A new sheriff’s in town. President Biden’s regime is just now getting started.
What does this mean for investors? What does this mean for our money?
Well, I think you should take some comfort in knowing that high-quality dividend growth stocks have performed well under Republican presidents and Democrat presidents.
I’ve been investing for more than 10 years – that’s now three different sitting presidents.
And my investments have generally done great under all of them. So before you go crazy with your investments, the best thing to do would be to slow down, take it easy, and stick to your long-term plan. That said, I do think there are some dividend growth stocks that look especially appealing with Biden in the White House.
These stock ideas are factoring in things like incoming stimulus, infrastructure spending, a tilt toward green energy, the potential for higher taxes, an aggressive vaccine rollout, and an economic recovery.
Now, these stocks could and should do well no matter what US government is in power. But there’s an argument to be made that they could do particularly well under President Biden.
Want to know which stocks? Let’s dig in.
The first stock I want to talk about is a high-quality US utility business. Why a utility? Well, utilities haven’t really seen their businesses negatively impacted by the pandemic. After all, pandemic or not, we still need electricity to run modern-day society. But what has been impacted by the pandemic is the prices of a lot of utility stocks.
This disconnect between strong business performance and weak stock performance will, in my view, change over the coming year as President Biden continues the vaccine rollout started by his predecessor and investors rethink valuations.
Biden Stock #1: Pinnacle West Capital Corporation (PNW)
I want to highlight Pinnacle West Capital Corporation (PNW).
This stock is trading hands for about $70/share right now. That’s $30/share off of its 52-week high of $100. Yet the business has been barely scathed by the pandemic.
Pinnacle West recently reported $4.87 in EPS for FY 2020. That’s actually higher than the $4.77 they reported in FY 2019. Business up. Stock down. That’s where the opportunity lies.
The stock’s P/E ratio is 15.8 right now, which is much lower than both the broader market’s earnings multiple and the stock’s own five-year average P/E ratio of 19.0. Meanwhile, they operate in Arizona – one of the fastest-growing states in the US.
Plus, the stock yields a monstrous 4.75%.
What’s particularly exciting about a utility stock here is that they operate as pass-through entities insofar as taxes are concerned. Investors have been concerned about Biden’s tax agenda. Well, if Biden raises taxes on corporations, utilities like Pinnacle West will just pass along that higher tax rate to their customers. This is a hedge against higher taxes.
Finally, there’s infrastructure spending and a green agenda. Pinnacle West Capital is already all over this – they recently announced a plan to deliver 100% clean, carbon-free electricity by 2050. That means more spending, which the utility will turn into higher profits and dividends.
Biden Stock #2: Pfizer Inc. (PFE)
The second stock I want to talk about is a healthcare company.
All of those vaccines? Yeah, there’s money there. And there’s talk about those becoming more of an annual thing by way of booster shots. What’s that sound like? Yep. More money.
President Biden hasn’t been shy about his desire to be aggressive with purchasing vaccines and making sure supply is strong. Companies that manufacture these vaccines stand to make a nice profit, which translates into well-covered dividends for shareholders.
A noteworthy idea here is Pfizer Inc. (PFE).
This stock has been in the doldrums, even while the business is doing pretty well. Again, it’s a disconnect leading to an opportunity.
The vaccine story is actually a pretty small part of the business. I think you want to own Pfizer for the long term because it’s a cheap, quality play in the pharmaceutical space.
The P/CF ratio of 13.1 is well off of its three-year average of 14.8. Even if Pfizer weren’t in a position to benefit from the current situation, the stock still looks cheap.
And the stock yields 4.7%. You get to collect that hefty, growing dividend while you wait for the market to appreciate this stock.
The vaccine connection to Biden is just one consideration. There’s also the broader healthcare agenda that Biden could have. Democrats have long aimed to get more people access to quality healthcare products and services.
While that could end up putting pressure on pricing, we also have to consider demand on the other side.
A larger pool of customers means more potential pharmaceutical sales.
And Pfizer would have the chance to turn those higher sales into higher profits, which could lead to higher dividends. I like the sound of that.
Biden Stock #3: U.S. Bancorp (USB)
The third stock I want to highlight is a bank.
A bank? Isn’t that boring? Well, it’s only boring if you like to make money. A bank that’s worth a good look right now is U.S. Bancorp (USB). It’s up almost 40% over the last six months. Not too boring, after all.
This stock’s gone on a tear lately, but it still offers a market-beating yield of 3.4%. And it doesn’t look expensive, with an undemanding P/E ratio of 16.3 on depressed GAAP EPS. The P/B ratio, commonly used to value banks, is only 1.6. That’s still below its five-year average.
So how could this stock benefit from a Biden presidency? Two things to consider.
First, the possibility of increased mortgage origination. This bank remains one of the biggest mortgage originators in the United States. As the continued flight to the suburbs plays out, that’s a profit source.
Also, Biden has mentioned numerous times his desire to get a $15,000 first-time homebuyers credit passed. That’ll surely increase demand for mortgages. That’s on top of the massive stimulus that’s already coming down the pike.
Here’s another potential benefit for this stock.
Rising interest rates. Biden wants to come across as the guy who beat the pandemic for Americans, regardless of whether or not that’s 100% true. As such, his administration is aggressively pushing vaccines, which translates to the full reopening of the economy, which translates to the strengthening of the economy, which tends to translate to higher rates.
This would play right into the hands of banks like U.S. Bancorp that can make more money off of higher rates and more advantageous spreads.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.