Everyone, we have a lot of catching up to do! While I have been busy as heck at work over the last couple of weeks, I have also been very busy putting some capital to work! Over the last two weeks I have purchased three stocks with an average dividend yield of 4.98%, which in total added over $75 in forward dividend income to my portfolio. Which stocks did I purchase?
Purchase #1 – HCP Inc. (12 Shares, $27.12 Dividend Income)
One of the first lessons I learned as a member of this wonderful community was that you don’t always have to look far when you are purchasing stock. At first, I was always looking for the next great investment, that hidden gem in the market, to accumulate as many positions as possible. But as I quickly learned, sometimes the best values can been found in stocks hat you have already purchased. After all, you have already performed the research and have determined the stock fits your investing philosophy, so why not pull the trigger and re-up a position when one of your stocks begin to slide. And that is just what happened with HCP last week (and it may be happening again next week too).
After a recent earnings release that showed some struggles with one of HCP’s tenants, the fear of rising interest rates, and various analyst downgrades/insider transactions, HCP had fallen from its recent high of ~$48/share, to $42.13/share (my purchase price) and now to $40.34! Hence why I was talking about re-upping again. I have been following this decline in the stock price recently, as HCP was on my watch list, and just found the decrease in price too attractive to hold off on purchasing the stock any longer. While there are short-term headwinds against the company, I like both the company’s long-term prospects and the industry’s long-term prospects, as the population continues to age. The company is a Dividend Aristocrat after-all, and just announced a dividend increase last month. My fears of short-term headwinds are usually short-lived when I am dealing with a Dividend Aristocrat. For me, Lanny, and the majority of us in this community, we are focused on purchasing quality companies that are in the best position to pay a growing dividend. While short-term headwinds could potentially spell trouble for a dividend if the headwinds are severe enough, the fact that company is an Aristocrat shows management is committed to growing the dividend and has weathered small periods of trouble before. While this isn’t the only reason to purchase HCP, because no dividend is guaranteed (just look back at the list of Dividend Aristocrats in 2007 and compare it to the current list and see how many fell off), the fact that HCP just announced an increase, has a payout ratio of 75%, and the fact that we aren’t dealing with a financial crisis like the period I referenced, provides me with enough confidence in the stability of the current dividend to re-up my position. That coupled with the fact the company is trading at a discount compared to its peers (as shown in my watch list), forced my hand and as a result, I ended up purchasing 12 shares, adding $27.12 in dividend income.
Purchase #2- Citizens & Northern Corporation (25.6 Shares, $26.66 Dividend Income)
The other nice thing about working so closely with Lanny and staying up to date in the community is that you don’t always have to do the research and find the gem yourself. And about a month ago, Lanny did some digging and found a great dividend stock in the banking community. Last month, he initiated a position in Citizens & Northern Corporation (CZNC). There are many things to like about CZNC: great dividend, share buybacks, strong loan quality, and high ROA compared to peers. After thinking about this investment for the last month, I really couldn’t find any reasons not to jump on the bandwagon. I also joked around with Lanny that this purchase was meant to be, because for some reason I would randomly stumble upon article after article discussing CZNC. Which for a small bank with low trading volume, it was very odd that articles about this company continued to find a way onto my screen (And no, Lanny was not emailing them to me in an effort to get me to buy the company). Sometimes, you just can’t pass up on these kind of signs, right?? This week, I purchased 25.6 shares in the company using my free automatic trade at Sharebuilder, adding $26.66 in forward dividend income. Lanny, you are no longer the only one that owns shares in this gem!
Purchase #3- Norwood Financial Corp. (18 Shares, $21.60 Dividend Income)
I know what you are thinking? Another bank stock? Well, this purchase is very similar to my last purchase, as Norwood Financial Corp. (NWFL) is another community bank with great fundamentals. Here are some of the key points to why I purchased NWFL, the $711m bank in Pennsylvania:
- NWFL has a current dividend yield of 4.18%, which is currently higher than my portfolio’s weighted average dividend yield.
- Payout Ratio is below 60%, currently sitting at 57.10% ($1.20/$2.09).
- Dividend growth has been modest, as the last increase was 3.4%. While the growth was low, NFWL is a higher yielding stock and the dividend growth is still outpacing inflation.
- P/E Ratio of ~13.75 at the time of purchase. While this is lower than the S&P 500, it is in line with the rest of the banking industry.
- Return on Assets are 1.08%, which is in line with the rest of the banking industry. This is lower than CZNC’s ROA, but NWFL incurred non-recurring expenses during the year which reduced the ROA. I am expecting it to increase next year and revert to last year’s ~1.2% ROA if all other aspects of the bank remain consistent.
- The bank’s non-performing loans have continued to decrease over the last two years, signaling improving asset quality.
So not only does NWFL pass the three metrics of the Dividend Diplomats’ Stock Screener, the improving asset quality and the strong ROA further show that NWFL is a solid bank to own. There is one other aspect about NWFL that I love, which was another driving force in my purchase of the company. As Lanny mentioned in his CZNC purchase article, the small banking industry is going through an intense consolidation period as acquisitions are being announced too frequently. NWFL has can easily acquired by another bank looking to grow their footprint in PA or they can just as easily be acquired by another bank in the region. If acquired, the premiums we have been seeing recently have been great. And if the bank does not decide to sell, I know that I will be rewarded with a great dividend by a company with strong fundamentals that will allow it to continue to grow not only their assets in the future, but their dividend as well. With all of these factors in mind, I decided to purchase 18 shares of NWFL, adding $21.60 in forward dividend income.
So there we have it everyone. Three great stocks were added to my portfolio this week. The best part about these purchases are that it finally closes the book on my ARCP sale that occurred in early January. I put the funds from my sale back into the market and now, I can put that transaction behind me once and for all. What are your thoughts on my purchases? Have you purchased any shares in HCP as REITs continue to slide? Or are you initiating a position in a different REIT instead?
Thanks everyone! I look forward to reading your comments.
Bert