First of all, I want to take the time to wish everyone a Merry Christmas. Today is such a great day as you get to sit down with family, share stories, exchange gifts, and spend some time catching up with each other. Hopefully everyone is having a relaxing, special, day off. I know Lanny and I are. A few days ago, I published my 2016 goals article and I have been inspired over the last few days to find some great dividend growth stocks to add to my portfolio. After all is said in done, there have been two stocks recently that I keep coming back to and wanting to add to my position/initiate a position in my portfolio. Here is my December Watch List everyone!
The Watch List
1. Archer-Daniels Midland (ADM)– ADM has taken a bloodbath in 2015 and has been scooped up by a lot of different individuals in the dividend growth community. Heck, it isn’t like I need to go far to find someone who has taken advantage of the downturn recently as Lanny purchased shares earlier in the month. Despite the tough year, ADM sports some impressive metrics that have flown this stock onto my radar. The current P/E ratio is below 12X (Way below the current market), the dividend yield is over 3% which is over 100 bps higher than their five year average yield (as Lanny pointed out in his purchase article), and the three-year dividend growth rate is ~17%! Again, very impressive figures. ADM is set to announce a dividend increase in February and I would like to increase my stake in the company before this announcement. I must say, I am a little skeptical that the dividend growth rate will remain in the teens considering the company’s recent performance and the KMI experience that we all shared. One of the things that I love about ADM is that the company appeared in my Top 5 Dividend Aristocrats with a Low Debt to Equity ratio screener that I ran earlier in the month. So unlike KMI and their dividend cut, which had a heavy debt load that impaired the company’s ability to pay/grow their current dividend, I feel pretty good about ADM’s ability to increase their dividend in February. I’m expecting a pullback in the growth rate, not the dividend. In this environment and all other things considered, that is okay with me! One other thing I forgot to mention, I purchased shares of ADM way back in April of 2015 and I am staring a 21% loss in the face. Purchasing shares in ADM would allow me to reduce my cost basis and capitalize on this downturn. Very, very, appealing if you ask me!
2. Target (TGT)- This stock has been on my mind a lot recently and it always reminds me of the holidays and my fiance. My fiance is a loyal Red Card holder and we have made many trips to Target over the last month as we grocery shop, purchase presents, and just aimlessly wander the aisles using Cartwheel to score as many discounts as possible. Similar to the emotional attachment that many customers have with Starbucks, I feel that way with Target and the store will forever remind me of my fiance. I know investing on sentimental value can be dangerous and luckily for me, the company’s metrics and valuations back it up! Last week, Lanny performed a stock analysis over the retailer so I won’t spend too much time going over the metrics in this article. If you want more detail about the company, please check out his article! Here are some of the highlights: TGT’s yield is just over 3%, a payout ratio just below 50%, a P/E ratio of ~15X which is below the broader market, and has a dividend growth rate of 20%! Similar to ADM…impressive figures. The one argument to be had against TGT is that Walmart appears to be trading at a steeper discount that Target at the moment, so Target is not the best option if I am looking to just find a stock that is trading at the lowest multiple. I understand that argument and my response is that both companies are trading at a lower multiple than the broader market and therefore, both companies pass the first metric in our stock screener. What puts TGT ahead of WMT is the dividend growth rate and the fact that TGT is considered one of my 5 “Always Buy” stocks, so I have the chance add a company that I have already identified as one of my Top 5 to my portfolio at a discount to the market. Sounds like a great plan to me. Plus, if I were to invest in Target, it would be a new position in my portfolio and one of my 2016 goals is to add 5 new Dividend Aristocrats to my portfolio. Selecting TGT would allow me to begin making progress on this goal right out of the gate in 2016.
What do you think of my watch list? HAve you purchased shares in ADM recently? What about TGT? Would you select TGT over WMT or vice versa? Are there any other stocks that you are watching that you think I should consider as well?
Happy Holidays everyone!
Bert