Lanny’s January Dividend Stock Watch List

December has had ANOTHER run up in stock prices.  Finding an undervalued Dividend Stock is becoming difficult, but we all know there are diamonds to be found, diamond dividend stocks that is.  Therefore, it is time to pour a hot cup of coffee and begin my dividend stock research.  Time to tune in for Lanny’s Dividend Stock Watch List – January Edition.

Dividend stock watch list

The market is up 2.74% from November 27 through December 27th (30 days, including the 27th).

What occurred during the month to have the market slightly increase?  Well, the retailers made out like bandits, setting records for online and overall shopping.  Lastly, “better” headway for the trade deal with China occurred.  This has caused the market to continue the trend up, consumer sentiment is positive, strangely.

See – Why I Don’t Time or Predict The Market

However, as the saying goes, one can always find diamonds in the rough.  Therefore, with using the Dividend Diplomat Stock Screener, there is always an undervalued dividend stock up for grabs, just need to look hard enough.

Here is a display of what the market did in the last 30 days:

In addition, capital is necessary to make any dividend stock purchase that is on this watch list.  How do I do it?

I save anywhere from 60-85% of my take-home pay and strongly believe Financial Freedom does not happen by hitting a home run on an investment.  Nothing matters more than your savings rate on your journey to Financial Freedom, plain and simple.  Therefore, I work my butt off to make sure expenses remain in-check and that my savings rate are meeting our investment and financial independence goals!  Then, you rinse and repeat.

See – 5 Ways to Save $500… TODAY

Royal Dutch Shell (RDS)

Can we say they are on my watch list for TWO months in a row?!  Yes, this is true but they deserve a spot.  You’ll see why below.

Shell has reported 8 strong quarters in a row and I anticipate the same results for the 4th quarter. They will generate between $350-$360 billion in total revenue for the year and will maintain costs at around $320-$330 billion. Therefore, they’ll have that 8-10% margin built in before taxes.

Shell is currently trading at $59.11 (up by $0.67 from $58.44 in the last article) and there is an estimate of earnings per American Depository Share of approximately $5.51 for 2020.  Therefore, you are looking at a price to earnings ratio of 10.73; which is significantly below the S&P 500 or the stock market on average, as well as other big oil players, including Chevron (CVX).

In addition, based on the $5.51 average analyst estimate, their payout ratio is looking better.  The annual dividend is $3.76 per year or $0.94 per quarter.  The dividend payout ratio is at 68%.  For a large oil company this actually is not the worst I have seen.  In fact, they are better than Exxon Mobil (XOM), whom currently shows OVER 100% for their payout ratio.  Chevron’s (CVX) payout ratio is similar to Shell’s.

Shell has had their dividend on pause over the past 5-6 years, dating back to 2014.  The dividend growth was just not there and instead of cutting their dividend during the oil & gas downturn, they chose to maintain it and work on their expenses and balance sheet. They have shown over the past 24 months that there is a better picture to increase the dividend going forward, starting in potentially 2021.  In the meantime, as a current shareholder, I have been enjoying the higher than normal dividend yield (fluctuating between 5.50% to 9.50%.

Given that Shell yields 6.36% makes a compelling argument to acquire more shares, as they continue to improve their financial footprint and gear up for 2021.

Cisco Systems, Inc. (CSCO)

I haven’t talked about Cisco (CSCO) in quite some time.  I last purchased them in August of 2017 at a share price of $31.52.  Well, they don’t trade that low anymore, in fact they are now trading at $47.77 – a 52% growth over the last 2 years owning them, WHOA.

They’ve gone from making $0.48 at Q3’s quarterly net income to $0.69 in the most recent quarterly net income.  That’s a growth rate of almost 50%, as well, over that time period.  In addition, the quarterly dividend has gone from $0.29 to $0.35 per quarter or a 21% growth.  The stock price appreciation has definitely outpaced the growth of the dividend, that’s for sure.

How about the metrics?  Cisco currently sports a 2.93% dividend yield, definitely above the market on average.  The one downside is that they trade slightly below their 5 year yield average of 3.01%.  In addition, analysts are expecting earnings of $3.24 for their fiscal year 2020.  This equates to a price to earnings ratio of 14.74, which is honestly – fairly low within the conditions of the current market.

Therefore, if Cisco is sporting a $3.24 earnings projection, this equates to a payout ratio of 43%, which is getting a little bit on the higher side (for them), but is still in that 40% to 60% sweet spot.  2019 marked the 8th straight year of dividend increases and I can see them easily crossing the double digit mark into 2021.

I would like to see this position become a little bigger in my dividend portfolio and… there’s only 2 ways to do that – buy more or reinvest the dividends for long enough!

Canadian Imperial Bank of Commerce (CM)

Canadian Imperial (CM) is one of the largest 6 banks in Canada.  I have owned them for years and currently have 109+ shares of CM.  Bert has also been recently scooping up shares here and there of the big Canadian bank.  When the stock market here is on fire and is constantly roaring/increasing, looking North for value is always a great way to find an undervalued stock.  CM has declined in the last month.  Further, CM is below double digit price growth on the year-to-date front, lagging the market.  This could be poised for a great dividend stock investment opportunity, in case you are light in the banking sector.

CM has a current yield of 5.29%, based on the 12/27 close price of $82.74 and a currency-converted dividend of $4.38.  What’s fun about their dividend is that they grow their dividend two times per year, in February and August, typically.  They’ve been doing this for at least 9 straight years and there was the occasional 3 dividend increases in a single year.  The dividend growth is somewhere in the 5.50-6.50% range, and with a current yield above 5%, that growth rate is fairly generous.

11 Analysts are expecting $9.65 in earnings and the dividend, after currency conversion is approximately $4.38 per share.  Therefore, CM has PLENTY of room to continue their TWO time per year dividend increase, that us shareholders love.  Why?  The payout ratio is only 45%, which is right in the the 40-60% threshold.

Dividend Stock Watch List Conclusion

The best part about all 3 companies above is that they all are currently part of my dividend income portfolio.  Prior to making any purchase, I definitely will make sure to run them through the Dividend Diplomat Stock Screener once more.

Out of all 3 dividend stocks above, Canadian Imperial (CM) may be first on my list, followed by Shell (RDS) and Cisco (CSCO).  Always trying to stay consistent in my stock purchases, regardless of the market noise that’s occurring!

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

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20 thoughts on “Lanny’s January Dividend Stock Watch List

  1. Nice List Lanny

    Always love seeing some Canadian bank’s on these lists.

    I like them all, Id add to my cisco position if it weren’t over 5% of my portfolio. I think they have a lot going for them moving forward.

    Look forward to seeing which one you pick.
    cheers man

  2. Good finds Lanny,
    Especially with the CSCO and CM. I bought both in the past year and are around 7-10% my price and have them in the corner of my eye.

    And I take it you are looking at RDS/B instead of RDS/A. Class A had a 15% Dutch witholding tax and B is incorporated in the UK and avoids the tax.
    Have a nice New Years,
    John

    • CW –

      Def. need to keep the A vs B in mind for taxation, though you receive the credits back come tax time.

      CSCO and CM… hard decisions here. Would love a steep down day, just saying : )

      Happy New Years to you too, John. Talk soon!

      -Lanny

  3. Great choices Lanny 🙂 Im looking at Shell as well. Cisco is also on my radar, but correction to bellow 40$ would be nice, however its below 50$ now as it was there in mid 2019 🙂 Canadian bank also looking good.

  4. Hello, Lanny,
    it’s really not easy to find undervalued stocks right now.
    I have also recently expanded my Shell position considerably and in Cisco I have already reached my desired size due to the strong rise in the share price.

    What do you think about Unilever. At the moment certainly not cheap, but also not massively overvalued. In my opinion we are close to fair value. However, the quality of the company/products/growth perspectives are definitely convincing and the yield of 3.2% is not too bad.

    I also continue to like Blackrock very much. The share was rarely overvalued in the past. Currently, we are still slightly undervalued despite recent strong price increases. Organic growth and a good dividend policy are impressive here.

    Cheers, keep up the great work.

    • Coyote Ugly –

      Thank you for understanding how hard it is. Nice job with Shell – adding recently then?

      Love UL – my wife owns them in her portfolio. Not overvalued, in my mind. Decently valued, not a huge bargain, but a good investment.

      I know a few individuals that love Blackrock. Quite a few moving pieces in the investment management space, trying to see what shakes out after the trade fee wars.

      -Lanny

  5. Hi,

    I like Shell a lot especially because it’s a dutch firm originally. Proud to say this :). And since oil is running out it will definitely increase the prices.

    Challenger

  6. Hey Lanny
    Happy New Year!
    Very good watchlist, I particularily like Royal Dutch Shell, it’s my favorite oil & gas supermajor. I’ve initiated my position in 2009 and have been reinvesting my dividends for years and have been handsomely rewarded. Yes, RDS held its dividend steady for some years now, but don’t let us forget that a huge stock repurchase program is ongoing and the company is well on track with deleveraging. So, RDS is creating massive shareholder value and given the stocks priced more attractively than its peers (I like my Chevron and Exxon Mobil stocks, don’t get me wrong 🙂 ) and a well covered dividend yielding above 5 %, it’s definitively a company I have permanently on my personal watchlist.
    Cheers
    FS

  7. Nice watchlist. Shell, Cisco, and CM are all great companies. I sadly only own Shell, but Cisco and the Canadian banks have been on my radar for a while now. The entry points are pretty solid, but I just deployed capital into SPG and GD, so it’ll be a while before I have more capital for investment.

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