On Friday we saw the major indices go from big gains to falling off of a cliff only then to rebound slightly before the market closed. The volatile trading was based on some global headlines, specifically Ukraine. With the market at all-time highs again, it's just going to take an elephant at the San Diego Zoo to sneeze and the market will drop. I believe everyone is jittery with the markets at all time highs. If you're afraid at these levels, then it may be time to lighten up on some of your high flying stocks, or it may be time to put some money to work with value dividend plays. A weekend is only two days, but anything can happen during that timeframe while the markets are closed which could cause the markets to open severely down or severely up on Monday. For the week the Dow Jones Industrial Average gained 1.36% while the S&P500 was up 1.26% and the Nasdaq logged a 1.05% gain on the week, respectively. I've been preaching for quite some time that value dividend stocks are the place to be, I believe there will be more downside to come, and as long as you're in excellent dividend paying value stocks you should be fine.
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 may be correcting itself from 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.
Union Pacific Corporation (NYSE:UNP)
Union Pacific owns transportation companies, of which its principal operating company, Union Pacific Railroad Company, connects 23 states in the western 66% of the United States. On 23Jan14, Union Pacific reported fourth quarter 2013 earnings of $2.55 per share. This result beat the consensus of the 26 analysts following the company by $0.06 and beat last year's fourth quarter results by 16.44%. Union Pacific's PE ratio is below the railroads 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 26Feb14 with a $0.91 per share dividend which will be paid on 01Apr14 for a yield of 2.02%. In terms of news pertaining to the company this week, there were no press releases issued during the week by the company.
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 64.08, while the MACD chart below shows the black line about to cross above the red line with increasing divergence bars, meaning there may be some upward momentum on the stock price. I anticipate the stock to move up just for a little bit but I wouldn't be initiating a new position here.
Williams Sonoma, Inc. (NYSE:WSM)
Williams-Sonoma is a specialty retailer of products for the home, operating stores under the name of Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation. On 20Nov13, Williams-Sonoma reported third quarter 2014 earnings of $0.58 per share. This result beat the $0.55 consensus of the 25 analysts covering the company and beat last year's third quarter results by 18.37%. Williams-Sonoma's PE ratio is below the furniture & fixtures industry average and signals that investors are not willing to pay a premium for this stock, making it a value story. Additionally, during the past year, earnings growth has outpaced its historical five year growth rate.
The company went ex-dividend on 22Jan14 with a $0.31 per share dividend which was paid on 24Feb14 for a yield of 2.13%. In terms of news pertaining to the company this week, there were no press releases issued during the week by the company.
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 67.16, while the MACD chart below shows the black line above the red line with the divergence bars increasing in height, meaning there may be some bullish momentum coming. I anticipate the stock to move up for now but wouldn't be buying any new positions here as the company is about to report earnings very soon.
I've highlighted these names because they have all raised their dividend 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 may be correcting itself. 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!
Disclosure: I am long UNP, WSM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.