Lanny's January Dividend Stock Watch List

Includes: D, O, WTR
by: Dividend Diplomats

Who is ready to buy some stock this year? Now that the tax reform dust is settling in, the market has had two weeks to react in 2018, things are looking interesting. The REIT and utility industries have taken a little bit of a backseat thus far, this year, and it's time to wipe the sleep from your eyes to see if there are buying opportunities. This month, there are three stocks on my dividend stock watch list, and I hope you enjoy, gain useful information, and leave feedback. Sip on the coffee and check out the list!

Dividend stock watch list

Since I really am anxious to share the three dividend stocks on my watch list, I'm going to jump right on into them. I'm going to describe why each dividend stock is on my watch list, talk about what's impacting them, as well as using our metrics via the Dividend Diplomat Stock Screener. The stock prices I am using will be from January 12th and will be based on the most recently financial data released. Enough of boring you - check the three below!

1.) Dominion (NYSE:D) - An approximate $50 billion market capitalization utility, Dominion is a massive player. Dominion is one of the nation's largest producers and transporters of energy. Dominion generates, transmits, and distributes electricity for sale in Virginia and northeastern North Carolina. Additionally, it conducts business activities through a regulated interstate natural gas transmission pipeline and underground storage system in the Northeast, mid-Atlantic and Midwest states, regulated gas transportation and distribution operations in Ohio, and gas gathering and processing activities primarily in West Virginia, Ohio, and Pennsylvania. Why do I like it so much, right now? It announced a business combination, and investors have drilled the stock price down. Through January 14th, it is down 6.3% already, when the overall market is up almost 5%. It is earning more money than last year (2017 vs. 2016) and recently announced a dividend increase in October, its 14th year straight! It currently yields 4.06%, with a forward price to earnings ratio of 21 to close out 2017 and a 2018 forward ratio of 18.8. Not the most undervalued, but for a high yielding, dividend increasing utility, that's pretty nice. For final earnings expected in 2017 to be $3.59, its payout ratio at $0.77 per quarter equates to 86%, which is what you usually see in the industry. Based on 2018's expected EPS of $4.04, this equates to a payout ratio of 76%, slightly improving. Due to the tightening of this moat, its recent increase was only 2%. I would expect, once the dust settles from the merger with offsets from tax reform, the increase to be approximately 2-4% going forward, until the accretion occurs to earnings. I would like an approximate $3 slide to the price, to really pounce on this one!

2.) Aqua America Inc. (NYSE:WTR) - Back on the list baby! Year to date, it is down over 10%! Who doesn't need water? It has over $6B in market capitalization and primarily services the greater midwest (Pennsylvania, Ohio, Virginia, New Jersey, etc.). Over 20 years of consecutive dividend increases should capture the eyes of many investors. Its current yield is right around where the five-year average yield is, not causing many to pounce on this one quite yet. Expected earnings to wrap up 2017 looks like $1.36 vs. 2018's $1.44, equating to P/E ratios of 25.8 and 24.4, which is another sign one can hold off. Its 5-year dividend growth rate stands at 8.21%, providing a punch of almost an 11% dividend compound factor, when combining the yield, which is not too shabby at all. Its payout ratio, based on the same expected earnings above equates to 60% and 58%, so at the "top end" of my preferred 40-60% range. Not too bad. I will hold off on adding it to my portfolio, for now, but would be interested if it breaks through another 5-8% correction to the stock price!

3.) Realty Income (NYSE:O) - It's safe to say that this shouldn't come to many surprises seeing this on the dividend stock watch list. Bert just added a solid 20 or so shares to his position recently, adding to the monthly dividend REIT player! The monthly dividend income is always fun to receive, as each month (with the power of DRIP, of course) provides just a little bit more than last. Over the time frame that I have owned O, I have reinvested the dividends, which has added over 12 additional shares to my portfolio. It is down 7.54% year to date and currently yields 4.84% on a monthly dividend of $0.2125 per share. It now is over 24 basis points higher than its 5-year dividend yield average, showing solid signs of undervaluation. The 5-year dividend growth rate is over 7%, but the 3-year dividend growth rate is more of a reality, at 5%. It typically increases the dividend once per quarter, going on 19+ years of consecutive increases. In the most recent disclosed 10-Q, its adjusted FFO expected is $3.05 (middle of range). Therefore, at a price of $52.72, its price to FFO is 17.28, which is not too shabby for it. Currently trading $11 below its 52-week high, we must keep our eyes out on it!

Tough look here and believe that more time for me to evaluate is necessary, except - O is currently sitting in the driver seat, based on the items above. I obviously want to make every dollar count on using my capital, this is a big decision.

Dividend stock watch list conclusion

I haven't personally purchased a utility such as energy, electricity, water, you name it - in forever; so that entices me, especially since we are using those resources on a daily basis. I love the monthly dividend stream that Realty Income gives back to shareholders and being able to really juice that up, as Bert did, would be very interesting.

What do you think? What is YOUR top stock here? Any preference on one over the other? Which would you put money into, today, regardless if you have capital or not? I would love to hear from you! Thank you again for reading the article, I appreciate it, as always! Keep on saving, good luck and happy investing!