With the first month of 2017 coming to a close, I thought it would be a good idea to put a dividend stock watch list together to focus in on a few companies that have caught my eye recently. What’s crazy is that each day brings an exciting new day to the market and it seems like we have snapped out of our two month streak of constant appreciation and are finally starting to see some great companies trading at a discount. After my last purchase and Lanny’s recent portfolio review, I am as motivated as every to keep pushing capital into the marketplace and increase my passive income as much as possible. Now lets take a look at my January Dividend Stock Watch List!
Focus of my watch list
Before diving into my watch list, I wanted to discuss what I am looking for in my next purchase. First, I am only focusing on companies that would pass the Dividend Diplomats Stock Screener. This means the company must be trading at a discount to the market, have a history of dividend growth, and the company must have a payout ratio below 60%. Lately, I’ve just wanted to add quality stocks to my portfolio…no kidding, who doesn’t. We created this stock screener to identify those under valued dividend growth gems and when I’ve followed the stock screener with a purchase, I have historically done well. In the past I have occasionally ignored a red flag posed by our screener (and other metrics) and the results were less than stellar and even resulted in a few dividend cuts. So why not stick to the screener, simplify investing, and purchase great stocks?
Second, I’ve taken an interest to focusing on building positions in my portfolio rather than initiating new positions. Over the years, I have amassed a lot of positions that may have seemed large at the time of purchase, but are moderate to small purchases in my portfolio. Rather than having many small positions, I am looking to build several large positions that produce significant income on a quarterly basis. My last purchase, Procter and Gamble, was a perfect example of this. Before my purchase, I owned 31 shares of income, which producing $21 of dividend income on a quarterly basis. Over a one year period, I was set to receive approximately 1 new share via dividend re-investment depending on the price movement. This was a middle of the pack position in my portfolio too. Then, I decided to add 20 more shares and make this the third largest position in my portfolio that is going to now produce over $34 quarterly. There is something drawing me to the idea of producing insane income from each of my positions one day and I know that in order to get there I have to begin adding to my positions when the metrics are right and the timing makes sense. We talk on this site about foundation dividend stocks all of the time and I’m starting to believe that the foundation pieces of your portfolio should be substantial and provide you with a sold, large, growing income stream. This isn’t to say I am never going to buy a new stock again; heck no. But I want to take some time to fortify my positions and build on what I already own.
January Dividend stock watch list
My watch list consists of two Aristocrats that I already own. With the S&P 500 trading at an insane P/E multiple of approximately 25x depending on the source of the statistic), both companies are trading at a lower multiple and pass our first metric. To calculate the payout ratio, I used the current year analyst estimates per Yahoo! Finance.
Stock #1: Johnson & Johnson (JNJ) – Payout Ratio = 45%; Consecutive Annual Dividend Increases = 54 years. Honestly, Johnson & Johnson just kind of speaks for itself. It is one of the most consistent dividend growth stocks out there and I would guess that many in this community have this as one of their foundation stocks. Currently, I own 18 shares and my wife owns 21.3 shares, so our combined position has a market value of $4,645. With my next purchase, I would love to bump have our combined position cross $6,000 in market value. My focus with this purchase would be to make a move before the February 24th ex-dividend date so I can capture four dividends at the new level versus three. What attracts me to JNJ outside of their dividend history is their impressive brand listing, the name power of this brand listing, and the diversity of their product lines. They dominate in multiple segments and a large chunk of their products are well represented in every household and hospitals. Just a great all around company that also happens to check all of the boxes of our dividend stock screener. Did I mention that JNJ is getting reading to announce their next dividend increase in April too? Man I would love to buy more before his announcement!
Stock #2: Target Corp. (TGT) – Payout Ratio = 48%; Consecutive Annual Dividend Increases = 45 years – The favorite grocery and department store of our household. We are Red Card, Cartwheeling machines in this house in an effort to save as much money as possible with each trip! 2017 has not started off strong for Target or many companies in the retail space as TGT is down over 11% YTD. Target’s most recent earnings release, while showing some positive trends, discussed a decline in same store sales compared to the prior year, and offered a slight downward revision of anticipated EPS. This isn’t the best news, but the downward revision in EPS estimates was minimal and does not threaten the company’s payout ratio and potential dividend growth prospects since their current payout ratio is hovering around 50%. TGT, like most of he retail industry, has to figure some things out, but the decrease in price is one of the reasons why I am looking to add to my position. What’s crazy is that we own over $5,000 worth of TGT already and they are constantly battling Citizens and Northern Corporation for the coveted title of my largest individual stock holding. Adding more to my position would definitely push this over the top!
There we have it. Two rock solid Dividend Aristocrats that I would love to increase my position with. What are your thoughts on JNJ and TGT at the moment? Are you in wait and see mode with TGT based on their last earnings release? Or if you were me, would you focus on other companies like TROW, Realty Income, and other great dividend paying stocks that I currently own? What stocks are on your watch list??