May was another fascinating month in the market. The number of green days significantly outnumbered the red days. For our portfolio market values, it was exciting to see. However, from a stock purchase standpoint, it was a little frustrating. As prices appreciated, the number of purchase opportunities slowly faded. Still, as you saw in Lanny’s May purchase article and you’ll see in mine, there were still opportunities to purchase strong, quality dividend growth stocks. Let’s dive right in and view my May dividend stock purchase summary.
After the pandemic started and we started receiving dividend cuts, I enhanced my stock purchase strategy. I would invest in small dollar increments rather than make large stock purchases. Thank goodness for free trades. Otherwise, this strategy modification would not be possible.
Further, I would focus on investing in quality dividend growth stocks. It is not like I was doing that before. Quite the opposite. However, when times are tough, I want to add to or initiate positions in companies that have proven their ability to pay and grow their dividends through good times and bad. Dividend Aristocrats and Dividend Kings…come on down!
Luckily though, this is just an enhancement of our investing strategy. Over the years, our trusted Dividend Diplomats’ Dividend Stock Screener has identified plenty of great investment opportunities. The 3 simple metrics allow us to find those undervalued dividend growth stocks with a strong dividend history and a manageable dividend payout ratio. A recipe for success and I am very fortunate to have used this screener to build such a strong foundation.
Dividend stock purchase Activity – May 2020
In the month of May, my wife and I purchased $2,362 of stock in May. The purchases added $117 in dividend income to my portfolio. The remainder of the article will discuss the major purchases and summarize the “best of the rest.” Upon reviewing my listing of purchases, there were two companies we purchased heavily in May: Cincinnati Financial and Peoples United Bancorp. Two Dividend Aristocrats Baby!
Cincinnati Financial Corporation (CINF)
Cincinnati Financial is a new holding of mine in 2020. At the end of April, we began adding positions to our individual portfolios. Quickly, my wife and I amassed decently sized positions. I have been watching and monitoring this company for years. However, after reviewing the numbers, my conclusion was always the same: the stock is too darn expensive to purchase. That sentiment changed in March; however. The company’s price quickly tumbled from their record high prices to their five-year low (as you can see in the Yahoo! Finance chart below).
With a much lower price, I began to run the numbers and perform a detailed analysis on the company. Despite the losses due to Coronavirus and a net loss in Q1, the company’s core business remained strong and I felt comfortable with the company’s dividend safety. That belief was solidified when I ran the company through our stock screener. I’ll use our average purchase price of $56.34 per share, forward EPS of $3.39 per share, and an annual dividend of $2.40 per share in the screener.
Price to Earnings Ratio – 16.6X – CINF’s price to earnings ratio is less than the S&P 500. Thus, the company passes this metric of our stock screener. Was the company the cheapest company out there? No. There were some other cheaper options in their sector as well. However, this quality Dividend Aristocrat was still considered undervalued due to their price compared to the market. Success.
Dividend Payout Ratio – 70% – The company’s dividend payout ratio is slightly above the metric we use in our stock screener, 60%. While this isn’t an outright pass, the payout ratio is not significantly above our screener nor is it close to 100%. I am less concerned about a 70% payout ratio for them due to their strong dividend growth history. Now, if that value continues to creep up to 80%-90%, then we may have a different conversation and it may spur different action.
Dividend Yield and History of Increasing Dividends – 4.25% Dividend Yield; 59 Consecutive Dividend Increases – The company is a Dividend King and Dividend Aristocrat. Earning those titles alone demonstrate your company’s strong history of increasing their dividend. Our average dividend yield at the time of purchases was 4.25%. That is a very strong yield and one CINF shareholders have not enjoyed for quite some time!
Purchase Details: Over the course of the month, we added 22 shares of CINF. 14 shares were added to my portfolio and 8 to my wife’s portfolio. These total dollar amount of the purchases were $1,242.97 and resulted in $52.80 in new dividend income to our portfolio. CINF accounted for just over 50% of our stock purchases for the month.
People’s United Bancorp (PBCT)
Another financial institution found its way onto our “top purchase” list for May. Unlike Cincinnati Financial, People’s United is a Dividend Aristocrat in the banking sector, not insurance industry. Lanny was the one that opened my eyes to the bank this year. He has featured the company on his several watch lists and it was one if his main purchases in May.
Banking is underrepresented in my portfolio. I have a very small position in Bank of America (BAC) and several large positions in small community banks. However, People’s United is the perfect sized bank to complement these holdings as the company is $50+ billion in assets. It didn’t take a lot of selling for me to pursue the company further. Like CINF, once I ran the company through our stock screener, I was happy to purchase. I’ll use our average purchase price of $11.28 per share, forward EPS of $1.05 per share, and an annual dividend of $.72 per share in the screener.
Price to Earnings Ratio – 10.7X – This P/E ratio is significantly below the broader market (20X). An easy pass for this metric of the screener.
Dividend Payout Ratio – 68.5% – Their payout ratio is slightly less than CINF but still greater than our 60% threshold. For the same reasons as CINF, I was comfortable with their payout ratio being slightly higher than our metric.
Dividend Yield and History of Increasing Dividends – 6.4% Dividend Yield; 27 Consecutive Dividend Increases – Their dividend yield is very strong. In fact, they are one of the highest yielding Dividend Aristocrats. The company’s dividend history is very strong as well. What is most impressive is the fact that the company continued increasing their dividend through the financial crisis. How sweet is that? That’s an easy pass for this metric.
Purchase Details: Over the course of the month, we added 58 shares of PBCT. These total dollar amount of the purchases were $672.57 and resulted in $41.56 in new dividend income to our portfolio. We now own 63 shares of the Dividend Aristocrat!
The Best of the REst
The remaining stock purchases were very small. Therefore, rather than discuss each in detail, I opted to summarize the companies in the chart. There were six other companies purchased during the month. 5 of the 6 were already in my portfolio. However, one company was not. Shockingly, this company, is not currently paying a dividend. Shocking, right?! Here is the listing of companies:
You guessed it, the non-dividend paying company is TJX Companies. This purchase was made after a conversation about TJMaxx with Lanny and our wives. We noticed the company’s strategy during the pandemic and were so amazed we tweeted about it. The company did suspend their dividend due to the pandemic. However, I feel optimistic the company will restore their dividend as soon as they can. Dicks Sporting Goods recently announced the restoration of their dividend once stores were opened and revenue was once again generated. To me, TJX will fall into that mold. Now, let’s see if my thesis is correct. I just wish I would have purchased more than two shares before the price shot up!
The GREATEST Marketing, ever.
This will ABSOLUTELY increase the anticipation to shop.
— Dividend Diplomats (@DvdndDiplomats) May 12, 2020
Dividend STock Purchase Summary
All in all, I purchased 8 companies this month. 6 of the companies were Dividend Aristocrats. One of the companies is one of the Big 6 Canadian Banks, which are known for their strong dividends. The other company was a strong dividend growth stock before the pandemic and may return to growth status shortly after. The market continues to twist and turn in June. New economic data will continue to shed more light on the state of the economy. We will see what impact reopening has and how quickly we can recover from the last few months. Buckle up, because it is going to be quite the ride. The best we can do is continue to save every dollar possible and be ready to invest in quality dividend growth stocks when the opportunity presents itself.
What stocks did you purchase in May? Are you purchasing predominately Dividend Aristocrats? What have you purchased so far in June?