Monday, September 28, 2015

Dividend Companies I am Considering in October

The stock market has been showing signs of weakness this quarter. Little did I know that the stock market will go down so quickly after I wrote my article titled " are you ready for the next bear market" back in early August of this year.

For those of us who are in the accumulation stage, this is welcome news, since it means that future dividend income is available at lower cost today. To paraphrase Warren Buffett, whether it comes to socks or stocks, everyone loves a good sale.

For whatever reason, the environment today feels a lot like we are going to see lower prices in the foreseeable future, as long as the S&P 500 stays below 2000 points. After all, the stock market only started going down one or two months ago (though many cyclical companies had been drifting lower before that). It is interesting to note that through July of this year, most of the gains on the S&P 500 came from just six stocks. So we might actually see further weakness in major stock indices from here.

We have all been trained to buy on weakness over the past 6 years. If this doesn’t work for this correction, and it actually does turn into an actual bear market, I wonder how many will abandon stocks altogether


That being said, I do not believe that timing the market is possible, which is why you should take the above paragraph with huge a grain of salt (or take it as mostly wishful thinking on my part). As I mentioned before, time in the market trumps timing the market. Furthermore, as someone who is still in a position to save money every month and invest in equities for the future, I have an incentive to cheer for lower prices. After all, if I buy shares of Johnson & Johnson for $100/share, I only get a 3% yield. However, if I manage to buy those shares at $75/share, my starting yield will be 4% - a nice 33% more income to live off. And I am totally fine if I temporarily look foolish in the case where I buy low, and the stock price keeps sliding lower. I am in this game for the long-run, which is why I believe that month to month comparisons to benchmarks are just useless speculation.

If I am right about the severity of the current sell-off, then I may be able to get shares of companies like Brown-Forman (BF-B), or McCormick (MKC) at much lower prices than today.

But enough of my rambling. I will share with you the list of companies I am considering in October. While I cannot put as much money as I want to, I still manage to scrape a few dollars here and there to consider investing in the types of companies listed below. This is based on what I am seeing today, and also based on my portfolio weights.

3M Company (MMM) operates as a diversified technology company worldwide. This dividend king has managed to increase dividends for 57 consecutive years. The ten year dividend growth rate is 9%/year. The stock is selling at 17.90 times forward earnings and yields 2.90%. Check my analysis of 3M.

Omega Healthcare Investors, Inc. (OHI) invests in healthcare facilities, primarily in long-term healthcare facilities. This dividend achiever has managed to increase dividends for 13 years in a row. The ten year dividend growth rate is 10.90%/year. The stock is selling at times funds from operations (FFO) and yields 6.20%. Check my analysis of Omega Healthcare Investors.

ACE Limited (ACE), through its subsidiaries, provides a range of property and casualty insurance and reinsurance products worldwide. This dividend achiever has managed to increase dividends for 23 years in a row. The ten year dividend growth rate is %/year. The stock is selling at 11.10 times earnings and yields 2.60%. Check my analysis of ACE Limited .

Exxon Mobil Corporation (XOM) explores for and produces crude oil and natural gas in the United States, Canada/South America, Europe, Africa, Asia, and Australia/Oceania. This dividend champion has managed to increase dividends for 33 consecutive years. The ten year dividend growth rate is 9.80%/year. The stock is selling at 18.50 times forward earnings and yields 4%. Check my analysis of Exxon Mobil.

Genuine Parts Company (GPC) distributes automotive replacement parts, industrial replacement parts, office products, and electrical/electronic materials in the United States, Canada, Mexico, Australia, New Zealand, Puerto Rico, the Dominican Republic, and the Caribbean region. This dividend king has managed to increase dividends for 59 consecutive years. The ten year dividend growth rate is %/year. The stock is selling at 18 times forward earnings and yields 2.90%. Check my analysis of Genuine Parts Company.

Diageo plc (DEO) produces, markets, and sells alcoholic beverages worldwide. This dividend achiever has managed to increase dividends for 17 years in a row. The ten year dividend growth rate is 6.70%/year. The stock is selling at 19.30 times earnings and yields 3.20%. Check my analysis of Diageo.

Ameriprise Financial, Inc. (AMP), through its subsidiaries, provides various financial products and services to individual and institutional clients in the United States and internationally. The company has managed to increase dividends every single year over the past decade. The stock is selling at 11.50 times earnings and yields 2.50%. Check my analysis of Ameriprise Financial.

Overall, the declines in stock prices are providing more opportunities for me to look at. This is why I can actually afford to be a little more selective than last year.

What companies are you considering this month?

Full Disclosure: Long all stocks mentioned above

Relevant Articles:

Are you ready for the next bear market?
- Dividend Companies I purchased in August
The Biggest Investing Sin Exposed
Dividend Growth Stocks I Purchased in July
Time in the market is more important than timing the market

26 comments:

  1. DGI,
    I have been considering adding to MMM among other stocks. Trying to pick up the best of the best, if you will, but I am running low on cash (down from 10% a month ago to 1% now). I also like TROW here below $70 per share. TROW is a dividend champion with 29 years of increases, the P/E of 14.6 is below the 5 year average of 21.7, and BoA expects earnings to grow at a rate of over 9% for the next couple of years. The stock currently yields 3%. The biggest risk that I see is that it will get hit hard if the market goes south (or maybe interest rates rise) and there is a significant outflow of money from the funds that they manage. But TROW is a solid company, and should make a great long term hold.
    Best of luck,
    Keith

    ReplyDelete
    Replies
    1. Hi Keith,

      Those sound like good ideas to me. As you mentioned, the one risk about companies like AMP, TROW is that if markets go down, their earnings decrease. But over time, provided that markets go up over time, these companies can grow earnings without really much effort.

      DGI

      Delete
  2. Thanks for sharing your analysis, I will take the time to read. It is so difficult for me to take the plunge, I have to keep remembering this isn't about analyzing for just the next 12 months, it is long haul.

    ReplyDelete
    Replies
    1. Hi Rich,

      It is tough to invest when prices are going down, and everyone around is bearish. However, we are all investing for the next 20 – 30 years. The crash of 1987 looks like a small blip on the charts today. This puts a 10-15% correction or a 20% bear market in perspective. I have found that just buying regularly takes care of emotions.

      DGI

      Delete
  3. Nice watchlist. Some of those stocks would feel welcome at home in my portfolio :)

    I just need to rebuild my cash position a bit before I start deploying more. Thanks for sharing your watchlist
    R2R

    ReplyDelete
    Replies
    1. Hi R2R,
      Thanks for stopping by. I expect to have some investable cash in October. Thing could change when so many companies seem to be cheaper than before
      DGI

      Delete
  4. Not such good news for those of us in the drawdown phase! It helps a lot to be covered by dividends and other distributions so you don't need to sell any shares though.

    ReplyDelete
    Replies
    1. Hi FV,

      Covering expenses by dividends provides a psychological boost when stock prices go south.

      I think that if I were retired, and wanted to take advantage of a sell-off, I would just find a P/T gig or a temp gig. I would then put those money to work. If you greet WMT customers for one year, and you invest that money at 10% for 40 years, you will be hundreds of thousands of dollars richer. Plus, you will get to appreciate how good you have it as an early retiree.

      DGI

      Delete
  5. Bought my first shares of XOM finally in this downturn. Yeah!

    ReplyDelete
    Replies
    1. XOM hasn't had a yield of 4% for quite some time. I have been dollar cost averaging there - 85, 80, 75, 70.. Let's see if we will see 65..

      Delete
  6. Great list.
    I've already added to JNJ, but will continue to add as it goes lower. I feel the same way, it's ok if they continue to go down farther. I will just add more.
    I would also like to add to MMM

    ReplyDelete
    Replies
    1. JNJ is one of my largest holdings. This is the only reason it is not on my list...

      MMM is not, so I am dollar cost averaging there as well..

      Delete
  7. Thanks for the list. Are you cool about adding tech stocks to your portfolio or do you avoid them like other DGIs do? Cisco looks quite attractive these days although they have only been paying dividends for a few years

    ReplyDelete
    Replies
    1. I do not understand how sustainable earnings on tech companies can be. Outside my circle of competence.

      Delete
    2. Did you make an exception when you purchased IBM for your portfolio? Greetings from Spain

      Delete
    3. Hi,

      I discussed this when I analyzed the company - i see it as an service company more than tech only. You might like

      http://www.dividendgrowthinvestor.com/2013/03/ibm-ibm-dividend-stock-analysis.html

      http://www.dividendgrowthinvestor.com/2013/07/business-relationships-can-deliver.html

      Delete
  8. My 'feeling' is that you are right about the downturn. When to buy is going to be the very hard decision! What is your gut instinct? At the end of the year? I'm so gun shy right now because I've already lost enough money - glad to be investing in dividend stocks though.

    ReplyDelete
    Replies
    1. Based on what DGI has written, he doesn't invest using his gut. He just said market timing doesn't work. The whole point of this blog is to invest using rational analysis.

      Delete
    2. I am thinking that we will get a downturn in the economy and stock prices. It is possible that prices go down from here. But they could also go up – I have no idea where things will get. So timing the market in my opinion is a waste of time. If I have $1000 to invest per month, it makes sense that I will root for lower prices, as this could translate into purchasing more dividend income for the same amount of capital.

      That’s why I invest based on ideas I see today at attractive prices, not based on my expectations of where markets will go next. I try to be disciplined in that invest whenever I have money to put to work – which is every month and sometimes twice a month. Plus, I invest for the next 20 – 30 – 40 years – todays bear market might seem like a blip on the chart from 2040.

      Delete
    3. Second Anon
      Yep, time in market trumps timing the market. If I wait for even lower prices, I maybe right and buy much lower. But if I am wrong and prices go up, I would have missed out on an opportunity to buy cheap. I know many were claiming that stocks were overvalued in 2009, and have been waiting for lower prices for 6 years in a row – and then missed out on several years worth of compounding.
      That’s why I have found that regularly putting money to work in dividend paying stocks works best for me. Without a disciplined approach to investing, I would go crazy second guessing myself.
      DGI

      Delete
  9. Can you please let me know if OHI issues K-1s or 1099s for tax purposes? Thanks for your great articles!!

    ReplyDelete
    Replies
    1. Rhonda, OHI uses 1099 according to their website

      http://www.omegahealthcare.com/GenPage.aspx?IID=103065&GKP=1073745127

      Delete
  10. What do you folks think about BBL over long term? will the company be able to maintain is dividend in this market?

    ReplyDelete
  11. Nice list of stocks to choose from here. I like MMM and OHI right now. MMM is on my shortlist for purchase. Thanks for sharing your picks.

    ReplyDelete
  12. OHI scares me at first glance, otherwise nice list. I have not delved deeply, so what happened in 1998/1999? Stock almost at 40 and goes to almost 1.5 by 2001! I see they are under new leadership by 2001. If you have done the research, please let me know what happened. I am sure it's interesting. I am guessing by a few headlines I read, that they were over-leveraged, then started a massive selloff to stabilize? As a buy-and-hold type, I look for long-term stability.

    ReplyDelete

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