Category: Stock Analysis

I recently became aware of what a good deal Viacom, Inc. is for a dividend stock. Viacom is an “entertainment content company” and produces, finances, and distributes content in television and film. They work with Disney, MTV, Paramount, Nickelodeon, and more.

Recently, I bought 20 shares of VIA at $48.36 per share, and then after the price dipped, I bought another 22 shares at $44.20.

Currently, Viacom’s PE Ratio is around 8, which is an insane deal considering the dividend yield is over 3.5%. Their dividend growth history only goes back about 6 years, but it has been growing about 20% every year, and with a payout ratio of only 28%, it seems like that will continue.

This puts me at $703.32/$600.00 for my annual passive income goal for 2016, and $58.61/$100.00 for my average monthly passive income long term goal. It seems that I neglected to do the math on my annual dividend income after the last couple of purchases, and didn’t realize that I REACHED MY GOAL FOR 2016!!! I will probably do a mid year review of my 2016 goals soon, it’s exciting to have one of those completed.

To achieve my goal of investing $15,000 this year, I’ll need to invest at least $1250 each month (on average). So let’s start this year with a bang! I was able to invest $2000 for January. The 3 stocks I was considering were IBM, MMM, and WFC. So I thought I’d share with you my decision making process for this process.

First of all, These 3 companies each match my basic criteria of a solid history of dividend growth, a PE ratio under 20, a payout ratio under 60%, and a yield over 2.5%. All three are also in short term dips (or long term in the case of IBM).

Next, let’s look at past performance and dividend growth history. 10 years ago, $1000 invested in IBM would be worth $2334 today, in MMM would be worth $3288, and in WFC would be worth $2925. IBM’s dividend grew 18% last year, and on average it grows 23% per year. MMM’s dividend grew 19% last year, and on average grows 9% per year. WFC’s dividend grew 7% last year, and on average it grows 4% per year.

In terms of price growth, they each have grown an average of about 8 to 10% each year in the past. However, the price of MMM and IBM went down 7% last year, where WFC grew 4%. Price trends usually don’t affect my long term investment decisions, but it’s interesting to note the similarities.

Right now, the thing that appeals to me most is the dividend growth potential. So I went with IBM and MMM.

I bought 7 shares of IBM at $135.29 adding $36.40 to my yearly dividend income
and 7 shares of MMM at $144.35 adding $28.70 to my yearly dividend income.

This puts me at $485.94/$600.00 for my annual passive income goal for 2016, and $40.50/$100.00 for my average monthly passive income long term goal.

I’m excited to be doing some serious damage on my goals at the start of the year.

The market has been pretty volatile over the last few months. A good number of companies have come back to equilibrium, but there are still a few depressed companies that I have my eyes on. These stocks have had a rough year, and as I’m starting to have more investing opportunities, it’s good to have a plan.

IBM

IBM has seen a few choppy years recently while trending down. However, their dividend growth has been maintained, as well as a healthy payout ratio. At the current valuation, IBM has a PE ratio of 9.2 and a yield of 3.85% which is beautiful. It’s not especially popular with 12 quarters of lower revenue. However, Warren Buffett is stockpiling IBM shares right now, which makes me think he knows something we don’t.

WMT

Walmart recently announced a bleak future for the company’s earnings in 2016 and 2017, in combination with their performance, this means WMT is down 30% for the year. This puts the PE ratio at a very attractive 12.6, and the dividend yield around 3.2%. The earnings growth potential over these next couple years isn’t going to be great, but if the price gets depressed further, the dividends will be reinvested at a discount. I’m liking the idea of stockpiling WMT over the next couple years to make bank when they recover and return to growth.

These are the opportunities I have my eyes on currently. I’m also watching Starbucks (SBUX), Yum Brands (YUM), and Whole Foods Market (WFM). How about you, what companies are on your watch list?

This is a bit of a belated post. A couple weeks ago, I purchased 22 shares of VZ at $46.39

At the time, the PE ratio was 18.4 and the dividend yield was 4.8%. Since then, the price has come down, and it is currently yielding over 5%, so maybe you can capitalize on my lack of patience. This investment adds $49.28 to my yearly dividend income, and $4.10 to my average monthly income.

Putting me at $414.44/$500.00 for the annual passive income goal and $34.54/$100.00 for the monthly passive income goal. These numbers are probably a little off due to dividend reinvestment, but I’m getting really close to my $500 per year goal.

I’ve written before about why I like Verizon. You can check it out here.

I’ve owned Johnson and Johnson (JNJ) in my personal account for some time. Recently, there has been a nice price dip in the company and I’ve been able to pick it up for my Joint account that I disclose to all of you.

Back in September, I bought 10 shares of Johnson and Johnson (JNJ). I regret not being able to post about it at the time, but I want to rectify that by sharing it now. I bought those 10 shares at $91.28, which is a better deal than you can get today, but I think it’s still a good buy today as well if you’re looking.

Today, JNJ’s P/E ratio is 16.54, and the dividend yield is 3.19%. This investment adds $30.00 to my yearly dividend income, and $2.50 to my average monthly income. JNJ is also a Dividend King and has raised their dividend every year for 53 years! That’s the kind of history I can get behind.

Putting me at $335.22/$500.00 for the annual passive income goal and $27.93/$100.00 for the monthly passive income goal.

This purchase doesn’t bring me to any major milestone, but it is the first stock in this portfolio that will pay a dividend in February, May, August, and November. So those months will no longer be $0 dividend months for me, and I’ll now be getting dividends every month of the calendar year. So that’s cool!

In 2010, Verizon started a new advertising campaign that inspired my Starcraft 2 strategy, “Rule The Air.” I decided that if you had enough air units, and anti-air units to destroy the other team’s air units, you had a distinct advantage. By “ruling the air,” I was able to grab a good number of victories. Well, my Starcraft 2 days are over (it’s all about Diablo 3 now), but Verizon still has my interest as dividend stock. With a 31% market share, Verizon (VZ) is the current leader for wireless service (thus ruling the air) with AT&T in close second with 27%. Frugal phone owners will flock to which ever service is the best deal with little care for loyalty, so this could change very quickly, but I still like investing in winners.

Let’s look at the numbers. Verizon has a pretty solid dividend yield at 4.4% and has been paying a dividend for 30 years. In terms of growth, the company has been raising it’s dividend each year for at least 10 years. However, the average dividend growth per year has only been about 4.8%, with the most recent raise being only 2.9%. Based on my family’s current goals, low growth, high yield dividend payers are a decent target. Verizon’s P/E Ratio is currently about 12, but the PEG Ratio looks to be about 2.37, so it may still be slightly overvalued. Again I only take PEG Ratios with a grain of salt since it’s based on speculation.

Their payout ratio is nice and low at 39%, which means there is little threat of a dividend cut, so dividend growth should continue. If you invested $1000 in Verizon 10 years ago and reinvested all dividends, you would now have about 86.93 shares worth $4173.94 paying out $136.91 dividends each year. That’s a solid 13.6% yield on cost.

Verizon is on my list of potential stock to buy in the beginning of April.

There are 2 things you can count on, death and taxes. If we had to expand it to a third thing, it would be that Americans and the rest of the world are going to keep using Oil for the foreseeable future. Today, we’ll be looking at ConocoPhillips (COP). When it comes to natural gas and crude oil, ConocoPhillips does it all from searching to production and marketing.

One thing that drew me to COP is the low current P/E Ratio of 10.8, well below the 20 I usually aim for. Before we get too excited though, their PEG Ratio (which is based on projected growth) sits somewhere between 1.72 and 2.23 (depending on your source), which may still point to the stock being overvalued at the current price. I usually won’t raise an eyebrow for the PEG Ratio unless it’s over 2 since it’s being based on speculation.

What’s most important to me is the dividend. The current yield is about 3.9%, which is pretty nice. They have increased dividend distributions for the past 12 years, and dividend growth over the past 10 years has averaged over 17% per year. Last year’s dividend raise was significantly lower at 4.5%. The payout ratio is 48% based on last year’s EPS of 5.7 and the current quarterly dividend of $0.69. With this conservative calculation, there is still plenty of room to increase the dividend payment each year.

If you invested $1000 in this stock 10 years ago and reinvested all dividends, you would now have about 72.82 shares worth $5072.28 paying out $198.80 in dividends each year.

I’ll continue to analyze stocks on my watch list before making my first purchase in April.

In other news, my wife and I are looking to potentially buy a house later this year, which means the stock purchases I report in this blog will probably only be held for a short time. I intend to rebuild the portfolio after the down payment, but this will affect my strategy for this year. As such, a high yield stock like COP may be a good fit for this time frame. I have my individual account as well, so when the time comes, I will probably only sell the companies that are overvalued at the time of selling.

I’ve put off analyzing this stock for a while because the price movement over the last 5 years is choppier than I like to see. However, I’m no longer a “speculator,” I am an investor, and it’s time to do my homework. AT&T (T) is an communications company offering services and products that cover long distance, wireless communication, broadband and internet services. Their original partnership with Apple for the iPhone helped a lot in establishing brand loyalty, which will pay off as smartphones are becoming more commonplace. AT&T’s marketshare is currently second only to Verizon (VZ) for mobile carriers. This could all change very quickly because it’s in a very competitive industry.

AT&T looks fantastic on paper for a dividend investor that is just getting started. The P/E Ratio is currently at right about 10 which is well below my threshold of 20. This low ratio means that the yield can be quite high without sacrificing payout ratio, which is the case in the 5.4% yield and 53% payout ratio. This leaves room for the dividend to grow, which it has been doing for the past 30 years. Unfortunately, like many other high yield dividend stocks, their dividend growth for the past 10 years has not been impressive, averaging a little over 4% per year.

Luckily, a high current yield can mean this investment can provide you with quick cash to invest in dividend payers with a higher growth rate. High yields can also still out perform high growth low yield stocks. If you invested $1000 in this stock 10 years ago and reinvested all dividends, you would now have about 138.29 shares worth $4714.31 paying out $250.30 dividends each year, this is significantly higher than some of the higher growth stocks I am currently invested in.

I think today’s price on AT&T is a pretty decent value. I still have to do my taxes, so I’m not sure if I’m going to have the free cash to invest any time soon. But if I do, AT&T seems like a decent choice.

What are your thoughts on AT&T?

Also, if you’re looking for some good dividend stock ideas, Check out Dividend Growth Stock Investing. Dan has compiled the favorite dividend stocks of many dividend bloggers including myself.

One of the most confusing concepts of dividend investing is understanding how and when you get paid a dividend. If you’re new to dividend investing, you may have no idea of even where to look. You might think you just get paid a dividend for owning the stock right away, like a gunshot in Call of Duty. In reality, it’s more like Angry Birds, there’s a delay before you get your payout.

So first, let’s start with the vocab lesson.

The 4 terms you will see on these sites are the “Declared Date,” “Exdividend Date” (or Ex Date), “Record Date,” and “Pay Date.” The most important ones to know are the Ex dividend Date and the Pay Date. It’s very simple: if you own a stock when the opening bell rings on it’s Exdividend Date, you will be paid the dividends for each share you own on the dividend Pay Date. So if MCD has an Exdividend Date of 2/27/2014, for you to “Capture the dividend,” you must buy shares on 2/26/2014 or earlier. Then, on their Pay Date, 3/17/2014, you will receive dividends for each share you owned on 2/27/2014.

It should be noted, that for a dividend to be “qualified,” and thus taxed at a lower rate, you must own that stock for 60 days before and after the Exdividend Date.

The “Record Date” is usually a day or so after the Exdividend Date, and this is when the company looks at their records from the Exdividend Date and determines who is eligible to receive a dividend payment. The “Declared Date” is the day the company announces its next dividend. For the most part, these dates are not really relevant to the standard dividend investor, and can thus be ignored.

When I need to find out when a specific stock pays a dividend, I look on either dividend.com or dividata.com. These sites also have features that will let you search for stocks that have upcoming Exdividend Dates.

There is an investing strategy called “Capture the Dividend.” Where an investor purchases the stock the day before the Exdividend Date and then sells afterwards. This allows them to receive the dividend payment and potentially reallocate their cash elsewhere, maybe to capture another dividend. The problem is that on the Exdividend Date, the stock price usually “gaps down” by the amount of the dividend payment. For our example of McDonalds, if their dividend payment is $0.81 per share, and the closing price on the night before the Exdividend Date is $95.00, the opening price will be $94.19 the next morning.

This is not considered a safe or reliable strategy because there’s no guarantee that the price will move back up to or above the price you bought it at before receiving the dividend. Additionally, since this dividend is not “qualified,” you will pay taxes on it as capital gains (which is a higher rate). The most tried and true strategy for quality dividend stocks is “Buy and Hold.”

Well, hopefully you have a much better understanding of what you’re looking at when analyzing a stock.

The final stock I’ll be analyzing before making my next stock investment in early February is The Coca-Cola Company (KO). I currently already have a position of KO in my personal portfolio, and it has made little headway outside of dividends since I made my entry. When I consider the history of this stock, I won’t just be talking about the past 2 years I’ve owned it.

The Coca-Cola Company has had an amazing history, with 51 years of dividend increases, it is a Dividend King.

Their dividend distributions have risen over 9% in the past year, and about 9.3% per year for the past 10 years on average. Right now, entry yield is 3.01% and they’re just about due for another dividend raise in the middle of February.

The current EPS is $1.93 putting the PE ratio at 19.26 which is just below my threshold of 20. I think this stock is set to take off over the next year, making now the ideal time to buy.

KO’s payout ratio is currently 53.6% which gives them space to increase distributions and is below my threshold of 65%.

If you invested $1000 in The Coca-Cola Company 10 years ago and reinvested all dividends, you would now have about 71.36 shares worth $2654.59 paying out $79.92 dividends each year.

The Coca-Cola Company also has a significant economic moat as the provider of both the #1 and #2 top soft drinks. Source

This concludes my analysis of stocks for this next purchase. Today Target fell into the $55 range, and it did so a little sooner than I thought it would, so I intend to stand by until after whatever damages result from their quarterly earnings report. Right now, KO is my favorite, so I’ll probably be purchasing 25 shares of KO. MSFT is my second favorite right now, so if I can swing it, I’d like to buy 13 shares of MSFT as well.