Dividend Diplomats September Watch List

It’s about that time of the month everyone!  The stock market has been wild and rampant, with dips, swings up, going upside down, normal side right, well you get the picture.  The Dividend Diplomats have strung together a few companies we are analyzing during this month of September to see what we can create or add to within our portfolio.  Essentially volatility can be great, if it means the companies are fundamentally strong but that overreaction to external and macro events are causing the push down in prices across the board – thus opening up opportunities for us dividend investors.  Come and see what is on our dividend stock watch list!

Watch List

Lanny’s Watch List

Okay Bert, it’s September and I’m trying to throw some big company names at you, and take advantage of the benefits that us dividend investors can achieve when the market is swinging wildly.  Check these two out and let’s see what you got on yours, son!

September Watch List

Procter & Gamble (PG): Yes, they are back on my watch list, as they were on there in August.  Further, I recently performed a dividend stock analysis on the company last week.  Even though I recently wrote about them being a big company with a smaller than normal dividend increase – they are on my watch list as I believe in their future earnings potential and the planned clean up of their brand portfolio.  Further, they are a Dividend Aristocrat and I have written about them in the past being a foundation stock for a dividend investor’s portfolio.  Price has increased a little since the analysis (These are prices as of 9/18 close), but their P/E Ratio is below 20, yield is approaching 4% and the payout ratio isn’t too shabby.  Still on my radar as I’d like to round out my position.

AT&T (T): Ah… they are back on my radar. After all, I currently own over 148 shares of this telecommunications behemoth.  This is a cash cow machine… and they are currently trading at a price that is slightly below my combined cost basis for the company.  This is something that I love to do – adding to current positions where I can lower my cost basis (Such as my recent 25 share purchase back into EMR).  Similar to PG above, T is also another foundation stock for a dividend investor portfolio.  They have a good breadth of products and services as well as have completed the acquisition/merger of DirectTV.  They support a typical modest 2% growth rate to their dividend year over year, not bad.  As a dividend income investor, with a yield at close to 6%, this isn’t a bad beast to have to pump your income, reinvest or use the cash for something else as well.

One thing I have noticed – shares went up on both of these companies and haven’t really been driving down the shares to increase EPS, given the analysis in why share buy backs unlock value for dividend investors.  Further, the dividend growth rate isn’t the highest on either of the 2… maybe I am trying or stretching to get to my goals?  Hmmm… the market has made me make tough decisions!  I’m in a bind, maybe Bert’s list can help?  What do you have B?

Bert’s Watch List

DD - Sept WL

Lanny, I love the watch list. You weren’t kidding, those are some HUGE hitters.  Your P&G stock analysis brought forth some convincing arguments in favor of purchasing the company right now and I may not be able to hold off on re-upping my current position  much longer if the price continues to fall.  The long-term track record is impressive and don’t forget…I love consumer staple stocks.   But, I’m not adding them to my watch list at the moment.   And interesting move adding T to your watch list.   You said it best, they are a cash cow and are getting ready to increase their dividend again.   I’ll take a 2% growth rate if that means the dividend yield close to 6%.   What’s wrong, was receiving $68 in dividend income from T in August not enough for you?  Man… You know what, I say make it $100 a quarter or bust.  Step up to the big leagues!  Now, let’s take a look at which two dividend stocks I have my eye on.

Caterpillar (CAT) –  Sorry Lanny, but I am stealing the first stock on my watch list from your August list.  What’s crazy is that this stock was trading at $78.50 at the time of our last watch list article and now the stock is fighting to stay in the 70s.   Lanny has been begging me to buy this stock since last year when the stock was in the 80s and you know what, it is finally time to consider initiating a position in the company.   The company has a phenomenal recent dividend growth rate and a payout ratio that is hovering around our 60% threshold.   I understand that the economy is slowing down in one of CAT’s key markets which is driving the price down.  However, CAT operates in a cyclical industry that is currently in the wrong end of the cycle.  Since I am a buy and hold investor, I am less focused on the short-term swings in prices and more focused on the dividend and the long-term prospects of the company.  CAT has demonstrated great dividend growth and is a leader in the industry that has some high-cost barriers to entry.   While I am not running out to buy shares in CAT, I am keeping a close eye on the company and may initiate a position before the next ex-dividend date that is set to occur sometime in the middle of October.    Did I also mention that CAT just missed my list of five stocks that I will “Always Buy” in 2015?  Maybe they will make the cut next year!

Johnson & Johnson (JNJ) – Now, onto one of the stocks that did make the cut on my “Always Buy” list.  We have been big supports of JNJ over the last year and a half on our website and believe it is one of those foundation stocks that you can add to your portfolio and forget about until you retire.   And it seems like we are not the only people in the dividend growth investing community that feel this way based on other articles and responses to our various watch lists!  JNJ is not the cheapest stock in the market; however, it is trading at a discount compared to the broader market, offers high single digit dividend growth, has a payout ratio less than 60%, and has many strong brands in their portfolio.  Just one of those rock solid companies.   Currently, I own 17.38 shares in the company and would love to increase that total to at least 30.  Increasing my stake to 30 shares would mean that JNJ and Emerson Electric, which I recently purchased, would be the two largest individual stocks in my portfolio.  I couldn’t think of two better stocks to call “my foundation” stocks to challenge Lanny’s powerhouse position in AT&T.    The question is, why shouldn’t I continue to build my position since the stock is trading down over 9% YTD?

Summary

Overall, we have two stocks that were carried over from our August watch list: CAT and PG.   But honestly, we could have carried over all four stocks from last month and added over two dozen other companies based on the markets recent downturn.  There are so many great dividend paying companies trading at a discount now.  So lets all take this opportunity to add some great long-term, growing dividend income to our portfolio and push the ever-growing dividend snowball further down the hill.

What stocks are on your watch list?  Are you staying away from any of the four stocks on our list?  If so, why and what company would you recommend in their place?  Have you purchased any stocks during the downturn or are you sitting on the sidelines waiting for the right moment to strike?  We are looking foward to your comments!

-The Dividend Diplomats

Note:  Stock Prices as of 9/18/15 close

DISCLOSURE: WE 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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9 thoughts on “Dividend Diplomats September Watch List

  1. Many are already starting to write about a market tipping point. Seems like we are find more and more names trading at much better values these days. Cyclical CAT, is looking better and better and during the economic slumps when everyone is dumping is the best time to add to this long term winner. I also have my eye on EMR. Some of these yields are too hard to ignore. Just tread cautiously. Many dividend bloggers saw “amazing” yield in the energy sector only to watch it get even more “amazing” with further price drops.

    • DivHut,

      Isn’t it insane how many great companies are trading at a discount. There are so many 4% yielding companies for stocks that typically yield 3% or lower. I’m very intrigued by CAT. The company has been around through many years and economic slumps. Did they fail or stop delivering shareholders a dividend or other value…no. Treading carefully is some great advice. I have had both strategies in the past: Either purchase your entire position at once or purchase in steps and hopefully average down as the price continues to fall. I have been burned by the latter in the past as the stock price suddenly increased before I could purchase the second half of the transactions. SO at the moment, I am in the camp of “just buy the whole position and in five years you won’t remember your entry price.”

      Thanks for stopping by!

      Bert

  2. DD,
    I have similar names on my list, but I am probably going to be limiting myself to Loyal3 for the next two months. There are a ton of options opening up right now and if I had cash I buy in… here’s a few I really like: NSC, FAST, CMI, TROW, BEN, XOM, and your JNJ too. Too many solid names out there to write!
    – Gremlin

    • Gremlin,

      It seems like you could put over 100 names on a watch list and be okay. Man are there some great discounts available right now. You cant’ go wrong with any of the names on your list. I love NSC as can’t believe that the stock has continued to fall. Keep us updated with your purchases!

      Bert

  3. I bought more (T) the other day when it hit $32. I wouldn’t expect it to raise dividends anymore than the penny a year it has been, but at over 5.75% yield with 31 years of consecutive increases I like it for income.

    • Nice pickup Chimp! If I didn’t have such a huge position in the company I would join you and Lanny on the T train. I’m in your camp, I doubt they will increase more than one penny. But it can’t hurt to hope, right? haha

      Thanks for stopping by. Have a great weekend!

      Bert

  4. 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

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