon right now may not technically even be contrarian��though underperforming its market index, Exxon has nonetheless been appreciating) but rather whether the market attitude with regards to Exxon goes beyond neutral analysis into secular pessimism, which is the wheelhouse of contrarian gain.

The integrated oil sector has underperformed the market by quite a bit over the past 5 years. Still, with competitor Chevron (CVX) appreciating significantly, this reality is clearly (in and of itself) not a hindrance to optimism. History can produce pricing drag, but it is easily be overcome by the combination of good earnings results and a positive sector outlook.

An odd smattering of other factors has conspired to hold ExxonMobil down. The tax disadvantage is one, but again it is not entirely unique to Exxon. Another is the downfall of Rex Tillerson. The former Secretary of State under Donald Trump (which is a contentious position to begin with), Tillerson lost his title on March 31st. Not only was Tillerson widely linked in the media to his former job as CEO for ExxonMobil, but the contentious loss of his title has the intonation of costing ExxonMobil influence. It is impossible to create a discount on the basis of Tillerson��s career in government, but that does not mean that it does not influence to some degree the subjective portion of analysts�� conclusions.

More directly influential is the stumbling from the starting block that Exxon has encountered following the resurgence in crude prices. Quarterly results inflect varying degrees of noise, but of note for Exxon investors was a short statement on the most recent conference call by Jeff Woodbury - Vice President, Investor Relations: �� Oil equivalent production in the quarter was 3.9 million barrels per day, a decrease of 3% compared to the fourth quarter of 2017��[and] oil equivalent production decreased 6% compared to the first quarter of 2017.��

Woodbury goes on to specify upcoming projects which underlies that the production shortage is not the result of a lack of resources to generate earnings, but instead reflects a shift in resource production that generated a transient production shortfall. Given the scope of ExxonMobil holdings it should be an easy explanation to accept, yet the market has so far proven conservative in assigning a premium on the basis of a forward ability to translate increasing oil prices into bottom line cash flow. When you are dealing with a low beta company, you should expect conservative price projections; it is possible that this (on a case-by-case basis) creates a correlation between stagnation as related to price appreciation, and the actual appreciation that will occur over the next few years.

Conclusion

When comparing integrated oil conglomerates Chevron and ExxonMobil, the delta in price appreciation between the two is striking. While Chevron has a more rosy growth outlook, it is certainly not worthy of the multi-digit percentage that relative price appreciation would indicate. There are three options here: that Chevron is overvalued and will fall back to Exxon levels (unlikely, unless oil prices significantly retract); that Exxon is in the midst of a double-digit decrease in earnings (itself highly unlikely); or that secular sources have produced headwinds to Exxon investor appreciation. I contend that the third option is the most likely. Ultimately future earnings will detail Exxon fortunes. Betting in the short term against secular motion is a fools game. For the long term investor, Exxon rewards the wait for a return to normative value with a 4% dividend.

Disclosure: I am/we are long XOM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Zacks: Analysts Anticipate Taubman Centers (TCO) to Post $0.87 EPS

Equities analysts predict that Taubman Centers (NYSE:TCO) will report $0.87 earnings per share for the current quarter, according to Zacks Investment Research. Fourteen analysts have made estimates for Taubman Centers’ earnings, with the lowest EPS estimate coming in at $0.81 and the highest estimate coming in at $0.90. Taubman Centers reported earnings per share of $0.86 during the same quarter last year, which suggests a positive year-over-year growth rate of 1.2%. The business is scheduled to announce its next earnings results on Thursday, July 26th.

On average, analysts expect that Taubman Centers will report full-year earnings of $3.76 per share for the current fiscal year, with EPS estimates ranging from $3.64 to $3.84. For the next year, analysts forecast that the firm will report earnings of $3.88 per share, with EPS estimates ranging from $3.76 to $4.00. Zacks Investment Research’s earnings per share calculations are an average based on a survey of research firms that cover Taubman Centers.

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Taubman Centers (NYSE:TCO) last released its quarterly earnings results on Thursday, April 26th. The real estate investment trust reported $0.30 earnings per share (EPS) for the quarter, missing the Thomson Reuters’ consensus estimate of $0.93 by ($0.63). Taubman Centers had a negative return on equity of 49.86% and a net margin of 11.63%. The business had revenue of $161.49 million during the quarter, compared to the consensus estimate of $152.82 million. During the same period in the previous year, the company posted $0.85 EPS. The company’s revenue for the quarter was up 8.3% compared to the same quarter last year.

Several research firms have recently issued reports on TCO. ValuEngine cut Taubman Centers from a “hold” rating to a “sell” rating in a research note on Wednesday, May 2nd. BMO Capital Markets set a $62.00 price objective on Taubman Centers and gave the company a “hold” rating in a report on Thursday, April 26th. Mizuho set a $63.00 price objective on Taubman Centers and gave the company a “hold” rating in a report on Friday, February 16th. Zacks Investment Research upgraded Taubman Centers from a “sell” rating to a “hold” rating in a report on Monday, February 26th. Finally, Citigroup upped their price objective on Taubman Centers from $58.00 to $61.00 and gave the company a “neutral” rating in a report on Tuesday, February 13th. Two investment analysts have rated the stock with a sell rating, eleven have given a hold rating and one has assigned a buy rating to the company. The stock presently has an average rating of “Hold” and an average price target of $63.22.

Several institutional investors have recently made changes to their positions in the company. BlackRock Inc. lifted its holdings in shares of Taubman Centers by 2.2% in the first quarter. BlackRock Inc. now owns 6,800,155 shares of the real estate investment trust’s stock valued at $386,996,000 after buying an additional 145,001 shares during the period. Long Pond Capital LP lifted its holdings in shares of Taubman Centers by 35.9% during the fourth quarter. Long Pond Capital LP now owns 4,115,222 shares of the real estate investment trust’s stock valued at $269,259,000 after purchasing an additional 1,086,367 shares during the last quarter. Cbre Clarion Securities LLC purchased a new stake in shares of Taubman Centers during the fourth quarter valued at $176,250,000. Bank of New York Mellon Corp lifted its holdings in shares of Taubman Centers by 71.7% during the fourth quarter. Bank of New York Mellon Corp now owns 1,486,957 shares of the real estate investment trust’s stock valued at $97,291,000 after purchasing an additional 621,136 shares during the last quarter. Finally, V3 Capital Management L.P. purchased a new stake in shares of Taubman Centers during the fourth quarter valued at $84,241,000.

Taubman Centers opened at $52.31 on Friday, Marketbeat Ratings reports. Taubman Centers has a 1 year low of $44.78 and a 1 year high of $66.61. The firm has a market capitalization of $3.16 billion, a PE ratio of 13.80, a price-to-earnings-growth ratio of 3.44 and a beta of 0.53. The company has a quick ratio of 0.47, a current ratio of 0.47 and a debt-to-equity ratio of -21.43.

Taubman Centers Company Profile

Taubman Centers is an S&P MidCap 400 Real Estate Investment Trust engaged in the ownership, management and/or leasing of 27 regional, super-regional and outlet shopping centers in the U.S. and Asia. Taubman's U.S.-owned properties are the most productive in the publicly held U.S. regional mall industry.

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Amgen And Novartis Aimovig FDA Approval Gives First Mover Advantage, Will That Be Enough?

Recently, it was announced that Amgen (AMGN) and its partner Novartis (NVS) had received FDA approval for Aimovig for migraine prevention. This a huge first mover advantage in this arena, which should bode well on getting a good lead against competitors. This should be a good push in revenue for Amgen. That's why I believe that Amgen is a good buy.

FDA Approval

Aimovig was approved by the FDA for the preventive treatment of migraine in adults. This is a good approval, because many currently approved drugs treat the symptoms of migraines. This drug will act to help reduce the number of migraines that are suffered frequently. Amgen and Novartis both have a huge advantage here. They both have the first CGRP drug to be approved by the FDA which means they get a huge lead against competitors. The CGRP stands for Calcitonin gene-related peptide. Aimovig is a monoclonal antibody that is given to patients once a month as an injection. It does not prevent all the headaches that occur, but what it does is it prevents a lot of them from occurring often. There are three other competitors who also have CGRP drugs for the prevention of migraines. These pharmaceutical companies are Eli Lilly (LLY) with galcanezumab, Teva Pharmaceuticals (TEVA) with fremanezumab , and Alder Biopharmaceuticals (ALDR) with eptinezumab. Eli Lilly is not expecting its FDA decision until Q3 of 2018. Teva is expecting its FDA decision in June, however manufacturing issues will delay its launch until 2019. Alder Biopharmaceuticals is only expecting to file for FDA approval before the end of this year.

Aimovig Mechanism Of Action

Aimovig should start out of the gate strong, because of the amount of migraine days it was able to reduce in a clinical trial. A majority of the patients were able to experience 50% fewer monthly migraine days from baseline when compared to a placebo. I must point out that the first mover advantage isn't the only thing that's going to help Aimovig sell well. What else could cause Aimovig to potentially be the treatment of choice? Compared to the other three drugs it has a different treatment action, despite all of them targeting CGRP. Aimovig targets the CGRP receptors in the brain. However, the other three target the CGRP molecule itself. This means if a patient goes through the other 3 treatments I noted above, and don't respond they could try for Aimovig instead. That's the main point, Aimovig's unique ability to target the CGRP receptors themselves differentiates itself from the rest.

Pricing Win

One of the biggest obstacles for Aimovig would have been pricing. That's because a lot of analysts were expecting the drug to be priced between $8,000 to $10,000 per year. Express Scripts (ESRX) and other payers voiced their dissatisfaction for such a price. It appears as though Amgen and Novartis have listened to this criticism. That's because they priced Aimovig to be $6,900 per year. Considering that they both had a first mover advantage in the CGRP space, I feel that they could have priced it higher. However, I'm glad that they didn't. For starters, it would have caused a huge noise in terms of pricing in the pharma industry. The White House has voiced its opinion about drugs being priced too high. Secondly, payers would not have been happy either. What good is it to have an approved drug if it is not going to be backed by payers? That's an important question to ask, and one that Amgen knows all too well about. It is no secret that when Repatha came to market it had a rough time to gain traction in the market because of its higher pricing. Payers weren't willing to pay for a drug priced higher, especially when there were cheaper generic alternative statins. Amgen's Repatha was priced at $14,100 per year on launch. Since then Amgen was forced to include discounts and rebates to lower this price. I have to commend Amgen and Novartis here on getting ahead of this issue, because it will end up paying off in the long run. Sure, profit is going to be lower initially. The truth is though that payers backing the original price will likely make for a better commercial launch. How the pricing of Aimovig will affect sales remains to be seen. However, the downside is that not all patients with migraines will need to take such a drug. I believe that this drug will be very important for those patients who have failed three or more prior therapies. Analysts' expect that sales of Aimovig could obtain $1.2 billion by 2022. Amgen believes that it could obtain up to $81 million in sales for it this year alone.

Conclusion

Amgen and Novartis obtaining the first FDA approval for a CGRP migraine prevention drug is a good first mover advantage to have. However, I believe that Aimovig stands to sell well simply because of its unique mechanism of action compared to others. The risk will come into play as other competitors start to flood the market (should they receive FDA approval). At that point sales could slightly fall, however, I think that Aimovig will still have strong sales since it will be the first of its type to be in the market. Another risk that remains is that pharmacy benefit managers (PBMs) may need to be motivated pay for Aimovig. Amgen and Novartis have done a good job at pricing it lower which might help, but it remains to be seen if PBMs are willing to pay for the cost of this drug for patients. Still, the fact that Amgen and Novartis priced the drug much lower than payers' expectations is a huge positive. For that reason, I believe that Amgen is a good buy.

This article is published by Terry Chrisomalis, who runs the Biotech Analysis Central pharmaceutical investment research service on Seeking Alpha Marketplace. If you like what you read here and would like to subscribe to my Service, I'm currently offering a two-week free trial period for subscribers to take advantage of. My service offers deep dive analysis of many pharmaceutical companies throughout the biotech sector. Come see for yourself if my service is right for you.

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The 5 Best Dividend Aristocrats For The Next 25 Years

&l;p&g;&l;img class=&q;dam-image getty size-large wp-image-849890494&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/849890494/960x0.jpg?fit=scale&q; data-height=&q;655&q; data-width=&q;960&q;&g; (Photo by Daniel Zuchnik/WireImage)

Have you always wanted to buy a safe stock like &l;b&g;Coca-Cola&l;/b&g; and get rich from it like Warren Buffett?

It&a;rsquo;s doable. But most investors &a;ldquo;live in the past&a;rdquo; and fixate on dividend track records rather than a payout&a;rsquo;s forward prospects. And looking ahead is the key to yearly gains of 10%, 15% or even 20% or more with dividend aristocrats.

Let&a;rsquo;s look at Coke, which achieved its dividend royalty status in 1987 (its 25th straight year with a dividend hike). The firm hit its coronation with a head of steam, rewarding investors with a 362% payout hike in just five years (from 1986 to 1991). Its stock price raced to keep up with its dividend, rising 234% over the same time period!

It didn&a;rsquo;t really matter if you bought shares before or after the company was officially a dividend aristocrat. The driving factor for profits was the &l;i&g;dividend&a;rsquo;s velocity&l;/i&g; &a;ndash; it was moving higher quickly, so its stock price followed.

Fast forward to the last five years, and we see that Coke&a;rsquo;s youthful exuberance has slowed considerably. The firm still hikes its payout every year, but it&a;rsquo;s a slower climb &a;ndash; totaling 45% over the past five years. Which means its stock price merely plods along too (+25% in five years).

Why is Coke&a;rsquo;s dividend slowing down? Simple &a;ndash; just look at the top line.

&l;b&g;Shrinking Business is Bad for Payouts&l;/b&g;

It sounds obvious, but income investors often wade so deep into the dividend weeds that they ignore obvious cues &a;ndash; such as shrinking sales.

Let&a;rsquo;s add Coke&a;rsquo;s top line into the last chart, and we&a;rsquo;ll see that the fact that the payout is growing at all is an act of financial wizardry!

Coke&a;rsquo;s top line has &l;i&g;shrunk by 22%&l;/i&g; over the last five years. Which makes its dividend growth quite the feat!

Contrast this with the 1986 to 1991 period, when the company was younger and still growing. It boosted its sales by 30% over that time period.

Of course it&a;rsquo;s possible to grow payouts faster than profits and sales. In fact, this is what often happens with dividend payers. But even the most gifted managers can only squeeze so much in payouts from a shrinking pie. It&a;rsquo;s better to focus on businesses with the winds at their backs.

&l;b&g;And That Can Include Spry Aristocrats, Too&l;/b&g;

In a minute, we&a;rsquo;ll discuss five Dividend Aristocrats that have years and even &l;i&g;decades&l;/i&g; of profitable runway ahead.

Coke&a;rsquo;s future business prospects don&a;rsquo;t pass my taste test. Consumers are turning away from its core product of sugary beverages. The company knows this, and is expanding into other segments such as health and energy beverages &a;ndash; but it&a;rsquo;s forced to pay up for hot products.

(Which is why &l;a href=&q;blank&q; target=&q;_blank&q;&g;I&a;rsquo;m actually worried that Coke could be the next GE&l;/a&g;. It&a;rsquo;s following a similar problematic path &a;ndash; a pricey acquisition binge to patch its leaky sales bucket.)

We&a;rsquo;re better off focusing on companies that are generating sales and profit growth organically. From there, we choose the firms that are financially fit enough to dish an increasing amount of their profits back to their shareholders every year.

That&a;rsquo;s how you buy the best dividend aristocrats, those that will keep their titles for years and even decades ahead. Here&a;rsquo;s a five-pack with well-positioned businesses for 2018, 2028 and 2038 and beyond.

&l;b&g;Medtronic&l;/b&g;

&l;b&g;Dividend Yield:&l;/b&g; 2.2%

&l;b&g;Medtronic&l;/b&g; is a medical device company that has its hands in numerous areas. About 35% of its revenues come from its cardiac and vascular group, a third from minimally invasive therapies, a quarter from restorative therapies and the remaining 6% from its diabetes group.

At the ground level, that means Medtronic makes devices such as insulin pumps, aortic stents, heart valves, electrosurgical instruments, tracheostomy tubes and surgical imaging systems.

The view from 10,000 feet is incredible. Healthcare costs have been rocketing unchecked seemingly forever, and the aging of the baby boomers is only helping to drive up demand for these life-lengthening products. These trends aren&a;rsquo;t stopping anytime soon, with healthcare costs expected to climb 5.5% annually between 2017 and 2026, when they&a;rsquo;re expected to reach $5.7 trillion.

The company&a;rsquo;s most recent quarterly report exemplifies Medtronic&a;rsquo;s continued growth, including a 10% top-line boost from its cardiac and vascular products. Net sales overall were a little slow, growing 1.2% to $7.4 billion, but they did beat estimates. More importantly, analysts expect the bottom line to grow in the high single digits for at least the next five years.

MDT also is generously expanding its dividend, which has grown by 64% since 2014. The company&a;rsquo;s projected profit growth, as well as a payout ratio of about 39% of this year&a;rsquo;s expected profits, means Medtronic should have plenty of ability to improve its dividend in the years and even decades ahead.

&l;b&g;Becton, Dickinson and Company&l;/b&g;

&l;b&g;Dividend Yield:&l;/b&g; 1.3%

&l;b&g;Becton, Dickinson &l;/b&g;is another medical device company that, like Medtronic, spans numerous healthcare needs. Becton&a;rsquo;s product lineup covers areas ranging from anesthesia delivery, diabetes care and cervical cancer screening to infection protection, molecular diagnostics and specimen collection.

It&a;rsquo;s also one of the few companies that can actually claim to have swallowed up a fellow Dividend Aristocrat.

Near the end of 2017, Becton, Dickinson completed the acquisition of C.R. Bard, itself a medical-tech company that specialized in vascular, surgical and oncology products, among others. The deal is expected to &a;ldquo;generate low-single digit accretion to adjusted earnings per share in fiscal year 2018, and high-single digit accretion in fiscal year 2019.&a;rdquo;

As a result, Wall Street is high on Becton, Dickinson&a;rsquo;s prospects for the years ahead. Analysts project average annual earnings growth of 14% for the next half-decade, including a 16% bump in 2018.

Meanwhile, BDX should extend its 46-year dividend growth streak sometime later this year. Since 2014, the payout has plumped up by a healthy 38%, and there&a;rsquo;s ample room to continue considering a meager 27% payout ratio based on 2018&a;rsquo;s projected profits.

&l;b&g;Praxair&l;/b&g;

&l;b&g;Dividend Yield:&l;/b&g; 2.1%

&l;b&g;Praxair&l;/b&g; is proof of the concept that &a;ldquo;boring is beautiful.&a;rdquo;

This is an industrial gases company that produces carbon dioxide, argon and oxygen, among other common gases, not to mention other specialty gases, mixtures and even handling equipment. In fact, Praxair even goes a step further by providing whole management-and-delivery systems, doing everything from cleaning to leak detection to inspection.

The beauty of Praxair is that industrial gases tend to be critical to operations but also a small portion of costs. Meanwhile, the company deals in contracts that are up to 20 years in length, meaning that it has some extremely established customers it can rely on to keep driving cash flow.

At the moment, Praxair is working on asset sales to facilitate its planned merger with German chemical giant Linde Group AG. The marriage should create $1.2 billion in annual cost and capex synergies and efficiencies.

PX is a newcomer to the Aristocrats, joining &l;b&g;Roper Technologies&l;/b&g; and &l;b&g;A.O. Smith&l;/b&g; in 2018 after &l;a href=&q;https://contrarianoutlook.com/10-dividend-hikes-that-will-ring-in-2018-yielding-up-to-9-3/&q; target=&q;_blank&q;&g;notching its 25th consecutive year of dividend hikes&l;/a&g;. Expect it to keep up its membership well into the future, with analysts expecting double-digit annual profit growth for the next five years at a minimum.

&l;b&g;3M&l;/b&g;

&l;b&g;Dividend Yield:&l;/b&g; 1.9%

Yes, I&a;rsquo;m well-aware that &l;b&g;3M&l;/b&g; doesn&a;rsquo;t exactly look like its sterling self right now. After all, the name behind Post-it Notes, Scotch Tape, Thinsulate and Nexcare healthcare products is coming off a rough first-quarter earnings report in which it guided both its full-year organic growth rate and profits lower.

But take heart.

3M shares are now off nearly 14% in 2018 &a;ndash; one of the largest pullbacks in MMM in years. That gives investors the chance to jump into one of the most successful industrial companies on the planet for &a;hellip; well, at just less than times forward earnings, not exactly a bargain, but a more reasonable price than investors have been offered for some time.

3M, after all, offers more than 55,000 products that cover everything from adhesives to dental implements to fire protection to car care. 3M generally benefits from a growing global economy, and its outstanding product diversification means that if one area slumps, &l;a href=&q;https://contrarianoutlook.com/2-dead-money-dividend-aristocrats-to-avoid-and-2-to-buy-instead/&q; target=&q;_blank&q;&g;there are dozens of other categories there to pick up the slack&l;/a&g;.

Despite the Q1 warning, analysts still are expecting 9%-plus annual profit growth on average for the next five years. Meanwhile, MMM just celebrated its 60th consecutive dividend increase &a;ndash; a 16% improvement that keeps 3M among the ranks of the longest-serving Dividend Aristocrats.

&l;b&g;Ecolab&l;/b&g;

&l;b&g;Dividend Yield:&l;/b&g; 1.1%

&l;b&g;Ecolab&l;/b&g; is one of the &l;a href=&q;https://contrarianoutlook.com/the-quiet-dividend-aristocrats-2-winners-2-losers/&q; target=&q;_blank&q;&g;&a;ldquo;quiet&a;rdquo; Dividend Aristocrats&l;/a&g;, serving boring but vital functions while mostly keeping out of the public eye. But while most consumers haven&a;rsquo;t heard of Ecolab, they&a;rsquo;ve certainly benefited from its products.

ECL is responsible for keeping the power on, keeping the water flowing and keeping everything you come in contact with clean.

Ecolab&a;rsquo;s Nalco Water division provides water treatment technologies for large-scale industries such as refining and petrochemicals. This helps companies save money by conserving water and energy, plus keeps them in line with ever-changing environmental regulations, but also helping them save money by conserving water and energy. Ecolab also dabbles in everything from kitchen equipment repair to dishwashing solutions to pool and spa maintenance, for customers ranging from businesses to schools to government organizations.

Ecolab generates more than $1 billion in free cash flow every year, and the company is modeling as much as 16% earnings growth next year, while analysts are looking for a 15% pop. In fact, they&a;rsquo;re pretty bullish on the company&a;rsquo;s prospects even further into the future, with Wall Street&a;rsquo;s pros looking for 13% annual bottom-line growth from now through 2023.

That, as well as a conservative 30% payout ratio, should keep the dividend hikes going well past Ecolab&a;rsquo;s 26-year increase streak.

Disclosure: none

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