A new month is upon us and I am eager to continue to buy stocks that make sense and add to my portfolio. 2018 has been off to a crazy start and I’ve thoroughly enjoyed following the madness of the stock market and eagerly awaiting these crazy dividend increase announcements. The dividend growth engine has been strong post tax reform, that is for sure. Today, I found three companies that have caught my eye. I will be watching these three dividend stocks closely. Here is my March Dividend Stock watch list!
Dividend Stock #1 – Altria Group (MO) – Now that the large tobacco company has a yield above 4% once again, the company has shot onto my radar. With an ex-dividend date that should be in the middle of March, I still would potentially have several weeks to initiate a position before missing the April dividend. The company is down 10% during the year and I am really starting to like the current valuation levels. Their forward P/E ratio of (~16.1X at the time I am writing this article) is currently below both the market and their rival Philip Morris.
The company also has a solid track record of increasing their dividend. Like so many other companies during the year, I am expecting a double-digit percent increase for MO. Management aims for a target 80% payout ratio and currently the company’s dividend payout ratio is in the mid-60% range. This has left a lot of room for dividend growth in the coming year, which is why I am expecting great things in the current pro-dividend growth environment. After seeming off-limits for such a long time due to their valuation, I am very excited about the prospect of finally initiating a position in Altria.
Dividend Stock #2 – PepsiCo, Inc. (PEP) – Yet another company that has found its way into my watch list that was considered too expensive for the past several years. I classified Pepsi as one of my “Always Buy” stocks years ago because of the company’s strong dividend track record, dominance in their industry, and their strong diversified brand portfolio. In fact, the company’s diversified food and beferage portfolio and lower payout ratio were always what separated Pepsi from their rival Coca-Cola in my opinion.
Pepsi popped on my radar after their stock price fell despite announcing a large 15% dividend increase and $15b share buyback program in February. Starting in June, the company’s quarterly dividend will increase to $.9275 per share compared to the current $.805 per share payment. Even with the increased dividend, the company’s forward payout ratio is approximately 63%, which is a hair above the 60% payout ratio threshold we use in our Dividend Stock Screener. The company’s forward payout ratio is ~19.2X at the moment, so PEP is not the cheapest stock out there. However, if the price continues to slide or we happen to have a wild downward swing like we experienced in February, I would be happy to initiate a position in the beverage in snack giant.
Dividend Stock #3 – Realty Income (O) – This stock has gained a lot of traction on our website and in the dividend growth investor community due to their recent slide. Heck, I have purchased the stock three times in 2018 and Lanny even joined the fun with a large purchase in February when he added 41 shares to his position. We’ve touted the reasons why we are interested in the Monthly Dividend Paying company plenty of times here over the last few months, so I won’t bore you with the details once again. But just know that the company’s strong diversification in the real estate industry and their 20+ year streak of annual dividend increases are the primary drivers for why I love this company. If the price remains in the high $40s and low $50s price per share range, I may just have to continue adding. My current position is 92 shares, so I would love to push my position over 100 if the price is right!
What do you think about the companies on my watch list? Are you watching MO, PEP, or O? If not, what stocks are you watching instead? Would you prefer KO or PEP at their current prices? Have you added to Realty Income in 2018 as well?
-Bert
You got my vote on any and all of them Bert. I don’t smoke, but MO is my largest holding. O and PEP are also good sized positions I hold. Loved the recent announcement by PEP on the 14% dividend increase! So kick back have a smoke and a Pepsi and think it through. Tom
Tom,
Thanks Tom. These dividend increases are getting ridiculous and I can’t believe MO announced one the other day too. Incredible. I am very jealous that you are a large shareholder in PEP and I would love to own them one day. Who knows, maybe that day will be soon haha
Bert
Love all choices, I already feel like there are too many good opportunities, I guess my mind will be blown when a real correction hits.
Eager to see what choices you make during the month!
DI
DI,
Thanks! It is nice that there are so many nice opportunities out there. After years of increases, it is nice to actually find some value out there. I’m sure I could have made this list 10+ if I really wanted to. What stocks are you watching here?
Bert
All 3 of these companies are looking attractive at these levels. I’d really like to add some MO to my portfolio and just sit back and reinvest the dividends to build up the position. I might just have to scrounge up some dollars to get a small position started. I’m doing the same thing with O at this time. With the markets getting a bit choppy I hope that means that better valuations are in store.
That’s what I’m talking about. Talk about being rewarded quickly. I had a little bit of free capital and purchased a small position in Altria. Already getting rewarded with a dividend increase since they announced it after my purchase. An extra 6.1% increase on top of their previous raise. That brings the year over year increase up to 14.8%!
I just saw your follow up message! Congrats on the small position and purchase JC. Amazing and man I don’t know if I’ll be able to hold off much longer here, especially with that extra dividend increase.
Bert
JC,
Glad you feel the same way about the current valuations for these companies. Hopefully you can find some dollars so you can throw them MO’s way. Now that the yield will be over 4.5% with the increase, it is becoming even more attractive. Man oh man the decisions!
Bert
As I recently bought O I can only concur with your findings. The same goes for PEP, which I would like to open up a position in myself. As I don’t invest in tobacco, oil & guns MO is not for me.
Do you have a specific price point in mind for PEP and MO? Hey, nothing wrong with sticking to your morals and avoiding investments that don’t fit your views. I respect that decision!
Bert
Hey Bert,
I hope PEP goes down a lttle but more to around $101 befor I iniiate. But I also need to do some more research!
Like PEP from the list. In fact, it may be time to add another stock to baby DivHut’s portfolio and PEP is a consideration. With Feb. volatility following us into March I’m sure other names will pop up as good potential buys. Thanks for sharing.
Divhut,
Baby Divhut would appreciate a nice refreshing helping of Pepsi 🙂 I know I would. Looking forward to reading about your considerations in the coming month.
Bert
Hi Bert, great list! I totally agree with all three picks and wouldn’t be surprised to see myself invest in one of those stocks too. Just one little note: technically, Philip Morris is not a rival for Altria. They have the same product porftolio, just different geographic markets. Altria is doing business pretty much exclusively in the USA while Philip Morris is doing business everywhere else.
Take care!
– SD
SD,
You’re right, they don’t compete against each other. But doesn’t it make the article more thrilling haha Kidding kidding, great point there. Do you have a preference of the three? Are you leaning one way or the other?
Bert
Bert,
I like all 3, and I own O and a little PEP already. I really want to pump up that PEP position I have some day for certain.
– Gremlin
Thanks Gremlin. Hopefully PEP continues to fall and you can get the chance to add sooner rather than later.
Bert
Great set of companies Bert! I got O in the bag, and am watching PEP very closely. It is my top contender now. Thanks for sharing! 🙂
MDD,
PEP would be a great addition and I hope the price continues to fall. It would be a fantastic stock for both of our portfolios here.
Bert
XOM is yielding 4% and should have an increase soon… Just saying 🙂
Carlos,
Great pick! I do not own that stock, but will be watching this potential dividend announcement closely. Not a bad one to keep our eyes on.
Bert
Solid list of companies here. This market is getting interesting as some values are actually starting to emerge.
TITM,
The market is getting very, very interesting. I’ve loved the red over the last two days. What stocks are you watching?
Bert
Nice set of stocks mate. I got a small amount of PEP after the drop in price. MO looks interesting too. Will stay away from REITs.
eek,
I think there are some good REIT picks out there, but there are also a lot of traps if you don’t invest carefully. That’s why I am only watching O as I believe in the company and their solid, long-term track record. But there are plenty of other opportunities out there as well if you want to avoid the industry altogether
Bert
Nice Bert
Pepsi has got a little more attention from me after that great dividend raise. I just went with a company not on the list. Low dividend but massive potential in the coming year.
Look forward to seeing what u do.
Cheers
PCI,
That dividend raise was FANTASTIC! What company did you purchase?? Congrats on the addition.
Bert
Bert,
Being a health care professional, I morally won’t buy PM or MO. I don’t believe in the business, and don’t want it to succeed. While diabetes is less villified than smoking, I am also extremely uncomfortable with a company that destroys the environment as much as PEP and KO do for soft drinks and bottled water.
On an optimistic view though, I added my first 21 shares of O to my portfolio when it dipped to 48.5 and can’t wait to start pulling in dividends from there! Thanks for your opinions and your picks this month!
-Alex
Alex,
I understand that standpoint completely. Ultiamtely, you should only invest in the companies you believe in and are comfortable owning over the long-haul. This is a great debate though and I’d love to hear your thoughts about other companies out there in the healthcare industry, particularly companies like CAH or other distributors. Do you typically invest in only socially responsible companies? If so, what are some of your favorite dividend names that you are comfortable investing in?
Bert
I just bought 250 shares of MO today and 75 of O last week. We’re thinking on the same lines! I’ve also been backing up the truck on XOM and PG lately. Perhaps I’m getting greedy and should wait for a deeper pullback, but these seem like great companies at fair prices. Also nibbling at BRKB, although it’s never quite as low as I’d like…
Hi Bert,
Nice list and some ideas where capital could be deployed if I have enough free funds in the nearest future. I already own some stocks of O and am not able to add more of them at the moment due to changes of regulation in Europe. Regarding Altria (MO), I tend to stay away from tobacco companies but maybe that’s a mistake. I guess we can find moral issues on most of the companies, it’s just more obvious for MO. So, the most likely investment would be PEP which I wouldn’t mind and perhaps I will do that at some point 🙂
-BI
What are the regulations that don’t allow you to own more shares in O? I’m not aware of any restrictions, but maybe I’m missing something…
Hi Roadrunner,
It’s a regulation where all instruments need to provide some sort of documents and U.S. ETFs are not providing them. Even though O is not an ETF, I guess it applies to REITs as well. But that’s because I am using a commercial bank as a broker. I am planning to move to a partner of InteractiveBrokers which will allow me to buy ETFs/REITs but I need to gather enough capital (at least 4k EUR) so it’s in my future plans 🙂
-BI
BI,
Thank you very much! I understand that people want to stay away from tobacco and I have to respect their decision to do so. There are plenty of other great dividend paying companies out there and you shouldn’t feel like you have to sacrifice your morals just for the sake of receiving a 4% dividend yield! I would love a PEP investment and may not be able to resist much longer 🙂
Bert
O, and generally quite a few REITs became pretty attractive in my view. In February I bought both O and HCP. If I had more free cash to invest, I would definitely buy more.
Two very solid choices Roadrunner. Can’t argue with either of those, especially since I own shares in each 🙂
We have close to the same watch list. Only difference is I’m going to be adding to STAG and TROW. I’m currently looking at opening a new position in VTR this month also. So many great companies on sale, not enough capital to go around. PG has also breached their 52 week low which puts them over 3.5% currently.
Diligent,
Great minds think alike, right? haha Interesting choice with TROW and man did I love that dividend increase they announced. TROW is actually one of my largest positions and the company has been on a tear since I purchased them a few years ago. Love the fact they have no debt and the industry is moving in that direction.
Happy shopping!
Bert
My list would be PG, PFE, GIS and HRL 🙂
Ou and what relates to PEP dont like their P/E over 20 and flat top anf bottom lines. Div yield bellow 3%. I find my mebtioned stock a better buy 🙂 Also equity is bit low only 12%. On the other hand leverage is still ok with NetDebt/EBITDA ~2. Another company with draining equity with agresive share repurchase and borrowing 🙁
Great picks, I love all three of them and would love to buy more of them. MO just had another juicy 6% increase and it’s one of the stocks I’m eyeing for my next purchase along with PPL, PEP, & KHC.
Thanks Captain! I loved the MO increase and even though it was lower than I predicted, they could potentially announce a second dividend increase in 2018. Their target payout ratio is 80% and they are still below that mark post dividend announcement.
Bert
Thanks for another nice watch list!
Like most other div investors I already have a chunk of O, and partly due to your enthusiasm I increased a bit the last month along with HCP. O is now my largest holding, with around 3% of the portfolio, which feels really good. I also have a thin slice of PEP, but I´m starting to consider increasing.
As for the tobacco business I prefer the idea of harm reduction with non combustable tobacco products before the just-say-no-to-tobacco-stance. I used to be a tobacco user but quit a few years ago and I also have some professional knowledge in the field of health and harm (MD, PhD). In investments I try to draw the line between tobacco companies that clearly promote non combustable tobacco and the ones that deliver smoke screens or seem to claim that regular ciggarettes are ok (which is ludicrous). As for Altria their smokless products Copenhagen and Skoal have a really big market share in the US but still only constitute approximately 10% of the revenue. The smokeless segment grows well while the combustable part seems rather stagnant. This could signal a turn towards healthier tobacco habits and I could thus invest and feel ok about it.
Thanks again for a nice post. Maybe I´ll buy more PEP and possibly initiate a post in Altria as my first tobacco company. The timing to get a defensive tobacco stock might be really good.
Griphook,
Wow, congrats on the additions to two great REITs right there. Thanks for the take on Altria and that is definitely a different way to view the company and the moral take on tobacco. I’ll never have a problem if someone invests or does not invest because they do not believe in the product and are not comfortable owning it. There are plenty of alternative investments out there for people. You’ll have to let me know which companies you decide to purchase and if you decide to add to your PEP position. Thanks again for the thoughtful comment.
Bert
Hi again!
I went for PEP as I know and enjoy many of their products, and really believe that they will be increasingly enjoyed in the future too. As for tobacco I believe there are uncertanties around how taxation and other regulation will effect sales and profitability in the future. I guess a diversified portfolio could handle a little headwind, but as for now i feel more safe with PEP.
I´ve also been looking at increasing in JNJ, for similar reasons I increased in PEP: stable / increasing demand for their products, and always increasing dividends.
Cheers!
/GI
Hi, Bert. I also added to O this year, once it dipped under $50. Anyway, probably good with O for now. PEP is one of my largest holdings already, so not looking to add there. I can’t say I’ve followed MO at all, not sure why. I’m not opposed to it, but have always found other industries more compelling.
As for some stocks that I’m watching… Comcast (CMCSA), Starbucks (SBUX) and KAR Auction Services (KAR). I already own some SBUX and would like to add a bit more. CMCSA has dropped into my buy range. I have an open put option that’s close to being in the money, so I may be an owner in a couple of weeks, depending on how the stock moves. KAR would need to drop about 10% before I took a position.
As always, thanks for sharing your list, Bert!
ED,
SBUX is also on my watch list. My wife’s position is not that large, so it would be nice to add a few more dollars to her investment so we can start receiving a large dividend check. I like their credit card idea with Visa as well and I would imagine that there are a lot of customers that will jump on the card to receive a further discount on their purchase.
Happy shopping!
Bert
I’ve bought O and Mo this year. That was a nice unexpected raise. For MO can’t go wrong with any of those
Doug,
Thank you! Two great, solid purchases right there and that’s how you really accelerate your forward dividend income. Congrats.
Bert
I’m really excited about O. I’m hoping the price of the stock remains at that level or even lower by the time I get my tax refund. I would love nothing more than to take advantage of the price decline.
DP,
I’ve been excited about O all of 2018 and understand why you are so excited. THat would be a great use of your tax refund my friend!
Bert
I have been holding both MO and PM since PM became a separate company in 2008. Friday I sold my entire position in PM and used the funds to buy more shares of MO.
Reasons: PM is a great company but MO has a higher yield, better dividend coverage, and is increasing its dividend at a much higher rate. MO is more diversified because of its successful wine business and large ownership stake in BUD. PM is subject to exchange rate risk, since it is an American company that sells its product exclusively in other countries.
Brian,
I own PM and would love to own MO as well to complete the “former” company. Can’t argue with your rationale for choosing MO over PM at this point in time.
Bert
I spent sometime parsing data to get my shopping list ready in case we see some more red in the coming weeks. I came up with a few names I found compelling and I wanted to share for opinions.
DIS
UL
UPS
LNC
Nice list, with some good companies! I, personally don’t like $MO. I don’t like to invest in companies that make people sick (or worse). But as I already said, that is personal.
Cheers,
Pollie