Lanny’s November 2017 Dividend Stock Watch List

It’s getting colder here in Cleveland, currently 38 degrees as I’m typing this.  As the weather has gotten colder, the stock market has chilled down a bit and has created a few opportunities for us dividend investors.  I have not been as active the last few months as I’d like to be (as it relates to dividend stock purchases), but patience is a virtue in this game, that’s for damn sure!  Sitting here on the cold Saturday morning, sipping my warm coffee, I wanted to write my thoughts on three dividend stocks that I am considering for a future purchase.  Let’s grab another cup and check out the stocks!

Dividend stock watch list

AT&T (T) – Makes me excited when I see one of the Top 5 Foundation Stocks on sale!  It’s no question as to why this is on my list.  The last month, the telecom stock is down 12.38% and currently is priced at $33.97 (10/27).  I will go through this dividend aristocrat’s stock metrics in short fashion.  Their forward dividend is $1.96 (set to increase in November), which equates to an astounding 5.77% dividend yield (MUCH higher than my portfolio yield).  Now, their five year growth rate is 2.18%, given their high yield – this makes sense.  Analyst final expectations for this year is $2.92.  Therefore, the payout ratio is 67% with a price to earnings ratio of 11.63.  Damn those are two great metrics there for a high yielder in a typically high payout ratio centered industry.  I currently have about 165 shares of this company, but wouldn’t mind rounding that out to 200 shares!

Cardinal Health (CAH) – Another dividend aristocrat steeply discounted?  Are you serious?  This is an interesting company in a publicized industry.  Amazon (AMZN) effect is taking place here, given their thought process on healthcare and how to enter.  Cardinal’s earnings in the recent 10-K were down from prior year and analysts, for 2018, expect $4.95 earnings per share.  Over the last 30 days, Cardinal’s stock price has dropped 9% and are at $62.01 as of 10/27.  Their current dividend is $1.8496 per year and 5-year dividend growth rate is 15.20%, not too bad, eh?  Therefore, this equates to a 2.98% yield, 37% payout ratio and a 12.53 price to earnings ratio.  Beautiful signs across the board!  Lastly, their 5 year average dividend yield is 2.10%, providing an additional 88 basis points above that!

CVS Health Corp (CVS) – Another healthcare entity being impacted by a few of the same items above.  The opioid, Amazon scare and the bid to buy Aetna rocked this stock lower in October.  On a positive note, they are partnering with Anthem, a monster of a health insurance provider, which is a good sign.  23 Analysts expect CVS to earn $5.88 this year (2017), but with only $2 through the first half of the year earned, their last 6 months needs to make a strong push (At the time of this writing no earnings release or form 10-Q was released).  Their stock price has dropped 15.32% in the last 30 days to $68.99 (10/27), the biggest drop out of the three companies mentioned.  Forward dividends stand at $2.00 per year, increases in 13 years straight with a 5 year dividend growth rate of 25.41% (Damn!).  Given these metrics, we calculate a 2.90% dividend yield, 34% payout ratio and a 11.73 price to earnings ratio.  Stumped here because as a dividend investor, these are PHENOMENAL metrics!  Lastly, their 5 year dividend yield on average has been a minimal 1.80%, talk about a sign of undervaluation.  Hard debate here.

Wow, talk about the market taking us on a rollercoaster again as of late.  Big debate and decisions here.  I have a tad under $2K of capital, currently, and am eager to see where it can be deployed.  AT&T(T) has the lowest price to earnings with the highest yield, however, CVS seems to be offering the steepest discount with a larger moat for forward increases, coupled with an amazing 5 year dividend growth rate.  Downside to CVS is that they are not a dividend aristocrat and really have a foot inside the “retail” sector as well, which has been a difficulty industry to be in.  I believe internet and telecommunications is always here to stay, and AT&T has the internet, cable/streaming package and mobile phone network plans to offer customers.

Dividend stock watch list conclusion

With three mega companies above, there are bright spots of opportunity here.  Cardinal Health has more dividend history than CVS and also doesn’t operate in the retail industry, however, healthcare is under the microscope each and every day, as we know.  AT&T is continually battling to keep customers for subscription services, such as cable/DirecTV Now, given the customers who want to cut the cord.  Further, they are also in the ring with T. Mobile & Sprint, as they fight for customers that are swayed primarily by price.

When I consider a dividend stock purchase, given the recent news of Mattel (MAT) (cut their dividend completely), I need to focus on forever companies.  AT&T is a foundation dividend stock and I believe they are investing heavily via acquisition to be ahead of consumer transition.  Their DirecTV Now subscriber base continues to grow, on a net basis, to offset the decline in base on their AT&T U-Verse.  Further, they generate billions of free cash flows, after payment of dividends and capex.  I am re-thinking AT&T and very intrigued by their future, as well as what they have potential to do on an international basis.  Cardinal Health, the other aristocrat, would also be high on my list, given their dividend history being better than CVS and not looked on as a retailer.

What does the community think?  Any thoughts on what dividend stock should be purchased for the portfolio?  Sitting on the sidelines to watch the rollercoaster ride drop?  Curious to hear your thoughts!  Thanks everyone, good luck and happy investing!

-Lanny

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35 thoughts on “Lanny’s November 2017 Dividend Stock Watch List

  1. All amazing names. I would be gobbling shares of T right now if it wasn’t already 18% of my portfolio. I’m really itching t start a position in WBA and CVS. I personally will be watching CAH until a solid support base forms. I feel that there is more room to fall. It has been a challenging month for me to pick what companies I want to open positions up within. The whole packaged food sector is also on sale from names like ADM, HRL, GIS, K. Moral of the story is I need more capital to invest and scoop these gems up!
    I have a feeling you’ll be adding to your T however.

    • Diligent –

      Definitely is a MASSIVE position there for you. I am with you on CAH, haven’t seen a “solid” footing on them yet either. Let’s go find some capital DD, let’s grab that capital.

      P.S. – you may be right on that AT&T comment ; )

      -Lanny

  2. Lanny,
    Already long T and CVS. I like them both and CAH’s prospects. Holy cow though, did not know MAT cut their dividend. Personally I like stuff that people need, even in the biggest depths of a depression. The stuff MAT makes is not a need, but a want and its not as wanted as DIS (at least that is my limited toy perspective, I think MAT I think Barbie mainly – my nieces who are that age dislike Barbie too, apparently other dolls are cooler). However, for them to cut the dividend completely is shocking and surprising. Hope that does not affect your bottom line this year. It sucks being in that situation, been there before.
    – Gremlin

    • DG –

      MAT cutting the dividend was a blow and set me back a few dollars… represented less than 1% of my portfolio, but the flavors are different these days. It’s always nice to buy stocks based on the needs of the common mass – food, utilities, internet (? haha) and others. This market has been DAMN interesting, that’s for sure.

      -Lanny

  3. Lanny,

    AT&T is really looking good right now. They’ve been on my watch list, but I have no immediate plans to add them. I’ve been looking into (XOM) as a possible next purchase.

    Brian

    • SDM –

      I may… have ended up buying some T earlier this week, maybe. Haha. XOM is a solid dividend aristocrat and a massive energy company, the name echoes around the world. Cannot go wrong SDM!

      -Lanny

  4. I think if you want to be in Healthcare, I’d go UNH right now despite the high valuation. Their growth is off the charts and they’ve done a great job with their acquisitions and buybacks as well as dividend increases. Note, I down UNH so I’m a bit biased :).

    Did you see Newell today? I immediately thought about your post a few weeks back, will have to listen to the earnings and see how bad things are but a 20% drop might make it very appealing.

    • Time –

      I will have to dive deeper into UNH, love the recommendation, especially if they’ve executed well with their M&A.

      Yes, newell, how WILD is that?! Their top line grew by a solid amount and margin is okay, but a 26% drop is INSANE! I am going to have to review the actual details to that press release, but wow. Keep me posted on what you find out as well!

      -Lanny

  5. I have been waiting for years to see T as low as it is now. Hopefully I can take advantage of it soon. Big yield for big dividend income as well as maybe being able to decrease my cost basis. We will see what happens. CAH is on my list too, but I think it may have to wait for now before I can add more to my position. Thanks for sharing.

    • DAZE –

      NOICE! I hope it happens for you. Love buying discounted dividend aristocrats and I’m pumped that you have a chance to lower your average cost basis in the shares. I’ll be on the sidelines for CAH, as well, watching to see what else occurs there. Pumped!

      -Lanny

    • Robot –

      Of course, and WBA is phenomenal. I was slightly biased, as CVS was in my portfolio already. Love the drop they’ve had, with being an aristocrat – does warrant some attention, I’m with you on that.

      -Lanny

  6. The market is riding high but clearly there are names that are being left behind. From your list CAH would be the name that looks the most compelling to me. Still many names on sale to consider.

  7. Lanny, Glad to see you highlighted AT&T. I normally do one dividend stock buy per month and T was on my short list for my October purchase. It is one of my larger holdings already. I didn’t pull the trigger, yet. I’m just a little squeamish about the market right now. T has been falling and the dividend yield is rising. As much as I like the company and I am happy to hold my existing shares, I feel like the market may be saying something that I’m missing. Still pondering it…..Tom

  8. Lanny,

    Nice list, from a strictly valuation metrics standpoint, the values for each of these companies are very compelling. I recently added to be my T position after the recent drop and will likely add a bit more in the near term.

    Although I recognize the names of CVS and CAH, I am not as familiar with what it is exactly that has/will enable them to maintain any economic moat they have. These valuations are enticing me to perhaps dig a little deeper.

    Regards,

    PIV

  9. Hey Lanny,

    I really like that you have T on their. I’ve considered buying it for awhile, especially after the recent drop. The yield was almost 6%! However I ended up buying VZ. As much as I would’ve liked to buy T, their payout ratio made me nervous, I felt like VZ had more room to grow. I’m finally happy to add a domestic telecom company to my portfolio.

    -CD

    • CD –

      Thank you for your comment. Any other reasons why you like Verizon? I think they lost quite a bit of subscriber base, no? I know they’ve been changing their structure to slim costs down. Would love to hear more feedback!

      -Lanny

  10. I see lots of T fans here… I think you will be disappointed. T hasn’t been able to generate value over the past decade (besides a small return if you include their dividend). Today, management has to take care of too many things at the same time:
    #1 build their 5G network
    #2 integrate Time Warner (yet to be done)
    #3 figure out a way to create synergy with DirecTV (not a success so far)
    #4 handle heavy competition in the mobile industry (coming from T-Mobile and Verizon)
    #5 manage the streaming business (T-Mobile offers free netflix to unlimited date packages… how DirecTV and Time Warner will compete this offer?)
    #6 keep their dividend growth policy alive (which is presently slowly dying…)

    Definitely not a keeper for me. Good luck with it!

    • DG –

      Going hard on here, love the intensity and straight to the points. I agree on the developments that are needed, especially the TWC deal and the 5G network.

      AT&T has a solid moderate position in the portfolio about 2-3%, and I see the T-Mobile/Verizon; but AT&T also offers more products/services than that, and is large enough to enter/take out players (which we have seen) when necessary. I think they’ll be around for time to come and my expectations of dividend growth isn’t high, but like the overall dividend package.

      -Lanny

  11. Hi Lanny,
    T is one of the few companies I own and I really liked it so far. Even with the recent drop their price is still in positive since my purchase a couple of years ago.
    I am just curious why exactly the price dropped so much recently – am I missing something? Could it be that their purchase of Time Warner will put on too much debt and it will end in a dividend cut? I hope this will not happen but it’s a little bit worrying for me… On the other hand, buying on such dips really paid off in the past and I think this is one of those cases.
    -BI

    • BI –

      I think you are right, just being dragged down by the DoJ sitting on the TWC deal, and that the change of subscriber base also is hard to get a grasp on. Revenue and free cash flow is strong, I do hate debt though.

      -Lanny

  12. Watching CAH and CVS from your list, as both are in my portfolio already. Both look to be trading at a decent discount. I’m leaning to CVS at this point, as the historical growth rates (both sales & earnings) have been better, and more steady YoY. You’ve put together a good list to choose from, Lanny.

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