Dividend Stock Watch List: Lanny’s August 2020 Edition

dividend stock watch list

As investors, there are always opportunities out there.  The stock market continues the trajectory upwards, making the journey to financial freedom by using dividend income as a passive income source, a little more difficult.  I still will say – there is nothing better than dividend income, no matter what time of the year!  That’s what the dividend stock watch list is all about!  Let’s buckle up and read Lanny’s Dividend Stock Watch List – August Edition.

Dividend stock watch list

Welcome back to another dividend stock watch list and you can have a sneak pick of the dividend stocks that are on my radar.  The stock market has been on an ABSOLUTE tear over the last 30 days and it simply doesn’t make things easy for a dividend investor.

Interest rates are significantly low on your savings, including high yield savings, accounts, as well as money market accounts & funds.  It appears that savers and investors are flocking more to the stock market, to capture a dividend yield or even appreciate in the stock market.  One could argue, flock where the money is going and the Federal Reserve is pumping money into the equity markets, either directly or indirectly.

Related: Cash is Dead – Why YOU are Losing Money in a Savings Account!

The Federal reserve, in fact, has performed the following to flush the market with cash:

  • Up to $700 billion in quantitative easing (a fun tool during the financial crisis, that actually, never really stopped).
  • Reduced rates to at/near 0.00% for the fed funds rate.
  • Purchased ~$4B in FNMA Mortgage Backed Securities.
  • Announced Main Street Lending Program to purchase up to $600 Billion of debt from companies employing up to 10,000 workers.
  • Announced Municipal Liquidity Facility to purchase up to $500 Billion of debt from states and cities.

fed, federal reserve, stimulus

Therefore, it’s hard imagining an economy without the interjection from the Fed and how much the economy here is relying on them.  In addition, the unemployment benefits are expiring at the end of July and that should cause quite a bit of turbulence in the stock market, as we close out the month of July.

As a dividend stock investor, for the first time, I have feel a little uncertain of what the future may hold.  We continue to save and invest in very conservative dividend stock investments, in smaller purchases.  I have written two articles related to the topic of – the Coronavirus Dividend Stock Watch List and Industries that truly thrive during a pandemic.

See – Lanny’s Coronavirus Dividend Stock Watch List

See – Industries Built for the Coronavirus and Dividend Investors

See – Why I Don’t Time or Predict The Market

Here is a display of what the market did in the last 30 days:

stock market

Even with the stock market being volatile and slightly rising, there is always a way to find an undervalued dividend stock.  On the road to financial freedom, acquiring assets that produce cash flow or income is the goal!  Like I always say, there is always a diamond in the rough.  Time to introduce our beloved Dividend Diplomat Stock Screener!

Dividend Diplomat Stock Screener

If you don’t know already, we keep the stock screener metrics to THREE SIMPLE items.  They are:

  1. Price to Earnings Ratio – We look for a price to earnings ratio < than the overall Stock Market.
  2. Payout Ratio – We aim for a payout ratio between of less than 60%.
  3. Dividend Growth – We like to see history of dividend growth in a company.

See the video below, for further details and explanation.  If you don’t like to watch videos – see our Dividend Diplomat Stock Screener page!

Time to find the answer to… how did the dividend stocks on my watch list grade on the stock screener?

Dividend stock watch list

Archer Daniels Midland (ADM)

ADM, Archer daniels midland

Many do not know of Archer Daniels Midland (ADM) or what they do, but that’s what the Dividend Diplomats are for!  They are one of the biggest food processing companies in the world.  They primarily operate in the plant and crop facilities, such as cereal grains, seeds, etc.. This then is used in the many food-type products.

In addition, and to no surprise, they are a dividend aristocrat!  Archer Daniels has consistently increased their dividend for 45+ years!  Time to see what they look like through the Dividend Diplomat Stock Screener:

  1. Price to Earnings Ratio: Based on a share price of $41.16 and an analyst expectation of $3.29 from 14 analysts, the price to earnings ratio is 12.51.  This is far less than the S&P 500, but is slightly higher than Bunge Limited (BG), one of their competitors.
  2. Payout Ratio: The safety of the dividend and a great stock metric, no doubt.  At a forward dividend of $1.44 over expected earnings of $3.29, the dividend payout ratio is 44%.  This represents safety, no risk of a dividend cut and high expectations of dividend increases on a go-forward basis for this dividend aristocrat.
  3. Dividend Growth: As a dividend investor, ADM has over 45+ years of dividend increases and they are headed for 46.  Their dividend growth rate is typically one to two cents per year, or 2.8%-6%.  I would anticipate the lower-end for the next 2-3 years, post-COVID-19.

ADM has a significant position in my portfolio.  I own 208+ shares, but can see myself adding an additional 25 shares at or below these price levels.  Since they are in the food industry – that is an industry built for LIFE!

Related: Investing in Industries that are for LIFE

Cisco (CSCO)

CSCO, Cisco

Cisco (CSCO) is a name that you see quite often and you even here us Dividend Diplomats speak about, such as within our YouTube videos and, of course, in my Stocks to Buy in a Post-Pandemic World.

Why do I speak highly of them?  Well, during COVID-19, their network capabilities form a VPN standpoint are critical to everyday businesses functioning.  In addition, their Cisco Web-ex platform is used across the globe and I know with remote work, I have been apart of many web-ex calls in the last 4+ months.

However, what also is great about Cisco (CSCO) are their dividend stock metrics!  Cisco stacks fairly well in the Dividend Diplomat Stock Screener, see below:

  1. Price to Earnings Ratio: CSCO’s stock price is $46.90.  26 analysts are projecting $3.15 in earnings per share for 2021.  Therefore, dividend the stock price over the earnings per share, equates to a price to earnings ratio of 14.89.  Definitely below the S&P 500 and other competitors in the industry, including Microsoft (MSFT) and Zoom Media (ZM).
  2. Payout Ratio: At $1.44 in dividends per year (wow, similar to ADM!) and dividing that by $3.15, you come to a favorable answer.  The dividend payout ratio for CSCO is 46%!  Their safety appears sound and they are smack-dab in the middle of the 40%-60% range that I like to see.
  3. Dividend Growth: Not a dividend aristocrat, yet.  However, they are going on 9 consecutive years of dividend growth.  Further, they have already increased their dividend in 2020, therefore – that elephant in the room is out of the way!  Their 3 year dividend growth rate is almost 9% with an over 12% dividend growth rate for 5 years.  I would anticipate 3-5% for the next 1-3 years, again, due to COVID-19.

I own 119 shares of Cisco (CSCO).  However, I could see this position swelling to 150 shares at or under these price levels.  Obviously, I prefer lower!

Philip Morris (PM)

PM, Philip Morris

I don’t believe this company needs an introduction.  If you know Marlboro, then you know Philip Morris (PM).  The tobacco giant was formed in 2008 during the spin-off and become somewhat of a dividend giant, as well.  All dividend investors either have owned, do own or have considered owning this high yielding dividend stock.

Since PM has a current yield of 6.2%, it’s hard not to have on the dividend stock watch list.  How do they look through the Dividend Diplomat stock screener? Results below:

  1. Price to Earnings Ratio: PM’s stock price is $76.00 as of July 22nd with forward earnings projection of $5.50 from 17 analysts, per Yahoo Finance.  Therefore, doing simple math, the price to earnings ratio is 13.87 and this is far lower than the S&P 500’s ratio and does show signs of undervaluation.
  2. Payout Ratio: PM currently pays a hefty dividend of $4.68.  At a projected earnings of $5.50, this equates to a dividend payout ratio of 85%.  This is definitely on the higher side and one that I would caution.  There are more companies that have or near a perfect dividend ratio to consider, as well.
  3. Dividend Growth: PM has had a dividend streak of 12 years, going back to their Initial Public Offering (IPO) back in 2008; when the  spin-off occurred with Altria (MO).  Lately, the dividend growth is low and with a dividend payout ratio at 85%, I don’t expect dividend growth to be significant.  I would anticipate ~1% dividend growth this year and potentially 2-4% over the next 1-3 years, as they attempt to increase earnings.

Dividend Stock Watch List Conclusion

All three dividend stocks I hold in my portfolio.  In addition, I have a decent position in all 3, but they are showing signs of undervaluation.  We have technology, food/grains and tobacco.  These should bode well for the global pandemic, since we all use our phones or work on a secure network.  Food has to be made and consumed for survival.  Then, tobacco typically stays strong/does well during crisis time periods.  Of course, prior to making any purchase, I definitely will make sure to run them through the Dividend Diplomat Stock Screener once more.

I could see myself adding all three, but would arguably love to see lower stock prices!  The road to financial freedom seems far away, but I know I need to make investment decisions and continue to step along the path.  I look forward to acquiring more Cisco (CSCO), prior to the other two, due to having a lower position there.

Related: 5 Reasons Dividend Income is the Easiest Passive Income Source

As you have noticed, I have trickled many articles on this page.  The goal is to educate new dividend investors out there, or to sharpen the terminology for current dividend investors.  As always, stick to your investment strategy and dividend stocks will be there.  What do you think of these stocks above?  Thank you, good luck and happy investing everyone!


11 thoughts on “Dividend Stock Watch List: Lanny’s August 2020 Edition

  1. I’ve nibbled a bit this month into ADM, it’s definitely underweight in my portfolio. I like this one as well.

    On CSCO I’ve been hesitant to start a new position but it’s certainly a position that I could see myself getting into, it’s just not at the top of the heap yet.

    I have PM on my watch-list as well, the higher payout ratio is concerning but I believe it’s mostly related to the company being in the tobacco industry and the need to distribute the earnings rather than retaining more cash because of the lawsuit nature of the industry.

    • Stockrider –

      Yep – ADM – food, grains, used in products to produce and preserve food – definitely a cash machine there I believe.

      CISCO – if they drop to the low $40’s, I’ll be grabbing more, no doubt.

      PM – they are all about cash flow and they pay far less than 85% of their cash flow for their dividend payment, moreso in the lower 70% range. However, still, would like to see a lower payout ratio. What can I say, I’m stubborn!


  2. I own ADM and PM, although I haven’t yet added CSCO. I could see myself initiating a position should CSCO hold around the current price a couple months from now when I have capital freed up to invest in dividend stocks again.

  3. I own these 3 dividend stocks and ADM is my watch list for a purchase soon. Have you ever looked at UGI stock? 4% yield, 32 years of growing dividends, under 50 payout ratio and increased dividend during 2008 recession… I do not own it but looking into this company more.

  4. I do like ADM and CSCO. I have not looked at PM for a long while. I am normally do not exclude companies for ethical reasons, but I do draw the line at tobacco and private prisons… I had family members die from smoking, so I can’t. It’s my version of “ethical investing”.
    I do plan on adding to my CSCO. But I feel like waiting a couple weeks and see how the latest round of stimulus checks shake out. Also Intel took a major hit yesterday and I want to see if the tech market as a whole is not in some bubble right now if earnings do not shake out as predicted.

    • CW –

      I respect your decision on PM, for sure. It’s also a hard one for me, as well.

      CSCO and ADM, just so hard not to continue to look at.

      Intel did take a hit, but not large enough ; )


  5. I am also holding Cisco and bought ADM during the COVID-19 crash and put it into my broadly diversified retirement portfolio. I don’t expect the share price to explode, but I do enjoy the dividends and am pleased about modest growth.

    Keep up the good work!


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