Quarterly earnings season can be hit-or-miss as companies unveil their earnings to an eager and voracious market. Indeed, profitability is one of the most crucial metrics for a company’s ability to grow. As one might expect, sell-offs and price hikes are quite common during earnings season due to knee-jerk reactions. Massive selloffs are not limited to megacaps and can affect companies of various sizes. This allows eagle-eyed investors to buy sold-off quality stocks—like Dividend Aristocrats—at steep discounts.
Dividend growth notwithstanding, we still need to figure out if the Aristocrat’s dip in price is deserved and if investors can still uncover some value from them. And since past results do not indicate future growth, it’s best to look into current and future metrics. In this article, we will look at three Dividend Aristocrats who experienced a sharp decline during their earnings announcements and opened a potential for dividend growth investors to pick them up while they're still cheap.

3M Co (MMM)

3M Company is one of the biggest names in dividend investing, boasting a 65-year-long increase in dividend payments. The company operates in various industry segments: Health Care for medical solutions and health information systems; Consumer for braces, bandages, and home improvement products; Transportation and Electronics for its automotive and electrical solutions; and Safety and Industrial for abrasives, adhesives, and personal safety products. MMM has always been at the forefront of advancing technology for society’s benefit. Its latest technological marvel is its new self-charging protective communications headset that can convert solar and artificial light into clean energy. The headset also helps promote sustainable long-term use of electrical products and waste reduction due to its use of recycled materials.

3M saw a sharp price drop right around the date of its Q4 earnings call. The results were not pretty; sales fell flat YoY, and litigation fees took a massive bite out of its full-year bottom line. On the bright side, Q4 EPS beat earnings estimates by 4.76%, and while the company is anticipating a soft start for 2024, it’s still confident that it can deliver $2.00 - $2.15 EPS by the end of the first quarter. As such, we believe this price drop is an opportunity to start watching MMM as a potential long-term stock with a high dividend income. 3M recently announced a $1.51 dividend for Q1, payable on March 12, 2024.

McDonald’s Corporation (MCD)

McDonald's Corporation is among the most iconic names in the food industry. The company operates globally as a fast food chain that serves a main menu of hamburgers, cheeseburgers, the Big Mac, Quarter Pounder, and french fries. Throughout the years, MCD has acquired and partnered with several brands to expand its offerings; some notable brands are Krispy Kreme, Domino’s Pizza, and Chipotle. Additionally, McDonald's has seen some success in real estate operations, with the segment being one of the biggest contributors to its earnings. Interestingly, the company has jumped on the AI bandwagon by announcing a strategic partnership with Google Cloud to apply generative AI to its restaurants worldwide. 

On February 6, 2024, MCD dropped to its short-term low after almost $300 the previous month. This short sell-off happened after sales increased by 3.4% but missed expectations, primarily due to the war in the Middle East. But looking closely at the big picture, the company's performance shows an 8% boost in consolidated revenues in the fourth quarter. Diluted earnings per share also grew by 8% YoY. 

This price drop might be a rare opportunity to buy into MCD and capture the resumption of its trajectory. Its 47-year streak of increased dividends is one more reason to buy, and an upcoming $1.67 dividend will be paid out on March 15, 2024. 

Aflac Incorporated (AFL)

Aflac Incorporated is a recognized provider of supplemental insurance in the United States. Its products are mainly offered in the United States under the American Family Life Assurance Company of Columbus (Aflac) and in Japan under Aflac Life Insurance Japan Ltd. (ALIJ). Its offerings include coverage for medical and income support insurance, disability, accident, cancer coverage, work leave insurance, and other medical and non-medical costs. The company has a long-standing positive reputation and has received Fortune’s Most Admired Companies for the 23rd time on February 24, 2024. 

AFL recently experienced a sharp decline after Q4 results missed expectations. While total revenues of $3.8 billion for the 4th quarter were slightly lower than the previous year’s, net earnings were still higher at $268 million, or $0.46 per diluted share, compared to last year’s $196 million, or $0.31. Despite investors’ reactions, analysts like Raymond James and Citigroup are still optimistic and have raised their target price estimates. The company also declared a 19% dividend increase, highlighting its commitment to long-term shareholder value. AFL has consistently increased its dividend payouts for the last 42 years, making this price dip an excellent opportunity to get this Dividend Aristocrat on the cheap. 

Final Thoughts

Earnings season is one of the best times to capitalize on the market’s kneejerk reactions and pick up quality companies at steep discounts. However, investors need to understand why the market sold the stocks and if the reason is justified. Prices may look cheap, but its underlying story may tell it differently.

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