Dividend Diplomats November Watch List

Wow! We are halfway through November already.  I can’t believe it; 2015 is quickly approaching.  Each month we have been putting a watch list together to help us and the readers find that next investment.  Sometimes the list leads to a purchase and sometimes the stock appreciates so quickly it flies off of our watch list.   So which companies are we watching over the next few weeks?  Let’s find out!

November Watch List

Bert’s November Watch List

 Last month I had a very focused watch list.  I had $500 of capital to deploy and I want to “re-up” a position in one of three holdings (MCD, PM, or AFL).  Several of my positions were purchased with initial positions of between $1,000 and $1,250 when I was in the beginning stages of investing and I wanted to increase my position in the companies.  After all, I was choosing between three solid dividend growth companies.  After all the dust settled, I ultimately selected to re-up my position in Aflac; adding $13.71 of projected dividend income to my portfolio.  Enough about last month!  What is my mindset for my next purchase?  I have $500 once again to invest and I would like to add a position in my Roth IRA.  So you guessed it, I would like this purchase to have a higher yield to maximize the tax-free benefits that come along with the Roth.   The one difference between this month’s watch list and last month’s watch list is that I do not want to commit to using the funds just to “re-up” a position.  One of the things I learned from watching Lanny’s multiple purchases of IBM in the month is that your initial purchase does not have to be the only purchase of the stock.  Lanny initiated a position in IBM of only $500 to start, which I know for a fact is below is usual purchase.  As he performed more research and watched the stock price fall, he significantly re-upped his position and now his holdings are much more in line with others in his portfolio.  So this month, I will consider both new and current holdings for my portfolio.  With that being said, which companies are on my November Watch List?

  1. International Business Machines (IBM) – Is anybody really surprised this stock is on my Watch List?  So this month Lanny has been all about IBM and I think I caught the fever.  In his stock analysis of the company, he mentioned the following stats about the company: Low P/E ratio (Below 11), 19 years increasing their dividend, dividend growth of 14% over the last 5 years, a low payout ratio of 27%, and a current yield (2.71%) above the S&P 500.  In addition to Lanny’s analysis, IBM would also fill a hole in my portfolio since I do not own any technology/service companies.   Therefore, it rightfully deserves a spot on my watch list and is a no brainer stock to watch over the next month.
  2. Chevron (CVX)- CVX is a new addition to the watch list.  As I have watched and read the news recently, I have noticed the oil market has declined over the last month or so and I have been trying to figure out how I want to play this downturn. Why wouldn’t I consider another oil company?  Because I already have several large holdings in oil companies.  I  am currently a proud shareholder of Shell (MV: $1,400),  BP (MV: $2,232) and while KMI (MC: $2,200) is not technically oil, I still consider it under the larger gas and oil industry.  So I already own a lot of oil.  In addition, I have several mutual funds and while I do not have exact oil allocations, I am sure the industry is well represented in their holdings.  After all, I selected blue-chip dividend focused mutual funds!  So why am I considering CVX?  I spent time this week looking at the current metrics of the company, to conclude – I like love what I am seeing.  As of 11/14/14’s closing price, the company had a P/E ratio of 10.71, current yield of 3.68%, payout ratio of 37.80%, and an average annual  dividend growth rate since 2010 is 10.36%.  While their current yield is lower than BP, RDS, TOT, and other companies in the industry, CVX has the lowest payout ratio of the group (TOT, BP and RDS have ratios of 59.5%, 78%, and 73%, respectively).   They have the earnings, cash, and room to continue to grow their dividend at a double-digit pace.   As the metrics appear strong, it made me think that it would be okay if my allocation in oil increased.  After all, as I continue to purchase stocks in other industries the weight of oil in my portfolio would decline.  So why not take what the market is giving me?
  3. GlaxoSmithKline (GSK)-  GSK is a perfect candidate for re-upping a position in my Roth IRA.  For one, GSK currently has a high yield (5.8% using my personal calculation) and a low P/E ratio (16.82) due to its performance year to date.  2014 has not been the best year for the large drug manufacturer as the stock has declined  9.7% YTD.  I like owning one of the major companies in the drug manufacturing/pharm industry because of the high barriers to entry, (requires a lot of capital to absorb the high R&D costs  and  intense regulation, to name a few) that help build a sustainable long-term moat.  This may be a perfect opportunity to take advantage of short-term struggles for a company that is a major player in a long-term game.  The one thing about GSK that has always bothered me is the lag-time between the ex-dividend date and the payment date, which is almost two months apart.  While it is nice to know the dividend early, I hate having to wait and it can make planning an investment very difficult.  Let’s take this month for example, the ex-dividend date was November 5th for a dividend payable January 8th.  If I invest this week, I will not be eligible to receive a dividend from GSK until the next dividend, which is in APRIL!  In that time span, there are plenty of other companies that will pay one or two quarterly dividends.  I know it is not a big deal once I am invested, it is just one of those aggravating things about deciding when to invest in GSK.

I know IBM has been a popular company in the dividend growth community over the last few months due to the recent drop in price.   I am leaning towards either IBM or CVX at the moment, but we will see what the next couple of weeks will give us.  I just missed both companies’ ex-dividend dates, so I am not facing a looming deadline to pull the trigger on the investment.  Regardless of the timing or which company I eventually select, I am exciting to purchase stock in a strong company!

Lanny’s November Watch List

This month, my target yield is 2.50%+, strong fundamentals going forward with dividend growth rates of 7% or more, which changed from last month’s watch list metrics of an entry yield of 3% and growth rates of 5% over a 5 year average.  Bert – I like those that you have listed – particularly IBM and CVX.  You know why I love IBM for obvious reasons as I performed a stock analysis on them, as well as made an additional purchase and even through another $2K on them after that to bring my total invested to $3K.  My watch list will have strong dividend players with average yields but above average dividend growth rates.  Given the market has been increasing steadily throughout the end of October and into November, this limits the stocks that I am looking at, as opportunities are becoming more and more difficult to find, but as us investors know – with diligent research – stock opportunities can be found.  

  1. John Deere (DE).  I bought $2K approximately worth of them back in August and I’ve been monitoring the heck out of them lately.  They are up over $3 per share since I have purchased them but I think there is still value here, based on the following metrics:
    1. Dividend Yield 2.74%: The yield is above 2.50% and is very comparable to Caterpillars (CAT) yield at 2.76%.  However, the next metric also paints a very nice picture for why I like them.
    2. Price to Earnings Ratio at 10.47: This P/E at 10.47 is based on EPS projections of $8.36 for the year and is relatively more conservative, given Google Finance shows the P/E at 9.97; concluding this is undervalued in comparison to CAT, as their P/E is above 16.  Therefore, they are more attractive than the biggest player as well as the market as a whole.  Projected EPS for FY 15, due to the cyclical nature, shows a forward P/E of 13.40 based on a lower EPS figure ($6.53), but with that even being said – still shows undervalue in this current market place and the payout ratios of 29% and 37% based on those 2 disclosed EPS figures.  Which leads into number 3…
    3. Dividend Growth: Dividend growth for John Deere has been absolutely incredible with an average over the last 3 years of ~14% – cannot complain at all about that!  With the payout ratio being low as disclosed in #2 above, this will allow John Deere to continue to pump their dividend year after year.
    4. Additionally, John Deere purchased $1.6B of stock through 9 months this year (7/31/14).  From the 10Q filing “At the end of the third quarter of 2014, $7,330 million of common stock remain to be purchased under this plan.”  Based on the share price close on Friday of $87.52, this entails 83.7M of shares to be repurchased under the plan.  There were 358,420,496 shares outstanding at 7/31/14, therefore, 83.7M share reduction represents 23% of shares outstanding.  Therefore, John Deere’s EPS growth can be entailed from stock repurchases.  This is similar to what I discussed with IBM, as well as what Bert showed with DOW.  This is unlocking shareholder value, no doubt.

2. & 3. What hurts me right now, is that I have added so much capital this year.  After purchasing more IBM & Mattel last week, to which I actually ended up purchasing $3.5K more in stock at the end of the week ($2K more to IBM and $1.5K more to AFL that I have posted about) – my positions are looking very well-rounded.  This is all thanks to my push to save 60% of my income, to which I was able to achieve last month of October!  I do like Bert’s take on CVX as I compared it to XOM and RDS (Shell) and will conclude I do like CVX better at the moment – better yield, better payout ratio, better dividend growth rate when paired with current yield.  I am going to make this extremely difficult and say – I am going to have IBM & CVX on my November watch list as well.  Go ahead and make fun of me Bert & readers!  Further reasons to include these two on my November watch list:  From Chevron’s latest 10Q “During the first nine months of 2014 and 2013, the company purchased 30.6 million and 31.3 million common shares under its ongoing share repurchase program, respectively, for $3.7 billion in each corresponding period…..Common Share Repurchase Program In July 2010, the Board of Directors approved an ongoing share repurchase program with no set term or monetary limits.  The company expects to repurchase between $500 million and $2 billion of its common shares per quarter, through open market purchases or in negotiated transactions at prevailing prices, as permitted by securities laws and other legal requirements and subject to market conditions and other factors. During third quarter 2014, the company purchased 9.8 million common shares for $1.25 billion. From the inception of the program through third quarter 2014, the company has purchased 169.9 million shares for $18.8 billion.”  I love the buy back, as you can see from above, as it’s an additional incentive for common shareholders, as they have a good balanced approach between repurchases and dividend increases.  If oil continues their decline, I will consider purchases (as my other holdings are taking a hit, which opens up my weight in that area to have a further infusion).  I would prefer CVX in the lower $100’s, but we shall see what Mr. Market wants to do over the next coming weeks.  I currently have an exposure when including Kinder Morgan of approx 15% and normally I see this around 20% of my portfolio.  Further, I will be considering further purchases of IBM if it dips into the $150-$157 range, as I think there is further shareholder value to be unlocked for years to come with IBM.

What are your thoughts on the Dividend Diplomats November Watch List.   Are you also considering the same stocks?  If not, which stocks will you be watching the rest of the month?  Thoughts on Lanny’s portfolio roundings?  What are your percentages of your portfolio that holds oil?  Let us know your thoughts about our selections!

~The Dividend Diplomats

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20 thoughts on “Dividend Diplomats November Watch List

    • David,

      I do like the Canadian banks as well, as I own one of them! Their P/Es are pretty strong and I recently had CM on the watchlist, but the stock has been riding up a bit since then.

      Thanks for coming by!

      -Lanny

    • MDP,

      haha that was an awful game by our Brownies. JJ Watt is better than advertised. I haven’t had the opportunity to watch him too often, but the Texans have themselves a heck of a football player. I had a bad fealing going into the game that we would be disappointed come 4 PM; and unfortunately I was right.

      Thanks for the kind words and stopping by!

      Bert

  1. Heck of comment by MDP… needless to say, while not a Texans fan, is there anything JJ Watt can’t do? Seriously, that dude is a beast. But I digress…

    I like the watchlist, and have recently purchased a couple of items on the lists (CVX and IBM), while being shareholder in a third (DE). I don’t know too much about GSK, but wish you guys happy shopping over the next couple of weeks. I’ll likely be hunting for some more CVX, possibly another one of the oil majors, or even some Canadian banks as David seems to like. We shall see!

    As for the relative weight of my oil holdings, I’m not overly concerned at this time given the early stage of the accumulation process. A couple years from now, I will likely focus in a bit more on those. Just for comparative purposes, I currently sit around a 16.5% weight based on FMV.

    • W2R,

      JJ Watt is a monster on the football field. Disrupting every run play and swatting passes just wasn’t enough for him this year. Apparently he needs to beat teams as a tight end too! Unreal!

      I think this is a great opportunity to purchase some more CVX for you and initiate a position for me. I love the fact the company has such a low payout ratio compared to its peers. There is still plenty of room to keep growing the dividend, even after the large increases of the past few years. GSK is one of the large, pharm companies. Right now, it is the sixth largest in terms of market-cap and pays the highest dividend among its peers. A few more quick facts, GSK has the lowest P/E among the industry peers and is one of two large pharm companies that are down YTD. It might be worth a look to see if it passes all of your investing metrics. If not, understandable.

      Is there a certain Canadian Bank you are focused on at the moment? Or are you waiting for any of them to decrease? I like your thought process about the weights. Accumulate as many dividend growth stocks while accumulating income. Very solid approach.

      Bert

    • W2R,

      Thanks for the great post. JJ Watt… is an animal, best athlete in the NFL.

      I was happy to see DE drop a little today, I should have pounced on them when they teetered the 82/83 mark earlier, mad about that! I am liking DE and CVX big time, and we share approximately the same weighting of oil based companies (I’m around 15%). I like the point of your view/mindset with the accumulation phase – build it up strong now and then start spreading the wealth, not a bad method, to which Bert and I talked about your comment on the phone today and I see the standpoints you and him come from with that. I always feel like I am in accumulation phase!

      I own a Canadian Bank – CM actually and it has performed very well. Strong dividend, they’ve increased it a few times this year alone and is one of the “big six” I think as they call it. I need to dive back into there to see which is the better Canadian bank stock at the moment, I hope Bert reads this because I think I smell an article maybe? haha.

      Thanks again for the comment, talk soon!

      -Lanny

  2. Nice watchlist guys. Mine is pretty similar at the moment. I’d like to be able to average down on IBM once I get some more capital available here at the end of the month as well as possibly adding to CVX. IBM is providing a very nice entry point if you think their revenues will eventually start to pick-up as they transition to more of a cloud based/big data company which I think they will.

    I picked up some more BP shares a few days ago. Like w2r mentioned above, I’m also comfortable being overweight in certain sectors and companies as I still have a ways to go before retirement. Oil stocks account for 19% of my forward annual dividend income plus another 10% from Kinder Morgan, so I’m definitely not diversified. Both BP and CVX present pretty good value here with CVX being the safer pick.

    Best regards,
    SFZ

    • Thanks SFZ! Lanny really took advantage of IBM’s recent happenings to initiate a position at the current levels. I am still torn between IBM and CVX though; but who knows, maybe the market might answer this question for me over the next week or so. Both you and W2R have raised a great point about focusing on income accumulation first and then worrying about portfolio weights second. I think all of our portfolios are in a position where if we add a new position in a stock it will not make our portfolios overweight in any one sector. Unless of course you have one larger than normal purchase! Over time the portfolio will balance as you add positions to different sectors.

      I like how you measure the industry as a percentage of dividend income. That’s a cool metric that I think I will have to add to my spreadsheet. Thanks for the new chore.

      Cheers and thanks again for stopping by!

      Bert

  3. Lanny and Bert,

    Good list here. I’ve thought along similar lines, adding to IBM not long ago. I also added an oil services company to the portfolio very recently, so I can agree with some value in the energy sector. Though, with the steep drop in oil I’m actually surprised some of these stocks aren’t even cheaper.

    Happy shopping. Keep up the great work!

    Best regards.

    • DM,

      Thanks for stopping by. We figured it is getting close to Black Friday, so why not shop for some dividend stocks? I am still torn between IBM and CVX. Secretly, I am hoping the market soles this problem for me because they are both great companies. Luckily both companies do not have an ex-dividend date soon, so I have a little more time to see how the two companies perform before I can execute my next free Sharebuilder trade.

      Happy shopping to you as well!
      Bert

    • DM,

      Thanks for your comment. I actually brought that same notice to one of my co-workers relating to the steep drop in oil and that we’ve seen a drop in stock prices, but in relative terms not as much on a % basis as we’ve seen in the price per barrel or gallon. Interesting.

      With that being said, I am keen on DE at the moment and will buy IBM if it really drops again, such as the mid to upper 150s. I don’t mind oil being between 15-20% of my portfolio weighting, so an oil stock at this time is on the list.

      We have about 44 days until the end of the year, this may be all of our holiday shopping season, eh? haha, we shall see. Thanks DM – talk soon!

      -Lanny

      • Following the oil drop, I would put Helmerich & Payne (NYSE:HP) on your list. This stock dropped as fast as the oil barrel and shows strong upside potential. I already hold HP so I bought another company following the same trend in Canada: Black Diamond Group (BDI.TO). This company rents/sells modular home and equipment to companies working (exploring) in remote area. Their biggest market right now is the oil sand in Alberta but since they are not limited to the oil industry (they can extend to the mining industry in the future), they represent better trade in IMO.

        As far as looking for a more “techno” stock, I would prefer Garmin (GRMN) or Apple (AAPL). I know Apple is an easy pick, but it set to grow again. GRMN will continue to show strong sales with Christmas coming and their fitness division that is already on fire.

  4. Both Deere & Co and Chevron are are on my watch list. I currently own Deere and have owned Chevron.
    Deere & Company is a solid company with strong competitive advantages and with a impressive track record when it comes to profit and dividend growth. I like the company’s domestic market where DE seems to have significant competitive advantages. I also like that a large portion of Deere & Company’s revenues come from the aftermarket (used machines, parts and service) and financing activities, which should reduce fluctuations in profitability going forward.

    Chevron on the other hand may not have the widest moat, but has proven to have competitive advantages since the company has had one of the highest profit margins in the industry in recent times.
    The question is what the future looks like? How sales and the profit margin develops will depend primarily on the price of oil and to a lesser extent on the price of gas. Chevron has been investing heavily to increase the production of oil and gas and has one of the world’s most aggressive project portfolios. Chevron’s cash flow has been weighted heavily by high levels of CAPEX, but the company has over 15 billion in cash and low debt ratio and should be able to handel the strain. Personally I think we will start to see better numbers from Chevron next year when large investments in Australia and elsewhere start producing.

    Keep up the good work!

    /Best Regards

    • Thanks for stopping by LTI. I appreciate the additional information about Chevron. One of the first things that jumped out to me about Chevron was their strong balance sheet (As you mentioned in the article). The cash and low levels of debt will allow them to weather any such storms that arise, expand their investory through new investmesnt/acquisitions if they choose, and continue to reward shareholders by increasing amounts. It provides the company with a lot of mobility going forward. Hopefully you are right about seeing the results soon.

      Cheers,

      Bert

    • LTI,

      Glad you are liking John Deere by the way, as I own them and as you know – are on my watch list! I do love what they have, their metrics and their dividend yield growth rates very strong. I am hopeful for everyone here with Chevron, I have to start evaluating more oil is my bottomline. Thanks again for stopping by, talk soon!

      -Lanny

  5. Hey Lanny and Bert, they’re all pretty rock solid companies, I don’t think you can go too wrong with this watchlist in the long run. My portfolio is Australian stocks only at the moment, so I don’t know all the numbers behind those businesses in detail, but some nice ideas to consider if I start branching out from little ol’ Australia! (which I really should do! That ‘home bias’ concept of investing in local stocks only is hard to break out of!)

    • Islands,

      Thanks for the stop by! That is awesome you have a well equipped domestic, for where you live, portfolio! How are the taxes on dividends over there by the way? How are the local stocks? Work well?

      -Lanny

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