The holiday spirit is in the air and we are closing in on the end of 2018. With Lanny serving a healthy dose of inspiration by sharing with all of us that he crushed a major dividend investing milestone ($12,000 in annual dividend income, aka $1,000/month), I’m as motivated as ever to continue investing as much capital as possible into income producing assets. So today, I sat down and put together my initial December dividend stock watch list. There are a handful of companies on this listing, so lets dive right in!
For each of the companies on my dividend stock watch list, I will run their current metrics through the Dividend Diplomats’ Dividend Stock Screener. Our simple, three-step screener evaluates if a company’s P/E ratio is below the market, their payout ratio is below 60%, and if the company has a history of increasing their dividend. For each company, I will use the closing price as of 12/14/18, average analyst EPS per Yahoo! Finance, and the companies’ annual dividend.
Dividend Stock #1: United Parcel Services (UPS) – UPS. My last purchase. I recently published an article discussing how I added 10 shares of the delivery/logistics giant. In my purchase article, which used a share price of $105/share, the company passed all three metrics of our screener. The company had a P/E ratio of 13.4X, 46% payout ratio, and I discussed the company’s history of paying an increasing annual dividend since 1999 (with one year where the company maintained their dividend during the financial crisis. At the time of this article, UPS’s share price was $98.66/share. The updated P/E ratio is lower as a result of the price change, and thus, UPS still passes our stock screener. It only makes sense to keep UPS on this list and continue adding if the price is right and I can lower my cost basis.
Dividend Stock #2: The J.M. Smucker Company (SJM) – Smuckers is the one consumer-staple company that I am always coveting, but have never actually purchased shares in the company over the years. They are a local company and have some of the best consumer brands (Jif, Smuckers, Folgers, Crisco, Pillsbury, Milkbone, etc.) that can be found nearly every household. When the company’s stock price gets close to or falls under the $100/share mark, I instantly add the company to my watch list.
Based on the results of our stock screener, SJM is considered undervalued. Using the 12/14/18 share close price of $101.91/share, the company’s P/E Ratio is around 12.69X, the company’s dividend payout ratio is 42.3% ($3.40/$8.03), and SJM has increased their dividend annually since 2002.
Despite the fact the company is undervalued, the reason I haven’t ran and purchased SJM yet is because I already have a nice weighting of consumer staple companies in my portfolio already (Kraft and Pepsi, for example). UPS, my last purchase, represented a new industry in my portfolio and the others on my watch list will add to a sector that is underweight in my traditional portfolio. But these metrics were looking great at the moment and I couldn’t ignore SJM at the current valuation. Hence, they are on my dividend stock watch list.
Dividend Stock #3: AbbVie, Inc. (ABBV) – Back to the well once again, eh? In November, I initiated a position in ABBV. I only own 7 shares of the large pharmaceutical company. I am far from a full position and would own at least 25 shares one day. My initial purchase price was $85.62/share. At the time of my purchase, the company’s P/E ratio was below 11X, their dividend payout ratio was 53.8%, and I discussed the company’s ridiculous recent dividend growth rate. Ultimately, I was comfortable with the company’s dividend history since their spin-off in 2013. At the time of this article, the company’s share price was $85.61/share and there were no changes to their average EPS or dividend. The results of the stock screener are essentially the same. Thus, ABBV still passes our stock screener and I’d love to continue building my position if the price continues to fall and even drops below my initial purchase price.
Dividend Stock #4: Major Integrated Oil (XOM, CVX, RDS.A) – There isn’t one specific company on this listing, so this may be considered a “cop-out” dividend stock to add on my watch list. But armed with free-trades for a few more months, I have the luxury of making small purchases without incurring a $3.95/share trading fee. In my traditional portfolio, I own 25.3 shares of Royal Dutch Shell, 11.1 shares of Chevron, and 15 shares of Exxon Mobil. Surprisingly, my weighting is pretty light for major integrated oil.
Each of the companies listed above meet the metrics of our stock screener. Of the group, XOM has the higher multiple while Royal Dutch Shell has the highest dividend yield. Although, RDS has not increased their dividend for several years. After performing some research, the company has worked to clean up their balance sheet. The current oil market has been crazy, to say the least. We have experienced wild swings in the price of crude oil and as a result, the major integrated oil companies have experienced wild swings in their stock price. If one of these companies experience a major decrease, I will add to my position with a small purchase or two.
What are your thoughts about the companies on my watch list? Do you agree or disagree with any of the names included? If you are not watching any of these companies, please let me know why and what companies are watching instead. Also, which oil company would select from the bunch?
Bert