It turns out that Lanny is pretty good at finding undervalued dividend growth stocks. I was such a big fan of some of his recent purchases that I decided to follow his lead and purchase two of the stocks he recently purchased as well. Luckily for me, even though I recently purchased shares of Tyson Foods, I had some extra capital to deploy. See why I initiated two new positions in my portfolio at the beginning of August.
Just a disclaimer before we get too far into this article. These two stocks were featured in Lanny’s August watch list and he wrote about them at length in his recently purchase article that was released a few days ago. So I’m going to try not to regurgitate too much of the same information included. But if there is some overlap between the two, I apologize in advance!
Stock Purchase #1: WestRock Co. (WRK)
I’ll be honest with you. Prior to Lanny telling me about the company, I was not familiar with this company. But after our discussion, I was pretty excited about the organization and the prospect of adding them to my portfolio. The are one of the largest box company and recently added one of the largest pizza box companies to their portfolio. The company continues to grow, is surprisingly large, and would represent a new position in my portfolio. To say the company just makes pizza boxes would not do them service. The company also creates displays, folding boxes for many products/industries partitions, and paper bags. As Lanny said, this is an industry that continues to grow as more people are purchase goods online, which requires packages and containers to ship the product in.
So I was sold on the company, that one was easy. But with every purchase, I quickly ran the company through our dividend stock screener. I used my average purchase price of $53.14/share and a average analyst EPS total of $4.04/share.
- Price to Earnings: I calculated a P/E ratio at the time of my purchase of 13.15X. The ratio is well below the S&P 500, which has a P/E ratio in the low 20X range.
- Dividend Growth: As Lanny highlighted, WRK will be announcing their increase in November. They’ve only been paying dividends for 3 years, so their dividend streak is shorter than I would typically like. However, the average increase has typically been about 10%.
- Dividend Yield: WRK’s dividend is $1.72/share. Thus, their yield was at 3.23% at the time of my purchase. This was well above the S&P 500 (on average) and more importantly, above the 3.21% yield at the time of Lanny’s purchase.
- Payout Ratio: Our stock screener uses a dividend payout ratio of 60%, as this allows provides the company with room to continue to grow their dividend without sacrificing the overall safety of the dividend. We calculated a dividend payout ratio of 42%, which is below our threshold!
Besides for the short dividend history, the company performed well in our stock screener. I also liked the low payout ratio, indicating that the company has plenty of room to continue to grow their dividend for years to come. I would have been much more concerned if their payout ratio exceeded 60% just three years after paying their first dividend.
Based on this analysis, and some encouragement/research performed by Lanny, I decided to purchase 25 shares of Westrock (WRK) at an average purchase price of $53.14/share (Yes, I had to purchase the company twice within 15 minutes due to the fact I had to transfer some extra cash from my savings account to my investment account). This purchase added $43 in dividend income to my portfolio!
Stock Purchase #2: Illinois Tool Works (ITW)
It is great to have a friend as good as Lanny. We both have been talking about ITW for several weeks now, after the company’s guidance was lowered and the stock price tumbled. Then, on top of it, the company announced a 28% dividend increase at the beginning of the month! After all of this, the company’s dividend yield was closing in on 3%, well above their 5-year average. So Lanny and I added it to the top of watch list. How often does an opportunity like this come around, especially for a Dividend Aristocrat like ITW?
Why is Lanny such a great friend? Well, that’s an article for a different day and it would have to be much, much longer (Possibly a first book topic??). In this instance, he was the one that alerted me to the fact that ITW was down for the day and that he had made a purchase. I was in a meeting and left my phone at my desk. As soon as left the meeting and checked my phone, I had a text message waiting. It said “I purchased 10 shares of ITW.” I instantly logged into my brokerage account, saw the stock was down, and followed suit. Just like that, I also purchased 10 shares of ITW! This added $40 in forward dividend income to my portfolio!
I ran WRK through our stock screener in our article. However, I’m just going to quickly summarize the results in this article. Please see Lanny’s purchase article, because my information is exactly the same since our purchase price was approximately the same. All in all, ITW is trading at a multiple below the market (18.3X), is a Dividend Aristocrat, announced a sick 28% dividend increase, and has a payout ratio of 52%. Based on the metrics of our screener, ITW was a no brainer decision. Best of all, the company pays a dividend in the first month of the quarter. I am ALWAYS excited to add income to this month of the quarter, because it is my lowest dividend income month. of the three. Plus, if the price continues to fall, I may continue adding to my position prior to the ex-dividend date.
Summary – WRK and ITW
What can I say, I am ecstatic to add these two companies to my portfolio. I should receive my first WRK dividend at the end of this month and my first ITW dividend in October. I’ve been very fortunate this year and have had some extra capital to deploy in the marketplace. I’m doing my best to make EVERY DOLLAR COUNT, save as much money as possible, and turn my cash into income producing assets. Having a friend like Lanny is awesome because he continues to motivate, push me, and share some great investing ideas with me. This month, I was able to benefit and add to two great companies as well. Now, it is time to start doing some research and find the next, greatest, dividend growth stock to purchase!
What are your thoughts on my purchase? Would you have allocated funds elsewhere? What stocks are on your watch list?