Lanny's November 2017 Dividend Stock Watch List
It's getting colder here in Cleveland, currently 38 degrees as I'm typing this. As the weather has gotten colder, the stock market has chilled down a bit and has created a few opportunities for us dividend investors. I have not been as active the last few months as I'd like to be (as it relates to dividend stock purchases), but patience is a virtue in this game, that's for damn sure! Sitting here on the cold Saturday morning, sipping my warm coffee, I wanted to write my thoughts on three dividend stocks that I am considering for a future purchase. Let's grab another cup and check out the stocks!
Dividend stock watch list
AT&T (T) - Makes me excited when I see one of the Top 5 Foundation Stocks on sale! It's no question as to why this is on my list. The last month, the telecom stock was down 12.38% and currently is priced at $33.97 (10/27). I will go through this dividend aristocrat's stock metrics in short fashion. Their forward dividend is $1.96 (set to increase in November), which equates to an astounding 5.77% dividend yield (MUCH higher than my portfolio yield). Now, their five-year growth rate is 2.18%, given their high yield - this makes sense. Analyst final expectation for this year is $2.92. Therefore, the payout ratio is 67% with a price-to-earnings ratio of 11.63. Damn those are two great metrics there for a high yielder in a typically high payout ratio-centered industry. I currently have about 165 shares of this company, but wouldn't mind rounding that out to 200 shares!
Cardinal Health (CAH) - Another dividend aristocrat steeply discounted? Are you serious? This is an interesting company in a publicized industry. Amazon (AMZN) effect is taking place here, given their thought process on healthcare and how to enter. Cardinal's earnings in the recent 10-K were down from prior year and analysts, for 2018, expect $4.95 earnings per share. Over the last 30 days, Cardinal's stock price has dropped 9% and are at $62.01 as of 10/27. Their current dividend is $1.8496 per year and 5-year dividend growth rate is 15.20%, not too bad, eh? Therefore, this equates to a 2.98% yield, 37% payout ratio and a 12.53 price-to-earnings ratio. Beautiful signs across the board! Lastly, their 5-year average dividend yield is 2.10%, providing an additional 88 basis points above that!
CVS Health Corp (CVS) - Another healthcare entity being impacted by a few of the same items above. The opioid, Amazon scare and the bid to buy Aetna (AET) rocked this stock lower in October. On a positive note, they are partnering with Anthem (ANTM), a monster of a health insurance provider, which is a good sign. 23 Analysts expect CVS to earn $5.88 this year (2017), but with only $2 through the first half of the year earned, their last six months need to make a strong push (At the time of this writing no earnings release or form 10-Q was released). Their stock price has dropped 15.32% in the last 30 days to $68.99 (10/27), the biggest drop out of the three companies mentioned. Forward dividends stand at $2.00 per year, increases in 13 years straight with a 5-year dividend growth rate of 25.41% (Damn!). Given these metrics, we calculate a 2.90% dividend yield, 34% payout ratio and an 11.73 price-to-earnings ratio. Stumped here because as a dividend investor, these are PHENOMENAL metrics! Lastly, their 5-year dividend yield on average has been a minimal 1.80%, talk about a sign of undervaluation. Hard debate here.
Wow, talk about the market taking us on a rollercoaster again as of late. Big debate and decisions here. I have a tad under $2K of capital, currently, and am eager to see where it can be deployed. AT&T has the lowest price to earnings with the highest yield; however, CVS seems to be offering the steepest discount with a larger moat for forward increases, coupled with an amazing 5-year dividend growth rate. Downside to CVS is that they are not a dividend aristocrat and really have a foot inside the "retail" sector as well, which has been a difficult industry to be in. I believe internet and telecommunications are always here to stay, and AT&T has the internet, cable/streaming package and mobile phone network plans to offer customers.
Dividend stock watch list conclusion
With three mega companies above, there are bright spots of opportunity here. Cardinal Health has more dividend history than CVS and also doesn't operate in the retail industry. However, healthcare is under the microscope each and every day, as we know. AT&T is continually battling to keep customers for subscription services, such as cable/DirecTV Now, given the customers who want to cut the cord. Further, they are also in the ring with T-Mobile (TMUS) and Sprint (S), as they fight for customers that are swayed primarily by price.
When I consider a dividend stock purchase, given the recent news of Mattel (MAT) (cut their dividend completely), I need to focus on forever companies. AT&T is a foundation dividend stock and I believe they are investing heavily via acquisition to be ahead of consumer transition. Their DirecTV Now subscriber base continues to grow, on a net basis, to offset the decline in base on their AT&T U-Verse. Further, they generate billions of free cash flows, after payment of dividends and capex. I am re-thinking AT&T and very intrigued by their future, as well as what they have potential to do on an international basis. Cardinal Health, the other aristocrat, would also be high on my list, given their dividend history being better than CVS's and not looked on as a retailer.
What does the community think? Any thoughts on what dividend stock should be purchased for the portfolio? Sitting on the sidelines to watch the rollercoaster ride drop? Curious to hear your thoughts! Thanks, everyone, good luck and happy investing!
- Lanny
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