Monday, August 4, 2014

14 Dividend Growth Stocks I Bought On the Dip Last Week

In the past week, share prices started going down for the first time in a few months. As a buyer of quality businesses, this is always something that I look for with excitement. This is because when prices for good businesses decrease, this means that I am able to purchase them at lower valuations and I am also able to get more dividend income for every dollar I put to work.

I screened my list of dividend ideas, and came up with the following group of companies that I purchased. I am mostly looking for value these days, and cheap dividend growth at a low price multiple. I was lucky that last week prices of many companies started falling. If I am more lucky, prices will finally start a correction, and I will be able to put my future contributions to work at lower prices. I was able to allocate the funds for the next 2 months, which is why I won’t be able to make another purchase until sometime in September.

The companies I purchased include:

Aflac Incorporated (AFL), through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products in Japan and in the United States of America. I really like this insurer, particularly given the low valuation and dedication to dividend growth. Unfortunately, this is one of my top ten positions, which is why further additions are less likely. The company is a dividend champion, which has been able to increase dividends for 31 years in a row. Over the past decade, the company has been able to boost dividends by 16.80%/year. The stock is selling for 9.50 times forward earnings and yields 2.30%. Check my analysis of Aflac.

Baxter International Inc. (BAX) develops, manufactures, and markets products for people with hemophilia, immune disorders, infectious diseases, kidney diseases, trauma, and other chronic and acute medical conditions. The company has been able to increase dividends for 8 years in a row. Over the past decade, the company has been able to boost dividends by 12.40%/year. The stock is selling for 14.60 times forward earnings and yields 2.80%. I like the low valuation on Baxter, and the opportunities for further growth in earnings and distributions. The company was a dividend champion until a spin-off 1998, but then froze it for 8 years. Currently, it is in the process of splitting in two parts some time in 2015, which could unlock some value for shareholders. Check my analysis of Baxter.

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. The company is a dividend champion, which has been able to increase dividends for 32 years in a row. Over the past decade, the company has been able to boost dividends by 9.20%/year. The stock is selling for 12.30 times forward earnings and yields 2.10%. I like the valuation for Chubb, and I believe that management is of great quality and integrity. Therefore, I believe they have the discipline to keep earning more over time and allocate company resources intelligently. Company’s management has been on a mission to repurchase a large amount of shares each year since 2006. My position is small, but I would welcome even lower prices in order to build it higher, and provide me more exposure to financials with dividend growth streaks. Check my analysis of Chubb.

Deere & Company (DE), together with its subsidiaries, manufactures and distributes agriculture and turf, and construction and forestry equipment worldwide. The company is a dividend achiever, which has been able to increase dividends for 11 years in a row. Over the past decade, the company has been able to boost dividends by 16.30%/year. The stock is selling for 10.10 times forward earnings and yields 2.60%. As I discussed in my analysis of Deere, the company is cyclical which means that earnings rise and fall with the economic cycle. However, I believe that in the future there will be a higher need for equipment that Deere sells, due to increased world population and demand for food, and the rise of disposable incomes for that population.

Diageo plc (DEO) produces, distills, brews, bottles, packages, and distributes spirits, beer, wine, and ready to drink beverages. The company is a dividend achiever, which has been able to increase dividends for 15 years in a row. Over the past decade, the company has been able to boost dividends by 5.80%/year. The stock is selling for 18.10 times forward earnings and yields 2.60%. In fact, Diageo is the cheapest spirits maker that pays dividends out there. My position there is small, which is why I would welcome further declines in order to build my exposure further. Check my analysis of Diageo.

General Electric Company (GE) operates as an infrastructure and financial services company worldwide. The company has been able to increase dividends for five years in a row. The stock is selling for 15.10 times forward earnings and yields 3.30%. This is the first purchase of General Electric I have made since 2008. I am starting out slow, and plan to ultimately build this position into a sizeable one. I also sold a few puts, and actually used the premiums to purchase that first initiation position in GE. Check my analysis of GE.

General Mills, Inc. (GIS) manufactures and markets branded consumer foods in the United States and internationally. The company is a dividend achiever, which has been able to increase dividends for 11 years in a row. Over the past decade, the company has been able to boost dividends by 9.90%/year. The stock is selling for 16.90 times forward earnings and yields 3%. I want to build my position in this quality company, which is why I keep nibbling here and there. This is another opportunity where I sold puts, and then used the premium to purchase shares in the underlying company. Check my analysis of General Mills.

International Business Machines Corporation (IBM) provides information technology products and services worldwide. The company is a dividend achiever, which has been able to increase dividends for 19 years in a row. Over the past decade, the company has been able to boost dividends by 19.40%/year. The stock is selling for 10.60 times forward earnings and yields 2.40%. I am slowly building my exposure to IBM, where I like the consistency of share repurchases and dividend increases. When you consistently repurchase 4%-5% of outstanding shares at low prices and you pay an almost 2.50% annual dividend yield, you can generate total returns even without growing revenues by much. Any gain in organic earnings per share will further turbocharge investor returns. Check my analysis of IBM.

McDonald’s Corporation (MCD) franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. The company is a dividend champion, which has been able to increase dividends for 38 years in a row. Over the past 5 years, the company has been able to boost dividends by 13.90%/year. The stock is selling for 16.70 times forward earnings and yields 3.20%. As I build out my portfolio, and don’t add to my legacy positions for a while, their relative weight tends to shrink. I have a good exposure to the Golden Arches, but need to add more to my allocation there. Check my analysis of McDonald’s.

United Technologies Corporation (UTX) provides technology products and services to the building systems and aerospace industries worldwide. The company is a dividend achiever, which has been able to increase dividends for 20 years in a row. Over the past decade, the company has been able to boost dividends by 14.50%/year. The stock is selling for 15.30 times forward earnings and yields 2%. I like the company, and believe that it offers a compelling value for the growth potential here, plus it also provides exposure to industrials for my dividend portfolio. Check my analysis of United Technologies.

Wells Fargo & Company (WFC) provides retail, commercial, and corporate banking services to individuals, businesses, and institutions. The company has been able to increase dividends for 4 years in a row. The stock is selling for 12.20 times forward earnings and yields 2.60%. I initiated a small position in 2013, and now I am adding to it. Wells Fargo is one of the best run banks in the US, which also has pretty good returns on capital, sells at an attractive price to book and has managed to grow book value pretty consistently in the past. Check my analysis of Wells Fargo.

Wal-Mart Stores Inc. (WMT) operates retail stores in various formats worldwide. The company is a dividend champion, which has been able to increase dividends for 42 years in a row. Over the past decade, the company has been able to boost dividends by 18%/year. The stock is selling for 14.20 times forward earnings and yields 2.50%. While sales and dividend growth appear to be slowing down, and size is a drag on future growth, I like the scale and moat for this retailer. While everyone claims that Amazon will disrupt retail sales, I believe Wal-Mart to be one of the few retailers who can and will compete successfully on the web. Check my analysis of Wal-Mart.

McCormick & Company (MKC) manufactures, markets, and distributes spices, seasoning mixes, condiments, and other flavorful products to retail outlets, food manufacturers, and foodservice businesses. The company is a dividend champion, which has been able to increase dividends for 28 years in a row. Over the past decade, the company has been able to boost dividends by 11.40%/year. The stock is not cheap as it is selling for 20 times forward earnings and yields 2%. Check my analysis of McCormick.

Eaton Corporation plc (ETN) operates as a power management company worldwide The company has been able to increase dividends for five years in a row. Over the past decade, the company has been able to boost dividends by 13.80%/year. The stock is selling for 14.60 times forward earnings and yields 2.50%. I have been monitoring Eaton for several months now, and finally initiated a decent size position in the company last week. While the company froze dividends during the financial crisis, and it doesn’t raise them every year, it has not cut them ever, and it tends to grow earnings and dividends over time. This is good enough for me. I am also increasing my exposure outside consumer staples with this investment, and am also buying future dividend growth at a compelling valuation. I will do a more detailed analysis of Eaton shortly.

I am hopeful that stock prices decrease further from here, and that that 20% correction everyone has been waiting for over the past two years actually does finally materialize. I am hopeful for a further correction, because I was only able to allocate two months or so worth of investment savings at those prices. The problem is that I am planning on saving and investing for several years. Therefore, I need lower prices, in order to get more stock for my buck and further speed up my goals.

Another thing that is helping me is the fact that my investment costs are now about $1/trade, thanks to my switch to Interactive Brokers early last month. This means that if I put $1000 in a dividend paying stock, I will end up paying 0.10% in a one-time commission. If I hold this stock for more than one year, the investment costs will be cheaper than even the cheapest mutual fund out there. Over time, investment savings add up, and could result in more capital working for me.

This list is not a recommendation to buy or sell any stocks. Just because I managed to buy so many companies, doesn’t mean that you should do that too. I am able to monitor a lot of companies pretty regularly, which is probably not the case for the majority of investors out there. Many of those purchases were bolt-on additions to existing positions, with only a few being newly initiated positions for me.

Full Disclosure: Long all stocks mentioned above

Relevant Articles:

Why do I use a P/E below 20 for valuation purposes?
Dividend Investors Should Focus on Valuation, not Just Dividend Yield
The importance of pricing and valuation in dividend investing
Price is what you pay, value is what you get
Dividend Investing Over the Past Seven Years Was Never Easy

31 comments:

  1. DividendDeveloperAugust 4, 2014 at 7:35 AM

    Solid choices. Of your list, I best like WMT, MCD, and DEO. MKC is still a little up there, but we're getting to the point where I'm starting to pay attention.

    ReplyDelete
    Replies
    1. DD,

      I hope for further weakness from here. I can't predict future of stock prices however, which is why I buy when I have money to invest.

      DGI

      Delete
  2. DGI,

    That's a great set of stocks. That would make a decent portfolio all by itself. :)

    I continue to look at DE here. That's probably going to be my purchase for the month of August.

    Keep up the great work!

    Best wishes.

    ReplyDelete
    Replies
    1. DM,

      Thanks for stopping by! I like all those companies, and am really lucky I had the money to be able to add to existing positions, and start a few new ones. I am probably going to work towards putting more money into existing positions these days, as long as they are attractively valued, although many of the values I find these days are outside my existing holdings..

      DGI

      Delete
  3. Nice list of additions.
    Can you tell more about the process and how if went to switch to a new brokerage. I like the price as well, but any stipulations like maybe I must trade X $ each month/quarter, must do other trading in addition to buying DG stocks. Do they reinvest divvies for free? Can I purchase fractional shares, etc.?

    ReplyDelete
    Replies
    1. Good questions I would like to know too.

      Delete
    2. Hello,

      I should probably write a post about it. But in general, Interactive Brokers is the best broker I have ever had. Sure, you pay $10 per month if you don't pay $10 in commissions. But, if you have more than $100K in assets there, that monthly fee is waived. Plus, if you make more than 2 - 3 investments per month, every month, it ends up much cheaper than a Tradeking or Schwab or Etrade. There is a fee for data, but you just can subscribe to use data elsewhere. I would say IBKR is not for the beginner investor, due to $10K minimum funding requirement.

      I don't think they reinvest dividends or buy fractional shares. I usually pool my dividends and new cash anyway, which is why it doesn't matter to me.

      You can open the account with $10K in cash, or do a partial transfer of shares from one broker account to another. It was really easy for me.

      Delete
  4. DGI I am still waiting for V to fall below $200. Would it be smart to just open a small position in V and buy more when the price goes down or just wait? I've done that with AAPL a lot it always goes back up. I agree your stock picks are very nice. Thank you very much for this valuable website.

    ReplyDelete
    Replies
    1. Suzanne,

      I like V, but I bought it a few years ago when I could buy it at 20 times EPS or forward EPS at most. Even the best growth is not worth overpaying for, since future might be very different than the past. I would probably consider adding to my small position if it drops to $190 - $200 or below. But then it depends on what else is available at the time.

      Delete
    2. Ok I am tired of V not going down and I am sick of reading that it will probably go to $1000 a share so I have decided to buy one share, after all it is a good company and 99 or 999 more shares if I goes way down will not hurt my yield but if it does go to $1000 a share the $800 profit will be great if it just goes up. Now if it continues to linger then I guess my one share collects a minuscule dividend every quarter.

      Delete
  5. Ok, stupid question, but could you explain the put buying to me? I though you had to have non-invested capital free to cover the possible puts and if that's the case, isn't that a lot of capital sitting around when it could be invested in dividend stocks? Maybe you buy the puts backed by a margin account? Thanks,
    Clint

    ReplyDelete
    Replies
    1. With put buying you do not have to own any stock or have any other capital in your account. Selling is when you have to have either the stock or the capital which would be equal to 100 shares of stock times the number of puts you sold. I hope this helps. I have been trading options for about 10 years so if you have more questions you can ask me if you would like. Good Luck Suzanne P.S. There are no stupid questions.

      Delete
    2. I bought straddles and strangles at the end of 2008 and I made a lot of money this way because I did not know the market was going to go lower so I sold the put end of the strategies then and sold the calls a year or so later. I had bought leaps. I only bought them because I did not know which way the market was going to go. I bought a few last week too because this market is confusing. Have a good night. Suzanne

      Delete
    3. Hi Clint,

      I agree 100% with Suzanne that there aren't any stupid questions. In the article, I discuss that I sold puts, I didn't buy options. When I sell a put, I receive premium upfront, bu would then have to buy the stock at the strike price I agree in the options contract to. For example, if I sell one put on Visa, at strike price $210 that expires January 2016, I will receive something like $21 in option premium. If in January 2016 Visa is below $210, I have to buy it at $210 ( my cost would be less than 210 since I also received the $21 premium). If it is above $210, I get to keep the premium.

      I use a margin account. I don't hold cash in brokerage account, waiting for lower prices.But selling naked options is risky, which is why most people should not even think about it. Instead, I deploy my cash every month into dividend paying stocks. I sold a few options in one of my accounts, but have a rule to never have more than 25% of my account sold in naked puts. Meaning, if I want to sell one Visa put strike $210, which would make me buy 100 shares at $210 in Jan 2016 if stock is below strike price, I would have to put $21,000 to buy the stock. Hence, my account needs to have at least $84K in stock positions. The 25% is more of my own rule of thumb.

      If this is making your head spin, it is ok. Please let me know if this answers your question.

      Delete
    4. Oh and I sell naked puts only on companies I would like to purchase, and don't do it for the premium ( although it provides lower entry prices than market if exercised). The risk is in above example that I have to buy Visa in Jan 2016 at $210, even if the price might be at $100 then. But the effective price would be much lower than current market price. The other risk is that Visa could go up above $210, which means I would miss on any gains, and only have the premium received to comfort me.

      Delete
    5. I would like to know more about your thought process when put selling. I do something similar, but would never consider selling a put so far out as your Visa example. What is your goal when selling - to actually be assigned? I hear of so many put sellers who want to pick a strike just far enough down that they never get assigned, collect the premium and repeat the next month. Also, I wonder what stocks you consider for selling puts as many of the dividend names we might like to add to our portfolio don't tend to have a level of volatility that produces high premiums.

      Delete
  6. All good buys DGI. That is a decent amount of capital to invest. Hopefully there are no more dips before you have enough to purchase again in September.

    ReplyDelete
  7. I bought MCD at 94 but all this bad news coming in has me a bit worried.

    ReplyDelete
  8. Booban, I bought MCD at $93 and I am looking forward to it going down so I can buy more shares on sale and my dividends will buy me more. MCD is a very strong company I trust they will make a great comeback if they go down. Look at Altria I got it for $14 and it went up to $41 and Altria has had some very bad news. Please try to think positively. Suzanne

    ReplyDelete
  9. P.S. buy or sell some puts on MCD I think I will do that.

    ReplyDelete
  10. MCD went down a whole 2 cents today I was surprised . I was so ready to buy more on sale. Oh well I am ready for it when it does go down 10-50%.

    ReplyDelete
  11. Hey I want the whole market to go down 50%. I want to buy stocks in 1000 blocks or more. Well maybe again someday.

    ReplyDelete
  12. Hey,

    Thanks for sharing the information. Your web site has been quite inspirational to me.

    I have also picked up positions in IBM, MCD and GIS.

    Cheers,
    Steve

    ReplyDelete
  13. Great pick ups. I bought shares in AFL and DEO during the last couple of weeks. Many of the stocks I considered as alternative investments were included on your list. Its nice to see we are looking at the same companies. ETN is always an interesting company for me. They are relatively new to the dividend game and are a major player in the B2B sector. I chose the other investments based on the sector holes in my portfolio. If I were in a better position, I would have scooped up some sares of ETN after their last earnings release.

    Keep up the great work. Thanks for putting the list ofdividend growth stocks together!

    Bert, One of the Dividend Diplomats.

    ReplyDelete
  14. Could you list the prices you paid for each stock at the time of purchase? I often times don't get to read articles for a week or two so I then have to lookup the stocks and try to guess at which point you pulled the trigger. If you could round to the nearest whole number it would be great. Thanks.

    ReplyDelete
  15. Hi Ken,
    This list of companies is not a recommendation for you to buy. This only shows one of the many purchases I would do in the future. You need to do your own analysis, and you need to gain a good understanding of companies, before putting your money in any investment.
    I have hesitated whether to actually share buys, because I have always been afraid that people just buy whatever has been mentioned, without even doing any research on their own. This is dangerous for the financial well being of any individual.
    Thus, I would not be adding prices paid for those companies – this is a piece of information that should not be relevant to you in your decision process. You are asking the wrong question. The question you should be asking is whether you understand those companies, whether they can grow earnings and dividends and whether you find the price from today attractive enough. If you cannot answer those questions to yourself, you should not be buying stocks.
    Best Regards,

    DGI

    ReplyDelete
  16. I'm well aware they are not recommendations to buy, obviously people should do their own due diligence. I was merely curious what you were able to snag them for is all. There are enough disclaimers floating around and you're generally vague enough to absolve yourself of any liability as it is. But it's your decision, not mine. Cheers.

    ReplyDelete
  17. No way to edit my post, I wanted to remove the last line as it sounds snarky to me, and that is not my intent.

    ReplyDelete
  18. Heck I just buy at the lowest price I can get at the dips and if it goes lower I buy more. I don't care too much what other people pay. I just want my portfolio to work for me the hardest it can. I look at what as many analysts say as I can find and I go to the companies website and read as much as I can find. I place more emphasis on the companies website but I do take into account what analysts say. The best of luck to you.

    ReplyDelete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

Popular Posts