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 – September 2020 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. In fact, Ally Savings recently reduced my interest rate to 0.80%:
It appears that savers and investors are flocking more to the stock market, to capture a dividend yield or even appreciation in the stock market via higher share prices. The names of Tesla (TSLA) and Apple (AAPL) have dominated headlines, with their stock splits and record breaking market capitalization. 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.
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. Now, Donald Trump has an Executive Order out there, requesting a $400 per week additional – $300 paid by the federal government and $100 paid by the state. One would think this could quite a bit of turbulence in the stock market, as we close out the month of August.
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 also decided 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 surged OVER 4%+ here in the chart above. The dates are from July 22nd through August 21st. Even with the stock market being volatile and surging, 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:
- 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
Walgreens Boots Alliance (WBA)
No need for a big introduction here. They are on the corner of happy and healthy! It’s Walgreens Boots Alliance (WBA). They are a premier distributor, wholesaler and manufacturer of pharmaceuticals. The combination of Walgreens and Boots Alliance combined forces as of the end of 2014.
In addition, and to no surprise, they are a dividend aristocrat! Walgreens has consistently increased their dividend for 30+ years! Time to see what they look like through the Dividend Diplomat Stock Screener:
- Price to Earnings Ratio: Based on a share price of $39.46 and an analyst expectation of $5.30 from 21 analysts, the price to earnings ratio is 7.77. This is far less than the S&P 500 and less than CVS (CVS).
- Payout Ratio: The safety of the dividend and a great stock metric, no doubt. At a forward dividend of $1.87 over expected earnings of $5.30, the dividend payout ratio is 35%. This represents safety, no risk of a dividend cut and high expectations of dividend increases on a go-forward basis for this dividend aristocrat.
- Dividend Growth: As a dividend investor, WBA has over 30+ years of dividend increases and they are headed for 31+. Walgreens 5 year dividend growth rate is 12%+. However, lately, their dividend growth rate is typically one to two cents per year, or 2.2-5%. I would anticipate the lower-end for the next 2-3 years, post-COVID-19. Further, they have many retail locations and would believe that is impacting earnings.
My wife owns quite a bit of Walgreens (WBA), but would not be opposed to adding another 10-15 shares.
Cisco (CSCO)
Cisco (CSCO) remains on my dividend stock watch list, as they were on there in August. Cisco 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:
- Price to Earnings Ratio: CSCO’s stock price is $42.25, as of August 21, 2020. 22 analysts are projecting $3.33 in earnings per share for 2022. Therefore, dividend the stock price over the earnings per share, equates to a price to earnings ratio of 12.69. Definitely below the S&P 500 and other competitors in the industry, including Microsoft (MSFT) and Zoom Media (ZM).
- Payout Ratio: At $1.44 in dividends per year and dividing that by $3.33, you come to a favorable answer. The dividend payout ratio for CSCO is 43%! Their safety appears sound and they are smack-dab in the middle of the 40%-60% range that I like to see.
- 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 129 shares of Cisco (CSCO). However, I could see this position swelling to 150 shares at or under these price levels. Obviously, I prefer lower!
Consolidated Edison (ED)
Mr. Thomas Edison & the light bulb himself! This dividend aristocrat is one of our TOP 5 Foundation Dividend Stocks for YOUR Portfolio. Everyone uses electricity, even the plug-in cars from Tesla (TSLA), Toyota (TMR) and Chevy. I know I use lights, plug in our devices, etc.. each and every day. Further, we are going to more chargeable equipment and that’s where ConEd (ED) stands to thrive.
Related: Top 5 Foundation Dividend Stocks
It only makes sense to also run ConEd through our Dividend Diplomats Stock Screener. See the dividend stock metric results below:
- Price to Earnings Ratio: ED’s stock price is $71.85 as of August 21, 2020, with forward earnings projection of $4.52 from 17 analysts, per Yahoo Finance. Therefore, doing simple math, the price to earnings ratio is 15.90 and this is far lower than the S&P 500’s ratio and does show signs of undervaluation.
- Payout Ratio: ED currently pays a sustainable dividend of $3.06. At a projected earnings of $4.52, this equates to a dividend payout ratio of 68%. This is definitely on the higher side, but they are typically here. Further, the industry of Utilities, they usually have higher dividend payout ratios. Needless to say, they may have limited new business ventures to pursue and technologies to unlock, hence why they pay more out to their shareholders. There are more companies that have or near a perfect dividend ratio to consider, as well.
- Dividend Growth: 45+ consecutive years for this Dividend Aristocrat! ConEd has increased their dividend, each and every year. Therefore, you can count on a dividend increase going forward. Further, they have already increased their dividend approximately 3.38%. I would anticipate a 2-4% dividend growth rate going forward as well.
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 Healthcare, Technology/IT and Utilities. I would argue that each one is used in our every day lives. Heck, my wife had to go pick up a prescription at the pharmacy just the other day. 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 Cisco, then Walgreens and followed by ConEd, if I were to order them.
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