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.
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!