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Summary

  • Buy the dips, add to the core, but at what price?
  • Over the long term, will $.25 per share be that important to save right now?
  • The sooner you put your money to work, the sooner you will begin receiving income.

I guess the question most often asked of me is; "What price should I pay for a stock"? Like anyone else, I have no idea, but when buying dips and adding to your core portfolio, as part of a dividend income strategy, you will have a long-term approach that will help you create wealth and receive income while doing so.

We are now in a situation where equity prices are dropping, and it seems as though an actual correction is underway. The question of when to buy the dips becomes even more important, because we do not know how deep or how long a correction in a bull market will last.

That being said, for the last 5 years or so, we had to jump on every dip because it was short-lived, and for most stocks, no greater than a 5%-6% dip. That scenario is still the same for our BTDP stocks for now, but I feel it is prudent to start a shopping list.

What Are My Target Prices To Add To Our Positions?

The BTDP consists of the following stocks: AT&T (NYSE:T), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), General Electric (NYSE:GE), McDonald's (NYSE:MCD), Chevron (NYSE:CVX), Apple (NASDAQ:AAPL), Altria (NYSE:MO), Ford (NYSE:F), Microsoft (NASDAQ:MSFT), Wal-Mart (NYSE:WMT), and Pfizer (NYSE:PFE).

Based on my K.I.S.S. approach as to when to buy, why not apply the price that falls right in the middle of the 52-week high, and 52-week low? I would NOT do this for those momentum growth stocks, because the volatility could be much greater. However, with these dividend-paying blue chips, it is a fairly safe assumption that if nothing awful happens to any of these companies or the world economy, then buying the dip at the mid-point will mean you will probably never overpay for the shares.

Here is what the current list looks like:

Symbol52-wk low52-wk highTGT PRICEBuy/Wait
T31.7439.0135.37BUY
XOM84.79101.7491.72WAIT
JNJ81.7199.3890.54WAIT
KO36.8343.4340.13BUY
PG73.6185.8279.72WAIT
GE21.1128.0924.61WAIT
MCD92.22103.7197.91WAIT
CVX109.27127.83118.55BUY
AAPL385.11575.14480.12WAIT
MO33.1238.5835.85WAIT
F12.6518.0215.34WAIT
MSFT28.5141.6635.08WAIT
WMT71.5181.3776.44BUY
PFE27.1232.9630.04BUY

Even though the market has been dropping, there are only 5 stocks that I would consider adding to the core right now. Normally, I would buy these stocks on any dip, but this just might be a correction that lasts longer than just a few days.

As of today, why not place T, KO, CVX, WMT, and PFE on your own buy list. Pick the ones out you really want right now, and pick up some shares. These companies are not going out of business, and they will all pay you great dividends to own the stock.

Highlights of why these stocks are buys right now are as follows:

AT&T:

  • The share price is within the mid-range of the last 52-week high and low share price.
  • The yield is at roughly 5.20%, making it a high-yield blue chip.
  • T is a Dividend Champion with 25 years of consecutive dividend increases.
  • A forward PE of 12.69 is well below the S&P 500 average.

KO:

  • The share price is in the mid-range of the 52-week high and low.
  • The yield is currently at roughly 3.20%.
  • KO is a Dividend Champion with 25+ years of consecutive dividend increases.
  • A forward PE of 17.71 places that metric in the mid-range, and not overvalued.

CVX:

  • The share price is below the mid-range of the 52-week high and low.
  • The current yield is at roughly 3.40%.
  • CVX is a Dividend Champion with over 25 consecutive years of dividend increases.
  • A forward PE of 10.93 is well below the S&P 500 average.

WMT:

  • The share price is in the mid-range of the 52-week high and low.
  • The current yield is 2.5%.
  • WMT is a Dividend Champion with over 25 consecutive years of dividend increases.
  • A forward PE of 13.26 is below the S&P 500 average.

PFE:

  • The share price is in the mid-range of the 52-week high and low.
  • The current yield is 3.5%.
  • PFE is a dividend winner with 5 consecutive years of dividend increases.
  • A forward PE of 12.93 is below the S&P 500 average.

The point is not to save just a few cents, because in the long run, that will not matter to dividend income investors. At the same time, we also do not want to buy at the current price, because the dips do not offer us a significant discount to the 52-week high. If the share price is in between the 52-week high and low, it is pretty safe to assume that you will be spending your money wisely.

You might not get the cheapest price, nor will you be timing the markets like the chartists attempt to do, but you will be applying a very simple approach to your overall strategy.

The Sooner You Buy, The Sooner Your Money Will Work For You

As income-seeking investors, we want to put our money to work as soon as possible for the best cash flow rate that we can get. This simple strategy gives regular investors a framework to achieve that goal, without over-paying.

Once your money is working, your income becomes immediately increased on the very next ex-dividend date of the stocks you buy.

Buying the dips, adding to the core, and increasing our income is what we all hope to do.

We might also be able to squeeze out some decent capital appreciation!

Disclaimer: The opinions of the author are not recommendations to either buy or sell any security. Please remember to do your own research prior to making any investment decisions.

Disclosure: I am long AAPL, F, GE, JNJ, KO, MCD, MO, T, XOM. 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.

Source: Retirement Strategy: Is Now The Time To Buy The Dips?