Earnings season is upon us. This is the time of year where companies tell us how they did for the past three months and tell us how they expect to do for the upcoming three months or sometimes year. The majority of the time traders tend to shrug off how the company reported for the previous three months and choose to bid the stock up or down based on what the company says about the future. This is mainly why I invest based on future valuation numbers rather than trailing valuation numbers. In the first full week of earnings season, the big money center banks were first up and stocks finished the week with mixed results, the S&P 500 (SPY) fell 0.2% during the week while the Dow Jones Industrial Average and the Nasdaq logged a 0.1% gain and 0.6% gain, respectively.
Call me a pessimistic optimist, but for now I will continue the course and purchase value stocks for my dividend portfolio. Value investing is the bread and butter of Warren Buffett's money-making strategy. The essence of value investing is basically purchasing a stock at less than market value based on certain metrics. My philosophy on dividend investing is to utilize the forward price to earnings ratio and use a one-year PEG ratio, along with a dividend. I don't necessarily look for a stock with a high yield because I like to see capital appreciation. Because the market is still at all-time highs I maintain that it is difficult to find good stocks these days. That's why I'm highlighting a select set of excellent value companies in my dividend portfolio, which have had ex-dividend dates or paid out a dividend during this past week or early next week that people should place on their radar.
Occidental Petroleum Corporation (OXY)
Occidental is an oil & gas production company, which operates in three segments: Oil & Gas, Chemical, and Midstream, Marketing and Other. On 29Oct13, Occidental reported third quarter 2013 earnings of $1.97 per share. This result beat the consensus of the 23 analysts following the company by $0.07 and beat last year's third quarter results by 15.88%. Occidental is expected to report earnings on 30Jan14. Occidental's P/E ratio is below the oil & gas - integrated industry average and signals that investors are not willing to pay a premium for this stock, making it a value story. However, during the past year, earnings growth has lagged its historical five-year growth rate.
The company went ex-dividend on 06Dec13 with a $0.64 per share dividend which was paid on 15Jan14 for a yield of 2.83%. It was a pretty quiet week in terms of news pertaining to the company specifically with no press releases being issued.
Let's take a quick look at the technicals here to see if it can be bought at these levels or if a pullback is coming. As we can see, the relative strength index is near oversold territory with a current value of 37.14, while the MACD chart below shows the black line below the red line with decreasing divergence bars, meaning there may be some downward pressure on the stock price. I anticipate the stock to move down a little for now and I will not be buying it.
Kraft Foods Group, Inc. (KRFT)
Kraft operates food and beverage businesses in North America including convenient meals, refreshment beverages and coffee, cheese and other grocery products. On 30Oct13, Kraft reported third quarter 2013 earnings of $0.70 per share. This result beat the consensus of the 17 analysts following the company by a penny and missed last year's third quarter results by 11.39%. The company is expected to announce earnings again on 13Feb14. Kraft's P/E ratio is below the food processing industry average and signals that investors are not willing to pay a premium for this stock, making it a value story. However, during the past year, earnings growth has lagged its historical five-year growth rate.
The company went ex-dividend on 24Dec13 with a $0.525 per share dividend which was paid on 17Jan14 for a yield of 3.83%. It was also a pretty quiet week in terms of news pertaining to the company specifically with no press releases being issued.
Let's take a quick look at the technicals here to see if it can be bought at these levels or if a pullback is coming. As we can see, the relative strength index is near overbought territory with a current value of 63.85, while the MACD chart below shows the black line above the red line with the divergence bars flattening out in height, meaning the bullish momentum is getting long in the tooth. I anticipate the stock to move down a little for now and I will not be buying it.
I've highlighted these names because they have all raised their dividend or initiated them within the past year and are poised to do so again in the coming years. It is important in this market to be able to hold onto companies, which raise their dividend rates or initiated them, because it is a sign that the underlying company is doing well financially. The importance of these stocks I've highlighted is that they are value plays while the broader market is at all-time highs. I believe we are at a point in the market where we have to look for value.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!