Thinking like a contrarian can sometimes be a crucial part of investing profitably. To be clear, that doesn’t mean you ignore reality. It just means that you’re willing to look beyond the obvious narratives based on the last few trading days, and instead look to what the future holds.
Right now, we’re at an interesting point in the stock market that lends itself to contrarian thinking. On one hand, the last several months have all given us ample proof of the risks on Wall Street – inflation, rising rates and volatility. But looking forward, the narrative may be changing.
July Inflation was flat month-over-month as measured by the Consumer Price Index. Also, 30-year mortgages have started to roll back after briefly hitting 5.8% in June, their highest levels since 2008. And of course, the S&P 500 is up more than 17% from its summer lows.
There are no guarantees that it’s all blue skies from here on out, of course. But if you’re still pessimistically hiding in cash or stubbornly refusing to look for new opportunities, you may be missing out on a great big world of opportunity right now.
To illustrate just how much things have changed from the dark days of spring 2022, let me give you a truly contrarian recommendation—small-cap home furnishings retailer Ethan Allen Interiors Inc. (ETD). This kind of investment is far removed from the low-risk stocks that outperformed earlier this year, but as you’ll see it has all the qualities you should look for in an MVP dividend stock.
MVP Stocks: Outstanding Management, Valuation and Payouts
When looking for stocks that will outperform in any environment, I focus on three key factors:
- Strong management, with a strategy focused on long-term returns and not short-term fads
- Attractive valuation, so new investors can be sure they’re getting a fair price
- Generous payouts, which show a commitment to returning capital to shareholders
Ethan Allen may not be the first name on your buy list, as it’s a consumer discretionary stock that’s valued at less than $700 million. But a closer look reveals it has a lot to offer across these three factors.
Let’s start with management. Over the last few years, ETD has embarked on an ambitious “vertical integration” strategy that now results in 75% of all its furniture being designed and manufactured in its own North American workshops. Outsourcing can keep costs down, but gives firms less direct control over quality. Worse, in this age of chronic supply chain issues it also means less reliable deliveries and production.
An in-house approach has allowed Ethan Allen to stand strong even in a challenging environment for its peers. It also allows it to offer custom options and provide white glove interior design service that competitors simply can’t match.
Now let’s turn to valuation. Based on profit forecasts for the coming fiscal year, Ethan Allen has a forward price-to-earnings ratio of about 6.2 at present. The forward P/E for the average stock in S&P 500 is more than 18, almost three times that at present!
There admittedly aren’t a ton of publicly traded furnishing stocks that are perfect peers of Ethan Allen, but the closest comparable companies also show ETD is a deal at that valuation; $1.3 billion furniture retailer La-Z-Boy Incorporated (LZB) has a forward P/E of 9.3 or so at present.
Lastly, let’s look at payouts. Ethan Allen is unique in that it dishes out a major payday each year. But not only are the payouts at ETD growing even bigger, but the smaller distributions are also rising too.
Consider that in 2018, ETD paid 50 cents per share in its January dividend followed by 19 cents for the next three quarterly distributions to tally $1.07 in full. Though it briefly paused payouts during the pandemic, the total distributions in calendar 2021 hit $2.79 per share!
Admittedly, it’s hard to predict how generous the big special payouts will get. But the company layered on an extra 50-cent special dividend in August just because its latest results were so strong. And with full-year earnings projections of more than $3, these additional payouts could continue to trickle in above the standard distributions.
The icing on the cake is that this consumer discretionary stock is one of the rare companies in the sector sitting on a small year-to-date return in 2022 – thanks to a phenomenal gain of more than 40% since the end of June. With a history of strong management and generous dividends, that short-term momentum has put ETD stock back within spitting distance of a new 52-week high. That should give investors plenty of confidence in this stock as we charge toward the end of the year.
Embrace the Contrarian Outlook for Outsized Gains
I’ll admit that a small-cap furniture company doesn’t sound like the kind of groundbreaking investment most traders are looking for this summer. But sometimes, it can pay off to think differently.
That’s what we do here at Contrarian Outlook. We look beyond the standard blue chip stocks and index funds to find out what’s really working on Wall Street.
It sometimes takes some thinking to wrap your head around these opportunities. For instance, back in July I detailed another “MVP” stock in this column via automaker Stellantis (STLA). That call seemed downright crazy to some investors at the time, but my thesis seems to be holding up as shares have rallied more than 25% in less than two months.
Most importantly, however, is the strong outlook for future dividends in this stock. After all, we’re not gambling like day-traders here – we’re building a portfolio that will pay us back for many years to come.
These are the kinds of stocks that make up our “Perfect Income Portfolio”, a list of stocks that deliver at least 4X the dividends of the typical S&P 500 stock but currently trade at attractive valuations with strong long-term outlooks.
This portfolio is designed to protect your hard-earned nest egg, and ensure you get paid consistently, predictably and reliably over the years to come.
Best of all, you don’t have to be glued to your smartphone or trading constantly to get ahead. Our strategy is incredibly selective in its recommendations, and is designed to reward patience instead of relying on risky, active trading.
The “Perfect Income Portfolio” isn’t for everyone, of course. You have to ignore a lot of the flashy headlines and instead try to think like a contrarian.
If you’re tired of underperforming in the same old blue chip stocks, or if you simply feel like the market is starting to get its mojo back and want to capitalize on a strong end to the year, then take advantage of our special risk-free offer today. You’ll get an exclusive 60% discount and be protected by our money-back guarantee, along with receiving several FREE bonus gifts.