Top June Dividend Picks

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Includes: AAPL, ABBV, ABT, AFL, AMGN, AMZN, ANTM, BA, BDX, CAH, CRI, CSCO, DEO, DIS, FB, GD, GILD, GOOG, HD, HDV, JNJ, LOW, MCD, MMM, MO, MSFT, NKE, O, SBUX, SCHD, STAG, SWK, T, TGT, TRV, UPS, VFC, VNQ, VYM, WBA
by: Derek Getz

Summary

Create and customize your own ETF according to your own rules.

I will present a dividend-centric fund with some of the month's top picks.

A list of suitable alternatives will be presented if you don't like the ones that are selected.

In March I wrote my inaugural article detailing the top monthly picks for a DIY DGI portfolio. My strategy revolved around using Motif Investing but it can be accomplished without it. There are many pros of a strategy like this, such as:

  • Dollar cost average into companies that you love and think will do well over the long run
  • Less emphasis on price as each individual company is a small portion of your purchase
  • (If using Motif) Keeps transaction fees low per stock per trade
  • Removes ETF commission fees
  • Gives you the ability to be an active manager without the common 1%+ fees
  • Dividends are paid out when the underlying company pays instead of on the ETF's schedule
  • The payment amounts will be predictable unlike an ETF

This is a "living" article in that I am writing this as I do the research to make my starters list for this month. I am also making my monthly purchase based on the findings here.

As noted above, this process is about dollar cost averaging into these companies, I am well aware the market is expensive but I am not interested in market timing here, as it's been said it's more about time in the market. I have no doubt these companies will be worth more decades down the road and paying me more income. If (collectively) they aren't - I imagine there are much larger problems going on than worrying about my retirement.

This style of course can fit any investors portfolio or risk tolerance levels from a current retiree to someone with decades to go. As I fit the mold of having decades to go, the companies by and large are not going to be high yielding / slow growing companies.

That said, I will offer some alternatives for someone who might be more interested in more or less current yield.

One other note, I set this up equal weight 3.3% for each company and dividends from the prior month are used in the current month purchase (Motif doesn't DRIP dividends yet).

Methodology

The process I am following is evolving over time. Much of my original list came from researching the holdings of popular dividend ETFs, namely Schwab's U.S. Dividend Equity ETF (NYSEARCA:SCHD) and Vanguard's High Dividend Yield ETF (NYSEARCA:VYM).

From there I cross-checked those holdings with David Fish's CCC list and added some others of my own. If you are unfamiliar with the CCC list it contains all of the relevant data for all the companies that have grown their dividends broken into the three C's (champion, contender and challenger) based on the length of time they have raised their dividend.

Finally I added companies that I've come across through different articles here on Seeking Alpha mostly in the "Dividends" section. There are some authors doing fabulous work researching the nuts and bolts of these companies.

After compiling the list, I am generally using Fast Graphs and some of the display metrics available to evaluate each stock. I'm seeing how the current price action fares against its own historical multiple. I am also taking that into consideration with the expected growth, analysts historical accuracy for their 1-2-year estimates and finally the current yield along with the payout ratio. We can use recent price action to our benefit by targeting names that are unfairly being beaten down.

The screenshots I've included won't cover all of those things, just the pricing action with growth estimates.

At some point this may evolve into a more proper scoring system to guide my selections, but part of the benefit of doing an ETF-style portfolio is that we are going for a lot of singles instead of home runs.

Looking At The Bigger Picture

To kick this off, if you don't use Finviz's "heat map" I highly recommend it. It helps you to step back and look at the big picture with time period selectable. Here is the 1 month performance of the US markets.

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The past month has seen a lot of performance in pockets of technology, healthcare, energy and utilities.

As you'll see in the selection list, we need to be opportunistic with some of the names we pick. Nobody knows what the market will do but the besides due diligence on researching companies the next best tool in our toolbox is to choose when we buy into companies. We can keep an eye on some of the names that have faired a little worse over the past month. Some notable names to keep an eye on would be Disney, Home Depot, McDonald's, Nike and Target.

Past Performance

It can be a useful exercise to see compare past performance versus an index like the S&P 500 to see whether this effort has been worth the time or not. If it's not, we may be better off indexing. I will update both the return and S&P 500 return columns each month. The yields are calculated at time of purchase and are locked.

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The motifs have underperformed on a capital gains basis vs the S&P 500. The broader market has rallied while some of the names contained within the motifs have struggled. We are still ahead overall because of the higher yield from the holdings, but not by much.

Alternatives

If you are still not convinced and would rather index into some good dividend growth funds I would encourage you to look closer at the following.

  • Schwab US Dividend Equity ETF
  • Vanguard High Dividend Yield ETF
  • iShares Core High Dividend ETF (NYSEARCA:HDV)
  • Vanguard REIT Index Fund (NYSEARCA:VNQ)

I have a separate write up where I did a deeper dive into these if you are interested.

Getting Into The Portfolio

At this point if you are still reading we can jump into the selections for this month.

I'll present the "starters" that made the cut this month, highlight a few of them and then will do the same for the "bench" players.

The Starters

I will restate my thesis from last month as it is important for my portfolio.

Now as you read over the list you will inevitably see Amazon (AMZN), Facebook (FB) and Google (GOOG) listed. You might say to yourself, this is crap, those aren't dividend paying stocks.

That is part of the beauty of a portfolio like this is that it is completely customizable! I personally have a very long time before I can consider retirement, those three companies I fully expect at some point will pay dividends. At that point in time, the yield on cost from shares purchased today will be quite high. Facebook and Google in particular are rolling in the cash and I would like a small chunk of that down the road.

If however, you are either in retirement or are close to retirement, fear not, there are several good alternatives if you don't wish to have those names.

Number Company Ticker Sector Industry
1 Carter's CRI Consumer Discretionary Apparel
2 Diageo DEO Consumer Discretionary Beverages-Alcoholic
3 Disney DIS Consumer Discretionary Entertainment
4 Home Depot HD Consumer Discretionary Retail-Home Improvement
5 Lowe's LOW Consumer Discretionary Retail-Home Improvement
6 Nike NKE Consumer Discretionary Apparel
7 Starbucks SBUX Consumer Discretionary Restaurants
8 Target TGT Consumer Discretionary Retail-Discount
9 VF Corp VFC Consumer Discretionary Apparel
10 Altria MO Consumer Staples Tobacco
11 Walgreens Boots Alliance WBA Consumer Staples Drug Stores
12 AFLAC AFL Financials Accident Insurance
13 Travelers TRV Financials Property & Casualty Insurance
14 Abbott Laboratories ABT Healthcare Medical Appliances
15 AbbVie Inc. ABBV Healthcare Biotechnology
16 Amgen AMGN Healthcare Biotechnology
17 Becton Dickinson & Co. BDX Healthcare Medical Instruments
18 Cardinal Health CAH Healthcare Drugs
19 Gilead GILD Healthcare Biotechnology
20 Johnson & Johnson JNJ Healthcare Drugs/Consumer Products
21 3M MMM Industrials Diversified Machinery
22 Boeing BA Industrials Aerospace/Defense
23 General Dynamics GD Industrials Aerospace/Defense
24 United Parcel Service UPS Industrials Delivery & Freight
25 Amazon AMZN Services Catalog & Mail Order Houses
26 Apple AAPL Technology Electronic Equipment
27 Cisco Systems CSCO Technology Hardware
28 Facebook FB Technology Internet Information Providers
29 Google GOOG Technology Internet Information Providers
30 Microsoft MSFT Technology Technology-Software
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To highlight some of the changes over the past month Wells Fargo, Corning, IBM and Oracle were removed. In their place AbbVie, Diageo, Abbott Labs and Carter's.

In general it is a mix of companies with both high growth / high dividend growth potential, slow growers with a more full payout ratio and a few very long term companies with no current dividend.

In this example motif I tend to shy away a bit from REITs only because of taxation rules, if someone were to be doing this within an IRA structure I would definitely suggest adding some. Some good picks in that space are Realty Income (NYSE:O) and STAG Industrial (NYSE:STAG). Also check out Brad Thomas' articles for much more analysis on REITs.

Several of these names have had positive articles over the past month highlight why now is a good time to buy in.

Amgen, Gilead and AbbVie

Chuck Carnevale had a recent article highlighted some of the reasons why now is a good time to invest in biotech. Though not explicitly referenced by him due to immediate earnings growth, Gilead is a name that I think can be tossed into a dividend investor's mix.

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Target

There have been plenty of articles written about Target since its most recent earnings release. The stock is attractively priced, management is rewarding to shareholders and they have time to figure out their long term strategy against someone like Amazon.

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Abbott Laboratories

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I think Abbott has been beaten down a bit lately. There is a little bit of controversy regarding their recent acquisitions of St. Jude Medical and Alere but I'm willing to give management the benefit of the doubt right now. Prior to the split from AbbVie the company had an extremely long and illustrious career as a dividend payer and I don't expect that to change. I found this article useful by Sure Dividend.

Carter's

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As the father of two small children I can attest to the amount of clothes kids need. It should come as no surprise then for a business like Carter's who has really taken the industry by storm. The stock has crushed the S&P for several years and especially since they initiated a dividend. This is a high margin business where there are not a ton of alternatives. Kids need clothes, a lot of them and they change every season.

Diageo

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Diageo has been a mainstay in a lot of my motifs for obvious reasons, the company sells well known, brand name liquor. It is also about the cheapest company in the entire industry, many of it's peers trade for much higher multiples. There are some news stories that may be causing it to drop recently, there is talk of a price floor for alcohol in Scotland, though that may help them. Also talk of the Brexit has been placing pressure.

The chart doesn't capture it but the stock dipped below $100 which was my price for starting a position in my 401k. The company will also pay its "final" dividend (larger than its interim dividend) at the end of July.

Cardinal Health

Cardinal Health has been another favorite and a long-term pick for the expectation that over the longer term, health care consumption is expected to grow rapidly. There is also going to be pricing pressure which is where Cardinal fits in nicely. There was another great article detailing more about the company.

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Alternatives

I will present the full "bench" list later on but the names I would have considered adding in place of the no-dividend technology names were McDonald's (NYSE:MCD), Stanley Black & Decker (NYSE:SWK) or maybe even Anthem (NYSE:ANTM).

As a reminder these companies on the bench and the ones that are removed month to month are not bad companies; there are either just concerns with valuation, negative news or better opportunities present themselves.

The Bench

Company Ticker Sector Industry
Dunkin Brands DNKN Consumer Discretionary Restaurants
McDonalds MCD Consumer Discretionary Restaurants
ABInBev BUD Consumer Staples Beverages-Alcoholic
Clorox CLX Consumer Staples Cleaning Products
Coca Cola KO Consumer Staples Beverages-Non Alcoholic
Colgate Palmolive CL Consumer Staples Personal Products
Costco COST Consumer Staples Retail-Wholesale
General Mills GIS Consumer Staples Food Processing
Kellogg K Consumer Staples Food Processing
Kimberly Clark KMB Consumer Staples Personal Products
Kraft Heinz KHC Consumer Staples Food Processing
Mondelez MDLZ Consumer Staples Food Processing
Pepsi PEP Consumer Staples Beverages/Snack Food
Phillip Morris PM Consumer Staples Tobacco
Procter & Gamble PG Consumer Staples Consumer Products
Walmart WMT Consumer Staples Retail-Discount
Exxon Mobil XOM Energy Oil&Gas
Phillips 66 PSX Energy Oil & Gas Refining
Cincinnati Financial CINF Financials Property & Casualty Insurance
Mastercard MA Financials Financial Services
Paychex Inc. PAYX Financials Financial Services
Prudential PRU Financials Insurance
Visa V Financials Financial Services
Wells Fargo WFC Financials Banking
Anthem Inc ANTM Healthcare Health Care Services
Medtronic MDT Healthcare Medical Devices
Merck MRK Healthcare Drugs
Pfizer PFE Healthcare Drugs
Quest Diagnostics DGX Healthcare Medical Labs
UnitedHealth Group UNH Healthcare Health Care Services
Black & Decker SWK Industrials Tools/Security Products
Caterpillar CAT Industrials Industrial Equipment
CSX Corp CSX Industrials Railroad
Cummins CMI Industrials Machinery
Eaton ETN Industrials Machinery
Emerson EMR Industrials Industrial Equipment
General Electric GE Industrials Conglomerate
Lockheed Martin LMT Industrials Aerospace/Defense
Norfolk Southern NSC Industrials Railroad
Raytheon RTN Industrials Aerospace/Defense
Union Pacific Railroad UNP Industrials Railroad
United Technologies UTX Industrials Aerospace/Defense
Waste Management WM Industrials Waste Management
WW Grainger GWW Industrials Industrial Equipment Wholesale
Berkshire Hathaway BRK.B Insurance Property & Casualty Insurance
Air Products & Chemicals APD Materials Speciality Chemicals
Monsanto MON Materials Agriculture
Praxair Inc. PX Materials Speciality Chemicals
Realty Income O REIT REIT - Retail
STAG Industrial STAG REIT REIT-Warehouses
Accenture ACN Technology Business Services
Automated Data Processing ADP Technology Business Services
Corning GLW Technology Hardware
Intel INTC Technology Technology-Hardware
International Business Machines IBM Technology Technology-Hardware
Oracle ORCL Technology Software
Texas Instruments TXN Technology Technology-Hardware
AT&T T Telecommunications Telecommunications
Verizon VZ Telecommunications Telecommunications
Dominion Resources D Utilities Utility-Elec/Gas
Duke Energy DUK Utilities Utility-Elec/Gas
NextEra NEE Utilities Utility-Elec/Gas
Southern Company SO Utilities Utility-Electric
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So the companies on here, while not possible to cover extensively within one article are still good companies and good dividend payers at that (minus Berkshire).

Clorox

As an example of a company that didn't make it, I present Clorox. I would contend the company is quite overvalued especially given its growth expectations.

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Corning

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Corning was removed this month basically because better options opened up. The stock has seen a good run up since its lows and is trading above its historical premium.

For someone desiring more current yield I would recommend looking at swapping in some companies from the telecommunications, utilities or REIT sectors. Be aware though that many of those names have been bid up substantially this year. Using the Finviz heat map I referenced earlier on a YTD perspective, the average utility or AT&T (NYSE:T) / Verizon is up somewhere in the ballpark of 15%-20%.

Conclusion

With this strategy I am more confident about my long-term prospects. Ignoring the overall market level and looking at individual companies in a bubble gives a better sense of where they are heading.

In the course of writing this article I actually surprised myself; it was hard to pick just 30 companies. Many on my list still have either reasonable valuations or the growth prospects help to justify the expanded multiples. It's actually agonizing creating this list and I know if everyone made their own top 30 list they would all be different. One key takeaway is that there are still decent values out there to take advantage of, especially if you have a steady accumulation plan like I do.

Hopefully you find this information useful and can possibly apply it to your own portfolio. I am also always open to other stocks you think I should consider.

Please let me know your thoughts in the comments section.

Disclosure: I am/we are long ALL STARTERS.

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.