2 Low Dividend Yield Stocks on My Watch List

I am getting the itch.  Man oh man am I getting the investing itch.  Lanny wrote about how it has been at least 30 days since he has purchased a stock and that article was written over a month ago!  Guess what, we still haven’t bought a stock since that article was published.  So while the market continues to rise, I have been collecting cash patiently waiting for the right moment to strike.   Q1 earnings are starting to be released and there may be a crack in the armor of a couple of low yielding companies I have been following.   Let’s see which two low dividend yield stocks I have on my radar.

Watch List

First, before I dive into the two stocks that I’m watching, I thought it was worth explaining why this article is focused on low yield dividend stocks.  One of my 2016 goals was to invest in two companies with a yield below 2% to find a better balance between dividend yield and dividend growth.  For years I was focused on accumulating income to get the dividend snowball rolling.  Now that dividend growth rates are stalling (and even receding as all KMI and BBL investors know) and I have a solid base of dividend income, I felt the timing was right to include dividend stocks of all shapes and sizes.  We have touched on this topic before as we created a Top 5 listing for low dividend yield, high dividend growth rate stocks.  So this isn’t a new topic.  I just decided that 2016 was the year of action and I would take the strides necessary to find the better balance.   I’m sure you are tired of hearing the background and just want me to discuss the stocks.  Here are the two I am watching!  Did I mention these earnings releases are hot off the press?

Stock #1:  Starbucks (SBUX) – Yield: 1.3%, 3 YR DGR: 23.74% – Honestly, I have loved this stock ever since Lanny wrote about his thoughts on investing in the company last year.   The culture of the cafes, the brand, and the consumer following stuck with me after reading the article; it was much more intense than I thought or even noticed when I am in the store.   Those are the characteristics that help build economic moats and those are company characteristics that I WANT in my portfolio.  On Thursday, the company released earnings and disclosed that the company missed expectations despite an increase in revenues this quarter.  The company was down in the after-hours market as a result of the miss.  Now, I’m always careful and don’t base a decision on what is happening in the after hours market.  There is a lot of time for analysts and traders to dissect the information and change their opinion after the markets close that day and before the markets open in the morning.  Who knows, after further review SBUX could be trading in the green first thing in the morning?  All I know is that the sharp decrease in the after-hours market  of anywhere between 4% and 6% caught my attention.  Now I will definitely be following SBUX closely in the morning.

Despite the miss, there were several bright spots from the company’s earnings release that has me excited about the future prospects.  The company continues to grow, evidenced by a net opening of 350 new stores during the period.  Further, based on the press release, the company is reaching more new customers and the enrollment in their membership rewards program increase by a double-digit percentage.  The company continues to find a way to expand its footprint and grow its customer base.    In addition to the growth in stores and customer based, the revenues and operating margin continue to grow as well in the key geographic locations of the business such as China.  While results may have missed analyst expectations, the numbers are still strong and the company continues to generate a growing revenue/income stream.

There was on more nugget from the press release that caught my eye, the share buyback program.  “The company repurchased 23 million shares of common stock in Q2 FY16; the company’s Board of Directors has authorized an additional 100 million shares for repurchase under its ongoing share repurchase program. With the additional 100 million shares, the company now has 125 million shares available for repurchase.”  In what seems like forever ago, we covered share buyback programs and how they can benefit dividend growth investors by reducing shares, increasing EPS, and decreasing the payout ratio.  Hypothetically, if SBUX repurchased all 125 million shares, the company could reduce their shares outstanding by nearly 8%.

Stock #2: Visa (V) – Yield: .7%, 3 YR DGR: 19.2% – My favorite success stories of Lanny.  Couldn’t be happier and more jealous of the guy at the same time.   He bought into Visa a long time ago before the stock started climbing through the roof.  I can’t remember off of the top of my head, but he has a pretty insane Yield On Cost (YOC) on his investment.  It has a company I have wanted to own for a long time but haven’t had the right opportunity.  It pains me every time I pull my Visa out of my wallet and swipe it at a store.  Could this earnings release finally provide me with an opportunity to buy?

The growth in the actual numbers is evident when you read the press release and articles reviewing the results.  Net Income, revenues, operating revenue, and transactions all grew during the period.   Visa landed a whale last year when Costco announced that they were ditching American Express in favor of Visa.   I shop at Costco periodically and trust me, there are a lot of consumers and transactions occurring daily in that store.   All positives in my opinion.  What’s dragging the company down is the downward revision of total sales as a result of the current global economic environment.   As a result, the company was down in the after-hours market.

Similar to SBUX above, I consider Visa one of those companies that has a wide moat.  They dominate their industry.  Even better, the industry they own is a key part of everyone’s daily life. It is much more common to swipe, earn cash back rewards, and pay the bill when it comes due that it is to hand over  cash to the cashier.   The after hours markets have not been favorable to V shareholders, but lets wait and see how the stock opens in the morning.

Summary

So there we have it.  Two low yielding powerhouses in their respective industries.  I would love to add both to my portfolio; however, the price has to be right.  These companies typically trade at premiums, for obvious reasons, so I am looking for a nice pullback in price before initiating a position.  Hopefully the after hours markets are telling of the stock’s performance in the subsequent days and I am given a window of opportunity to strike.   There is one thing that is certain though, I will be monitoring the prices on these two stocks very, very closely over the next few weeks.

What are your thoughts on my watch list?  Do you own either Starbucks or Visa?  Are you watching them as well?  Or are there other low yielding dividend stocks that I should be watching instead?

-Bert

DISCLOSURE: I DO NOT RECOMMEND ANY DECISION TO THE READER or ANY USER, PLEASE CONSULT YOUR OWN RESEARCH. THIS IS ACTUAL DATA, ANALYSIS, HOWEVER I BASE NO INVESTOR RECOMMENDATION.  THANK YOU FOR YOUR UNDERSTANDING.

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25 thoughts on “2 Low Dividend Yield Stocks on My Watch List

    • Luckily the after hours market was validated Friday during trading. V didn’t fall quite as much, but it will be interesting to watch to see if the fall continues over the next few weeks. SBUX fared much worse on Friday, kind of crazy if you ask me. Did you buy either Captain?

      Thanks for stopping by!

      Bert

  1. Nice work Bert. We own Visa as a long term holding. I see the stock price is getting whacked this evening. Once I dig through the report, we may buy more. I am not a buyer up around $80, but am looking to start buying again below $70.

    Hope you have a great week!
    -Bryan

    • Bryan,

      I haven’t bought anything yet. Still in the window shopping phase of the investment process haha If V dips below $70, I will be all over it too. Still expensive in my opinion, so hopefully the price pulls back a little more. What are your thoughts on Starbucks?

      Bert

  2. I haven’t bought anything for several months either. Nothing wrong with being patient.

    Those are both very nice choices with excellent growth prospects ahead. And both share prices are getting brutalized by the after hours robots today. Maybe a window of opportunity has opened.

    I have been eyeing SBUX for a while now. Visa just popped up on this month’s watch list for me too (haven’t published it yet…)

    I agree with you; that agreement with COST is a pretty big deal and it’s supposed to kick into gear next month… Speaking of which…COST is another good low yield candidate…They just announced a 12.5% dividend hike last week.

    • Catfish,

      Glad to see that we aren’t the only ones that have been waiting on the sideline here. It sucks and I am growing impatient, but I would rather hold my capital and wait versus buying an over valued stock.

      I couldn’t believe how bad they were getting beaten down in the after markets and how bad it was on Friday. They are still a little expensive, but if this keeps up my hand may be forced.

      Funny story, I was shopping at COST today actually. I have my eye on them. oh trust me, don’t think I let that 12.5% dividend hike slip by unnoticed. Are you planning on buying SBUX or COST??

      Bert

  3. Hey,

    I currently own SBUX as I love the company and see the customer loyalty. I actually haven’t been looking for the right price but instead just contributing $50 a month. As it is currently down a bit after hours, I may put in an order for tomorrow. Visa is also on my watch list and as Captain Dividend mentioned above there may be a good deal around the corner. I originally owned it in the high 60s but silly my sold it. One of the reasons why I started writing was to keep myself accountable. Hopefully prevent this mistake with a company as strong as Visa.

    – The Dividend Mogul

    • Have you found that writing has helped? I like how you are writing with a purposes. Makes each article more memorable. SBUX loyalty is insane. I wanted a coffee today while shopping. At three different locations throughout the city the line was 10 people long. Unreal. V still has a long way to go to hit the 60s and unfortunately, I have a bad feeling that their fall won’t be as hard as SBUXs and we will never get to that mark. But hopefully I am wrong here.

      Thanks for stopping by!

      Bert

  4. Own them both. In fact have SBUX in both my DGI and covered call accounts. Both good, but there are whispers that SBUX’s Evenings concept is not currently meeting expectations. V on the other hand landed COST, owns Authorize.net, owns between 1-9.99% of SQ,and has a business relationship (processing maybe) with SBUX. If the price is right, I’d do V first, SBUX second.

    • Thanks for the advice Charlie. I love V. Great company and as you pointed out, they have a lot going for them. Hopefully the price cooperates with me and it continues to fall. I love how they dominate the credit card industry.

      Are you planning on adding any more to your position? Or are you looking elsewhere?

      Bert

    • V would be a steal here. I’m watching this stock closely over the next few weeks for the right opportunity. The ex-dividend date is may 11th, so we still have a few weeks to make our decision if we are looking to capture the first quarter dividend. I must say, I do love both companies though!

      Bert

  5. Both stocks are not a buy at this moment. If I was an owner I would hold.

    Starbucks = P/E = 33
    A buy at low $40’s

    Visa = P/E = 30
    A buy at mid-high $60’s

    • Valid point Sam. My target for V is below $70 right now and SBUX in the low $50s/high $40s. Regardless, both stocks have a way to go to hit my mark and a lot further to go to hit your mark.

      Thanks for stopping by. Bert

  6. Bert,
    I like your choices especially V. I think all of the credit card stocks are nice buys, and sustainable over a long term. I hope AXP and DFS already and would add either MA or V. By the way AXP is on the fee free Loyal3 if you are looking to expand there. Only downside with V and MA are that they are expensive right now with high P/E ratios. AXP and DFS are friendlier on that and the yield front. Good luck hunting those buys.
    – Gremlin

    • Gremlin,

      Sustainability is the key to me. The market is moving away from cash and more towards online shopping/plastic. Only benefits the big players in the credit card industry. I appreciate the tip, but I’m going to hold off on AXP. Despite the fact that I own one, I am not a fan of the high fees they charge their merchants and how companies like Costco are moving away from them towards other in the industry. Are you looking to buy AXP or DFS instead?

      Bert

  7. Starbucks reported a great quarter with earnings and revenue growth that almost any other company would love to have. Analysts expected a very slightly better quarter, and the market overreacted and took the stock to near its February lows. I’m buying at the open on Monday, but hoping for another opportunity to buy on weakness if there’s an analyst downgrade in the next week or so.

  8. Hi,

    coming back to Visa – wasn’t it sure few years ago that card payments will significantly grow? Yes it was. The case is that almost no one invested because such growing companies are always expensive and low yielding (it is hard to forecast how fast market will grow). The same is/was true for biotech companies. The key question is which trends will develop in future? Now e-commerce is quite sexy topic – I think that potential is not finished.

    What else? Wearable devices? Business with exposition on aging population?

    What do you think?

    Best regards,
    DividendTIME

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