Bert’s Dividend Stock Watch List – June and July 2019

Well, I’ll start by addressing the elephant in the room for dividend investors.  There isn’t much value out there.  Especially as interest rates continue to fall (thanks for the detailed analysis on the impact of interest rates Lanny) .  Still, after talking to Lanny on the phone Saturday night about our portfolios, I realized there still are a few companies trading at a discount.   So I decided to dust off the Dividend Diplomats Stock Screener and put a watch list together.  Here are the three companies on my Dividend Stock Watch List for June and July.

For my Dividend Watch list for June and July, I will use June 21, 2019 close prices, EPS per Yahoo! Finance, and dividend information from www.dividendinvestor.com

Dividend Stock #1: Caterpillar Inc. (CAT)  –  Shockingly, Caterpillar is actually up YTD.  However, the company is trading well off of their 52-week high from October 2018.  Caterpillar has some major exposure to the trade war, which has caused the company’s stock price to whiplash with the ebbs-and-flows of the news cycle.  In May, it was stated that the Trade War would cost the company $250 million – $300 million in 2019 if the trade war continued.   So why am I now watching CAT despite the uncertainty?

In the investor day announcement in May, CAT sang an optimistic tone about the company’s financial performance.  First, the company announced a MAJOR 20% increase in their dividend.  But wait, it gets better from there.  The company plans to continue to return capital to shareholders in the near future.  Management stated the following: “Caterpillar expects to increase the dividend in each of the following four years by at least a high single-digit percentage. With its remaining free cash flow, the company intends to repurchase shares on a more consistent basis, with the goal of at least offsetting dilution in market downturns.”  Thus, despite the trade war headwinds, the company still plans to increase their dividend, improve performance, and return capital to shareholders.

Second, the company performed very well in our stock screener.  With a closing price of $133.89 per share and est. EPS of $12.34 per share, the company’s Price to Earnings ratio of 10.85X is well below the broader market.  Plus, their dividend payout ratio, with the 20% dividend increase, is only 33%.  Thus, the even if the company absorbs the full estimated cost of the trade war, the dividend should remain safe.

That of course, assumes the costs don’t escalate in the coming months.  There is a critical G20 summit on the horizon that could change my answer completely.  But today,  with great metrics and a very strong dividend increase, it seemed like a great time to add CAT to my watch list.  My wife owns some shares in her Roth IRA.  It may be time to continue adding and building that position.

Dividend Stock #2: Archer-Daniels Midland (ADM) –  I actually purchased 20 shares of ADM in May (Discussed in this article very briefly).  Like CAT, ADM has been impacted by the Trade War.  But the trade war isn’t the only condition impacting ADM.  The company has impacted by weather (in particular, the flooding) that has hit the Midwest hard this year.  Living in Ohio, I can tell you, it has rained a lot in 2019.  The true impact of weather may not be fealt just yet by ADM.

And just like CAT, ADM performed very well in our dividend stock screener.  With a closing price of $41.08 per share and est. EPS of $3.27 per share, the company’s 12.56X is well below the broader market.   The company’s dividend payout ratio 42.8%.   Since ADM is a Dividend Aristocrat, the company clearly has a history of increasing their dividend. 

The negative news has caused a decrease in price from highs in October.  Even with the company’s recent price increase, the company’s metrics still look great.  The economic environment may push the company’s price down once again.  Once it does, I will be ready to add to my stake in the company.

Dividend Stock #3: CVS Health Corporation (CVS) –  Last, but not least, CVS.  CVS is the one company that has not increased their dividend in the last 12 months on this listing.  That of course is due to the Aetna acquisition.   The two of us have talked about CVS a lot on  our website.    In particular, how the company’s new business model places the company in a unique position to capitalize on the aging population.  With a shift to health centers, rather than convenience stores, the company’s changes have a chance to change the sector.

Of course, the company was just in the news due to the dreaded “Amazon Effect.” In a recent lawsuit, CVS disclosed Amazon’s plan to use PillPack to sell prescription drugs directly to health plans and employers.  In particular, discussions between Amazon and Blue Cross Blue Shield were unveiled. This was a rare glimpse into Amazon’s future move into the industry.

Even with this revelation, I’m still taking a look at CVS.  The company’s Price to Earnings Ratio is just 7.83X.  That assumes a share price of  $53.65 per share and est. EPS of $6.85 per share.  Their dividend payout ratio is just 29%.  Pretty low.  Last quarter, CVS crushed earnings due to Aetna’s performance.  I think there could be additional future earnings surprises in the future due to better than anticipated results in the insurance sector.  Especially if losses are low and investments perform very well.   With metrics like these, I have to keep CVS on my watch list.

What are your thoughts about my dividend stock watch list for June and July?  Do you agree with the companies?  Or would you wait until the Trade War dust settles before considering buying CAT or ADM?  Are you staying away from CVS (or their competitor Walgreens)?

Bert

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22 thoughts on “Bert’s Dividend Stock Watch List – June and July 2019

    • PCI – CAT has jumped up. But their metrics are still looking great. ABBV is another great company to consider. I bought a lot of them last year and may even add to my position if the price keeps falling.

      Bert

  1. Looking at adding to my CVS position as well as starting a position in ABBV but I skimmed through expecting to see MMM on there and was surprised to find it missing. Curious what your thoughts are on adding to that stock at it’s current levels. Thanks guys!

    • Travis – Thank you so much stopping by! MMM was on my list, especially when it was in the low $160s. However, the price shot up so I looked elsewhere. With that being said, I’ll definitely add if the price comes back down. The company is great thought and heck, it is one of my 5 Always Buy stocks. I’ll still keep a close eye on it though.

      Bert

      • Bert, long time reader first time poster lol, just figured I’d break out of my shell for once. I knew you had a position in 3M already and liked the stock so I was just curious how you felt at current levels. I went ahead and opened a position at $173. I was waiting hoping to get closer to a PE of 15x but decided it would be better to just open and average down if the opportunity presented itself. Congratulations on the new baby btw! My wife and I are expecting our first end of next month.

        • lol you better start posting more Travis. We love the interaction here. I like MMM but I don’t love adding at the current levels. I agree with the 15X PE Ratio as an entry point. My guess is that there will be plenty of other chances to add. Just a hunch though.

          CONGRATS on the new baby. I’ll tell you this. It is the best freaking thing in the world. Nothing is better than looking and your baby and comforting them.

          Bert

  2. I believe CVS has a huge competitive advantage to other pharmacies in the market. Generally speaking, insurance companies want to pay the least for prescription medications or for any type of service. They are a borderline conflict of interest, especially after Obamacare came out. Now with CVS merger with Aetna they are both on the same side of the table and they have a huge advantage because when any of the companies make money it goes into the same bank account while their competition Capital Blue Cross and United Healthcare are fighting for every last penny.

    Full disclosure I am long CVS and I am an R.N. 🙂

    • Vlad – CVS definitely has an advantage. You put it well, that’s why I like them in the long run. There will be a lot of synergies as a part of the merger. Also – My wife is an N.P. and spent many years nursing. I am familiar with the grind you R.N.s go through.

      Bert

  3. Great list Bert! CVS remains on my watchlist as well as CAT. Most of the stocks on my watchlist are quite high at this time. I am going to wait things out a bit more and see what opportunities emerge. Thanks for the post Bert! 🙂

    • MDD – Thank you so much. As you know, putting together a cheap watch list together is not easy. CVS continues to fall, so I may have to make this purchase faster than I was anticipating.

      Bert

  4. I have small positions in both CAT and CVS. CVS is an especially good bargain at this time. They’re down over 25% since I first bought some shares back in October 2017. That number kind of stings, but gives me an opportunity to average down my cost basis with a good purchase. I use $4000 as a full position these days and I’m only in around $1500 for each, so I have some room to grow.

    At this time, I have my eye on CVS, CSCO and have been intrigued by QSR recently.

    Love your posts,
    John

    • John,

      CVS’s stock price continues to slide. I purchased shares after; however, I have been averaging down on my price like you. There is plenty of room grow the position. CSCO and QSR may be too rich for me at this moment after their prices climbed. What type of valuation metrics are you using for these stocks?

      Bert

  5. Hi Bert,
    I tend to compare its trailing twelve month average P/E to their industry (communication equipment) average. So for CSCO, they are at 19.34 while the average is at 29.77. I know the price has risen 32% over the past year, but with their their P/E in relation to their competitors, I pulled the trigger. I see you like a PE under 15. I put it at 20 and look at the competition. Another factor I look at is free cash flow and it’s ratio to debt and equity.
    Apart from valuation, I really look at the rate they have been increasing the dividend over the past 5 years as well as the payout ratio, kind of like your stock screener tab. I really try to focus on this aspect now. This is why QSR is interesting to me. They have been growing that dividend. Not the greatest value or payout ratio, but , I would not like to miss out on another large div increase. QSR has been lingering on my watch list for 18 months, and I’ve been waiting for a good moment to strike if I have a chunk of extra cash.
    Lastly, I look as to what the Zacks rank is once they are on my watch list. I’ve had good luck with buying when Zacks says it’s a buy or strong buy on that day.

  6. ABBV is on my list as well. Although it has rebounded and made up almost half of its losses from Tuesday, I believe the company is still undervalued, and that the AGN acquisition will be to be wise years from now.

    • Thanks Kody. I can’t wait to read and learn more about the combined company and the strategy. Since there is a lot of debt, I don’t want to jump in until I know more about it. But I can see why people are intrigued and optimistic about the combined company.

      Bert

  7. Nice list, once again. I like to add to ABBV, CVS, DAL, IRM and LEG at these prices. Although I like to add DAL around $50. It has bounced back within a couple of days. So maybe just buying it below $55. JPM and WFF also look very attractive after the buyback and dividend plans presented yesterday.

    New positions I consider are AOS and LMT. CAT is also an interesting candidate. 👍

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