The market correction over the past few weeks has given investors another solid buying opportunity. Even though the market has rebounded slightly off of recent lows, great deals remain. Since the debt crisis in Europe is not resolved, this issue and slowing economies in China and the United States means that investors should continue to be cautious. That means buying dividend stocks on dips, in companies that have stable business models. One such company is Safeway, Inc. (SWY), here are 4 reasons to consider buying the stock on dips now:
1. Safeway has quietly become a dividend growth stock. The company has been raising the dividend every year since 2005, when it offered a 5 cent per share quarterly dividend. Thanks to annual increases, the quarterly dividend has more than tripled in just 7 years, and it is now 17.5 cents per quarter. The stock yields about 4% which is very competitive when compared to most stocks and other investments.
2. Safeway has a stable business model that works in good times and bad. While some companies could see a big decline in revenues if the economy slips back into a deep recession, Safeway is likely to remain relatively strong. People are not going to give up food and other household basics. In fact, if times get tough, people will probably dine out at restaurants less and buy food at Safeway more often to save money.
3. Safeway is solidly profitable and it reported earnings of $81.6 million, or 30 cents per share for the first quarter of 2012. This compares with earnings of $25.1 million, or 7 cents per share in the first quarter of 2011. (The first quarter of last year was impacted by an $80.2 million tax charge.) The company is cutting costs and it is focusing on adding organic products both of which could lead to improved financial results in the future.
4. Safeway is buying back stock, which could help boost future earnings and dividends. In the first quarter of 2012, Safeway purchased about 46 million shares of its common stock at an average cost of $21.70 per share. The board has authorized additional stock repurchases with approximately $1.1 billion remaining to fund stock purchases. Citigroup (C) analysts have doubts if Safeway can keep buying so much stock, but in June, it set a $24 price target on Safeway shares which would give the stock about 30% upside.
Key Data Points For Safeway From Yahoo Finance:
Current Share Price: $17.74
52-Week Range: $15.93 to $24.28
Dividend: 70 cents per share which yields almost 4%
2012 Earnings Estimate: $1.99 per share
2013 Earnings Estimate: $2.14 per share
P/E Ratio: about 8.5 times earnings
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.