Is This A Dividend Investors Stock Market?

I hope that your stomach has felt the ups and downs this year.  The S&P 500 is pretty much flat year-to-date.  However, that doesn’t mean that there haven’t been amazing opportunities out there.  Opportunities that we haven’t seen in so fricken long, as dividend investors.  However, with all of the events occurring this year – tax reform, tariffs, earnings being released for quarter 1, interest rates rising and inflation starting to creep (gas, groceries, etc.), is this the right time to jump in on dividend stock opportunities?  I plan on talking about dividend stocks, where they are at today and comparing them to 5 year dividend yield averages.  When doing this, it may showcase opportunities out there.

dividend Stocks

Philip Morris (PM): PM’s 5 year dividend yield, on average, is 4.40%.  Further, they are down 22% year to date, through April 27th.  Their current dividend yield is 5.18% or 78 basis points higher than their 5 year yield average.  Further, they are going onto their 10th year, since the spin-off with Altria (MO), of consecutive dividend increases.  Growth rate has been small and with tobacco seeing a squeeze on volume, that would be the expectation going forward.  However, for a dividend investor, a >5% yield, with 78 basis points higher yield than the historical yield, is very enticing.

Dominion (D): D is down 18% year to date.  Heck, that’s why I didn’t buy them just once, but bought them twice.  Their 5 year dividend yield, on average, is 3.70%.  D being down 18% this year, has pushed their yield up to 5.03%.  This represents a 133 basis points higher yield, than their 5-year average.  Holy crap, is all I have to say, as a dividend investor.  Further, they have 14 consecutive dividend increases around their waist.  Something tells me, that will continue going forward.

Procter & Gamble (PG): We didn’t buy them on accident a little bit ago, both Bert & I.  As of April 27th, they are down 20.75%! year-to-date!  Further, their 5 year dividend yield, on average, is 3.30%.  They current yield, with the downturn, 3.94%.  How nice does that look?  As a dividend aristocrat, it sometimes doesn’t get better than this.  Though they only increased their dividend 4% this year, it looks like PG is getting back on track.  Further, the 64 basis point premium is intriguing and this is a great foundation consumer stock for anyone’s portfolio.

AT&T (T):  Oh man, not our big telecom stock!  Who here owns AT&T (T)?  I know I own a crap ton.  Heck, I have enough that it more than covers my internet bill on a monthly basis.  It seems like T is “re-thinking” their stock price, instead of “re-thinking impossible”, as they are down 15% this year!  What has that done to their yield?  They are now yielding 6.05%, which is 75 basis points higher than their 5 year yield on average of 5.30%.  Are you dividend investors getting the capital ready for a top 5 foundation stock?  Hard not to want a dividend aristocrat, that is yielding over 6% now, in your portfolio!

Pepsi (PEP): This company wasn’t on Bert’s watch list for absolutely no reason.  Who would have thought the Gatorade guzzling, Lays-chipmaker and the Quaker Oat himself would be down 15% this year, as well.  It’s quite amazing.  Dividend investors have been on the look-out, no doubt.  The 5 year dividend yield, on average, is 2.80% and their current yield is 3.17%.  This is a premium of 37 basis points.  Another dividend aristocrat, with over 46 years of dividend increases, is hot on the list of dividend investors.

Is this all smoke and mirrors?

PM: Q1 earnings were flat, top line revenue was higher, however, the price took a beating due to forward-looking volume outlook on the industry.  However, the beating they took was pretty steep.  Is there value in PM or is this a trap?

D: They had different pricing with their customers this quarter and had merger related expenses, that reduced their net income for the quarter, with a slight increase from the top-line.  Is the market overreacting to the merger with Scana?  Could the market be reacting heavily towards the increase in interest rates?  Does D pose risk of any dividend reductions, though management has plans to continue to increase?

PG: Net earnings were also flat for the quarter, though top-line revenue, was higher.  Is this from shipping more product with less margin due to Amazon (AMZN)?  Is this them competing with the lower-priced brands/generic brands in the stores?  A dividend aristocrat, with the legendary status of PG, is amazing or is there more of a reason for it?

T: Top line revenue was down for the first quarter, compared to last year’s first quarter.  However, operating expenses were $1.2B lower than the same quarter, not including the benefits of tax reform.  ASC 606 had an impact, for sure.  Are we starting to really see the writing on the wall for cable cutters?  Can T transform their business to survive and continue paying that dividend increase?  Is their downturn a blip on the radar for dividend investors to scoop up more or is this what we should expect going forward?

PEP: Top line revenue was higher, but earnings remained relatively flat for Pepsi.  They had, I would say, the most “scratch the head” scenario here.  Everyone above is facing heavy tailwinds, but Pepsi really shows potential undervaluation here.  Would you agree?  Am I blinded by something here?  Another aristocrat, dropping hard.

dividend investors thoughts & conclusion

What is a dividend investor to do in this market?  We are seeing opportunities that we haven’t seen in forever, listed above.  Is it smoke and mirrors?  Are these real value opportunities?  I mean, 3 of the names above are dividend aristocrats!

These definitely are hot on the radar, but as an investor, you need to definitely read earnings releases to at least have an idea on what’s going on.  However, don’t stray away from your screening metrics and/or your strategies, unless the environment points in the direction of doing so.

Looking forward to everyone’s thoughts below.  Appreciate the stop by and can’t wait to see if anyone is hopping on these opportunities or… jumping into the potential trap!




31 thoughts on “Is This A Dividend Investors Stock Market?

  1. Excellent review guys. Owning all 5 stocks makes it so valuable to me, your reader, so Thanks!

    Some random thoughts. With world wide GDP growth higher than it’s been since the great recession coupled with rising interest rates for the first time in a decade, market sentiment has shifted against steady eddy dividend payers. This shift has created opportunity. Each company also has it’s own challenges and opportunities as you have so nicely presented.

    If investing in dividend stocks is part of one’s long term investment strategy, this is no time to turn away and run. It’s time to add to a diversified portfolio of good companies using the principle you write about here every week.


    • Tom –

      Hilarious, as you are right – it’s always nice/reassuring knowing that the stocks on our radars are stocks in your portfolio.

      I agree, the world wide changes, coupled with interest rates, as well as macro-economic events that cause deter to stock prices equates to opportunities for dividend investors. It has been fun, that’s for sure. Time to buy up when you are able to.


  2. There are a lot of company that is looking like great buys IMO. Thanks for letting me know about PEP. I have not been looking at the prices. Now it is looking good!!

    • Rusty –

      Thanks for the fix there, you are right. That announced dividend always forgets to get snuck in there, as they announce quite a few months prior to them actually “officially” announcing their increased dividend.


  3. Nice list. My picks T and PG. Would add more of these shares to my possitions if would havr more capital. Yiels are just to good 🙂

  4. To answer your question, “Yes!” While many of the staples are still relatively expensive they are still much cheaper than in any point in time we have seen over the last few years. It is with these swoons that better prices, values and yields rear their heads and as long term DGI we should take advantage of any sale that goes on, especially when it’s for a quality name. Why does it seem like we all panic when we see stock prices decline dramatically. The best returns are always made when everyone is selling and you are buying.

  5. I haven’t been very active since the market correction began. However, seeing the share prices of dividend aristocrats like Pepsi falling like a stone, it’s getting harder to resist the urge to initiate a small position. According to our own stock screener, the five stocks you mentioned haven’t reached buying territory yet. But it doesn’t take much more for PM, PEP and PG to make it on my watchlist.

    – David

  6. Yes, this spring has really been awesome!
    I´ve been stocking up shares of PEP, GIS, KMB, MO, BTI and UPS, and I´m really grateful for your recurring lists of interesting companies.
    Agree with your observation that PEP really has no reason to be this cheap wereas many the others all seem to have almost stopped growing. But right now these companies look darn cheap as long as they can increase the dividends a few percent a year. And I believe they can.

  7. Hi there, like your list a lot. For PEP, any idea and thoughts on the 90%plus dividend payout ratio? Does it sound safe to you?

    • Simon –

      Thank you. Analysts are expecting $5.71 on average for EPS this year for Pepsi. With their dividend at $3.71; I am calculating in the mid 60% range. Thoughts? I think they are safe.


  8. I love this link:
    Gives you a good idea of which stocks are down that are popular dividend growth stocks. I should do something similar on my site so it is all in one place but this has been working for me.
    If I could add a few stocks to your list that look enticing: MMM is #1, followed by MO (instead of PM), then O.
    If I could add some others that also look enticing but in no particular order: CVS, KMB, BTI, XOM, DLR.
    So many options, so little money…

    • ADD –

      A very eye opening chart and very funny that they have similar companies : )

      MMM has definitely received enws as of late. CVS is taking a HUGE tumble, allbeit – a dividend freeze until the acquisition closes/shakes out. SO many options, and damn… not an endless supply of capital, totally feel your pain.


  9. I own PG and T. I wish some of my stocks would go down even more. I love the idea of buying stocks cheaper so that I can own more shares, as that is the name of the game during the accumulation phase.

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