- Home Depot is the best of breed home improvement retailers.
- Williams Sonoma clobbered earnings but shares are starting to come back down to earth.
- Value dividend stocks are where I like to park my money in uncertain times.
The market seems to keep making new highs day after day these days. It was the 14th time this year that the S&P500 closed at record high. However, there are three major macroeconomic events taking place next week which can move the indices much higher, or much lower. The first event is the China purchasing managers' index comes out Sunday, the second even is the European Central Bank meeting on Thursday, and lastly, the U.S. jobs report is on Friday. Things have been weak abroad while being strong here stateside. This past week was rather strong with the Dow gaining 0.67% for the week while the S&P 500 gained 1.21% and the Nasdaq was up 1.36%. In times like these I love picking up some more shares of value dividend stocks.
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.
Home Depot Inc (NYSE:HD)
Home Depot is a home improvement retailer. On 20May14, Home Depot reported first quarter 2015 earnings of $0.96 per share. This result missed the consensus of the 27 analysts following the company by $0.03 and beat last year's first quarter results by 15.66%. Home Depot's PE ratio is among the lowest of any stock in the retail (home improvement) industry and signals that investors have not been willing to pay a premium for this company's business prospects, making it a value story. Additionally, during the past year, earnings growth has outpaced its historical five year growth rate.
The company goes ex-dividend on 03Jun14 with a $0.47 per share dividend which will be paid on 19Jun14 for a yield of 2.34%. In terms of news pertaining to the company, no press releases were released this week.
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 encroaching on overbought territory with a current value of 62, while the MACD chart below shows the black line above the red line with divergence bars flattening in height, meaning the bullish momentum in the stock is getting tired. I anticipate the stock to drop and will not be putting any capital to work in the name right now.
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 21May14, Williams Sonoma reported first quarter 2015 earnings of $0.48 per share. This result beat the $0.44 consensus of the 25 analysts covering the company and beat last year's first quarter results by 17.07%. The company'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. However, during the past year, earnings growth has lagged its historical five year growth rate.
The company went ex-dividend on 23Apr14 with a $0.33 per share dividend which was paid on 28May14 for a yield of 1.97%. In terms of news pertaining to the company, Piper Jaffray upgraded the stock to "overweight" from "neutral".
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 in middle-ground territory with a current value of 59.82 but with downward trajectory, while the MACD chart below shows the black line above the red line with decreasing divergence bars, meaning there is bearish momentum on the stock price. Investors' euphoric state on the name after the earnings beat is starting to wear off and I will not be putting any additional capital to work in the name right now.
I've highlighted these names because they are poised to increase their dividends in 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 choppy. 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!