After November’s rally from the Presidential Election and COVID-19 vaccine, it’s time to sharpen the pencil and find the dividend stocks to buy or watch for this December 2020!
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. Below is a chart of the S&P 500 and you can see the market cruse to almost 3,700!
Interest rates are significantly low on your savings, including high yield savings, accounts, as well as money market accounts & funds. In fact, Ally Savings reduced my interest rate to 0.80% back in September. Luckily, I can still say that I am earning 0.60% on my savings account as of the end of November 2020. Will that stay, though? Not certain, but I am estimating another decline in Ally’s high yield online savings rate. Here is my last lovely message from Ally (ALLY), below:
Pfizer (PFE) came out with the first coronavirus vaccine news for COVID-19. Then, Moderna followed, AstraZeneca and I am sure Johnson & Johnson (JNJ) is right around the corner. The stock market has surged, setting new record highs. Further, the election is essentially over, bringing a little more calmness to the political landscape.
In addition, the Federal reserve continues to make headlines, as they’ve been flushing the stock market with cash. See my last point below, which I also snipped in a picture of an article that sums it up:
- 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.
- In addition, as you’ll see below, the Fed plans to maintain rates near zero for 3 years.
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 of $600 extra per week has expired. Further, December 31st is coming very close and that could mean further expiration could occur over forbearance on student loan payments, rent, mortgages, the list truly goes on.
I know the Federal Reserve, the country and the world are waiting (anxiously, nervously, patiently) for the next economic decision that our upcoming President will embark on. Will we receive a second round stimulus? Will pandemic unemployment benefit assistance occur ago? Time will tell and all appears VERY uncertain here in the short-term.
As a dividend stock investor, for the first time, I 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
In addition, given the uncertainty, I continue to make smaller, weekly investments into Vanguard Exchange Traded Funds (ETFs). The specific ETF my wife and I have been loading up on is Vanguard High Dividend Yield (VYM). We are investing $500 per week, to stay invested in the market, during the uncertain times.
Related: Why I’m Investing $500 Weekly with Vanguard ETFs
In addition, here is a display of what the market did in the last 30 days:
The stock market is up OVER 7% during the last 30 days. Last month was slightly down. We are closing in on the S&P 500 crossing 4,000. Goodness. Dividend investing is a little more interesting and you have to dig a little deeper. Luckily, we are all about dividend income and increasing that cash flow, as the goal is to have the dividend income cross over expenses, not market value.
Therefore, 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. How do I find an undervalued dividend stock? 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:
- Price to Earnings Ratio – We look for a price to earnings ratio < than the overall Stock Market.
- Payout Ratio – We aim for a payout ratio between of less than 60%.
- 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
Here is the list of dividend stocks that are on my radar going into the month of December 2020. I typically like to keep it at 3 dividend stocks, keeping the focus locked in. Finding dividend stocks isn’t easy, but there are also other factors, such as composition of my portfolio by industry (such as – am I overweight/underweight in an industry), as well as exposure to one stock and the concentration there.
There, the dividend stocks on my list cater to those other facets when building a dividend stock portfolio. The three industries you’ll see below that I am actually underweight in are Pharmaceutical, Technology and Consumer Goods.
Pfizer (PFE)
Pfizer is showing strong signs of undervaluation. Even after two big items – the stock price has remained relatively flat, between $34-$38 per share over the last few months. First, Pfizer released news on the COVID-19 Vaccine.
Pfizer also made headlines with their UpJohn business and Mylan. Pfizer spun-off the UpJohn business with Mylan to form Viatris (VTRS). Therefore, for almost every 10 shares of Pfizer stock, you earned one share of the new entity. Shareholders will also receive a dividend going forward from Viatris. The total dividend between Pfizer and Viatris should be the original Pfizer dividend, per their disclosures. However, we will have to wait and see what news is released.
Therefore, the dividend stock analysis should be a little interesting for Pfizer. I am going to keep everything constant and – in fact – conservative, by using the new forward earnings per share, with the prior full dividend.
Now, it is time to see what Pfizer looks like through the Dividend Diplomat Stock Screener:
- Price to Earnings Ratio: At a share price of $37.25, close of 11/27/20, the analysts are projecting $2.88 in earnings per share for 2021. Therefore, the P/E ratio, which helps determine under/over valuation, calculates to 12.93. This compares favorable to the S&P 500, which is trading at 35x earnings. 35x earnings is insanely high rate now, hence why investing into dividend stocks is tougher and tougher. Here is evidence for the projected earnings:
- Payout Ratio: Pfizer’s total dividend is $1.52 in dividends per year. At a projected earnings of $2.88, the dividend payout ratio is 53%. This is right in the range I like to see. In fact, Pfizer’s payout ratio is in the perfect sweet spot of 40-60%! The dividend safety is in tact. Being a pharmaceutical, you want to make sure you have earnings to reinvest and grow the business, which a payout ratio near the 50% mark does just that.
- Dividend Growth: Pfizer has a dividend growth streak of 10+ years going. Given that the spin-off has occurred, this may cause confusion in the dividend growth streak, but for 2020 – we’ll need to keep an eye on the new dividend going forward, to make sure it’s bigger in total. The 5 year growth rate, on average, is just over 6%. This is 4x the rate of inflation and combining that with a dividend yield of over 4%, is a great dividend factor!
I currently own almost 150 shares of Pfizer and wouldn’t mind boosting this position officially to the 150 mark.
Intel (INTC)
Intel (INTC) has been a very quiet dividend stock this year in 2020. The technology sector is filled with Apple (AAPL), Microsoft (MSFT), Tesla (TSLA), Netflix (NFLX) and the list goes on.
However, what also makes Cisco (CSCO) a dividend stock to buy are their dividend stock metrics! Cisco stacks fairly well in the Dividend Diplomat Stock Screener, see below:
- Price to Earnings Ratio: Intel’s stock price is $47.45, as of 11/27/20. 38 analysts are projecting $4.56 in earnings per share for 2021. Therefore, dividend the stock price over the earnings per share, equates to a price to earnings ratio of 10.41. Definitely below the S&P 500 and other competitors in the industry, including Microsoft (MSFT) and Zoom Media (ZM).
- Payout Ratio: At $1.32 in dividends per year and dividing that by $3.32, you come to a favorable answer. The dividend payout ratio for Intel is 29%! Intel’s dividend appears as safe as can be. First, the dividend payout ratio is way below the floor or 40%. Next, they reinvest approximately 70% back into the business. This is key, due to increasing competition from AMD, as well as Apple making their own chips. Further, this low dividend payout ratio allows Intel to boost shareholder dividends in the future.
- Dividend Growth: Intel has consistently PAID dividends for years. Since 1992, actually. I wish I could say they’ve increased dividends for 17 years, but in 2013-2014 – they paid $0.90 in each of those years. However, subsequent to 2014, Intel has increased dividends each and every year.
I own over 140 shares, again, of Intel, as well. I haven’t acquired any shares since they were trading in the $20’s. I wouldn’t be opposed to acquiring shares of Intel until I reach 150 shares. At a yield of almost 3%, I’ll be keeping Intel on my dividend stock radar.
J.M. Smucker co (SJM)
The proof is in the jelly here. Smuckers, doesn’t that just sound delicious? The Smucker CO (SJM) is a strong dividend growth stock who has performed exceptionally well during the global pandemic. Think about it – Jams, Jelly, peanutbutter (JIF), Coffee with Folgers & cafe bustello, they are in many households, no doubt. Given we are in the global pandemic, Smuckers has been a staple in many pantries and refrigerators.
Now, if they are in your fridge and/or cupboard – hwo about a spot in your dividend stock portfolio? Let’s see how J.M. Smucker performs through our Dividend Diplomats Dividend Stock Screener!
- Price to Earnings Ratio: Analysts are projecting $8.47 in earnings per share, on a go forward basis. At a stock price of $116.50, this equates to a significantly low 13.75 price to earnings ratio. Another low price to earnings ratio for a dividend stock on my watch list baby!
- Payout Ratio: Remember, the perfect ratio is between 40% and 60%. Smuckers dividend is currently $3.60 per year, per share. Therefore, $3.60 dividend over $8.47, equates to a dividend payout ratio of 43%. Right in that perfect dividend payout ratio sweet spot. Plenty of room for future dividend increases and that’s what dividend investing is all about.
- Dividend Growth: Truly, though special dividends may cause a different story, Smucker’s has increased their dividend for 17+ years. Dividendinvestor.com only shows 10+ years, but I go back to 2002-2003, where it all began. They are right on track to being a dividend investor. Smucker’s 5 year dividend growth rate average is 6.34%! Pair that with a 3.09% dividend yield, and you have yourself an incredible dividend stock.
Currently, my wife holds Smucker’s (SJM) in her dividend stock portfolio. She currently has 22 shares and we’d like to boost that to 30 total shares at these prices.
Dividend Stock Watch List Conclusion
All three dividend stocks my wife and I hold in our portfolio. In addition, we have a decent position in all 3, but they are showing signs of undervaluation. We have three completely different industries here with Pharmaceutical/healthcare, Technology/IT and consumer-goods. I would argue that each one is used in our every day lives. 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. Not one specifically sticks out in my mind as a clear stock winner here, as all three show great metrics. I would argue Intel, Smuckers and then Pfizer if I were to order them. Only based on positioning!
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!
-Lanny
Great analysis Dividend Diplomats! Love the blog. I agree the attention has been on FAANG that many have missed the opportunity with INTC and CSCO with regards to dividends. The PE, Payout Ratio, and Dividend Growth are the key metrics to tracking dividend stocks. Keep up enjoying the roaring market and keep up the great work guys!
FreshLifeAdvice –
Exactly. So many nice opportunities with INTC and CSCO during this period. Now… even their stock prices are rising subsequent to this article. Isn’t that wild?!
-Lanny
Thanks for sharing your stock watch list! Some excellent names to take a look at. I haven’t analyzed Intel yet, but my portfolio does need a company that manufacturers chips. I also like that low dividend payout ratio. Happy investing!
RTC –
Of course, this is what I am all about! SJM and INTC are names that have been DEEPLY under the radar as of late. All showing signs of dividend safety and undervaluation!
-Lanny
It is difficult investing in the market at times, but pursuing a dollar cost averaging strategy helps with consistency and gives an investor the average price of stocks over a given period of time. For what it’s worth, that’s my preferred and primary method of investing. That being said, Pfizer has my vote, if nothing else, because it will help us get out of this Global Pandemic faster. That, and I believe it’s on its way to being a dividend aristocrat again.
Good luck with your decision.
DP –
It is so difficult and finding undervalued stocks is becoming harder and harder. Pfizer just popped over 10% this week, how crazy is that?!
-Lanny
Thanks for the watchlist. Even with the surge in the markets, there are still many attractively priced dividend growth stocks for us to consider!
Kody –
Thank you so much. HUGE Surge on these 3 stocks alone this week, it is insane!
-Lanny
All reasonable choices for this interested in dividends.
What haven’t either of you purchased Altria (MO)? The payout ratio is higher than you would like but the 8%+ yield is fully covered and they have a long history of dividend growth.
Luke –
Yes covered by their cash flow and payout. I own Philip Morris and am happy with my exposure there!
-Lanny