This past week ended on a down-note, the market is possibly experiencing a "new highs hangover." Earnings reports from Amazon and Visa are some of what may have weighed the market down on Friday. Another possible explanation for the downward moving market is that Europe is closer to placing sanctions on Russia. This past week was rather strong again with the Dow losing 0.83% for the week while the S&P 500 was flat and the Nasdaq gained 0.4%. Continued geopolitical issues with no resolutions from Europe to the Middle East continue to weigh on the markets and 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.
General Electric Company (NYSE:GE)
General Electric is a diversified technology and financial services company operating in the segments of aircraft engines, power generation, industrial products, water processing, household appliances, medical imagine, and business and consumer financing. On July 18, 2014, GE reported second quarter 2014 earnings of $0.39 per share. This result was in-line with the consensus of the eleven analysts following the company and beat last year's second quarter results by 8.33%. GE's PE ratio is among the lowest of any stock in the miscellaneous capital goods 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 went ex-dividend on June 19, 2014 with a $0.22 per share dividend which was paid on July 25, 2014 for a yield of 3.41%. In terms of news pertaining to the company during the week, it announced that it plans to build a new fuel-cell manufacturing facility in upstate New York.
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 approaching oversold territory with a current value of 37.5, while the MACD chart below shows the black line below the red line with divergence bars decreasing in height, meaning there is bearish momentum on the stock. The trend for the stock has been downward since the middle of July and I'll continue to wait until I see momentum flatten.
Cisco Systems, Inc. (CSCO)
Cisco designs, manufactures and sells internet protocol-based networking and other products related to the communications and information technology industry, and provides services associated with these products and their use. On May 14, 2014, Cisco reported third quarter 2014 earnings of $0.51 per share. This result beat the $0.48 consensus of the 37 analysts covering the company and was the same as last year's third quarter results. Cisco's PE ratio is below the communications equipment industry average and signals that investors are not willing to pay a premium for this stock, making it a value story. Additionally, during the past year, earnings growth has outpaced its historical five year growth rate.
The company went ex-dividend on July 2, 2014 with a $0.19 per share dividend which was paid on July 23, 2014 for a yield of 2.93%. In terms of news pertaining to the company during the week no news alerts were released.
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 near overbought territory with a current value of 65.33, while the MACD chart below shows the black line crossing below the red line with divergence bars decreasing in height, meaning bearish momentum is about to mount. The trend for the stock has been upwards since the end of June so I'm going to play this one cool and not buy a position here.
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!
Disclosure: The author is long GE, CSCO. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.