As you know, it is the beginning of March, and the start of a new month means I write and publish another watchlist of potentially undervalued dividend growth stocks.
I sat down at my computer today, ready to screen for stocks, analyze their charts, and do some research into debt and cashflow levels just as I usually do. When I started researching today, I found that the stocks I was picking were not stocks that I would be purchasing myself.
Up to this point, I have bought and held every watch-listed stock that I have shared and am very pleased to say that these picks have outperformed the market.
But now, with a portfolio that is built of 29 strong dividend payers, I feel that it is no longer smart for me to continue adding positions.
Though there are plenty of other good stocks out there with awesome buying opportunities right now, it doesn’t make sense for me to add them to my portfolio. It doesn’t feel right for me to research and share stocks that I won’t buy and hold myself.
Therefore, going forward there will be no more monthly stock picks.
Instead, I will do a deep dive into a dividend stock of my choosing (possibly with the added help of Twitter polls to influence my choice). Like my watchlist, this stock will be one that is fundamentally undervalued, a strong dividend payer, with good timing to buy and take advantage of gains and dividends.
This monthly stock will be one that I will personally look to buy throughout the month, and because I am not actively looking to add more positions, there is a strong chance that these deep dives will be on positions we already have.
These monthly deep dives will be an exercise in reviewing our positions in order to identify good times to add or liquidate if needed and that research and decision making will be shared on this website here for your benefit.
However, if there are opportunities I can’t pass up, or if I reorganize the portfolio, these monthly deep dives can still be used to analyze potential new positions
So by all means, still treat these monthly deep dives as a monthly stock pick. Now that our portfolio’s positions are established, the purpose of this due diligence is to strengthen our conviction in our holdings and identify good timing to build these positions.
The market was red this with most indexes posting a larger than 1.5% loss for the week driven by worsening Russia-Ukraine developments. Risk sentiment was further emphasized by lack luster growth-stock earnings reactions and Fed concerns regarding a policy mistake.
10 of the 11 S&P 500 sectors ended the week negative with consumer staples being the only sector to have closed higher. Tough week for the market and our portfolio! Every week I write an update on the dividend portfolio as we build it so that we can track its progress. I will give an overview of what the portfolio is invested in, its value, the dividends received, trades made, and any news or business announcements that may be of interest to our positions.
Portfolio Value
To date, I have invested $6,285 into the account, the total value of all positions plus any cash on hand is $6,443.00 . That’s a gain of $158.00 for a total return of 2.51%. The account is down $70.58 for the week which is a 1.08% loss.
We started building this portfolio on 9/24/2021 and when compared to the S&P 500 we are outperforming the market so far! Within that same timeframe, the S&P 500 is down 2.39% whereas our portfolio has an over return of 2.5%! Let’s keep up this good progress with smart adds to the portfolio.
We added $185 to the account this week. A significant chunk of that money added was put towards adding buys in MMM and INTC. Both stocks had steep drops this week that we took advantage of. Continue to the trades section of this article to read about why these stocks dipped.
Portfolio
Above is a dashboard of the portfolio as tracked through simplysafedividends.com. I use that site for tracking forecasted dividend income, yield, annual income, beta, dividend growth, and more.
Below is a table of everything we are invested in so far. There you can see my number of shares, shares bought through dividend reinvestments, average cost, gains, and more. The tickers in green are positions that I bought shares in this week. Usually, a chunk of my buys throughout the week are buys from my monthly stock picks. You can read about February’s stock picks here. I use a stock screener to find potentially undervalued stocks with safe and growing dividends. All stock picks (for this month and previous months) are highlighted in blue.
This week our activity raised our annual dividend income by $9. Our dividend yield increased by 0.07% and our beta decreased by 0.04. My portfolio’s dividend yield may be just slightly higher than what you will see in other portfolios, however that is strategic per my time horizon. I am in my 20s and am just starting off this investment journey, so a higher dividend yield gives me greater cash flow now to reinvest which help me realize the benefits of compounding sooner. Our beta usually hovers right around the mid 0.6s which I like, especially in times of uneasiness. It means my portfolio won’t dip as much as the rest of the market on red days, however, it does go the other way around and I won’t have as much green on the good days. Therefore, it is good to watch your beta in terms of cyclicity. View the chart below to see the performance of my portfolio versus the S&P 500, notice how my portfolio’s green days are not as substantial as the S&P’s but neither are my red days, that is beta at work. My beta so far has led to better returns than the market since beginning this portfolio.
Dividends
This week we received two dividends for a total of $5.15: $4.16 from MMP (a position I liquidated last week) and $0.99 from O (reinvested).
Dividends received for 2022: $38.71
Portfolio’s Lifetime Dividends: $61.63
Trades
Here’s the breakdown of the trades I made this week:
February 14th
MMM – added 0.4 shares at $156
INTC – added 0.5 shares at $48.14
O – added 0.2 shares at $67.45
February 15th
UWMC – added 1 share at $4.43
O – dividend reinvested for 0.014713 shares at $67.29
February 16th
XYLD – added 0.203933 shares at $49.04 (recurring investment)
SCHD – added 0.128569 shares at $77.78 (recurring investment)
UWMC – sold $% 2/18 call for $2.00 premium
February 17th
MMM – added 0.1 shares at $150
February 18th
UWMC call expired at $0
INTC – added 1 share at $45.11
Noteworthy News
This section of the post will identify some headlines that may be of import to our positions. If they are important enough, we will also call out in the posts if the news calls for actions to readjust our portfolio.
As you see with my buys this week, most of money was put towards adds in MMM and INTC to take advantage of their drops this week.
MMM releases 2022 financial guidance on Monday
The industrial conglomerate released a presentation that contained a few surprises or shifts in their strategy, but the main takeaway was that management did not offer any updates on 3M’s biggest issues: the legal liabilities concerning the PFAS chemicals and military earplugs that are looming over 3M’s balance sheet.
The bellwether trials for the PFAS litigations are expected to begin in early 2023. These trials will give us a clearer idea of the settlement payouts we can expect for the groundwater contamination. Meanwhile, the EPA seeks to classify certain PFAS chemicals as “hazardous substances” by mid-2023. If successful, manufacturing facilities would be required to report releases of PFAS chemicals and the EPA would have more leeway to pursue responsible parties, like 3M, as they analyze sites and determine remediation costs for cleanup. Some analysts expect 3M’s settlements and remediation expenses for the PFAS litigations to cost around $10 billion but a worst-case scenario could be as bad as $30 billion according to a Bloomberg analyst.
3M’s earplug liabilities could be even worse. In 2008, 3M bought a business that sold government approved combat earplugs from 2003 through 2015 when the product was discontinued. The first lawsuit for the earplugs surfaced in December of 2018 when a veteran claimed they had hearing damage because of 3M’s faulty earplugs. At current, 3M has been served lawsuits representing over 13,000 individual claims with similar allegations. Another 290,000 unfiled and unverified claims have been maintained in the court. Sounds bad, however, unverified claims are essentially a list of veterans with few details such as where they served or if they ever really used the product. I expect some of these claims to get dismissed, but the potential liabilities are still a major headwind for the company. Different types of hearing loss result in different settlement amounts. These amounts range from $14,000 for inner ear dysfunction to over $1.5 million for total hearing loss. If we assume 3M settles 300,00 claims and pay an average of $100,000 per claim, then that would be a total liability of $30 billion. But if half of these claims are dismissed and the average payout halved as well, then that total liability could fall to $7.5 billion. Bellwether trials started in 2021 and through January 2022, 3M has won 5 of the 11 trials. Another 5 trials are scheduled between March and May. 3M plans to appeal the adverse verdicts which is a process expected to take up to 18 months. Once the fog settles will be when 3M really determines how to push forward with a potential settlement.
Overall, the PFAS and earplug liabilities could cost anywhere between $10 – $50 billion with payouts likely to happen over a course of years. 3M retains about $2.5 billion of free cash flow annually after paying dividends. To cover future settlement costs and avoid cutting the dividend, 3M would need to squeeze its healthy balance sheet to plug the gap. Assuming settlement payouts are spread over years and 3M uses all of its retained free cash flow to pay down debt, I expect 3M would be able to handle this $10 – $50 billion settlement amount while keeping the dividend intact. However, this is just an assumption until we know more about the magnitude and timing of the looming liabilities.
I, however, remain bullish. Given MMM’s lackluster dividend increase last week, I see the company is already preparing to lean on their strong balance sheet to see these liabilities through. After which we will begin to see greener pastures. As a dividend investor, I see this as a good long-term opportunity to build a substantial position in an established company and dividend payer that will continue to be successful in the long run.
INTC 2022 Investor Meeting
On Thursday, Intel held their 2022 Investor Meeting and outlined some elements of their strategy and path to long-term growth during these unprecedented times for semiconductors.
Analysts were disappointed with their short and medium-term goals. This investor day focused primarily on extremely long-term bullish forecasts for which shares are pricing in little to no chance of success with a 5% dip in price on Friday.
Intel laid out its planned recovery under CEO Pat Gelsinger who is cutting profit to build out manufacturing capacity. Executives admitted that it will be years before this investment pays off. They expect gross margins of 51% to 53% till 2024, then 54% to 58% from 2025 onwards and negative cashflow of $1 to $2 billion in 2022 and expected free cash flow of 20% of revenue by 2026 and initial single digit revenue growth expanding into double digits by 2026.
The announcement of another delay in chip rollout also didn’t help with the dismal reaction to the meeting. Intel’s 7 nanometer data center chip meant to be the successor to their 10 nanometer Sapphire Rapids chip was pushed back from 2023 to 2024.
Intel paints a increasingly bullish picture for where they see themselves going in the long term. I think Gelsinger is beginning the long process of turning the ship around and he’s taken many steps within his first year as captain to get that done. It has been anticipated that FCF and margins will suffer while this happens, but in the long term it may pay off. I think the 5% dip on Friday is an overreaction. This meeting presented things most analysts already assumed; the only real news was the chip delay. Given my time horizon, if INTC is a poor performing stock for the next few years, I won’t be made about it. I will continue to add and patiently await the long-term success Intel is setting themselves up for.
Summary
That is it for the update this week. Let’s kill it next week. Stay patient and be ready to buy income producing assets at a discount!
Let me know what you think of the progress so far, share with me your progress and questions, interact with me on twitter and Instagram using the links below!
We have survived another red week in the market with most indexes posting a larger than 1% loss for the week meanwhile our account ended higher by 0.5%!
Every week I write an update on the dividend portfolio as we build it so that we can track its progress. I will give an overview of what the portfolio is invested in, its value, the dividends received, trades made, and any news or business announcements that may be of interest to our positions.
Portfolio Value
To date, I have invested $6,100 into the account, the total value of all positions plus any cash on hand is $6,340.48. That’s a gain of $240.48 for a total return of 3.94%. The account is up $32.75 for the week which is a 0.52% gain.
We started building this portfolio on 9/24/2021 and when compared to the S&P 500 we are outperforming the market so far! Within that same timeframe, the S&P 500 is down 0.83%! Let’s keep up this good progress with smart adds to the portfolio.
We added $165 to the account this week. A significant chunk of that money added was put towards adding buys in CMI, a stock from our monthly watchlist.
Portfolio
Above is a dashboard of the portfolio as tracked through simplysafedividends.com. I use that site for tracking forecasted dividend income, yield, annual income, beta, dividend growth, and more.
Below is a table of everything we are invested in so far. There you can see my number of shares, shares bought through dividend reinvestments, average cost, gains, and more. The tickers in green are positions that I bought shares in this week. Usually, a chunk of my buys throughout the week are buys from my monthly stock picks. You can read about February’s stock picks here. I use a stock screener to find potentially undervalued stocks with safe and growing dividends. All stock picks (for this month and previous months) are highlighted in blue.
This week our activity lowered our annual dividend income by $6. Our dividend yield decreased by 0.23% and our beta remained flat. My portfolio’s dividend yield may be just slightly higher than you will see in other portfolios, however that is strategic per my time horizon. I am in my 20s and am just starting off this investment journey, so a higher dividend yield gives me greater cash flow now to reinvest which help me realize the benefits of compounding sooner. Our beta usually hovers right around the mid 0.6s which I like, especially in times of uneasiness. It means my portfolio won’t dip as much as the rest of the market on red days, however, it does go the other way around and I won’t have as much green on the good days. Therefore, it is good to watch your beta in terms of cyclicity.
This week I did some reorganizing of a couple of oil/energy positions to better consolidate the money I have invested in those segments. You can see those trades below.
Dividends
This week we received one dividend from EPD for $2.79 that will be reinvested tomorrow.
Dividends received for 2022: $33.56
Portfolio’s Lifetime Dividends: $56.48
Trades
Here’s the breakdown of the trades I made this week:
February 7th
UWMC – sold 1 $5 2/18 covered call for a $5 premium
February 8th
T – added 1 share at $23.96
February 9th
XYLD – added 0.202454 shares at $49.139 (recurring investment)
SCHD – added 0.125395 shares at $79.75 (recurring investment)
February 10th
CMI – bought 0.45 shares at $225.78 (new position)
UWMC – added 1 share at $4.66
February 11th
MMP – sold 4 shares at $48.13 (closed position)
AQN – sold 3.030818 shares at $14.13 (closed position)
NEE – bought 3 shares at $75.66 (new position started from MMP and AQN sells)
T – added 1 share at $24.33
UWMC – added 1 share at $4.44
Noteworthy News
This section of the post will identify some headlines that may be of import to our positions. If they are important enough, we will also call out in the posts if the news calls for actions to readjust our portfolio.
Unfortunately, I was so busy this week that I did not follow news on positions, so I have nothing to share here. Hopefully, I’ll have some content for this section next week!
Summary
That is it for the update this week. Let’s kill it next week. Stay patient and be ready to buy income producing assets at a discount!
Let me know what you think of the progress so far, share with me your progress and questions, interact with me on twitter and Instagram using the links below!
Welcome to another monthly dividend stock pick post and welcome to the new year! Here I will explain my screening process for finding high-quality dividend stocks and using my charting and company analysis to determine if these stocks are a good buy this month. Please keep in mind, all suggestions or chart interpretations are all my opinion, I always highly advise you do your own research and make sure you understand a company before you invest in it.
Now let’s dive into the stock screening criteria and our picks for this month!
Stock Screening Criteria
My stock screening criteria contains a mix of hard stats combined with a few fundamental ratios that I use as rules of thumb in order to identify stocks that reliably pay increasing dividends while also identifying if the stocks are undervalued and poised for growth.
My criteria gave me a list of 25 stocks which I narrowed down to 2. As Warren Buffett once said, “Never invest in a company you don’t understand.” I adhere to this rule and take stocks out of my watchlist based on my comfortability with understanding the company and the attractiveness of their chart. Below are the criteria and why I use them.
Market Capitalization
Market Capitalization, also called market cap, shows us how much a company is worth as determined by the stock market. A company’s market cap is equal to the total value of a company’s outstanding shares of stock. For example, if a company has a total of 1 million shares selling for $10 each, that company’s market cap would be 10 million.
I screen for companies with a market cap of at least 10 billion. These are generally called large-cap companies. These companies are large, established, are the most common stocks to pay dividends, and are not generally at risk of going under any time soon. For a dividend portfolio, large cap stocks will be our bread and butter. These companies do not usually bring in huge gains in the short term, but in the long term they generally trend upward with consistent increases in share value and dividend payments, which is the name of game with a dividend portfolio.
I will do some experimenting with smaller companies; however, these monthly stock picks will be the majority of my portfolio and thus I will stick to screening for companies with a market cap of at least 10 billion.
Dividend Yield
The dividend yield is a financial ratio which shows how much a company pays out in dividends each year in relation to its stock price (annual dividends per share/price per share). For example, if a stock pays $5 per year and has a market price of $100, the dividend yield would be 5%.
As a dividend investor, you would think that the higher the yield the better because we want to maximize dividends. While that logic is correct, it is important to understand why certain stocks may have uncommonly high dividend yields. If a company has healthy finances, a high dividend yield may mean that the company is unnecessarily shelling out lots of money in the forms of dividends when it could be utilizing some of those funds instead to better position the company for long term success. Every dollar a company pays out as a dividend is a dollar the company is not using to generate capital gains. We want to see a healthy balance of dividends and capital growth and sometimes a high dividend yield indicates the opposite.
A high dividend yield could also mean the stock’s price is declining while the dividend payout remains the same. The stock’s price is the denominator in the equation, so if the stock is trending downwards and the dividend payout remains the same, it will inflate the yield. Take for example a stock that paid a $1 dollar dividend per share last year with a cost of $20 dollars per share. That results in a 5% dividend yield. Imagine this year that same stock still paid $1 but now the stock was worth $10. The dividend yield would now be 10%, which is an increase from last year at the expense of the stock going down 50%.
In summary, a high dividend yield is not always bad, it just calls to our attention that we should review other metrics of the stock to confirm that the company is healthy. With all those things in mind, I screen with a dividend yield of greater than 2.5%. The average dividend yield of the S&P 500 is 2.22%. This keeps us right at the average. We still may see some suspiciously high yields in our list, this just means we will dive into those stocks in more depth to understand why. We may also see some lower yields, but those low yields should be justified by strong dividend growth. In the long run, a mix of high yield and low yield/high growth dividend stocks will be good for our portfolio.
Consecutive Years of Dividend Growth
This criterion is straight forward. Past performance isn’t always a great indicator of future performance, but in the case of dividends I don’t think this mindset is overly risky. If a dividend has increased year over year for a substantial amount of time, it is fair to expect that it will continue to do so. That is why I screen for stocks that have grown their dividends consecutively for at least 7 years. Lots of companies pride themselves on attaining the status of a “Dividend King” or a “Dividend Aristocrat” as it is quite the impressive title and it attracts dividend investors which is good for the stock’s price in the long term. By screening for at least 7 years of consecutive increases we, at the least, may be able to find companies that are on their way to attaining those titles (if they aren’t achieved already) and we can benefit from their efforts to do so.
P/E Ratio
This criterion I use as a rule of thumb and not a hard stat. P/E ratio is the price-to-earnings ratio and is calculated by market value per share divided by earnings per share. This ratio is commonly used by investors and analysts to determine if a stock is relatively undervalued and overvalued. This is where Warren Buffett found lots of success, he was great at finding companies that had discounted stock prices.
There are many complex methodologies that one can use to determine a stock’s relative value, however I believe the P/E ratio is the quickest and most straightforward way to understand a stock’s relative value. Generally, a high P/E ratio means that a stock is overvalued, and a low ratio means it is undervalued.
Seems simple enough, but there are a few limitations to keep in mind. With earnings per share as the denominator, if a stock has a very small earnings per share or none at all the P/E ratio won’t give you a true understanding of the stock’s relative value. P/E ratios also vary greatly from industry to industry. Therefore, it is helpful to view a stocks P/E ratio year over year to see how it is trending relative to stock price. It is also helpful to understand the P/E ratio of the market or the industry a certain stock is in. This information can give you context clues to determine if a stocks P/E ratio is healthy or not.
The S&P 500 has averaged a P/E ratio of 15.95 since its inception. With the above information in mind, I like to look for P/E ratios that range from 15-30, but sometimes exceptions will be made for stocks that require further research.
D/E Ratio
The debt-to-equity ratio compares a company’s total liabilities to its shareholder equity which lets us know how much leverage they are using. It measures how much debt versus equity they are using to finance their operations. In general, a high D/E ratio means higher leverage which means the company is aggressively financing its growth with debt which is risky.
If a lot of debt is used to finance the business, the cost of that debt could outweigh the benefits of the increase in earnings that it produces, however the opposite can also be true in some cases. Cost of debt can vary with market conditions and D/E ratios can vary greatly depending on industry, so it’s not always clear if a company is over leveraged or not.
In general, a high D/E ratio usually means more risk, especially to stocks that pay dividends. If a company is needing to pay down its debts, it has less cash on hand to pay dividends. My general rule of thumb for D/E trailing 12 month average is less than 15. Best case scenario, the D/E is less than 2, but some stocks will be in industries that are capital intensive which generally require more debt, so I will not immediately remove a stock from this list if they have a high D/E, these stocks will just require further research.
February Picks
Above is a table of the stocks, their data that meets my screening criteria, plus some other information that is beneficial for evaluating dividend strength and good times to buy. Next, we will look at each stock, go over a little bit about the company, and discuss their chart.
Best Buy Co. (BBY)
Best Buy Co. retails technology products in the United States and Canada. They provide computing, mobile phones, and many other consumer electronics and appliances. In addition, Best Buy also provides consultation, delivery, design, installation, memberships, protection plans, repair, set-up, and other technical support services. As of January 30th, 2021, Best Buy had 1,126 large-format at 33 small-format stores. The only concerning thing I saw about was their PE ratio of 9.9. This number is a little bit below my criteria, however, given the industry average of 11.96, their PE ratio is not bad.
Best Buy is a carry-over pick from last month. Their chart looks promising but didn’t give us the move I was expecting. It’s at a lower price now giving us a better opportunity to add.
Best Buy’s price action has bounced for the now the FOURTH time off of the channel support line at the $95 area. Last month it touched that area and bounced up, but didn’t have much steam to push higher off of the bounce. No material news had come within the last month, I believe the performance was simply muted due to the market movement we experienced in the last month. The first bounce happened in December of 2020 and quickly moved up to the $115 area. I am hoping for a similar move. Now that the last bounce proved to be weak, price action has stayed flat on the bottom bound of the channel and has stayed on it with some consistency. The longer it stays at this level, the stronger I believe a coming up trend will be. However, if we break this level, BBY will have a new 52 week low that could push us to the $88 support level and below. Watch for breaks at the $95 level, if the break is weak I plan on adding more, if the break is strong I will sit back and watch it play out.
Cummins (CMI)
Cummins designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related components worldwide. It operates through five segments: Engine, Distribution, Components, Power Systems, and New Power. The company offers diesel and natural gas powered engines under the Cummins and other customer brands for the heavy and medium-duty truck, bus, recreational vehicle, light-duty automotive, construction, mining, marine, rail, oil and gas, defense, and agricultural markets; and offers new parts and services, as well as remanufactured parts and engines. It also provides power generation systems, high-horsepower engines, heavy and medium duty engines, application engineering services, custom-designed assemblies, retail and wholesale aftermarket parts, and in-shop and field-based repair services. The company also offers emission solutions; turbochargers; air and fuel filters, fuel water separators, lube and hydraulic filters, coolants, fuel additives, and other filtration systems; and electronic control modules, sensors, and supporting software, as well as new, replacement, and remanufactured fuel systems. The company sells its products to original equipment manufacturers, distributors, dealers, and other customers. Cummins was founded in 1919 and is a proven high-quality operator that is beginning to look attractive given the cyclicality of the business.
CMI’s chart looks like a wedge that also has an established support area around $220. The price first bounced off of $220 in last September and then broke under it in November. That support then turned into resistance which price action failed to break twice towards the end of 2021. Finally, towards the start of this year, the price broke through $220, making that area a support level again. Price has sat on that support level since and looks to be pushed upwards due to the narrowing of the wedge. I expect to see prices jump up and down around the $225 area before the wedge breaks. If it breaks up, we can see a strong move upwards. To me, I will be looking for buys on quick dips below $225 and $220.
Conclusion
In this article, I screened for stocks that look like they will provide regular growing dividends while also having potential for capital gains. My screening criteria found 25 stocks which fit the mold, I then narrowed that list down to 2 based on the attractiveness of the stock’s chart and my comfort with understanding the company.
I will watch these stocks play out through the month and add to them as opportunities present themselves, these chart analyses help us to be prepared for those buying opportunities. These stocks are suitable for further research and my article is not to be taken as financial advice. Thank you for reading and feel free to leave any replies or questions you may have on here or on my socials.
This week was a tad better than last with all indexes posting some minor gains. Data highlights this week included some strong job reports and rising treasury yields to finish us strong for the week.
Unfortunately, my portfolio didn’t fare so well and we will get into why! Every week I write an update on the dividend portfolio as we build it so that we can track its progress. I will give an overview of what the portfolio is invested in, its value, the dividends received, trades made, and any news or business announcements that may be of interest to our positions.
Portfolio Value
To date, I have invested $5,935 into the account, the total value of all positions plus any cash on hand is $6,120.91. That’s a gain of $185.91 for a total return of 3.13%. The account is down $61.98 for the week which is a flat 1% loss.
We started building this portfolio on 9/24/2021 and when compared to the S&P 500 we are outperforming the market so far! Within that same timeframe, the S&P 500 is up only 1.01%. Let’s keep up this good progress with smart adds to the portfolio.
We added $250 to the account this week. A significant chunk of that money added was put towards my position in 3M as you will see further down.
Portfolio
Above is a dashboard of the portfolio as tracked through simplysafedividends.com. I use that site for tracking forecasted dividend income, yield, annual income, beta, dividend growth, and more.
Below is a table of everything we are invested in so far. There you can see my number of shares, shares bought through dividend reinvestments, average cost, gains, and more. The tickers in green are positions that I bought shares in this week. Usually, a chunk of my buys throughout the week are buys from my monthly stock picks. You can read about January’s stock picks here (I know I am late but February’s picks will be here soon!). I use a stock screener to find potentially undervalued stocks with safe and growing dividends. All stock picks (for this month and previous months) are highlighted in blue.
This week our activity raised our annual dividend income by $14. Our dividend yield increased by 0.11% and our beta remained flat. My portfolio’s dividend yield may be just slightly higher than you will see in other portfolios, however that is strategic per my time horizon. I am in my 20s and am just starting off this investment journey, so a higher dividend yield gives me greater cash flow now to reinvest which help me realize the benefits of compounding sooner. Our beta usually hovers right around the mid 0.6s which I like, especially in times of uneasiness. It means my portfolio won’t dip as much as the rest of the market on red days, however, it does go the other way around and I won’t have as much green on the good days. Therefore, it is good to watch your beta in terms of cyclicity.
This week I just had to buy the dip on 3M following their poorly received earnings report. MMM reported $2.31 EPS beating the estimates by $0.29. Revenue has been relatively flat for the company for the last three years, yet the price has been declining. That seems unreasonable to me and this substantial dip gave me a good opportunity to buy!
Also, this week I added one share to my AT&T position following their update. T announced that they are cutting the dividend by 47% and are structuring their Warner Bros. deal as a spinoff instead of an exchange offer. The 47% dividend cut still keeps shares over a 4% dividend yield which is still attractive. The spinoff deal also will give shareholders 0.24 shares in the new entity for every share of T they own. As an investor who has only recently started building a position in T, this is great news. My position is only down 2%, my dividend yield is still strong following the cut, and I get a new (and fairly costless) position in the new WBD stock. I will keep watching for opportunities to add to T before the spinoff.
Aside from those two reasonable moves, I made more moves with UWMC. Shortly after starting this position it became the best position in my portfolio. It has quickly become my worst holding now, down 25%. I keep adding on the dips. I think long term, as long as leadership play their cards right to fix the float, UWMC will be a homerun. However, it must be watched extremely closely to make sure steps are being taken to get us there. I will read thoroughly their next earnings report and decide if an exit may be smart. But for now, we sit, wait, and collect the dividends and covered call premiums.
Dividends
This week we received dividends from MFA for $2.86, T for $5.72, VZ for $2.56, and XYLD for $0.96.
Dividends received for 2022: $9.24
Portfolio’s Lifetime Dividends: $53.69
Trades
Here’s the breakdown of the trades I made this week:
January 31st
MMM – added 1 share at $163.79
TD – added $0.59 from dividend reinvestment at $80.08
February 1st
T – added 1 share at $24.30
UWMC – added 4 shares at $4.88
VZ – added $2.56 from dividend reinvestment at $53.56
T – added $5.72 from dividend reinvestment at $24.24
XYLD – added $0.96 from dividend reinvestment at $49.19
February 2nd
XYLD – added 0.203294 shares at $49.19 (recurring investment)
SCHD – added 0.125826 shares at $79.47 (recurring investment)
CMCSA – $0.25 dividend reinvested at $45.55
February 3rd
UWMC – added 6 shares at $4.40
Noteworthy News
This section of the post will identify some headlines that may be of import to our positions. If they are important enough, we will also call out in the posts if the news calls for actions to readjust our portfolio.
Last week had tons of news to share, and now this week I could not find anything worthy of sharing! Lots of earnings again for our positions but nothing bad or mind blowing!
Summary
That is it for the update this week. Let’s kill it next week. Stay patient and be ready to buy income producing assets at a discount!
Let me know what you think of the progress so far, share with me your progress and questions, interact with me on twitter and Instagram using the links below!
Welcome back to Dividend Dollars! Whew what a week!
This week we saw a lot of volatility in the market. The week started rough as expectations of the FOMC meeting mid-week kept investors on their toes. That meeting confirmed the anticipated rate hikes and fight against inflation, with the first increase expected to come in March. Following this, the market showed a little strength followed by further decline on Thursday. Friday ends higher bringing the indexes to slightly positive for the week.
Moving on from the market, every week I write an update on the dividend portfolio as we build it so that we can track its progress. I will give an overview of what the portfolio is invested in, its value, the dividends received, trades made, and any news or business announcements that may be of interest to our positions.
Portfolio Value
To date, I have invested $5,685 into the account, the total value of all positions plus any cash on hand is $5,963.21. That’s a gain of $278.21 for a total return of 4.89%. The account is up $102.17 for the week which is a 1.74% gain.
We started building this portfolio on 9/27/2021 and have already built into a significant amount of diversity. That diversity has made our portfolio less volatile than the rest of the market, so we did not end the week as high as some of the indexes did.
We added $165 to the account this week. A significant chunk of that money added was put towards adding to positions in Best Buy and Allstate as you will see further down.
Portfolio
Above is a dashboard of the portfolio as tracked through simplysafedividends.com. I use that site for tracking forecasted dividend income, yield, annual income, beta, dividend growth, and more.
Below is a table of everything we are invested in so far. There you can see my number of shares, shares bought through dividend reinvestments, average cost, gains, and more. The tickers in green are positions that I bought shares in this week. Usually, a chunk of my buys throughout the week are buys from my monthly stock picks. You can read about January’s stock picks here. I use a stock screener to find potentially undervalued stocks with safe and growing dividends. All stock picks (for this month and previous months) are highlighted in blue.
This week our activity lowered our annual dividend income by $2. I did some reorganizing and liquidated a position in favor of building others, this lowered out annual income but raised our forecasted income significantly due to better growth. Our dividend yield decreased by 0.12% and our beta went up by 0.01. My portfolio’s dividend yield may be just slightly higher than you will see in other portfolios, however that is strategic per my time horizon. I am in my 20s and am just starting off this investment journey, so a higher dividend yield gives me greater cash flow now to reinvest which help me realize the benefits of compounding sooner. Our beta usually hovers right around the mid 0.6s which I like, especially in times of uneasiness. It means my portfolio won’t dip as much as the rest of the market on red days, however, it does go the other way around and I won’t have as much green on the good days. Therefore, it is good to watch your beta in terms of cyclicity.
Dividends
This week we received dividends from CMCSA for $0.25 and from EOG for $2.30.
Dividends received for January 2022: $18.66
Year-To-Date Dividends: $41.59
This week many of our positions announced next dividends and a couple of them showed increases.
SJM announced their next dividend of $0.99 with no change.
XYLD announced their next variable dividend of $0.4808.
INTC announced a 5% increase to a dividend of $0.365.
CVX announced a 6% increase to a dividend of $1.42.
MMP announced their next dividend of $1.0375 with no change.
CMCSA announced a 8% increase to a dividend of $0.27.
Trades
Here’s the breakdown of the trades I made this week:
January 25th
MFA – sold 26 shares at $4.31.
BBY – added 1 share at $98.11
ALL – added 0.5 shares at $119.32
January 26th
XYLD – added 0.208013 shares at $48.07 (recurring investment)
SCHD – added 0.127944 shares at $78.16 (recurring investment)
CMCSA – $0.25 dividend reinvested at $45.55
January 27th
CMCSA – Added 1 share at $47.06
INTC – added 1 share at $48.11
Noteworthy News
This section of the post will identify some headlines that may be of import to our positions. If they are important enough, we will also call out in the posts if the news calls for actions to readjust our portfolio.
Other than just the general state of the market I have a few updates for us.
Lots of our positions had earnings reports this week. I will give a brief summary of each below:
CMCSA: Peacock has increased their monthly active users to 24.5 million, Comcast projects this to 35 million by 2024. Comcast outperformed expectations. They reported $0.77 earnings per share on $30.336 billion in revenue beating EPS expectations by 4 cents. This earnings is up 37.5% from Q4 of 2020. NBCU revenue jumped 25.6% and the media segment jumped 8.4% despite a $559 million loss related to Peacock. Peacock lost $1.7 billion in 2021. Other segments of business such as theme parks and Universal performed well. Looking ahead, Comcast states they will remain focused on organic growth opportunities and increasing the capacity of their network and broad-band experience by producing more premium content with multiple ways of accessing it and expanding the reach of their technology platforms. They are confident in increasing the dividend for the 14th consecutive year.
MO: Altria’s earning release matched up with expectations. EPS came in at $1.09 which increased 10.1% year over year. Net revenues dipped 0.8% to $6.25 billion due to lacking performance in the wine segment as a result of the timing of the wine business sale. Revenues were up 0.6% after deducting excise tax. Smokeable and Oral products experienced net revenue gains. For the year of 2021, MO bought back 35.7 million shares which is about half way through their buy back plan expecting to end by December of 2022. Expectations for 2022 are looking to be stable.
INTC: Intel posted record 4Q earnings but forecasted 1Q earnings to be short of expectations due to supply chain issues. Shares fell about 3% following the earnings. 1Q EPS is projected to be $0.80 compared to the expected $0.86. Gross margin forecast fell to 52%, still within the previously expected range. Gross margin is under pressure due to the high capital expenditures Intel is pursuing, these expenditures show the company is building operations needed in order to meet better positions themselves to meet strong demand for semiconductors.
MKC: MCK’s 4Q earnings beat most estimates. EPS rose 6% to $0.84. Sales are up 11% for the year. Sales from Cholula and FONA (both new acquisitions in 2020) contributed 4% to this upside. Both consumer and flavor solution segments experienced an increase in sales. The company is expecting 3-5% sales growth for 2022 with the growth being led by new products.
Summary
That is it for the update this week. Let’s kill it next week. Stay patient and stable. Don’t let this market scare you. Be ready to buy income producing assets at a discount!
Let me know what you think of the progress so far, share with me your progress and questions, interact with me on twitter and Instagram using the links below!
Welcome back to Dividend Dollars! Whew what a week!
The market had a rough time with all three major indexes posting a losing week, with the S&P down by 5%. The NASDAQ posted its worst week since October of 2020. While weeks like this scare people about our economic future, these are the weeks where wealth is made! I am sitting on some cash and held back on my purchases with week with the hopes that we see more downside soon. You will see more substantial purchases from me then. But for now, lets get into the portfolio update.
Every week I write an update on the dividend portfolio as we build it so that we can track its progress. I will give an overview of what the portfolio is invested in, its value, the dividends received, trades made, and any news or business announcements that may be of interest to our positions.
Portfolio Value
To date, I have invested $5,520 into the account, the total value of all positions plus any cash on hand is $5,739.21. That’s a gain of $219.21 for a total return of 3.97%. The account is down $193.96 for the week which is a 3.27% loss. We are not down as bad as the rest of the indexes!
We started building this portfolio on 9/27/2021 and have already built a significant amount of diversity that has kept our portfolio from experiencing losses as large as the indexes have for the past two weeks. Fingers crossed we keep this up!
We added $115 to the account this week. A significant chunk of that money added was put towards adding to positions in Aflac and Allstate as you will see further down.
Portfolio
Above is a dashboard of the portfolio as tracked through simplysafedividends.com. I use that site for tracking forecasted dividend income, yield, annual income, beta, dividend growth, and more.
Below is a table of everything we are invested in so far. There you can see my number of shares, shares bought through dividend reinvestments, average cost, gains, and more. The tickers in green are positions that I bought shares in this week. Usually, a chunk of my buys throughout the week are buys from my monthly stock picks. You can read about January’s stock picks here. I use a stock screener to find potentially undervalued stocks with safe and growing dividends. All stock picks (for this month and previous months) are highlighted in blue.
This week our buys added $5 to our annual dividend income. Our dividend yield increased by 0.15% and our beta went down by 0.04. The increase in dividend yield is more so a result of loses this week, which raise the yield, it is not because of my purchases. However, my portfolio’s dividend yield may be just slightly higher than you will see in other portfolios, however that is strategic per my time horizon. I am in my 20s and just starting off this investment journey, so a higher dividend yield gives me greater cash flow now to reinvest which help me realize the benefits of compounding sooner. As for the decrease in beta, I like seeing that. Especially in times of uneasiness. It means my portfolio won’t dip as much as the rest of the market on red days, however, it does go the other way around and I won’t have as much green on the good days. Therefore, it is good to watch your beta in terms of cyclicity.
Dividends
This week we received 1 dividend from CAH for $0.98.
Dividends received for January 2022: $16.11
Year-To-Date Dividends: $39.04
Trades
Here’s the breakdown of the trades I made this week:
January 18th
BBY – added 0.2 shares at $97.45
CAH – dividend reinvested for 0.018676 shares
January 19th
SCHD – added 0.124339 shares at $80.43 (weekly add)
XYLD – added 0.199557 shares at $50.11 (weekly add)
January 20th
ALL – added 0.5 shares at $121.04
UWMC – Sold 2/11 $6 covered call for $12 premium
UWMC – added 5 shares at $5.53
Noteworthy News
This section of the post will identify some headlines that may be of import to our positions. If they are important enough, we will also call out in the posts if the news calls for actions to readjust our portfolio.
Other than just the general state of the market I only have one news update for us.
It is the $69 billion dollar deal that Microsoft is executing to acquire Activision. Activision is a huge video game developer known for extremely popular brands such as Diablo, Overwatch, Candy Crush, Call of Duty, and more. Microsoft has done a great job of acquiring studios to fill out their gamepass content and it has paid off. They are steps and steps above the competition. Their gamepass market expands outside of just their Xbox player base but also to computer users with a total of 25 million subscribers. Add to that Activision’s 400 million monthly active players and Microsoft’s gamepass will be a bursting with users. Microsoft will acquire Activision at about $95 per share in the all cash deal. The deal will close in 2023. In the dark cloud of the misconduct and sexual allegations currently surrounding Activision’s CEO, I believe the deal pays a decent premium to Activision given their current state and gives a perfect platform for the CEO to step down and allow Microsoft to run with Activision and turn it around. Seems like great timing and offers some awesome potential for return on investment.
Investor mindset aside, I am extremely excited about this deal, I love Diablo!
Summary
That is it for the update this week. Let’s kill it next week. Stay patient and stable. Don’t let this market scare. Be ready to buy income producing assets at a discount!
Let me know what you think of the progress so far, share with me your progress and questions, interact with me on twitter and Instagram using the links below!
Welcome back to Dividend Dollars! Whew what a week!
The market seemed to whip up and down following the myriad of data releases this week that showed a mixture of good and bad numbers. We had a rough start to the week which was followed by a couple days of strength just to hit a down trend for the end of the week. The S&P 500 ended almost flat, NASDAQ ended almost flat, and the DOW ended down nearly 1%.
Every week I write an update on the dividend portfolio as we build it so that we can track its progress. I will give an overview of what the portfolio is invested in, its value, the dividends received, trades made, and any news or business announcements that may be of interest to our positions.
Portfolio Value
To date, I have invested $5,405 into the account, the total value of all positions plus any cash on hand is $5,837.65. That’s a gain of $432.65 for a total return of 8%. The account is up $98.43 for the week which is a 1.72% gain.
Love seeing these gains! We started building this portfolio on 9/27/2021 and are starting to get close to a 10% gain! I think we should hit it in our first 6 months. Fingers crossed. Within that same time frame the S&P 500 has only experienced a 7.02% gain. We’re beating the S&P by almost a whole percent! Let’s hope we can keep up this great progress as we continue to add to our portfolio.
We added $240 to the account this week. A significant chunk of that money added was put towards starting a positions in Aflac and Allstate as you will see further down.
Portfolio
Above is a dashboard of the portfolio as tracked through simplysafedividends.com I use that for tracking forecasted dividend income, yield, annual income, beta, dividend growth, and more.
Below is a table of everything we are invested in so far. There you can see my number of shares, shares bought through dividend reinvestments, average cost, gains, and more. The tickers in green are positions that I bought shares in this week. Usually, a chunk of my buys throughout the week are buys from my monthly stock picks. You can ready about January’s stock picks here. I use a stock screener to find potentially undervalued stocks with safe and growing dividends. All stock picks (for this month and previous months) are highlighted in blue.
This week our buys added $9 to our annual dividend income. Our dividend yield decreased by 0.07% and our beta went up by 0.01. Neither of those are particularly a bad or good thing. My portfolio’s dividend yield may be just slightly higher than you will see elsewhere, however that is strategic per my time horizon. I am in my 20s and just starting off this investment journey, so a higher dividend yield gives me greater cash flow now to reinvest which help me realize the benefits of compounding sooner.
Dividends
This week we received 4 dividends. $2.70 from MO, $0.37 from MKC, $0.43 from AQN, and $0.99 from O.
Dividends received for the week of December 20th: $4.49
Dividends received for January 2022: $15.13
Year-To-Date Dividends: $44.20
Trades
Here’s the breakdown of the trades I made this week:
January 10th
ALL – bought 1 share at $124.65 (new position)
UWMC – added 3 shares at $5.71
AFL – bought 1 share at 62.37 (new position)
MO – $2.70 dividend reinvested for 0.053512 shares
MKC – $0.37 dividend reinvested for 0.003902 shares
January 12th
SCHD – added $10 at $81.75 per share (weekly investment)
XYLD – added $10 at $50.70 per share (weekly investment)
Noteworthy News
This section of the post will identify some headlines that may be of import to our positions. If they are important enough, we will also call out in the posts if the news calls for actions to readjust our portfolio.
Cardinal Health Says Supply-Chain Issues and Inflation to Ding Medical Segment Profit
In this article we see that CAH expects supply chain issues and inflation to cut off $150-$175 million off of their profit in 2022. This comes out to about 40-45 cents less of earnings per share. In order to combat this, CAH says that they are simplyfing their operating model, evolving their commercial contracting strategies, and investing in growth business. When this news came out Monday, shares were down over 8%. I personally think all companies are at risk of loss due to inflation and supply chain issues, so this really is non-news and was already baked into the stock price. Closing the week, a good chunk of that dip has been regained, was a good buying opportunity if you caught it!
Canadian Natural Resources expects higher spending, production in 2022
This article details that CNQ is forecasting a 25% higher capital expenditure in 2022 as a bet on sustained recoveries of oil and gas prices from the pandemic-driven historical lows. This increase in expenditures should result in an increase in total production. The president of the company said in conference call that they have balanced approach with this to bring production growth while also increasing shareholder returns and lowering debt. CNQ already has a healthy balance sheet and this increase in spending should be good for the company in long term.
Warburg-backed Navitas agrees to sale to Enterprise Products Partners
EPD will be acquiring Navitas Midstream Partners Holdings LLC in a $3.25 billion dollar cash deal. Navitas added 750 miles of new pipeline last year which was a very difficult time in the energy industry. Similar to the CNQ headline, this is strategic move to promote growth in a market that will prove to be very lucrative for oil and gas companies.
Intel Names Micron Executive David Zinsner As CFO — Analyst Terms The Move As Positive For The Chipmaker
Intel has hired David Zinser from Micron as their CFO and internally promoted Michelle Johnston Holthaus, a 25 year company veteran, to lead the client computing group. The CCG group accounts for over half of Intel’s revenues. Both moves appear to be smart moves per Zinser’s success at Micron and Holthaus’ performance through their career.
Summary
That is it for the update this week. Love seeing all of the news for our oil and energy positions, that sector has been on fire recently! Let’s kill it next week and keep our eyes open for more good buying opportunities! Let me know what you think of the progress so far, share with me your progress and questions, interact with me on twitter and Instagram using the links below!
Thank you for reading! Enjoy your three day weekend!
Welcome back to Dividend Dollars and congrats on making it through the first trading week of 2022! This week was mostly a down week for the market. This week’s slide quickened when the Federal Reserve indicated that they may be more aggressive on the timing of their first interest rate hike. Data releases show an increase in labor force participation and a huge rise in wage growth which are both economic statistics that encourage the Fed’s case for rate increases. In addition to that, we saw a lower than expected 199,000 jobs created last month. All these things affected the market this last week and may continue to produce more downside.
Even though markets had a rough week, our portfolio probably had its best week yet! We will dive into it here. Every week I write an update on the dividend portfolio so that we can track its progress. I will give an overview of the portfolio and its value, the dividends received, trades made, and any news or business announcements made that may be of interest to our positions.
Portfolio Value
To date, I have invested $5,165 into the account, the total value of all positions plus any cash on hand is $5,520.33. That’s a gain of $355.33 for a total return of 6.88% since inception. The account is up $126.50 for the week which is a 2.35% gain!
This is huge! We started building this portfolio on 9/26/2021 and have hit a gain of 6.88% in under 4 months. Within that same time frame, the S&P 500 has increased by 6.51%. It took nearly a quarter, but as you can see our portfolio is starting to beat the market. Let’s hope we can keep this up as we continue to add money and invest in good positions for the portfolio.
We added $175 to the account this week through adds in a couple of positions as you’ll see below.
Portfolio
Above is a dashboard of the portfolio as tracked through simplysafedividends.com. I use that for tracking forecasted dividend income, yield, annual income, beta, and dividend growth.
Below is an excel sheet that I use to track all of my positions. There you can see my number of shares, shares bought through dividends received, average cost, and gains. The tickers in green are stocks that I bought this week. Usually, a chunk of my buys throughout the week are buys from my monthly stock picks. You can read about January’s stock picks here. I use a stock screener to find potentially undervalued stocks with safe and growing dividends. All stock picks (for this month and previous months) are highlighted in blue.
This week our buys added $8 to our annual dividend income. Our dividend yield decreased by 0.11% and our beta went up by 0.01. Neither of those are particularly a bad or good thing. High dividend yields can mean that a company is paying too much in dividends and could be at risk of needing to cut dividends depending on the healthiness of the balance sheet. 4.41% dividend yield is a little higher than most dividend portfolios I’ve seen. Since I am young and just starting off, a high yield, though risky, gives me greater cash flow now to reinvest which will help me realize the benefits of compounding gains sooner.
Dividends
This week we received two dividends. $10.00 from UWMC and $0.64 from XYLD all of which were reinvested (XYLD will be reinvested at market open on Monday).
Dividends received for the week of January 7th: $10.64
Dividends received for January 2022: $10.64
Year-To-Date Dividends: $33.56
Upcoming dividends for next week are coming from MO and MKC.
Trades
Here’s the breakdown of the trades I made this week:
January 3rd
VZ – added 1 share at $52.32
January 4th
BBY – bought 1 share at $103.95 (new position on stock pick)
January 5th
XYLD – added $10 at $50.72 per share (weekly investment)
SCHD – added $10 at $82.23 per share (weekly investment)
January 6th
UWMC – $10 dividend reinvested at $5.86 for 1.705641 shares
January 7th
ACC – sold 1 share at $55.39
CNQ – added 1 share at $47.05
BBY – added 0.1 share at $102.50
Noteworthy News
This section of the post will identify some headlines that may be of import to our positions. If they are important enough, we will also call out in the posts if the news calls for actions to readjust our portfolio. Unfortunately, I have been sick with COVID this week and did not spend much time watching the news, so nothing to share this week.
Summary
That is it for the update this week. Let’s kill it next week and keep our eyes open for more good buying opportunities! Let me know what you think of the progress so far, share with me your progress and questions, interact with me on twitter and Instagram using the links below!
Thank you for reading and here’s to an amazing 2022 of getting closer to financial freedom!
Welcome to another monthly dividend stock pick post and welcome to the new year! Here I will explain my screening process for finding high-quality dividend stocks and using my charting and company analysis to determine if these stocks are a good buy this month. Please keep in mind, all suggestions or chart interpretations are all my opinion, I always highly advise you do your own research and make sure you understand a company before you invest in it.
Now let’s dive into the stock screening criteria and our picks for this month!
Stock Screening Criteria
My stock screening criteria contains a mix of hard stats combined with a few fundamental ratios that I use as rules of thumb in order to identify stocks that reliably pay increasing dividends while also identifying if the stocks are undervalued and poised for growth.
My criteria gave me a list of 24 stocks which I narrowed down to 3. As Warren Buffett once said, “Never invest in a company you don’t understand.” I adhere to this rule and take stocks out of my watchlist based on my comfortability with understanding the company and the attractiveness of their chart. Below are the criteria and why I use them.
Market Capitalization
Market Capitalization, also called market cap, shows us how much a company is worth as determined by the stock market. A company’s market cap is equal to the total value of a company’s outstanding shares of stock. For example, if a company has a total of 1 million shares selling for $10 each, that company’s market cap would be 10 million.
I screen for companies with a market cap of at least 10 billion. These are generally called large-cap companies. These companies are large, established, are the most common stocks to pay dividends, and are not generally at risk of going under any time soon. For a dividend portfolio, large cap stocks will be our bread and butter. These companies do not usually bring in huge gains in the short term, but in the long term they generally trend upward with consistent increases in share value and dividend payments, which is the name of game with a dividend portfolio.
I will do some experimenting with smaller companies; however, these monthly stock picks will be the majority of my portfolio and thus I will stick to screening for companies with a market cap of at least 10 billion.
Dividend Yield
The dividend yield is a financial ratio which shows how much a company pays out in dividends each year in relation to its stock price (annual dividends per share/price per share). For example, if a stock pays $5 per year and has a market price of $100, the dividend yield would be 5%.
As a dividend investor, you would think that the higher the yield the better because we want to maximize dividends. While that logic is correct, it is important to understand why certain stocks may have uncommonly high dividend yields. If a company has healthy finances, a high dividend yield may mean that the company is unnecessarily shelling out lots of money in the forms of dividends when it could be utilizing some of those funds instead to better position the company for long term success. Every dollar a company pays out as a dividend is a dollar the company is not using to generate capital gains. We want to see a healthy balance of dividends and capital growth and sometimes a high dividend yield indicates the opposite.
A high dividend yield could also mean the stock’s price is declining while the dividend payout remains the same. The stock’s price is the denominator in the equation, so if the stock is trending downwards and the dividend payout remains the same, it will inflate the yield. Take for example a stock that paid a $1 dollar dividend per share last year with a cost of $20 dollars per share. That results in a 5% dividend yield. Imagine this year that same stock still paid $1 but now the stock was worth $10. The dividend yield would now be 10%, which is an increase from last year at the expense of the stock going down 50%.
In summary, a high dividend yield is not always bad, it just calls to our attention that we should review other metrics of the stock to confirm that the company is healthy. With all those things in mind, I screen with a dividend yield of greater than 2%. The average dividend yield of the S&P 500 is 2.22%. This keeps us right at the average. We still may see some suspiciously high yields in our list, this just means we will dive into those stocks in more depth to understand why. We may also see some lower yields, but those low yields should be justified by strong dividend growth. In the long run, a mix of high yield and low yield/high growth dividend stocks will be good for our portfolio.
Consecutive Years of Dividend Growth
This criterion is straight forward. Past performance isn’t always a great indicator of future performance, but in the case of dividends I don’t think this mindset is overly risky. If a dividend has increased year over year for a substantial amount of time, it is fair to expect that it will continue to do so. That is why I screen for stocks that have grown their dividends consecutively for at least 7 years. Lots of companies pride themselves on attaining the status of a “Dividend King” or a “Dividend Aristocrat” as it is quite the impressive title and it attracts dividend investors which is good for the stock’s price in the long term. By screening for at least 7 years of consecutive increases we, at the least, may be able to find companies that are on their way to attaining those titles (if they aren’t achieved already) and we can benefit from their efforts to do so.
P/E Ratio
This criterion I use as a rule of thumb and not a hard stat. P/E ratio is the price-to-earnings ratio and is calculated by market value per share divided by earnings per share. This ratio is commonly used by investors and analysts to determine if a stock is relatively undervalued and overvalued. This is where Warren Buffett found lots of success, he was great at finding companies that had discounted stock prices.
There are many complex methodologies that one can use to determine a stock’s relative value, however I believe the P/E ratio is the quickest and most straightforward way to understand a stock’s relative value. Generally, a high P/E ratio means that a stock is overvalued, and a low ratio means it is undervalued.
Seems simple enough, but there are a few limitations to keep in mind. With earnings per share as the denominator, if a stock has a very small earnings per share or none at all the P/E ratio won’t give you a true understanding of the stock’s relative value. P/E ratios also vary greatly from industry to industry. Therefore, it is helpful to view a stocks P/E ratio year over year to see how it is trending relative to stock price. It is also helpful to understand the P/E ratio of the market or the industry a certain stock is in. This information can give you context clues to determine if a stocks P/E ratio is healthy or not.
The S&P 500 has averaged a P/E ratio of 15.95 since its inception. With the above information in mind, I like to look for P/E ratios that range from 15-30, but sometimes exceptions will be made for stocks that require further research.
D/E Ratio
The debt-to-equity ratio compares a company’s total liabilities to its shareholder equity which lets us know how much leverage they are using. It measures how much debt versus equity they are using to finance their operations. In general, a high D/E ratio means higher leverage which means the company is aggressively financing its growth with debt which is risky.
If a lot of debt is used to finance the business, the cost of that debt could outweigh the benefits of the increase in earnings that it produces, however the opposite can also be true in some cases. Cost of debt can vary with market conditions and D/E ratios can vary greatly depending on industry, so it’s not always clear if a company is over leveraged or not.
In general, a high D/E ratio usually means more risk, especially to stocks that pay dividends. If a company is needing to pay down its debts, it has less cash on hand to pay dividends. My general rule of thumb for D/E trailing 12 month average is less than 15. Best case scenario, the D/E is less than 2, but some stocks will be in industries that are capital intensive which generally require more debt, so I will not immediately remove a stock from this list if they have a high D/E, these stocks will just require further research.
December Picks
Above is a table of the stocks, their data that meets my screening criteria, plus some other information that is beneficial for evaluating dividend strength and good times to buy. Next, we will look at each stock, go over a little bit about the company, and discuss their chart.
Best Buy Co. (BBY)
Best Buy Co. retails technology products in the United States and Canada. They provide computing, mobile phones, and many other consumer electronics and appliances. In addition, Best Buy also provides consultation, delivery, design, installation, memberships, protection plans, repair, set-up, and other technical support services. As of January 30th, 2021, Best Buy had 1,126 large-format at 33 small-format stores. The only concerning thing I saw about was their PE ratio of 9.9. This number is a little bit below my criteria, however, given the industry average of 11.96, their PE ratio is not bad.
Best Buy’s chart looks promising. Within the last month, BBY has bounced for the third time off of the channel support line at the $95 area, with the first bounce happening in December of 2020 and quickly moved up to the $115 area. I would expect a similar move this bounce given the strong RSI and state of the market. If this fails, we could see yet another approach to the $95 area followed by yet another bounce or a break.
Allstate (ALL)
Allstate provides property and casualty, and other insurance products in the United States and Canada. They have a diverse line of products across a wide range of segments. They sell through their call centers, agencies, financial specialists, brokers, wholesale partners, affinity groups, and online and mobile applications. Given the economic uncertainty of 2022, insurance stocks make great picks for this watchlist due to their excellent long-term returns and necessity regardless of economic health. Like Best Buy, Allstate has a lower than desired PE ratio. But like Best Buy, Allstate’s PE ratio is not bad when compared to the industry average of 13.87
Allstate’s chart looks promising. It is working its way up a steep increasing channel and has reached resistance around the $120 area. Prices are coming close to the bottom of the narrow channel which could cause prices to push through the resistance and continue upward. If not, I see downside to the $114 area.
Aflac (AFL)
Aflac provides supplemental health and life insurance products. It operates in the United States and Japan, offering cancer, medical, income support, whole life, term life, child endowment, accident, critical care, dental, vision, among other insurance offerings. Aflac’s debt levels and earnings show me that their dividend is extremely healthy and is ready to continue with their growth. Like Allstate, Aflac’s insurance business will churn out profits regardless of the market which I find particularly attractive right now.
Aflac’s chart is in a gradually increasing channel which it has stayed within since mid-august of 2021. The price has tested both the higher and lower bounds of the channel multiple times, leading me to believe it will continue into the near futures. However, we do need to keep in mind that Aflac recently reached a 52-week high and will need to push through that in order to maintain its upward momentum. We may see more downside to the bottom of the channel before we see another push for a high.
Conclusion
In this article, I screened for stocks that look like they will provide regular growing dividends while also having potential for capital gains. My screening criteria found 24 stocks which fit the mold, I then narrowed that list down to 3 based off of the attractiveness of the stock’s chart and my comfort with understanding the company.
I am long on all the stocks on this list. I will watch this list play out through the month and open new positions as opportunities present themselves, these chart analyses help us to be prepared for those buying opportunities. All 3 stocks are suitable for further research and my article is not to be taken as financial advice. Thank you for reading and feel free to leave any replies or questions you may have on here or on my socials.
