Bert’s October Watch List

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!

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.
DD - Oct WL

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

DISCLOSURE: I DO NOT RECOMMEND ANY DECISION TO THE READER or ANY USER, PLEASE CONSULT YOUR OWN RESEARCH. THIS IS ACTUAL DATA, ANALYSIS, HOWEVER I BASE NO INVESTOR RECOMMENDATION.  THANK YOU FOR YOUR UNDERSTANDING.
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13 thoughts on “Bert’s October Watch List

  1. I’m long both WMT and JNJ.

    WMT is on sale. Long-term I still like it. I had my WMT put exercised recently so I’m heavy in WMT currently otherwise be selling a put on it this week because of the steep discount.

    JNJ is one of my favorites and I’m always looking to at to JNJ.

    I think it really depends on how comfortable you are adding to WMT when you know it’s “probably” not going see upward momentum in the short term.

    • Glad we are on the same page here Chimp haha I don’t think you can go wrong with either company. But I agree with you about WMt, some investors will have a tough time swallowing that pill. You have to dig deep and understand what kind of investor you are. If you are a dividend investor that buys and holds, it takes patience and remembering the end goal is a growing passive income stream and not an unrealized gain centered on appreciation. It isn’t always easy and I’ve struggled with that occasionally.

      Thanks for stopping by!

      Bert

  2. Interesting picks, both happen to be my last two purchases. I’m tempted to buy more WMT here as it’s about $4 under where I just bought it. The $20B buyback is nice but I have mixed feelings about it. On one hand, yes it should artificially inflate EPS over the coming quarters but that money could also be put to work in other ways that could benefit the company. However it’s a pretty good time to be buying back stock rather than a year ago.

    • haha Captain I like where your mind is! It might be a great time for you to continue your lower your cost basis. You definitely highlight one of the drawbacks of buybacks. Why use the capital for a one time transaction when there are better long term solutions. But as you said, this is the time to do it when the stock price is depressed and has fallen over 30%. If it were up to me, I would prefer a dividend increase vs. buyback every time. However, I don’t think I would have a hard time settling for the short term benefits a buyback program provides.

      Thanks for stopping by!

      Bert

  3. I just added some WMT myself. I know it is something I will sit on for many years so I am not worried about the lack of growth in the short term. I would also like to add more JNJ – so let’s see if we get another dip.
    Good luck with your watch list!
    D4s

    • Nice buy Div4son. I wouldn’t be surprised if I join you next week when my funds become fully available. I have the same long-term mindset as you and I’m willing to sit out the short-term turbulence.

      Thanks!

      Ber

  4. I’ve considered buying into Wal-Mart several times over the last few months, and every time I find myself unable to pull the trigger. The deflated stock price (and resultant inflated yield) seem appealing, as well as the long history of dividend raises. But near-term forecasts for the company seem consistently negative. I’m not one to worry overmuch about the stock price, but if the company is performing poorly then dividend raises will be minimal, as they have been for the last few years. 3.3% yield looks appealing, but when I’m only getting an additional penny a quarter, 3.3% seems insufficient. I can tolerate that sort of growth from T because its paying me almost twice as much yield, though to be fair T might start seeing renewed dividend growth in the future.

    The other concern I have is buying it based on the sentiment of “I’m buying for the long-term, not the short-term.” That’s a good mentality, but with the dividend growth discussed above, the long-term might not be that rosy either. Moreover, buying for the long-term means that you’re not concerned about macro-level trends like the growth in e-commerce. I certainly don’t think its a zero-sum game like say Netflix and Blockbuster, because convenience can always push some sales away from better prices. But to like the long-term prospects of Wal-Mart, don’t you have to assume that Amazon and the like will have at worst an equal impact on Wal-Mart’s sales going forward? With the seemingly more probable, and much more damaging scenario being online retailers continuing to erode Wal-Mart’s share of the market?

  5. Bert,
    I like both of those companies. I am adding to my WMT position, however if I had a position already I probably would not add – I want to keep my retail positions as a small percentage in the long run. Still this entry point is a great starting place for me, and if you want to grow WMT, I think its a nice move.
    JNJ on the hand is a beast.
    – Gremlin
    Long WMT and JNJ

  6. Hey guys good article. I like WMT at these levels as well especially when compared to someone like Kroger. The grocery business is undervalued here and I don’t see online sales taking that any time soon. I’m not sure what a fair value of the non-grocery consumer goods side of the business looks like but with a PE of just north of 12 this is definitely one to keep on the shopping list. I’ve also got CMI on my list (decided they were a better bet over CAT) and am keeping my fingers crossed that MMM dips again. Good luck with the CPA gig I don’t miss my EY days one bit but wish I had been more focused on investing then

  7. I’m definitely interested in adding to my small position in WMT. I don’t see the company going anywhere anytime soon, and the price is looking better all the time. I would also like to add JNJ to my portfolio in the relatively near term.

  8. Hi Bert,

    As you said, these mega cap companies aren’t going away anytime soon. Both JNJ and WMT are on my wish list. JNJ would probably be my choice if I had to pick one. Thanks for sharing your insights.

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