The first quarter is racing to a close here! It has been over a month since my last stock purchase, T.Rowe Price Group, and I am starting to get the itch to buy again! The market has presented a few opportunities that caught my eye over the last few weeks. Here are the three stocks on my March watch list and hopefully you will be writing about another purchase article soon!
I have three stocks on my March watch list, one company that I currently own and two companies that I do not. While I don’t have enough capital to initiate a large position in a company (considering that I have been aiming for larger investments recently), I am considering initiating a new position and growing it over time. Quick note, the prices used in this article are as of Friday March 24, 2017’s close date.
Stock #1 – Cisco Systems (CSCO) – Does it really surprise anyone that Cisco is on my watch list? Lanny laid out a great argument for the company in his recent dividend stock analysis. Thanks for the research Lanny! I’m not going to regurgitate his analysis, so please see his article for greater detail. But here is what I like about the company: they dominate their industry, a strong dividend yield (over 3.25%), a low payout ratio, and an impressive dividend growth rate. Historically, I stay away from technology companies and am very hesitant to invest in the sector. Because of that, my exposure to technology is very low and the only tech company I own is IBM. Based on this analysis, I think adding shares in Cisco would be a great second addition to the sector!
Stock #2 – Target Corp. (TGT) – I don’t think this should surprise too many investors in the dividend growth community, as the recent performance and struggles of Target Corp. has been pretty well documented since their earnings release at the end of February. In the last month, the company has fallen over 18%. In 2017, the stock has fallen over 25% and now the company is yielding ~4.5%. The company’s P/E Ratio is now Just incredible. The company has some kinks to iron out and I do not expect this to be a quick turnaround. But management is taking the corrective actions and has invested significant capital to re-vamp stores and the shopping experience over the next few years.
In the short-term, the earnings outlook for 2017 was reduced by management to $3.80 to $4.20 per share. Even with the reduced earnings outlook, assuming the low end of the range, that would place Targets forward P/E ratio at 13.97x and their forward payout ratio at 63% (Just barely above the 60% threshold we use in our dividend stock screener). In my mind, this may be a great opportunity to add to my current position in a Dividend Aristocrat and even push my position over 100 shares!
Stock #3 – Realty Income (O) – I initiated a position in Realty Income for the first time in 2016 at a price of $57.61 per share and couldn’t be happier. Now, I am receiving approximately $8.50 per month from the darling of the dividend growth community. Currently, Realty Income has increase 4.7% YTD and is trading at $59.46 per share. If the stock has increased and isn’t a screaming buy based on the metrics, then why is it on my watch list? Since my purchase on November 1, 2016, Realty Income has increased their monthly dividend payments three times! Are you kidding me? They are knocking on the doorstep of becoming a Dividend Aristocrat as well, since they have increased their dividend for 21 consecutive years.
Now, their monthly dividend is $.2110/share, or $2.532/share annually. In their most recent earnings release, their AFFO/share for fiscal year 2016 was $2.80 and stated that management expected AFFO per share for 2017 to increase to $3.00 – $3.06/share. After the dividend increase and their most recent earnings announcement, their forward payout ratio is 84%. But since Realty Income is a REIT, we expect a high payout ratio. Overall, while I am enjoying the $8.50 monthly dividend I am receiving, I would love to add to my position and increase that amount to allow the power of dividend growth investing to flex its muscles.
What are your thoughts on the three companies on my March stock watch list? Are you currently watching them at the time? If not, why and which companies are you watching instead? Are you in “wait and see” mode with Target as they finalize the plans of their turnaround? Am I being too optimistic about the company’s prospects?
-Bert