2 New Watch Lists

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Includes: ADM, AEP, AGR, AWR, CL, CLX, CMI, D, DE, DOV, ED, EMR, ETN, GIS, GSK, ITW, NSRGY, NWN, PH, PSA, SON, T, UNP, WEC
by: Dividend Sleuth
Summary

19 stocks on a valuation watch list.

5 stocks on a performance watch list.

Some simple metrics you can monitor on a spreadsheet.

Other resources available to you.

This is a brief introduction to two watch lists, with some ideas for how you can keep up with stocks that you have identified as potential buys. I share some resources I use and invite your suggestions for other resources.

The Seeking Alpha Portfolio Feature

I use Seeking Alpha's portfolio tab to keep up with my portfolio, and I'm sure many of you do as well. Before joining Seeking Alpha, I used Barron's online portfolio feature. I find SA's portfolio feature to be user friendly.

A nice aspect of the SA portfolio tab is the capability for multiple portfolios. I currently have several SA portfolios, including:

  • Portfolio: The 43 stocks in my retirement income portfolio.
  • Funds: The CEFs and ETFs in the portfolio.
  • Add: The stocks I currently hold that I want to add more shares, with the number of shares I want to add and the target price. I enter my target add price as the "purchase price" and I use the "% Change Since Purchase" column to measure the percentage difference between the present price and my target add price. With one click, I can rank these according to which are nearest to their respective target prices.
  • Trim: The stocks I would consider trimming, the number of shares I would possibly trim, and the target price for trimming. As with the "Add" portfolio, I enter the target trim price as the "purchase price" and I use the "% Change Since Purchase" column to note the difference between the present price and my target trim price.
  • Watch for Valuation: The stocks I'm watching for possible purchase but are (in my opinion) overvalued. I use the "% Change Since Purchase" column exactly like the "Add" portfolio. The only difference is these stocks are not yet in my retirement income portfolio. In the current bull market, this is a rather long list (currently 19 stocks).
  • Watch for Performance: The stocks I'm watching for possible purchase but are not yet in the portfolio due to my concern about one or more aspects of the company's performance. There are currently 5 stocks on this watch list. As with the other lists, I entered a target buy price as the "purchase price" and I use the "% Change Since Purchase" column to note the percentage difference between the current price and my target price.

Watch for Valuation

Several of these 19 companies have been in my portfolio in the past. Some are companies that I've recently begun to follow. Here's a quick summary:

Archer Daniels Midland (ADM), a food processor in the consumer staples sector, has raised the dividend for 42 consecutive years. Since 2012, the high yield has been 4.0%. The current yield is 3.2%. My target yield for an initial purchase is 3.5%, which would equate to a price of $36.57.

American Electric Power (AEP) is a large utility with 7 consecutive years of dividend increases. The high yield from 2012-2017 was 5.1%. The current yield is 3.4%. My target yield for an initial purchase is 3.8%.

Avangrid (AGR), the US affiliate of Spain's Iberdrola, holds legacy utilities in New York and New England as well as wind power assets across the US. I like AGR. I made several purchases beginning in July 2016, with a basis of $40.79. I recently closed my position at $51.18 because I'm in the process of raising some cash and the valuation had become stretched in my opinion. I put AGR on my Watch for Valuation list right away. I would be happy to re-establish a position in AGR around $43.25.

American States Water (AWR) is a California-based water utility. It has the longest tenure on David Fish's list of Dividend Champions at 63 consecutive years of dividend increases. For years it was a sleepy water utility but the company has broadened its geographic reach by entering into contracts with the US government to provide utility services at several military installations. The price of AWR rarely dips to the point that the dividend yield is 3.0%. The current yield is 1.9%. The high yield since 2012 has been 3.7%. I would be happy to buy shares at a 3.0% yield, which would be $34.00.

Colgate-Palmolive (CL) is a well-known consumer staples company and a leading global maker of toothpaste. This company has been a slow-grower but it has raised the dividend for 54 consecutive years. I would be willing to buy shares at a 2.5% yield, or $64.00 at the current dividend.

Clorox (CLX), formerly part of Procter & Gamble (PG), operates in the consumer staples sector. After the spinoff from PG, Clorox has raised the dividend for 40 consecutive years. This is a solid, defensive holding, but I would prefer to find an entry point closer to a 3.5% yield rather than the current 2.6%.

Cummins (CMI) makes diesel engines. It's in the industrial sector and its earnings tend to be cyclical. The company has steadily grown the dividend and has raised it for the past 12 consecutive years. The stock has seen a strong run. It's a former holding and a great company. I would like to own shares again closer to a 3.5% yield rather than the current 2.5%.

Dominion Energy (D) is a strong utility company on the eastern seaboard, with interests in natural gas. Dominion has raised the dividend for 14 consecutive years. At $80.84, it is relatively near my target price of $77.00.

Deere (NYSE:DE) manufactures farm and earth-moving equipment. The company operates in the industrial sector and it has had a strong run. It is a cyclical company and it seems overvalued (in my opinion) and is a perfect candidate for this Watch for Valuation list. The current yield is 1.8%. The 5-year high yield for DE has been 3.4%. My target price represents a 2.75% yield.

Dover (DOV) is an industrial company with 62 consecutive years of dividend increases. It is #2 on David Fish's list of Dividend Champions. I bought shares of Dover when the industrial sector was very depressed. The 5-year high yield for DOV has been 3.4%, but the current yield is 1.8%. I would like to be a buyer in the 3% yield range.

Consolidated Edison (ED) provides utility services in the greater New York City area. The company has raised the dividend for 43 consecutive years. It tends to trade at a premium valuation, which means most of the time the dividend yield is relatively low. The current yield is 3.2%. I would like to buy ED at a 4% yield, which would mean a target price of $69.00.

Eaton Corp. (ETN) is an industrial company that has raised the dividend for 8 consecutive years. The company tends to trade with the ups and downs of the industrial sector. The 5-year high yield was 4.9%. The current yield is 3.0%. I would like to be a buyer of ETN in the 3.5% yield range.

Illinois Tool Works (ITW) is a very diverse manufacturer in the industrial sector. ITW has raised the dividend for 43 consecutive years. The high yield for the previous 5 years was 3.2%, indicating that the company trades at a premium valuation among its industrial peers. The current yield is 2.0%. I would be more interested if the yield was in the 2.5% range.

Nestle (OTCPK:NSRGY) is a former holding that I would welcome back to the portfolio. I bought it during a downturn and sold it after the price saw a nice recovery. I made a mistake by putting Nestle into an IRA rather than a brokerage account. In an IRA, a US taxpayer cannot get a credit for the Swiss dividend withholding tax. When Nestle is in the target buy price range again, I will look to re-establish a position, this time in a taxable account. It is one of the premier global consumer staples companies.

Northwest Natural (NWN), a natural gas utility in the northwestern US, has increased the dividend for 61 consecutive years. It tends to trade at a premium valuation. The current yield is 2.9%. The 5-year high yield is 4.6%. I would like to make an initial buy at about 3.8%.

Parker-Hannifin (PH) is a very solid diversified industrial company with 61 consecutive years of dividend increases. The stock has benefited from the broad bull market and the renaissance in the industrial sector. The high yield for the past 6 years has been 3.0% and the current yield is 1.4%. I would like to buy an initial position in the dividend yield range of 2.25%

Sonoco Products (SON) manufactures containers such as cardboard boxes. It operates in the materials sector. SON is a dividend champion with 35 consecutive years of dividend increases. At $51.65, SON is relatively near my $48.00 target price for initiating a position.

Union Pacific (NYSE:UNP) is a railroad company, which puts it in the industrial sector. I continue to like this former holding and I would enjoy owning shares again at the right price. For me, that would be in the range of $88.00, which would be a 2.75% yield at the current dividend. The present yield is 2.0% and the high yield for the past 6 years has been 3.4%.

WEC Energy (WEC) is a electric/gas utility company headquartered in Wisconsin. It merged a few years ago with Integrys, which enlarged its gas exposure and expanded its footprint in the Chicago area. This well-managed utility tends to receive a premium valuation from the market. I recently closed a position in WEC and immediately put it on my Watch for Valuation list. The utility's high yield for the past 6 years has been 3.9%. The current yield is 3.1%. I would like to be a buyer at about 3.8%.

The table below lists the companies in the Watch for Valuation list. From left to right, Price is the closing price on November 2. Target is my target buy price. Div is the current annual dividend. Yield is the current yield as of November 2. Target is my target yield (upon which the target price is based). 5yr High is the highest yield achieved in the past 5 years (2012-16). Since we are near the end of 2017, in most cases, it's actually a 6-year high yield. P/E is the current price/earnings ratio as indicated by Better Investing. Avg is the 5-year average P/E, as shown by Better Investing. Debt is the long-term debt as a percentage of total capitalization as shown by Better Investing. PO is the payout ratio as indicated by Better Investing.

I use an Excel spreadsheet, which automatically computes the current yield when I update the price data. It computes the current yield when I update dividend changes. The target buy price is computed when I enter the target yield desired. The other data comes from Better Investing. I leave a line to the left of the table for comments about each company. In those lines, I indicated the following: BI didn't include debt information about Colgate, Dominion Energy or Nestle, so those debt figures were taken from F.A.S.T. Graphs. For the same reason, the price/earnings ratio was taken from F.A.S.T. Graphs.

Watch for Valuation

Watch for Performance

I maintain another watch list that includes companies I'm watching for signs of improved performance in revenue, profit, dividends, etc. These are companies I'm interested in adding to the portfolio, but I have questions about some aspect of their operation. Currently, there are just 5 companies on this list.

Emerson Electric (EMR) is an industrial company that has raised the dividend for 60 consecutive years. In the last two or three years, EMR has been reconfiguring its operations by shedding some divisions and by make acquisitions. The high yield reached in the past 6 years was 4.6%, a very high yield for EMR, which reflects some company-specific (performance) problems as well as the swoon in industrial stocks a few years ago. The current yield is 3.0%, but I would like to buy EMR in the 3.5% yield range.

General Mills (GIS) is a packaged food manufacturer in the consumer staples sector. GIS has raised the dividend for 14 consecutive years. The stock reflects some of the problems common in the packaged food business, and GIS stock price has suffered from some missteps it took in its yogurt operation. The high yield over the past 6 years was 3.8%, and the current yield is 3.8%. This is also my target yield. So, on a yield basis, GIS is as good a valuation as it has been in recent years. This is why it's on the Watch for Performance list rather than the Watch for Valuation list. The valuation is attractive. My question marks center on their recent performance with revenue and earnings.

GlaxoSmithKline (GSK) is a British healthcare company. They manufacture drugs and vaccines. The company has a high level of debt and its performance in recent years has been choppy. I'm intrigued by the yield, but I have some concerns about performance. The high yield over the past 5 or 6 years has been 6.5%. The current yield is 5.6%. I would like to get GSK at a 6.5% yield, which would mean a $33.50 target price.

Public Storage (PSA) is the largest REIT in the self-storage business. The company is under pressure because of competition. It varies among regions, but there is "softness" in demand in some areas because other storage companies have entered the market. I recently closed my position in PSA and immediately put it on the Watch for Performance list. PSA still trades at a compelling valuation relative to its past. PSA and Simon Property Group (SPG) are the only two REITs with a Standard & Poor's credit rating of A. PSA has raised the dividend for 7 consecutive years. There are many good things going for PSA (including valuation). I closed the position due to the softness in PSA's business, which was described in detail by Dane Bowler in his June 28 article entitled, "Public Storage is Dangerously Overvalued." The REIT's recent 2017 Q3 earnings call was not inspiring, insiders have sold a considerable amount of stock in recent months, and they did not increase the December dividend as they have done in recent years. My target price for re-establishing a position is $188.24, which would be a 4.25% yield at the current dividend.

AT&T (T) has a long history in the telephone business, but this isn't "your father's telephone company," which is both good and bad. The good is that the company has been freed from some government regulations which came with its pre-1984 monopoly. The bad news is that the granite-solid dividend dependability of those years (a "widows and orphans" stock) is no longer there, even though many investors view T as safe as it gets. Now the company is swimming in much more competitive waters, venturing into the home entertainment business through its purchase of DirecTV and its pending acquisition of Time Warner (TWX). I bought my first shares of T in 2013 at $33.31 and I closed the position in March 2016 at $37.48. The current credit rating is BBB+, but S&P has put T on negative watch for a possible downgrade to BBB if the TWX deal is consummated. With all this uncertainty, the company's heavy debt load, and its history of small dividend increases, I've put it on the Watch for Performance list. The high yield for the past 6 years has been 6.1%. The current yield is 5.9%. I would be willing to consider adding T to the portfolio at $31.61, which would be a yield of 6.5%.

Watch for Performance

Other resources

Seeking Alpha continues to be my primary resource for basic information and for opinions from a variety of contributors and readers. There are many other resources available to you to help you maintain a watch list. Here are some that I regularly use:

  • Better Investing, which is referenced above, provides helpful, quick-reference tools such as some of those included in the above tables.
  • The DRiP Investing Resource Center is the David Fish's operation that provides us with his monthly updated list of companies with consecutive years of dividend growth: Dividend Champions (25+ years), Dividend Contenders (10+ years) and Dividend Challengers (5+ years).
  • F.A.S.T. Graphs provides a quick glimpse of a stock's price valuation, its S&P credit rating (where applicable), and basic information.
  • Simply Safe Dividends gives me an opinion about a stock's relative safety, relative dividend growth, and relative yield.
  • Finviz provides a graph glimpse of a stock and a range of data, including book value and a 1-year and 5-year estimate of earnings growth.
  • Custom Stock Alerts notifies me when a stock is near a target price that I have set.

How do you maintain a Watch List?

My watch lists have been somewhat spontaneous rather than systematic. I'm trying to bring some order to this process by forcing myself to think of those stocks that would be wonderful holdings if the price would just come down.

By creating these two watch lists, I've separated the list of relatively "sure things" (like WEC Energy) from those that have appealing yields but some troubling circumstances (such as PSA and T). If I close my GE position, it would go on the Watch for Performance list.

So, how do you maintain a watch list (or lists)? What resources have you found helpful? I'm sharing with you my new learning in this endeavor and I would enjoy hearing how you identify potential portfolio companies and how you monitor them over time.

My goal is to write at least one article a week, usually about a company in my retirement portfolio. For the next few weeks, I'll be writing about the REITs in the portfolio. I always learn from our Seeking Alpha conversations. I welcome your opinion because your responses enrich our discussion.

You can access a list of previous articles here.

To be notified of future articles on a real-time basis, just click "Follow" at the top of this article, then choose "Follow this author" and "Real-time alerts."

It's not my intent to advocate the purchase or sale of any security. I offer articles to provide ideas for stocks to study and to share a journal of my effort to design and build a retirement portfolio that puts a priority on relative safety, a history of dividend growth and solid future prospects. Your goals and risk tolerance may differ, so please do your own due diligence.

Disclosure: I am/we are long JNJ, MMM, MSFT, PG, WMT, MRK, PFE, XOM, CSCO, AAPL, TD, ADP, SPG, RY, BCE, VTR, O, DUK, PPL, KMB, GE, PEP, NNN, SKT, EPD, MMP, GPC, BEP, BIP, QCOM, WPC, VFC, TGT, IBM, TXN, SO, HASI, APLE, HRL, KO, UL, PEGI, MRCC, GWW, BIF, VEA, VWO, VYM, VOE, VNQ, VPU. 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.