I cannot believe I am about to say this, but here it goes. For the FINAL time in 2017, I am going to take a deep dive and prepare a watch list full of dividend stocks that are on my radar because they are potentially undervalued. This market is as expensive as ever and the S&P 500 continues to soar to new highs. So finding great dividend stocks that are currently trading at a discount was definitely a challenge. However, I was able to find three stocks that have caught my attention. Let’s dive in and take a look at the final 2017 edition of my dividend stock watch list!
Stock #1 – Cardinal Health (CAH) – Doesn’t it seem like CAH has been on all of our dividend stock watch lists since August? Well, it sure has felt like that for me. Despite the fact that CAH has had a strong month of December (up 11% this month at the time I am writing the article), the company STILL continues to pass all the metrics of our stock screener. Their current and forward P/E ratios are below the broader market, their payout ratio is below our 60% threshold, and well, you don’t earn the title of “Dividend Aristocrat” if you aren’t willing to increase your dividend. My position is large compared to others in my portfolio, but adding to my stake will still lower than my cost basis.
Stock #2 – Archer-Daniels Midland (ADM) – This is a holdover from my November dividend stock watch list. A Dividend Aristocrat that is a relatively small position in my portfolio that is currently trading at a discount. HECK YES it is on my watch list. Their P/E ratio is around 19X, payout ratio below 60%, and the company has increased their dividend for over 40 year. Plus, they are set to increase their dividend once again in February. I still have plenty of time to consider making a move given the fact that their ex-dividend date has passed and will now roll around again until February.
Stock #3 – HCP, Inc (HCP) – WOAH. Finally, it has been a long time since HCP has appeared on my watch list. I have been in “wait and see” mode ever since the company’s QCP spin-off. While I have experienced a roller coaster ride with HCP, I have felt more confident about investing again in HCP. After thinking about it, my positive thoughts are probably centered around the fact that HCP spun-off their problem-child division/tenant when QCP was formed. In the company’s third quarter earnings release, we read some positive news: positive FFO, debt paydown, small acquisitions, and a few other pieces of great news. I’m still looking to see if the company is going to increase their dividend soon. Their adjusted FFO was $.48/share, so the company’s payout ratio is below 100% when using the adjusted FFO figure. But if their price remains in the mid-$20s/share, I may just have to add to my position.
Notice one company that is not on my dividend stock watch list for December: CVS. It is a company I am monitoring closely now that the companies have agreed to the terms of their merger agreement. However, now that management has halted their dividend, I am going to look elsewhere for the time being. If the price falls drastically, I’ll quickly consider adding to my stake. But it isn’t on my watch list right now because that price point is much lower than their current price.
Outside of excluding CVS, I’m pretty happy with my watch list. Three Dividend Aristocrats (depending on how you classify HCP after their spin-off). What’s funny is that I actually own all three companies on this watch list. So I have the opportunity to take advantage of the current market prices and lower my cost basis. Can’t complain about that, right? Hopefully I’ll be able do some last-minute “Christmas shopping” here!
What are your thoughts about my watch list? What companies are on your dividend stock watch list in December? Or are you letting the market cool of a little bit before investing in individual stocks again?
-Bert