Lanny’s February Stock Watch List

Needless to say, the stock market has been a “mean green” this past week and man, the buying opportunities are drying up and fast!  It feels like it was just yesterday that we were battling low oil prices and other commodity fluctuations, that was ultimately causing the entire market to head south for the winter.  Then, the curveball of the green machine of the stock market kept roaring this week and was breaking some ground – even with some of the major macro economic factors still in play.  I can’t make much of it, but I do have a watch list of stocks that I have my eyes on.  Come check them out!

Watch List

The Criteria for stocks on my Watch list

To begin, I wanted stocks that had multiple years of consistently raising dividends, that’s a no brainer, especially with my recent article of the BBL dividend cut, as well as my latest purchase into T. Rowe price, where I bought 47 shares and added over $100 to my forward dividend income.  Companies that pay these increasing dividends are an EASY green check mark, though sometimes not always followed…  The next criteria I will want is a well-known company, those that are top players in their industry, and you can even insert the Cheers theme song… “where everyone knows your name…”.  You got it, I want that type of company.  Further, with the S&P trading at approximately a 22.06 P/E ratio, I want something no doubt below that and more specifically below 20.  Further, I want a yielder higher than 2.5% with a growth rate at or above 5%.  Those are my valuation metrics, which fall in line with the dividend diplomat stock screener.  Let’s add a payout ratio of below 60% for good measure.

The Stocks

1.) Pfizer (PFE) – taking a page out of Bert’s book from his monthly watch list and large purchase into Pfizer (PFE), they are on my watch list.  Why are they on my watch list?  Well… YTD they are down 8% as of the close on the 4th of March.  They are one of the most well known pharmaceutical companies in the world.  Market capitalization of almost 200B.  Additionally, they were my first ever real stock purchase back in 2010, where I picked them up at $14 and change, which they are now trading at $29.70.  I haven’t made a purchase since then, but have more than 12 shares via dividend reinvestment, and I’d love to have more.  They are yielding at approximately 4.04%, which is currently higher than my overall portfolio yield AND that dividend growth rate has been steady and strong at 7%+ for multiple years, which is also higher than my weighted average dividend growth rate currently.  Additionally, I’m calculating a payout ratio of approximately 52% with a P/E of around 13.  Bottomline – this fits everything: P/E, Payout Ratio, Yield, dividend growth rate, well known company.  #1 on my list for a reason right?   A potential $3,000 large investment could be on the horizon here!  A $3,000 purchase would add 101 shares and over $120 to my forward dividend income, what’s not to like?

2.) Johnson & Johnson (JNJ) – Ah… what is not to love about our buds JNJ.  They are the definition of a dividend aristocrat and always sit #1 in my heart for a dividend stock to invest into for a foundation in your portfolio.  Love them.  Hard to find a good price, but love them.  Why are they on the list?  So well known, that’s a given.  Their metrics per my calculations are a P/E of 16.72, payout ratio of 47%, a yield of 2.82% (higher than the S&P), the most consistent dividend growth rate of approximately 7% year after year and I’d love to make this a bigger investment in my portfolio.  Did I mention they are a dividend aristocrat? Yep.  I think, since I own quite a bit (I’ve invested at my cost of $4K approximately here), an investment of $1,750 at $3.95 trading cost on a Tuesday (capital one share builder program) would make sense here.  $1,750 investment would add almost 16.5 shares and produce almost $50 extra in forward income, not too shabby.

3.) Aflac (AFL) – The big old insurance company.  Reason why this is sitting third, for the record, is out of the 3 here, this is by far my largest position, where I own over 105 shares of the quacker.  I have contributed approximately $5K overall into this bad boy and am not looking to make my new-found large investments strategy at play here.  They currently yield 2.69% (higher than the S&P’s 2.17%), have a P/E of approximately 9.67, payout ratio of 26%, with a very steady dividend growth rate of 5%+.  Further, they are a dividend aristocrat and their financial statements, I believe, set themselves for not only for protection on the dividend end, but still plenty of room to always raise that dividend, hence the aristocrat title.  I would perform a similar investment here of $1,750 potentially to add almost 29 more shares and produce approximately $47 more in forward income.  

Stock Watch List Summary

There we have it!  One company where I can pick up over 100 shares and add over $120 in dividend income based on current metrics, whom they have the best yield to growth rate combination of the 3 listed above, that being Pfizer (PFE).  However, making consistent contributions to JNJ and Aflac does not seem like an issue either, as I can see myself doing that over the next 60 days.  That’s the other kicker.  Their ex-dividend dates are all approximately 60-75 days and there is much time to grab them before their 2nd quarter dividend.  I have time on my side here, but as of right now – these 3 companies are where my eyes are lined up.  3 big behemoth of companies, very, very well known, great dividend metrics and history to back them as well.  I’d love to buy all 3 if I had the capital, that’s for DAMN sure.

I am curious, though.  For the readers – based on the 3 listed above – which do you like?  PFE, JNJ or AFL?  Do you like PFE because of the slightly higher yield?  Do you like JNJ because they are a very good foundation stock?  Or do you stick with AFL because of the extremely low payout ratio?  I know individuals have different reasons, but I’d love to hear yours.  Also – do you already own any of the 3 or all of them?  I would love to know!

Thanks again everyone, hope you all had a great weekend, have enjoyed collecting your dividends from February and that you are looking to have a great finish to the first quarter!  Bless everyone and cheers!  Talk soon.

-Lanny

15 thoughts on “Lanny’s February Stock Watch List

  1. Tough choice. All three of those companies are great. I personally own AFL and JNJ. I don’t own PFE, but am otherwise heavily exposed to healthcare, including positions in AMGN, GILD, BAX/BXLT, and INO.

    Of the three, I’d be inclined to buy PFE. Great dividend, as you mentioned, but you’re also able to pick it up at a discount from last year.

    You can’t go wrong with any of them, however. No wrong pick there!

    Scott

    • Scott,

      You really can’t go wrong; all 3 are beasts.

      Definitely a more discounted price on PFE; it’s tough. Obviously a lot more green in the market recently – need to just make decisions on what we know today, right?

      Thanks for the post – I’d buy all 3 if i had all of the capital, that’s for sure!

      -Lanny

  2. All three of these stocks made my watch list this month too.

    I assume you’re using “forward P/E”? PFE’s current P/E (~26) is quite a bit higher than the S&P and its own average over the last 5 years (20.2 according to M*). The forward P/E is for FYE Dec31 2017? I don’t trust the analysts to be able to project that far out. Of course that said, I don’t put too much stock in P/E anyway as GAAP “earnings” can be affected by an awful lot of things that have nothing to do with the dividend. Cash flow is much more interesting to me, and PFE’s looks pretty good. JNJ and AFL are in even better cash shape, but then the yield is juicier in absolute and historical terms for PFE.

    All very solid choices. If you’re stuck on adding to one of those three positions, I would vote for PFE since it represents the smallest weighting in your portfolio, plus…juicy yield. Juicy but relatively safe, which is the best kind.

    • Thanks Catfish,

      I like to go to TheStreet.com and use their EPS expectations on a going forward basis, given the # of analysts that put their heads together, right?

      Cash flow is more interesting, easily. See the movements, ending cash, what’s driving the change, etc., is always very important.

      Nice, nice – another vote for PFE eh? Safe, juicy and smaller position. Decisions, eh?

      -Lanny

  3. I’ve been thinking about stocking up on some oil stocks in particular BP, XOM and CVX. The dividend yield on these businesses are between 6 and 8% and while the dividend payout ratio is high my analysis shows that they have enough in reserves to keep the dividend steady for the next few years until oil prices bottom out and start to rise. What do you think about these stocks which are part of the Dividend Aristocrats group?

    • Shobir,

      I know quite a few just loading on the oil & Gas, I think it’s actually paying off. The yields are out of this world – but if oil prices plunged below $20 – could be dicey. Safest play for you is XOM, for sure.

      I would do XOM, CVX and tip toe on BP. Thoughts?

      -Lanny

  4. I think for the long run, JNJ is your best option and seen as you are such a young investor and you want your investments to last the longest, I’d go for JNJ.

    Good luck with whatever you choose 🙂

    Tristan

  5. Those three could fit in pretty much any core dividend growth portfolio. I tend to prefer JNJ (maybe because I hold it!) because of its solid base and multiple billion dollar brands. I’ve never get around insurance companies… I just can trust them 😉
    Invest in what you know and understand!
    Cheers,
    Mike.

    • DivGuy,

      Here is the question – if you had $3K and looked at all 3 on the same field/i.e. today’s prices – you would buy JNJ then? And yes.. their brands are phenomenal.

      Thanks Mike – agree on “invest in what you know”; all day.

      -Lanny

  6. Good picks Lanny. I own all three- PFE since 2008. I’ve been eyeing PFE recently as it’s lagged the market. Instead of adding PFE though, I’ve ended up adding Allergan (AGN) within the same account. Assuming the PFE-AGN deal goes through (obviously not a certainty, but looking likely), I get PFE shares at a pretty good discount. Will continue to monitor potentially add to one or both on weakness.

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