We launched a new series of articles last month with the premise of building a dividend portfolio from scratch by leveraging the collective knowledge and opinions of the Seeking Alpha community. In parts 1 and 2, we highlighted the investment plan and strategy for the portfolio and parts 3-13 will highlight each sector in the S&P 500, including high-rated stocks within each sector to consider for the portfolio. Readers can either vote on the stocks we suggested for the portfolio or "write in" their own stocks to vote on. Majority will rule.
Below is a schedule of the entire series. Please make sure to "follow" us so that you will be notified when each new article is published.
- Part 1: Introduction
- Part 2: Establishing A Buy Zone and Watch List
- Part 3: Consumer Staples (3a) / "Buy Zones" (3b)
- Part 4: Utilities (4a) / "Buy Zones" (4b)
- Part 5: Healthcare (5a) / "Buy Zones" (5b)
- Part 6: Consumer Discretionary (6a) / "Buy Zones" (6b)
- Part 7: Portfolio Update (The First 9 Stocks Are In!)
- Part 8: Financials (8a) / "Buy Zones" (8b)
- Part 9: Technology
- Part 10: Industrials
- Part 11: Materials
- Part 12: Energy
- Part 13: Unveiling the Portfolio
Picking Financial Stocks For The Portfolio
As you know, our goal is to build a watch list of great stocks by sector that we can use to build the portfolio over time (purchasing shares when the prices are right).
We suggested five great Financial stocks for folks to vote on in Part 8: Triangle Capital (TCAP), Arthur J Gallagher (AJG), Cincinnati Financial (CINF), Omega Healthcare (OHI), and Realty Income (O). Readers also suggested some great "write-in" votes, including Wells Fargo (WFC), JP Morgan Chase (JPM), Digital Realty (DLR), HCP Inc (HCP), and Public Storage (PSA).
Well, we tallied up the votes and the most popular stocks among the group were O, OHI, and TCAP (in that order). The Honorable Mention awards go to WFC, JPM, and DLR.
Note that WFC, JPM and DLR all fall into our "Dividends In The Rough" (DITR) category. Our DITR stocks have low overall Parsimony ratings (typically for a past dividend cut, industry specific issue, or recent underperformance), but also have several positive attributes that would warrant some further diligence.
For example, like most banks, WFC and JPM were forced to cut their dividends a few years ago (which really hurt their Dividend Track Record Ratings). However, both stocks have raised their dividend in recent years and seem to be on the path to recovery. DLR, on the other hand, has a low rating for Dividend Sustainability (like most REITs) and it has a very low Relative Strength Rating (3) due to its recent pullback. That said, DLR has been a dividend growth machine over the past 5 years (20% CAGR) and it certainly warrants consideration at current levels.
Let's put all 6 of these stocks on our watch list and patiently wait for their respective Buy Zones.
Which Financials Stocks Are In The "Buy Zone?"
The current Fed-induced rally has expanded P/E multiples across the board, including many Financial-related stocks. That said, several of our watch list stocks are creeping closer to their respective Buy Zones (especially higher yielding financial stocks like REITs). Let's take a look at the current charts for each and compare where they trade in relation to their respective Buy Zones.
Realty Income is down over 25%% from its 52-week high and the stock currently trades in the Buy Zone!
OHI currently trades 6.7%% above its Buy Zone. Ideally, we would like to purchase the stock under $30.00 (which would equate to a forward P/E ratio around 22.0x and a forward yield above 6.00%).
TCAP currently trades 5.9% above its Buy Zone. Ideally, we would like to purchase the stock under $27.00 (which would equate to a forward P/E ratio around 12.0x and a forward yield above 8.00%).
WFC currently trades 6.5% above its Buy Zone. Ideally, we would like to purchase the stock under $40.00 (which would equate to a forward P/E ratio under 10.0x and a forward yield above 3.00%).
JPM currently trades 7.5% above its Buy Zone. Ideally, we would like to purchase the stock under $50.00 (which would equate to a forward P/E ratio under 10.0x and a forward yield around 3.00%).
DLR is down over 35%% from its 52-week high and the stock currently trades below the Buy Zone! It's important to note that if a stock is below its "Buy Zone", it's not necessarily a better "buy" now. Our "Buy Zones" should not be construed as a "bottom" in a stock. "Buy Zones" are points at which long-term dividend investors should feel comfortable starting to build a position in the respective stocks (and now would be a decent time to start building a position in DLR).
Of the watch list stocks highlighted above, O and DLR are the only ones currently in (or below) the Buy Zone. As such, we will likely start positions in this stock in the coming days.
Dividend investing is a marathon, not a sprint. Identifying good stocks is easy... patiently waiting for the right price is the hard part.
We'll send around updates throughout the entire process so please follow along and participate as much as you can. The next sector on the agenda will be Technology. Please make sure to "follow" us so that you will be notified when each new article is published.