Typically Lanny and I post a combined watch list; however, in October, we are changing the format slightly for a variety of reasons. In this article, I am going to discuss the two stocks that I am watching closely, especially considering the fact that I have a little extra capital to deploy. The waters have seemed to calm down after the turbulent September and it is difficult to find as many great discounts since the stock market had a mini recovery from the crazy downturn. Let’s take a look at my October Watch List!
The Stocks
This month’s list consists of two behemoth companies. While one of the stocks was carried over from last month’s watch list, I also have a new company on this list. Quite frankly this new stock is one that I haven’t really had on my radar in the past. But man can things change quickly and all it took was a terrible earnings release and a large pullback in price. Let’s take a look at the two stocks.
Walmart (WMT) – As I am sure many of us already know, Walmart had a pretty terrible week after their recent earnings released that indicated some short-term headwinds in the company. This release triggered a nice sell-off that saw the stock price drop over 10% in one day. By Friday, WMT’s had dropped 11.3% for the week. What’s even crazier…the stock is down over 30% YTD….30%! Yikes. Since I am a buy and hold investor, I love short-term headwinds on great companies since the headwinds can create lower than usual entry prices. Yes, there are concerns about the company’s short-term sales/revenue growth. But as I started to focus more on the company’s dividend and shareholder return, my mentality quickly shifted form concerned to exited. Before looking at the dividend, I wanted to highlight the other major announcement in the recent press release. The Board of Directors authorized up to $20b in share repurchases. At the current price above, if management repurchases the full $20b they could potentially repurchase ~339m shares, or ~10% of their current shares outstanding. This is huge news for dividend investors, especially if management’s EPS estimates are slightly lower than anticipated. For more information on how share repurchase programs benefit dividend investors, check out our article from late 2014! Now, let’s quickly focus on the dividend. The company’s yield is 3.33% (much higher than the recent yield), the company’s payout ratio is still comfortably below the 60% threshold we use in our stock screener, and WMT has been paying/growing their dividend for over 40 years. Plus, let’s not forget that the company’s payout ratio will begin to fall as management begins to repurchase shares. Essentially, WMT aces our stock screener as management has demonstrated their willingness and ability to pay and sustain a growing dividend. Based on their buyback program and dividend history, hopefully you all can see why I am willing to look past the short-term headwinds and begin watching the retail giant!
Johnson & Johnson (JNJ) – For the second stock on my watch list, I turned to a personal favorite of the two of us, Dividend Hustler, and many others in the dividend investing community. Even though the stock has appreciated recently and the current share price is above the level I initially purchased shares, I am once again interested in adding to my position and building a massive stake in JNJ. What’s not to love about this company? The company passes all three metrics of our stock screener, has demonstrated a great dividend growth rate over the last five years, and has purchased back over 1% over their shares during the last year. JNJ just consistently provides value to their shareholders and I love it. Heck, we love them on this website so much that I labelled them one of my five “Always Buy” stocks and Lanny labelled them one of the Top 5 foundation stocks for every dividend growth investors portfolio.
Summary
I’d be very excited if I purchase one of the two stocks on my watch list this week. Both are great, mega-cap companies that will be around for many years to come. Plus, they have demonstrated their commitment to maintaining and growing a dividend over the years. The Walmart situation will be interesting to monitor over the next few weeks. Have we seen the bottom or will the price continue to fall? I guess that’s part of the fun of investing, right?
Do you own any of the stocks on my watch list? Are you interested in purchasing Walmart now or are you going to wait? Do you think there are better values out there besides JNJ? If so, where should I focus my attention?
-Bert