Lanny said it best, the post election stock market has been crazy. A lot of industries that have been trading at a discount, financials and REITs for example, have soared while other stocks that have traded at highs over the years are approaching buy-able levels again. Recently, I was able to knock out one of my 2016 investing goals by crossing $3,250 in projected dividend income; now, I have another goal in sight….investing at least $20,000 in “New Capital” into the market. I’m ready to keep the pedal to the metal and take advantage of some more opportunities that Mr. Market has presented us. Time to check out my November Dividend Stock Watch List!
The Big Three Dividend Stocks on my Watch List
Dividend Stock #1: Unilever (UL) – First and foremost, I had to put the darling of the dividend growth investor community on my dividend stock watch list. It is not secret on this website that I love consumer stocks that are found in nearly every household. Strong brands provide management with a lot of different options to provide shareholders with value outside of the traditional means (dividend growth and share buybacks), such as spin-offs and sale of products to other organizations. The name of the game is building a growing income stream that is sustainable for a long time; and I personally think that consumer goods and strong brands are a great backbone for this. I’m stepping off my soapbox about consumer stocks now, so why am I watching Unilever.
With the recent dip in price, Unilver’s dividend is quickly approaching 4%. In April, the company announced a 6% dividend increase, marking 21 annual dividend increases. At this rate, by 2020, the company should be able to call itself a Dividend Aristocrat…perfect. The company’s payout ratio is climbing as well as it is inching its way towards 70%, which is above our 60% threshold per the Dividend Diplomats Stock Screener; however, the fact that the payout ratio is slightly above our screener’s mark isn’t too concerning for me. The item that concerns me more than the payout ratio is the exchange rate, which has hurt me in the past. Since the dividend is not paid in USD, I am susceptible to lower than advertised payout ratios after the currency is converted to USD. Definitely a factor to keep an eye on, but if I can purchase Unilever for the right price, I will also be wiling to overlook this fact. One more thing, Unilever just closed its acquisition of Seventh Generation, adding another strong consumer brand to the portfolio. Man do I love consumer staple stocks!
Dividend Stock #2: Kimberly-Clark Corp. (KMB) – Another consumer stock?? KMB popped on my radar as I was researching information about Unilever for this article. I felt like I struck gold finding another consumer staple that had fallen off of its insane P/E Ratio. KMB has increased their dividend for 43 consecutive years…43! The best part is that KMB should be announcing their dividend increase when they announce the next quarter dividend in February. So hypothetically, if I purchased KMB, I would capture the increased dividend for all four quarters in 2017. Boom. The dividend growth rates haven’t been spectacular recently, as their three and five-year dividend growth rates are 4.7% and 5.7%, respectively. Lastly, the company’s current dividend yield is 3.25% and the company’s payout ratio is just norther of 60% (using forward earnings per the company’s last earnings release). Compared to UL, the company offers just as strong brand recognition, with a lower dividend yield and a slightly lower payout ratio. However, if I were to select KMB, I would not have to deal with exchange rates! Regardless, glad KMB passes our dividend stock screener!
Dividend Stock #3: Verizon (VZ) – Last but not least, my cell phone provider. This is bitter-sweet considering my view on my monthly cell phone expense and the impact it has on your monthly budget; however, I already separated my personal bias from investing when I decided to purchase AT&T a long time ago. Currently I have a strong position in AT&T, owning 70 shares, but I would love to add the other major communications to my portfolio. Verizon popped on my radar after reading Ben @ Sure Dividend’s recent article about the company and how the decrease in the price has pushed the dividend yield near 5%. Ben provided some great background about the economic moat that VZ and T enjoy along with some of the projects that VZ has in the pipeline. AT&T and Verizon have faced intense competition from Sprint and T-Mobile over the years; however, the company’s performance continues to remain strong and the economic moat seems to have remained in tact.
While the company is not a Dividend Aristocrat, their dividend increase streak is close to a decade and my assumption is that VZ is working their way toward Dividend Aristocrat status. Further, their payout ratio is much closer to our 60% threshold than their competitors. Ben talked about it in his article frequently, but the one thing that is concerning to me is their high debt levels. We have been burned by company’s with high debt levels in the past, but I believe this is different from the leveraged oil company’s that were forced to cut their dividend as the price per barrel fell through the floor. Ben addressed this in his article, discussing the free cash flow projections going forward and the ability to sustain the dividend despite the higher debt levels. Purchasing Verizon would add a lot of income to my portfolio and help me keep the dividend snowball moving!
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There is it…three strong dividend stocks that I am going to be monitoring closely over the next several weeks and most likely through the end of the year. Luckily, I was finally able to remove Realty Income from my watch list since I purchased shares earlier in the month. I was pumped to add 40 shares to my Roth IRA and max-out my contribution limit. I would have kept the company on my watch list again since the price continued to fall; however, I wrote about how contribution limits have come back are preventing me from taking advantage of the downturn to add to my position. Come January though…watch out. I would be excited to purchase one of these stocks because of their strong brand portfolios and history of dividend increases. So come on Mr. Market, help me out here and allow me to end this year with a splash!
What are your thoughts on my watch list? Have you purchased any of these stocks recently or are they on your watch list? How do you feel about Verizon’s debt levels? Would that cause you concern? Or are you willing to overlook the high debt levels based on the free cash flow (as outlined in Ben’s article)? What other stocks are you watching?
-Bert