As investors, there are always opportunities out there. The stock market has continued the volatile road upwards, with the presidential debates in full swing, talks of the stimulus package all over the place and we are in peak earnings season! Let’s buckle up and read Lanny’s Dividend Stock Watch List – November 2020 Edition.
Dividend stock watch list
Welcome back to another dividend stock watch list and you can have a sneak pick of the dividend stocks that are on my radar. The stock market has been on an ABSOLUTE tear over the last 30 days and it simply doesn’t make things easy for a dividend investor.
Interest rates are significantly low on your savings, including high yield savings, accounts, as well as money market accounts & funds. In fact, Ally Savings reduced my interest rate to 0.80% back in September. Luckily, I can still say that I am earning 0.60% on my savings account. My lovely message from Ally (ALLY) is below:
Stock investors have enjoyed earnings season, as stock prices has surged all prior week. Stocks including Starbucks (SBUX) and Rockwell Automation (ROK) are at highs, names that aren’t commonly seen. Tesla (TSLA) had their 5th strategy quarter of profitability. I think the only company that really dropped was Intel (INTC), given a weaker outlook. What a world.
In addition, the Federal reserve continues to make headlines, as they’ve been flushing the stock market with cash. See my last point below, which I also snipped in a picture of an article that sums it up:
- Up to $700 billion in quantitative easing (a fun tool during the financial crisis, that actually, never really stopped).
- Reduced rates to at/near 0.00% for the fed funds rate.
- Purchased ~$4B in FNMA Mortgage Backed Securities.
- Announced Main Street Lending Program to purchase up to $600 Billion of debt from companies employing up to 10,000 workers.
- Announced Municipal Liquidity Facility to purchase up to $500 Billion of debt from states and cities.
- In addition, as you’ll see below, the Fed plans to maintain rates near zero for 3 years.
Therefore, it’s hard imagining an economy without the interjection from the Fed and how much the economy here is relying on them. In addition, the unemployment benefits of $600 extra per week has expired. Now, Donald Trump has an Executive Order out there, requesting a $400 per week additional – $300 paid by the federal government and $100 paid by the state. Lastly – the second economic stimulus package remains uncertain before the election, but is almost certain to occur after the election.
As a dividend stock investor, for the first time, I feel a little uncertain of what the future may hold. We continue to save and invest in very conservative dividend stock investments, in smaller purchases. I have written two articles related to the topic of – the Coronavirus Dividend Stock Watch List and Industries that truly thrive during a pandemic.
In addition, given the uncertainty, I continue to make smaller, weekly investments into Vanguard Exchange Traded Funds (ETFs). The specific ETF my wife and I have been loading up on is Vanguard High Dividend Yield (VYM). We are investing $500 per week, to stay invested in the market, during the uncertain times.
In addition, here is a display of what the market did in the last 30 days:
The stock market is down around 4-5% over the last 30 days. Last month was slightly down. However, here we are, roaring up 150 points in the S&P 500 and crushing over 3,450+ now. Dividend investing is a little more interesting and you have to dig a little deeper. Luckily, we are all about dividend income and increasing that cash flow, as the goal is to have the dividend income cross over expenses, not market value.
Therefore, n the road to financial freedom, acquiring assets that produce cash flow or income is the goal! Like I always say, there is always a diamond in the rough. How do I find an undervalued dividend stock? Time to introduce our beloved Dividend Diplomat Stock Screener!
Dividend Diplomat Stock Screener
If you don’t know already, we keep the stock screener metrics to THREE SIMPLE items. They are:
- Price to Earnings Ratio – We look for a price to earnings ratio < than the overall Stock Market.
- Payout Ratio – We aim for a payout ratio between of less than 60%.
- Dividend Growth – We like to see history of dividend growth in a company.
See the video below, for further details and explanation. If you don’t like to watch videos – see our Dividend Diplomat Stock Screener page!
Time to find the answer to… how did the dividend stocks on my watch list grade on the stock screener?
Dividend stock watch list
General Dynamics (GD)
General Dynamics (GD) is BACK on the list, for back to back months. Why? Well, at the time of this writing, the share price is even LOWER than what the price was in my dividend stock October watch list.
In addition, General Dynamics is also a beloved dividend aristocrat! You know, those wonderful dividend stocks that have increased their dividend for 25+ years in a row! Time to see what General Dynamics looks like through the Dividend Diplomat Stock Screener:
- Price to Earnings Ratio: At a share price of $139.42, close of 10/22/20, the analysts are projecting $12.00 in earnings per share for 2021. Therefore, the P/E ratio, which helps determine under/over valuation, calculates to 11.62. This compares favorable to the S&P 500, which is trading at 35x earnings. 35x earnings is insanely high rate now, hence why investing into dividend stocks is tougher and tougher. Here is evidence for the projected earnings:
- Payout Ratio: General Dynamics pays $4.40 in dividends per year. At a projected earnings of $12.00, the dividend payout ratio is 37%. This is significantly low, lower than our 60% ceiling and GD’s dividend payout ratio almost falls into the perfect sweet spot of 40-60%! The dividend safety is in tact. This shows GD reinvests heavily back into the business, but still pays a decent return out to the shareholders, as well as can allow for room for dividend growth!
- Dividend Growth: Having increased the dividend for 25+ years, the 5 year dividend growth rate is 10%. If you pair that with their dividend yield, which is now 3.16%, that is a great dividend combo, 1-2 punch! The history and growth rate are both stellar!
I currently own almost 33 shares of General Dynamics and wouldn’t mind boosting this position another 2 shares to 35.
Cisco (CSCO) remains on my dividend stock watch list, as they were on there in October and September! Cisco is a name that you see quite often and you even here us Dividend Diplomats speak about, such as within our YouTube videos and, of course, in my Stocks to Buy in a Post-Pandemic World.
Why do I speak highly of them? Well, during COVID-19, their network capabilities form a VPN standpoint are critical to everyday businesses functioning. In addition, their Cisco Web-ex platform is used across the globe and I know with remote work, I have been apart of many web-ex calls in the last 6+ months.
However, what also makes Cisco (CSCO) a dividend stock to buy are their dividend stock metrics! Cisco stacks fairly well in the Dividend Diplomat Stock Screener, see below:
- Price to Earnings Ratio: CSCO’s stock price is $38.82, as of October 22, 2020. 22 analysts are projecting $3.32 in earnings per share for 2022. Therefore, dividend the stock price over the earnings per share, equates to a price to earnings ratio of 11.69. Definitely below the S&P 500 and other competitors in the industry, including Microsoft (MSFT) and Zoom Media (ZM).
- Payout Ratio: At $1.44 in dividends per year and dividing that by $3.32, you come to a favorable answer. The dividend payout ratio for CSCO is 43%! Their safety appears sound and they are smack-dab in the middle of the 40%-60% range that I like to see.
- Dividend Growth: Not a dividend aristocrat, yet. However, they are going on 9 consecutive years of dividend growth. Further, they have already increased their dividend in 2020, therefore – that elephant in the room is out of the way! Their 3 year dividend growth rate is almost 9% with an over 12% dividend growth rate for 5 years. I would anticipate 3-5% for the next 1-3 years, again, due to COVID-19.
I own 145 shares of Cisco (CSCO). However, I could see this position swelling to 150 shares at or under these price levels. Obviously, I prefer lower!
Johnson & Johnson (JNJ)
This wouldn’t be a dividend stock watch list without a Top 5 Foundation Dividend stock, it just wouldn’t be right. Johnson & Johnson (JNJ) has been hovering over the $143-$150 stock price range. Further, they are a massive component in driving the COVID-19 vaccine and are one of the bigger pharmaceutical players in the industry.
Not only do I think Johnson & Johnson is a Top 5 Foundation Dividend stock, but I believe they are arguably the BEST dividend stock to buy and own for life! See the video here:
Related: Top 5 Foundation Dividend Stocks
It only makes sense to also run AT&T through our Dividend Diplomats Stock Screener. See the dividend stock metric results below:
- Price to Earnings Ratio: Analysts are projecting $8.62 in earnings per share, on a go forward basis. At a stock price of $145.08, this equates to a significantly low 16.83 price to earnings ratio. Wow, is all I have to say! Definitely signs of undervaluation.
- Payout Ratio: Given Johnson & Johnson (JNJ) pays out $4.04 in dividends, you take that over $8.62. This equates to a dividend payout ratio of 47%. The perfect ratio strikes again! This is what JNJ is a definite stock to buy or keep this on your dividend stock watch list.
- Dividend Growth: They are a dividend aristocrat baby! They have 50+ years of consistent dividend increases with a dividend growth rate of 6-7%. This is why I consider JNJ good old reliable. That dividend growth is the most consistent I have seen out of any dividend stock. They have a perfect combination of dividend yield (at around 2.80%) and dividend growth.
Dividend Stock Watch List Conclusion
All three dividend stocks my wife and I hold in our portfolio. In addition, we have a decent position in all 3, but they are showing signs of undervaluation. We have three completely different industries here with Defense, Technology/IT and Healthcare. I would argue that each one is used in our every day lives. Of course, prior to making any purchase, I definitely will make sure to run them through the Dividend Diplomat Stock Screener once more.
I could see myself adding all three, but would arguably love to see lower stock prices! The road to financial freedom seems far away, but I know I need to make investment decisions and continue to step along the path. Not one specifically sticks out in my mind as a clear stock winner here, as all three show great metrics. I would argue Cisco, then General Dynamics and followed by Johnson & Johnson if I were to order them.
As you have noticed, I have trickled many articles on this page. The goal is to educate new dividend investors out there, or to sharpen the terminology for current dividend investors. As always, stick to your investment strategy and dividend stocks will be there. What do you think of these stocks above? Thank you, good luck and happy investing everyone!
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