Earlier in the week, I crossed a big investing milestone….crossing $3,000 in forward dividend income. It took me 15 months to jump from $2,000 to $3,000 and at the end of the article, I challenged myself to hit the next milestone in half the time. To get there, I better get moving quickly. What’s the best way to increase your dividend income? Not a trick question here, but purchase stock! I thought it would be a good idea to do some research this evening and put together a small watch list of stocks that have caught my eye. Here it is, my August stock watch list.
Now, I know there are a lot of great stocks out there and Lanny’s August stock watch list feature 3 great stocks as well. So obviously I can’t cover them all in the article. Please share the wealth and spread your watch list in the comment section. But here are three names that I am monitoring. The figures below were calculated using the 8/25/16 closing prices (Quick note…it is my sister’s birthday today!).
Stock #1: Cardinal Health (CAH) – This mega-player in the medical services and medial distribution company came on to my radar recently. Headquartered in our home-state, Ohio, would represent a new industry in my portfolio (which is always a plus). CAH has increased their dividend for 11 consecutive years and while they aren’t a Dividend Aristocrat yet, they are slowly and surely making their way towards that mark. CAH’s dividend yield is ~2.25% at the moment and their 3 and 5 year average dividend growth rates are 13.8% and 15.1%, respectively. Recent history has seen dividend growth rates decline, so it would be nice to add a company that has a nice balance of yield and double-digit dividend growth. Further, the fact that they are a major player in the medical industry (which is only getting larger) has me optimistic that the company can continue to sustain their growth over the long run. CAH is also down 10% YTD, which has pushed their P/E Ratio below the market’s. If the stock continues to fall, I may just have to act and initiate a position.
Stock #2: Flower Foods (FLO) – The darling of the dividend growth community recently. FLO’s recent downturn shouldn’t be a surprise to too many people at this point, so I won’t elaborate on it too much. The company is facing low growth and has a DOJ inquiry that is looming. With that being said, the company is a consumer staples company (which I love) that has a product portfolio that can be found in many, many households and announced a new expense reduction plan to help offset the impact of lower sales growth. Similar to CAH, the company has a consecutive dividend increase streak that is in the teens, so it is well on it was way to becoming an Aristocrat as well. The payout ratio is slightly higher than the 60% threshold we use in our stock screener, but at 67%, I wouldn’t say it is an alarming ratio. Would definitely consider waiving this threshold if I could be convinced enough otherwise. Down 28% YTD and a P/E Ratio that is well below the current market, I am having a hard time laying off this stock. The ex-dividend date is coming up on 8/31/16 (my wife’s birthday!), so I better decide quickly if I want to capture the Q3 dividend.
Stock #3: Wal-Mart (WMT) – Woah, woah? Am I crazy here? Didn’t I just purchase more shares of Target after their recent earnings release? Well, hear me out here. Despite the fact Wal-Mart’s price increase after their recent quarter, their metrics still pass the Dividend Diplomats stock screener. Further, WMT is a Dividend Aristocrat and also announced a nice share buyback last quarter. One of my goals for the year is to invest in five new Dividend Aristocrats…so initiating a position in Wal-Mart would help push me closer to achieving this goal. For many of the reasons I like Target’s business model, I like Wal-Mart’s just as much. The Jet.com acquisition is an intriguing acquisition and could potentially be a game changer for the company as it looks to take on the all mighty Amazon. Further, Wal-Mart is not only a major player in major cities, but has a dominant presence throughout the country in less populated cities and towns. The company’s footprint is massive, so adding a website like Jet.com and the footprint they have amassed is an exciting/intriguing proposition to me. I wouldn’t mind owning the two major players in the industry and I don’t think it would be a bad overlap in my portfolio, so I am keeping my eye on WMT to see if there is a pullback in the coming weeks.
There it is, my August stock watch list. Three very, very different companies. Plus, I am unofficially adding TROW and PFE, which were on Lanny’s stock watch list. What are your thoughts on the three companies? Are you watching them? What companies are on your radar? Would you pass on investing in CAH, FLO, or WMT for any reason?
Bert