One month down, already, insane – right? Well, with the global pandemic still popular, the COVID-19 vaccines coming out left and right, the change of hands at the presidency AND turmoil amongst wall street, the hedge fund managers, Robinhood and the retail investor – this month was action packed. However, I need to keep the dividend stock watch list composed of dividend growth stocks!
As always, it was time to find undervalued dividend growth stocks. Heading into February, I continued to do just that and three undervalued dividend stocks are on my dividend stock watch list below!
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 dropped quite a bit from the end of the year. On Friday, January 29th, the stock market took a massive slide – due to the WallStreet Bets, Robinhood and the halting by brokerages for investors from buying stocks such as, GameStop/AMC/Bed Bath & Beyond, etc..
In fact, the market took a huge dip on the last business day of the month, you can see the chart below for yourself.
Below is a chart of the S&P 500 and you can see the market slip to almost below 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 0.60% back in September 0.50% in mid-December. Luckily, I can still say that I am earning 0.50% on my savings account as of the end of 2020. Will that stay, though? Not certain, but I am estimating another decline in Ally’s high yield online savings rate by March 2021. Here is my last lovely message from Ally (ALLY), below:
What else are investors waiting on? Well, for the markets to correct and for President Biden to announce more economic stimulus.
In addition, the Federal reserve continues to make headlines, as they’ve been flushing the stock market with cash. The Fed has been steadily pumping, essentially, using Quantitative Easing (QE) throughout the pandemic period. Here is the latest from the Fed:
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 $300 extra per week are ongoing. In addition, due to the bill passing, the rent, mortgage and loan forbearances are still kicked out for due dates. Very interesting world we are in.
I know the Federal Reserve, the country and the world are waiting (anxiously, nervously, patiently) for the next economic decision that our President will embark on now in office. Will we receive a third round stimulus? Will pandemic unemployment benefit assistance occur ago? Time will tell and all appears VERY uncertain here in the short-term and moderate-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
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 February 2021. 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 Telecommunications, Defense and… BANKING!
Verizon Communications, Inc. (VZ)
Verizon (VZ) stays on my dividend stock watch list! First, last article I stated this was soaring over $60 billion for the 5G auction. Well, the 5G auction is now heading OVER $80 Billion and Verizon, of course, is leading the way.
It’s amazing the surge of this and how much these telecommunication companies are willing to put into 5G. AT&T (T) and T Mobile (TMUS) are also heavy in the mix. Here is a quick snip from the CNBC article:
Due to many comments and ideas, the stock price could be trending downwards, possibly, related to additional debt that may be taken for the 5G purchases. Verizon is now under $55, closing down at $54.75 on Friday. Now, the price is $3-4 lower than where I was previously buying.
Now, it is time to see what Verizon stacks up with the lower stock price through the Dividend Diplomat Stock Screener:
- Price to Earnings Ratio: At a share price of $54.75, close of 1/29/21, the analysts are projecting $5.05 in earnings per share for 2021. Therefore, the P/E ratio, which helps determine under/over valuation, calculates to 10.84. 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: Verizon’s total dividend is $2.51 in dividends per year. At a projected earnings of $5.06, the dividend payout ratio is 50%. This is right in the range I like to see. In fact, Verizon’s payout ratio is in the perfect sweet spot of 40-60%! The dividend safety is in tact. Being a Telecommunications & Technology based company, you want to make sure you have earnings to reinvest and grow the business, which a payout ratio right at the 50% mark does just that.
- Dividend Growth: Verizon has a dividend growth streak of 15+ years going. They want that Dividend Aristocrat status, I can feel it! However, the average dividend growth rate is low, at 2% on their 5 year average.
I currently own 21 shares and wouldn’t mind to have a nice, round, 50 shares of Verizon. Almost halfway, let’s get it!
General Dynamics (GD)
General Dynamics (GD), similar to Verizon, has to say on the dividend stock watch list. Honestly, they were looking to be removed from my watch list, but due to the WallStreetBets and the downturn from the lockdowns on brokerage firms, such as Robinhood and TD Ameritrade, GD’s stock price dropped by $3.75 on Friday or 2.5%. In fact, GD was trading at the upper $150 mark, but now – they are back below $150. See the chart and price below:
How are GD’s dividend stock metrics? Like you didn’t think we’d go over them! Let’s check GD through our DD screener:
- Price to Earnings Ratio: GD’s stock price is $146.68, as of 1/29/21. 21 analysts are projecting $11.28 in earnings per share for 2021. Therefore, dividing the stock price over the earnings per share, equates to a price to earnings ratio of only 13. Definitely below the S&P 500 and other competitors in the industry, including Lockheed Martin.
- Payout Ratio: At $4.40 in dividends per year and dividing that over $11.28, you come to a favorable answer. The dividend payout ratio for General Dynamics is 39%! GD’s dividend lets you sleep at night and it’s no wonder they are a dividend aristocrat. They need to keep reinvesting back in the business to continuing winning the BIG defensive, government contracts.
- Dividend Growth: GD has consistently paid and increased dividends for over 25+ years. Their 5 year average dividend growth rate stands at 10%, with the most recent dividend increase at 7.84%. Very nice and definitely has the ability to increase your purchasing power with that growth rate.
I own over 34 shares of GD. However, with a yield at/around 3%, I would not mind chipping in another 6 shares to get to 40 shares of General Dynamics!
Orrstown Financial (ORRF)
It’s no hidden fact or secret, I love community banks and investing in community bank stocks. I know Bert does too. If you caught my earlier video, I started a position with them during the pandemic and added to them as recently as the last two weeks.
Therefore, Orrstown Financial (ORRF) has been hot and heavy on my investment list. In fact, this $2.7 billion community bank, based out in Harrisburg, PA, also increased their dividend during the week of January 25th! In addition, Orrstown also trades less than their book value, which is hard to come by in the community banking industry. That’s another fun sign of undervaluation, specific to banking.
Time to see how Orrstown performs through our Dividend Diplomats Dividend Stock Screener!
- Price to Earnings Ratio: Well, no real analyst show projects for Orrstown. However, they earned $1.61 in 2019 and then $2.40 in 2020, diluted earnings. Therefore, let’s “conservatively” say they will earn at least $2.00 in 2021. Therefore, their price to earnings ratio is approximately 8.7, significant signs of undervaluation here.
- Payout Ratio: Remember, the perfect ratio is between 40% and 60%. Orrstown’s dividend is currently $0.72 per year, per share. Therefore, $0.72 dividend over $2.00, equates to a dividend payout ratio of 36%. Below the perfect dividend payout ratio, but this community bank has a plethora of room to juice up that dividend payment. Needless to say, I am looking forward to the dividend income to increase.
- Dividend Growth: ORRF had some difficult years during the earlier 2010’s they had to get through. Now that the tough times are behind them, Orrstown has been steadily increasing their dividend for 6 straight years now. The 5 year growth rate is over 20%, but the most recent was only 5.9%, but who could blame them coming out of the pandemic.
Currently, I have 58 shares and would love to jump this to 100 shares in a swift manner. Let me know if you have any questions regarding Orrstown, as well!
Dividend Stock Watch List Conclusion
I love community banking and at current prices, I would love to continue to add to my Orrstown (ORRF) position. However, I am very eager to add Verizon (VZ) to the dividend stock portfolio and would love to see them stay below $55, if possible. In addition, grabbing GD above a 3% dividend yield is not too shabby!
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 Orrstown, Verizon and then General Dynamics, 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