We continue to look for dividend stock ideas as we think that dividend bearing stocks can assist in bridging the income gap as interest rates continue to be at record lows. In addition, companies that can afford to and then make dividend payments are often well run companies.
Rebecca Lipman from kapitall.com noted this trend and looks into the question: "Is there more room for growth?" Rebecca noted that Richard Shaw, the managing principal of QVM Group LLC, compares the median values and simple averages of the 100 largest non-dividend stocks to the 100 largest dividend-paying stocks. Using the median value eliminates extremes in P/E ranges. The result: dividend stocks are becoming more attractive, not less attractive and none of the dividend stock median values are in the "unreasonable" or expensive range.
To find a list of attractively priced dividend stocks they used the ratio levered free cash flow/enterprise value. When a stock has a relatively high ratio, it may indicate that it is undervalued.
Levered free cash flow is the free cash flow after deducting interest payments on outstanding debt. Enterprise value is the sum of the firm's value from all ownership sources: market cap, outstanding debt, and preferred shares.
Here is Rebecca's top seven:
- Cedar Shopping Centers Inc. (CDR): Owns, operates, develops and redevelops US supermarket-anchored community shopping centers and drug store-anchored convenience
- Statoil ASA (STO): Engages in the exploration, production, transportation, refining, and marketing of petroleum and petroleum-derived products.
- Intersil Corporation (ISIL): Engages in the design, development, manufacture, and marketing of analog and mixed-signal integrated circuits.
- Bristol-Myers Squibb Company (BMY): Develops, and delivers innovative medicines that help patients prevail over serious diseases.
- Nokia Corporation (NOK): Provides Internet and digital mapping and navigation services worldwide.
- World Wrestling Entertainment Inc. (WWE): An integrated media and entertainment company, engages in the sports entertainment business.
- Tele Norte Leste Participacoes S.A. (TNE): Provides telecommunication services primarily in Brazil.
This is an eclectic set of stocks and certainly not the usual suspects. Talking about suspects, I am concerned about the inclusion of Nokia in any list for long term investors as there are so many questions over the future of that cell phone handset erswhile leader. Anyway, this is supposed to be a blind filter and is worthy of comparing with our dividend ETF benchnark portfolio.
|Asset||Fund in this portfolio|
|REAL ESTATE||(ICF) iShares Cohen & Steers Realty Majors|
|FIXED INCOME||(TIP) iShares Barclays TIPS Bond|
|Emerging Market||(VWO) Vanguard Emerging Markets Stock ETF|
|US EQUITY||(DVY) iShares Dow Jones Select Dividend Index|
|US EQUITY||(VIG) Vanguard Dividend Appreciation ETF|
|INTERNATIONAL EQUITY||(IDV) iShares Dow Jones Intl Select Div Idx|
|High Yield Bond||(HYG) iShares iBoxx $ High Yield Corporate Bd|
|INTERNATIONAL BONDS||(EMB) iShares JPMorgan USD Emerg Markets Bond|
- 7 Dividend Stocks Priced to Buy -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
Portfolio Performance Comparison
|1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||1%||2%||21%||10%||77%||7%||54%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||5%||4%||24%||18%||118%||2%||8%|
|7 Dividend Stocks Priced to Buy||5%||-3%||-13%||11%||41%||-4%||-15%|
This selection of equities are not going to have some problems somewhere because otherwise, they wouldn't be cheap. However, their long term performance has been poor and it is possible that these stocks are on a long term downward trend. We have already noted that Nokia have some long term challenged in front of them.
Three Month Chart One Year Chart Three Year Chart Five Year Chart
The five year view shows the worrying downturn. It could be that these stocks are on the way back but this is a group I would watch before I put any money into them.
Additional disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.