We are back at it this week with another stock purchase (or two). My wife and I were ready to add some dividend income and continue kicking off 2021 in style. In this article, we will discuss the 2 dividend stocks we purchased so far this week and show why each of the companies are currently considered undervalued dividend growth stocks. With the purchases, we added over $18 in dividend income to our portfolio! Let’s jump into our dividend stock purchase summary.

My Dividend Investing Strategy

We are dividend growth investors. Our goal is to buy UNDERVALUED dividend growth stocks and grow our passive income. We truly believe dividend income is the easiest form of dividend income. Who wouldn’t want to earn income without lifting a finger?  By purchasing income producing assets, one day, our passive income stream will cover our living expenses. After nearly a decade of dividend investing, the results of all of our investing are starting to show!

Read: 5 Reasons Why Dividend Income is the EASIEST Form of Passive Income

See: Our Full Dividend Stock Portfolios

How do we find undervalued dividend stocks to purchase? Easy. We use the Dividend Diplomats Dividend Stock Screener.  Over the years, we have used this simple, 3 step stock screener to evaluate all dividend stocks for potential investment opportunties. The 3 metrics of the Stock Screener are:

  1. Price to Earnings Ratio Less Than the S&P 500
  2. Dividend Payout Ratio Less Than 60%
  3. Dividend Growth History & Dividend Growth Rate

In addition to the stock screener, we are constantly preparing dividend stock watch lists and other lists to identify quality, undervalued dividend stocks. The exercise of preparing monthly watch lists is always helpful and allows you to make quick investing decisions when the stock market suddenly turns red.

Read: Lanny’s January Dividend Stock Watch List

Further, we have lists that transcend time. When we don’t know what stock to buy, we are always checking on our Top 5 Foundation Dividend Stock list to find a high quality dividend stock. Chances are, between one of our watch lists, or other lists, we will find an undervalued dividend stock to purchase!

Read: Top 5 Foundation Dividend Stocks

Using our watch lists and dividend stock screener, my wife and I were able to purchase two stocks this week. In fact, both stock purchases occured on January 12. The purchases were not large; however, we were pumped to continue adding dividend income to our portfolios. Let’s take a look at the two stocks we purchased.

(adsbygoogle = window.adsbygoogle || []).push({}); Dividend Stock #1: J.M. Smuckers (SJM)

The first company we purchased is headquartered about an hour and a half from where we live in Northeast Ohio. J.M. Smuuckers (Ticker: SJM) is a consumer staple giant and can be found in almost everyone’s pantries. Over the years, I have not been shy about my love for consumer staple stocks for this reason. Some of Smuckers brands include Jif Peanut Butter, Smuckers Jelly, Folgers Coffee, Meow Mix cat food, Milkbone dog treats, and many others.

Smuckers Brands

Several years ago, we initiated a position in Smuckers in my wife’s portfolio. The company’s stock price took off after we purchased our shares. Since then, we have not had the opportunity to add to her position. However, that has all changed in 2021.  The company’s stock price is currently down 3.8% YTD.

Smuckers was one of the three featured companies on Lanny’s dividend stock watch list. Therefore, the company was already high on my radar for potential purchase opportunities.  On January 12th, I opened up my brokerage account and saw that the company’s stock price was down 2.5%.  I quickly refreshed the metrics of the stock screener (since Lanny ran it earlier in the month) and saw that Smuckers was still showing signs of undervaluation.

Let’s see how the company performed in the stock screener. We will use our average stock purchase price of $111.02 per share, average earnings of $8.38 per share per Yahoo! Finance, and an annual dividend of $3.60 per share for the purposes of our stock screener

Metric #1: Price to Earnings Ratio Less Than the S&P 500: 13.25x. The company is trading well below the S&P 500. The market’s valuation is currently insanely high, trading between 35x – 40x.

Metric #2: Dividend Payout Ratio Less Than 60%:  43%. Smuckers passes this metric with flying colors. Not only that, we think their dividend payout ratio is perfect. In our opinion, a perfect payout ratio is between 40% and 60%. This allows a company to reinvest its earnings in the business and pay shareholders a strong dividend.

Metric #3: Dividend Growth History Smuckers is on its way to becoming a Dividend Aristocrat (25+ consecutive dividend increases). Smuckers has increased its dividend for 17 consecutive years. The company’s 5 year average dividend growth rate of 6.34% is solid as well.  Smuckers typically increases its dividend in July. So we should all receive a nice summer treat from the company.

Read: Who and What Are Dividend Aristocrats? 

As you can see, Smuckers performed very well in our stock screener. That is why my wife and I both decided to strike and add a few shares to our portfolio. Now, our purchases were not very large.  I added 2 shares at $111.19 per share and my wife added 1 share at $110.86 per share. I am pumped she was able to get it at a lower stock price.

In total, the 3 shares added $10.80 to our forward dividend income. That annual dividend should cover the cost of 2 40 oz jars of Jif peanut butter! Ideally though, I will look to continue building our position over the next few weeks.  The company’s ex-dividend date will be in the middle of February. So I have some time to build my position to capture the March 2021 dividend.

(adsbygoogle = window.adsbygoogle || []).push({}); Dividend Stock #2: Verizon (VZ)

Well, this dividend stock purchase shouldn’t surprise anyone. Once again, I purchased another company on Lanny’s January Dividend Stock Watch List. Verizon is one of the nation’s largest wireless communication companies. Verizon has a large customer base and is aggresively expanding its 5G network to compete with AT&T and T-Mobile.  We have discussed Verizon a lot lately. In fact, we just published a YouTube video discussing the company’s recent news (5G auctions, 5G expansion, and more).

Historically, I have exclusively owned AT&T in my portfolio. I have amassed a very large position over the years in AT&T. In fact, my AT&T stock dividend pays for my AT&T internet bill!  However, as Lanny points out, the stock metrics for Verizon are looking great. Now is the right time to start building our position in the company. I will never complain about owning two great dividend growth stocks in the same sector. The more the merrier.

Let’s crunch some numbers and run Verizon through our stock screener. We will use our stock purchase price of $57.0975 per share, average earnings of $5.01 per share per Yahoo! Finance, and an annual dividend of $2.51 per share for the purposes of our stock screener

Metric #1: Price to Earnings Ratio Less Than the S&P 500: 11.4x. Just like Smuckers, the company is trading well below the S&P 500.

Metric #2: Dividend Payout Ratio Less Than 60%:  50%. Another dividend stock with a perfect dividend payout ratio. Verizon’s payout ratio falls right in the middle of our range.

Metric #3: Dividend Growth History Verizon has increased its dividend for 15+ consecutive years. The company’s 5-year average dividend growth rate of 2% is not the highest. However, it is in line with inflation and beats the interest rate on my high yield savings account.

In total, my wife added 3 shares of Verizon to her portfolio. This added $7.53 to her forward dividend income. With this purchase, she now owns 5 total shares of Verizon. We will also look to continue building our postiion in Big Red if the price continues to remain right.

Verizon Stock

Summary

In total, we we able to add $18.33 in forward dividend income on Tuesday. We invested $513.53 in Smuckers and Verizon combined. Overall, our the yield on our total purchases was 3.6%. I’ll never complain about adding that kind of yield to our dividend stock portfolio.

Truthfully, it was just nice to purchase some stock and push our dividend income forward. The stock market has continued to climb in 2021. It has continued where we left off last year. So finding, and buying, undervaleud dividend stocks has not been the easiest task.  Clearly, it wasn’t impossible. However, I need to continue being aggressive and investing when the metrics make sense. The metrics made sense for Smuckers and Verizon this week. I will continue buying shares as long as the metrics continue to show signs of undervaluation.

What stocks have you been buying lately? Have you purchased Smuckers and Verizon? Do you prefer Verizon or AT&T?

Bert (adsbygoogle = window.adsbygoogle || []).push({});

The post Dividend Stock Purchase: Bert’s Buys This Week appeared first on Dividend Diplomats.