Dividend Diplomat August Watch List

Hey everyone!  Thanks for stopping by.  It has been 45 days since Bert posted his 10 stocks on his watch list and it is now time to update this list, as well as incorporating the full Diplomat team (Lanny!) into the mix, as we all have stocks on the watch list.  It’s been a wild 45 days and based on different purchases made over that stretch and allocation/weights in our portfolios, it is time to adjust and discuss which stocks are on our August watch list, RIGHT NOW!Lanny’s Watch List

Now, I know I discussed 4 Stocks to “Re-Up” my position a bit ago.  I ended up buying more Aflac (AFL), and then purchased Diageo (DEO) and Mattel (MAT) along the path.  When looking at my portfolio, I am still very light in pharmaceuticals, basic/materials/industrials and slightly low on telecom.  Here are my 3 that I am targeting with 3 reasons why on each:

  1. John Deere (DE)As Mantra invested twice, this company is rock solid, has weaker guidance for the cycle coming up, but has always been fundamentally sound.  Here are 3 reasons why it is on my list:
    • Performance YTD: Now I don’t buy a stock just because it’s down, but John Deere has been down 7.19% this year so far, which obviously is underperforming the S&P.  All stocks rise and fall, but John Deere fundamentally does not have anything wrong from the metrics that I see.
    • Dividend Stock Screening Metrics: Dividend yield is above the S&P at 2.83% currently.  Also, they are trading with a yield that is 68 basis points higher than their 2.15% 5 year yield average, amazing.  Further, their Price to Earnings ratio I calculate out to be roughly 10.1, with a payout ratio of roughly 29%.  This leaves a LARGE amount of room for dividend growth.  Oh, by the way, their last 3 years had an average dividend growth rate of 13.57%, which outweighs inflation, easily, with the last one at 17.65%.  Big Green Lights here.
    • They fit my portfolio well.  I currently own Scott’s Miracle Gro (SMG) and only a small % of that is my portfolio.  This would compliment that, and is more on based on the economic conditions of the world as well.
    • UPDATE: ON 8/26/14 Lanny purchased 23 shares of DE
  2. Glaxo-Smith-Kline (GSK) – A nice international pharmaceutical that would fit into my portfolio.  I own Pfizer (PFE), but they haven’t had a pull back that I would hope to have.  Glaxo is a monsterpharm company, obviously is international based and has a current market cap of114B+.  Here are a few reasons I am watching:
    • Performance YTD: They are down 10.6% year to date, which pleases me to know that more value as a fundamental investor is there.  This is more undervalued currently than Pfizer at the moment.
    • Dividend Metrics: The yield currently is reported roughly around 5.56%, which is extremely high, more than the other competition and much more than the S&P and my portfolio on average, would be a great lift to it.  However, payout ratio seems pretty high on my calculation at roughly 82%, but the P/E is favorable at 14.9, give or take a few basis points
    • This would add more weight to this industry in my portfolio, would add quite a bit more income and has increased their dividends for some time, though sporadic due to the ADR characteristics.
  3. Vodafone (VOD) – Though I own a bit of AT&T (T), Vodafone could be a different play after their sale of Verizon ownership back to the big red.  This is another international company and my weight in telecom is still fairly low.
    1. Performance YTD: They are down 13.27% due to multiple reasons, the Verizon sale, the competition in the telecom arena, etc.  This is easily lagging the market as a whole and telecommunications as a whole, including big competitors.
    2. Dividend Metrics: Yield I’m calculation is an astronomical 9.86%, which may be inaccurate from reading their report.  I believe they are paying back $3.36 on the ADR this year which on a share price of 34.09, that’s the calculation.  Payout ratio is not worth mentioning here, actually, as my calculation is over 100%, not a good sign.  Unless they only do the 1 dividend for the year, then this would come down a bit with the yield, obviously down.
    3. This does add a different area of the world to my portfolio in an industry that I have approximately 6% of my portfolio in.  I do enjoy AT&T, but I’m always concerned about the growth with them and what they can do next.

I’ll be on the monitoring seat with all 3 of these, with more than likely, purchasing one within the very foreseeable future.  I am excited and fortunate to have the choice, ability and the monetary capabilities to do this.  Now Bert – what the heck are you looking at?  Better not be stealing any of my ideas, getting tired of you making purchases off me man.

Bert’s Watch List

Thanks Lanny.  If you are getting tired of me making purchases off of you, you might want to take a look at my portfolio  and see that I actually have a pretty sizeable investment in GSK!  On to the fun stuff.  When I put together my last Watch List my portfolio had one glaring hole, a lack of an investment in a financial company.   Since then, I took advantage of the lower valuations and initiated a position of 21 shares of Aflac.  This added $31 of annual dividend income to my portfolio and most importantly, increase my financial holdings (3.24%).   Lanny was partially right in the sense that I have been following his lead lately.  After his AFL analysis and the general consensus from the community, it seemed as if this was a great time to pull the trigger and address a major need in my portfolio.   With that being said, here are three additional companies that I am going to have my eye on in the next couple of months.

  1. Verizon (VZ).  My first watch list stock is attacking Lanny’s Watch List above!  I am in a similar boat and have a pretty large individual holding of AT&T (4.82%).  With that being said,  my overall allocation of telecom is pretty  low for a dividend growth portfolio.  VZ is the main competitor with T in the United States and the competition is essentially a two-horse race.   I don’t think it would hurt to diversify my telecom holdings and another investment would not throw my portfolio weights out-of-whack.
    1. Performance YTD.  VZ has been hovering in the green this year and is up just 2.27% YTD, which is pretty consistent with T’s performance (Up 2% YTD).
    2. Dividend Metrics.  VZ has a payout ratio of 45%, a yield of 4.36%  and has a history of increase dividends on an annual basis.   The increases have only been in the mid-single digits, but the company has continued to grow their payout to the shareholders.  In fact, the increases have been greater on a percentage basis greater than the annual $.01/share increase that T  provides its shareholders.
    3. Price to Earnings.  The company is currently trading at 10.33 PE, similar to that of T.  This offers a pretty nice discount in comparison to the broader market.
  2. J.M Smuckers (SJM).  Smuckers is a company I always have my eye on.   The company can be found in almost every families’ home; SJM is the market leader in many basic food categories peanut butter, jelly, coffee, and so on.   I love adding companies with strong brands to my portfolio that have withstood countless economic booms and busts.  My portfolio is built for the long haul, so why not find stocks that will survive the test of time.
    1. Performance YTD.  Similar to VZ, SJM has been hovering around the 0% YTD mark.  Currently the company is down .38% YTD and has spent time in both the red and the green
    2. Dividend Metrics.  SJM has a payout ratio of 41.7% and a current yield of 2.53%.  SJM has increase its dividend 10% on average over the last four increases and still has plenty of room to do so.   While the dividend yield is lower than I what I prefer,  I am willing to look the other way if the management focuses on increasing this dividend at a higher growth rate.  10% over the last four years is large enough for me to look the other way.
    3. Adding SJM would add another strong consumer food staple company to my portfolio.  Even though I own shares of Kraft (KRFT), the companies do not overlap in many of the food categories.   SJM owns the market in the categories in which it competes.  As I said above, I love adding these companies.
  3. Fifth Third Bancorp (FITB).   The last hold-over from my initial watch list.   Even though I purchased AFL and now have a company in the financial sector, I still do now own a bank.   The financial sector encompasses a lot, so adding a bank would not overlap my first purchase at all.   I always have my eye on WFC, but that would be the easy choice.  Plus, WFC has been on a tear this year.  So following Lanny’s theme of finding companies that are down for the year, I will continue to follow the Cincinnati based bank.
    1. Performance YTD-  Down 2.56% YTD.  Since the companies peak in March ($23.50/share) the stock has fallen 13.5% to it’s current levels.
    2. Dividend metrics  FITB has a payout ratio of only 27% and has increased their dividend by $.01/share, or~10%, over the last few years.   There is still plenty of room to increase the return to shareholders.  Similar to SJM, the yield is below three but management has demonstrated its willingness to increase the dividend by a large amount.
    3. Price to Earnings-  Midwest Banks have P/E ratios in the range of 13-16 (Obviously there are outliers to this range).   That’s what is appealing to FITB to me, the companies current P/E Ratio is only 11.55.  They have been in the news recently with the Department of Justice, but if the suggested settlement of $1.5m is finalized I do not see this impacting the long-term prospects of the company.

We have a lot to watch over the next couple of weeks in the month!  It is interesting to see how a person’s watch list evolves over time.    A few weeks ago Lanny was talking about re-upping positions in 4 completely different companies (PG, PFE, MCD, and AFL) and Bert was focused solely on financial and tobacco companies.   Now, none of the stocks are on the August Watch List. What stocks are considering in the upcoming weeks?  Have you purchased any of the stocks we are watching?  Please let us know any thoughts you may have about our watch list!

The Dividend Diplomats

DISCLOSURE: WE DO NOT RECOMMEND ANY DECISION TO THE READER or ANY USER, PLEASE CONSULT YOUR OWN RESEARCH. THIS IS ACTUAL DATA, ANALYSIS, HOWEVER WE BASE NO INVESTOR RECOMMENDATION.  THANK YOU FOR YOUR UNDERSTANDING.
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10 thoughts on “Dividend Diplomat August Watch List

  1. Diplomats,

    Great list here. And thanks for the mention!

    Some great names up there. DE is a great play for the value. I hope I can pick up some more myself at some point here. VZ is another strong candidate, and is on my own watch list for the coming month.

    VOD has been quite weak after the sale of the wireless assets, but still has a lot to like. I think the yield is actually closer to 5.7% or so based on what they’ve paid in dividends this year. And that yield is somewhat higher than their average, from what I’ve seen.

    Have fun shopping!! 🙂

    Best wishes.

    • DM,

      Of course! The list is pretty expansive with obviously ideas going back and forth between Bert and I. There is something with DE that I really am liking and am excited for their dividend growth going forward as well. Historical yield is far less than where it is now and is very enticing.

      The telecom play is interesting and we’ll see, that realm is a tough give and take, as the growth in those markets is tough to think about. Even though it’s a slow growth – AT&T has the cable/Direct TV/Uverse package that VZ doesn’t provide.

      Thanks again DM, hope you had a great weekend, Bert said you checked out Cedar Point today – hope that was a blast!

      -Lanny

  2. I like VOD quite a bit and might add to existing position. VZ is another one I have my eyes on. SJM also looks interesting. Thanks for sharing your watch list.

    • Tawcan

      Thanks for the stop. What are your biggest pros to investing into VOD? Would love to hear your perspective. Do you think they’ve taken their hits with the sale of wireless assets? Thoughts?

      Thanks again Tawcan, hope to hear back soon.

      -Lanny

    • Henry,

      Having capital is always nice to have for opportunities when they do arise – it’s funny how integral that really is, as that is step 1.

      I’m sure your research will provide what you need. What are the main points with RAVN and MKL that you like?

      Thanks Henry, talk soon.

      -Lanny

  3. Thanks for the list! I’m definitely going to check out these stocks and see if they fit my portfolio. I like the fact that you guys include lesser known dividend stocks and not only focus on current dividend growth darlings like DE.

    VOD has a ridiculously low P/E ratio! When you look at the LSE listing of the stock, the payout ratio doesn’t appear to be over a 100%: EPS of £0.42 and a dividend of £0.11 for 2014. That is if I’m not mistaken, because both the company and the stock have been doing some strange stuff lately because of the VZ sell.

    Thanks again for sharing and best wishes,
    NMW

  4. I only own DE from that list presently. I like the choices here, but I need to look into them a bit more. I am not sure when I will be investing again, hoping my ROTH rollover speeds up so I have some capital to invest.

    • Kipp,

      Thanks for rolling by. Actually I just made a move today on DE which lined up with our watch list – it’s great! Always great if the fund company’s can move up the speed of transactions, I’ve been through that before. Cheers to you getting your capital in time for the purchases you want to make Kipp!

      -Lanny

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