The Best Dividend Stocks To Buy This Week: Now Featuring 'Fat Pitch' Blue Chips

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Includes: ABBV, ABCB, AM, AMP, AMTD, AOS, APD, AVGO, AY, BAC, BEP, BIP, BLK, BMY, BPR, BTI, C, CAH, CL, CONE, ENB, EOG, EQM, ET, FDX, FRT, GD, HD, HOMB, HRL, ICE, ITW, KIM, KO, LAZ, LMAT, LNC, LOW, LUV, MMM, MMP, MO, MPLX, NBLX, NEP, OMP, PEGI, SKT, SNA, SU, SYF, THO, TRP, TXN, VOD, WBA
by: Dividend Sensei
Summary

The market is up 15.4% YTD and now trading at 16.7 times forward earnings, compared to a 25-year average of 16.2.

With stocks now becoming historically overvalued, knowing what quality companies to buy at good to great prices is more important than ever.

That's especially true, given that the New York Federal Reserve estimates the probability of a 2020 recession at 50%, the highest level in a decade.

This weekly watchlist series presents dividend investing ideas based on four proven models: discount cash flow, forward PE, multi-year lows, and dividend yield theory.

There is no perfect valuation approach for everyone. This week, I'm adding the "fat pitch" deep value blue-chip watchlist, which is what I personally use for my retirement portfolio.

(Source: imgflip)

Due to reader requests, I've decided to break up my weekly "Best Dividend Stocks To Buy This Week" series into two parts.

One will be the weekly watchlist article (with the best ideas for new money at any given time). The other will be the portfolio update.

To also make those more digestible, I'm breaking out the intro for the weekly series into a revised introduction and reference article on the 3 rules for using margin safely and profitably (which will no longer be included in those future articles).

To minimize reader confusion, I will be providing portfolio updates on a rotating three-week schedule. This means an update every three weeks on

Why Valuation Matters

Even the best companies can make terrible investments if you overpay. A Yale study looking at market returns from 1881 to 2016 found that starting P/E ratio had a significant effect on total returns out to 30 years. What's more, in the past few decades, valuation has explained about 45% of the market's forward five-year returns.

Data as of March 2019

In other words, buy-and-hold investors can't just blindly buy great companies at any price but need to remember Buffett's famous quote, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

The corollary to that quote is what I call "the Buffett rule," which is to never pay more than fair value for even the highest-quality companies. Doing so will lower your total returns, and since something great is always on sale, there is no reason to jump the gun on buying quality, low-risk dividend stocks.

After all, patience is the ultimate virtue of the long-term investor, because as Buffett also said, "the stock market is designed to transfer money from the active to the patient."

But there's another reason why valuation is always worth keeping in mind.

(Source: Ploutos Research) Note: Data current through March 2019

Value investing is one of the proven "alpha factors" that consistently beat the market over time. That includes January's rally (the strongest S&P returns in January in 32 years) when value stocks were the best alpha strategy of all.

Of course, value investing doesn't work all of the time - no investing strategy does.

Probability Of The Strategy Underperforming The S&P 500 Over Rolling Time Periods

(Source: Advisor Perspectives)

But it's precisely because all investing strategies go through periods of underperformance that alpha factors keep working over decades. If any single approach could guarantee market-beating returns year in and year out, then everyone in the world would use it, and thus, the strategy would lose its edge.

Okay, so maybe value investing is great, and valuation is worth keeping in mind before buying any stock. But how does one find great companies trading at Buffett's mythical "fair value." Well, there are many approaches, but I personally consider four the most useful for long-term dividend growth investors.

Using these four valuation methods can tell us what are the best quality dividend growth stocks to buy at any given time, no matter how overvalued the broader market may become.

Discounted Cash Flow

Fundamentally, any company is worth the present value of all its future cash flow. That's as basic a valuation method as you can get. However, in reality, the future is uncertain, and the discount rate you use, as well as your growth assumptions, can make a DCF model say pretty much anything you want.

This is why I consider Morningstar's 100% long-term, fundamentals-driven and conservative analysts to be a great source of DCF estimated fair values.

(Source: Morningstar) Note: "Q" indicates quantitative (model driven) valuation estimate - data as of April 5th

Those analysts generally assume slower growth than the analyst consensus and even sometimes management itself. As a result, Morningstar four and 5 star-rated companies can be thought of as "strong buy" or "very strong buy" recommendations, respectively, from analysts whom I consider among the best in the business.

Above, you can see the top-rated companies that my Deep Value Dividend Growth portfolio owns. Every company presented here is one that my own long-term, valuation-adjusted total return model (based on the one Brookfield Asset Management has been using for decades) expects to generate at least 13% long-term total returns (margin of error 20%).

Note that only the companies with "5-star prices" are ones that Morningstar has done a deep dive on. The "Q" rated companies are quantitative models and slightly less reliable.

Want a more quantitative approach to DCF? Well, here are my DVDGP holdings ranked by price/fair value, with each company at least 10% undervalued per Morningstar's estimate.

(Source: Morningstar) data as of April 5th

But DCF is far from the only valuation method you should consider.

Price-To-Earnings

Remember that Yale valuation study that looked at stocks based on P/E ratio? Well, the venerable P/E ratio is one of the most popular valuation approaches, and for good reason. While no valuation method is perfect, a good rule of thumb (from Chuck Carnevale, the SA king of value investing and founder of F.A.S.T. Graphs) is to try not to pay more than 15 times forward earnings for a company. Chuck's historical PE valuation approach has made him a legend on Seeking Alpha and, according to TipRanks, one of the best analysts in the country when it comes to making investors money.

(Source: TipRanks)

Chuck usually compares companies to their historical P/E ratios, and he's ranked in the top 1.4% of all analysts tracked by TipRanks (based on the forward 12-month total returns of his recommendations). While 12 months is hardly "long term," the point is that Mr. Carnevale is a fantastic value investing analyst, and his historical valuation-driven approach is beating 98.6% of all bloggers/analysts, including 5,300 that work on Wall Street.

Here are DVDGP's portfolio holdings that have forward P/Es of 15 or less.

(Source: Morningstar) - data as of April 5th, note I no longer recommend Clearway Energy and DVDGP has sold this position

Note that stewardship rating is Morningstar's estimate of the quality of the management team. P = poor (DVDGP's policy is to avoid all such companies), S = standard (average to good), and E = exemplary (very good to excellent).

The Deep Value "Fat Pitch" Dividend Blue-Chips

(Source: Google Sheets) - bolded companies are "fat pitch" deep value blue-chip limit order recommendations. Tanger, Walgreens, and CVS are active "buy now" recs because they are at or below their target prices.

When it comes to putting my own money to work in my retirement portfolio, I base my decisions on a watchlist that takes every company I track and applies an 11-point quality score based on dividend safety, the business model, and management quality. All dividend stocks can be ranked 3-11, and my watchlist (117 companies and growing slowly over time) only includes those with quality scores of 7 and higher.

  • 7: "dirty value" buy at a deep discount and high margin of safety (like Vodafone (NASDAQ:VOD))
  • 8: Blue-chip (pay no more than fair value but preferably modest discount to fair value)
  • 9+: SWAN stock: buy with confidence at fair value or better

I've programmed that watchlist to track prices and use the 52-week low as a means of estimating a target price at which a blue-chip or SWAN stock becomes a Buffett-style "fat pitch" investment. This means a blue-chip/SWAN stock is

  • trading near its 52-week (or often multi-year) low
  • undervalued per dividend yield theory (more on this in a moment)
  • offers a high probability of achieving significant multiple expansion within five years and thus delivering 15+% long-term total returns over this time period

Basically "Fat Pitch" investing is about achieving high-risk style returns with low-risk stocks, by buying them when they are at their least popular ("be greedy when others are fearful".)

My Retirement Holdings Sorted By Unrealized Capital Gains

(Source: Interactive Brokers) - data as of April 5th close

This "fat pitch" approach is what I've used in my retirement portfolio to buy quality dividend stocks at their least popular. The result is that 11/20 of my companies have delivered 14% to 48% total returns (including dividends) over the past 6 to 12 months.

Note that "fat pitch" blue-chips/SWANs do NOT guarantee success and you want to make sure to use appropriate position size limits that fit with your personal risk profile.

All investing is purely probabilistic, and my goal is for 70% to 80% of "fat pitch" recommendations to deliver great returns, with the losers delivering flat to slightly negative returns that will be overwhelmed by the winners and dividend income.

My personal limit is 5% of my portfolio for all new holdings (previous overweight holdings will be diluted down to this limit over time). I also have 25% sector caps in place, which means that I am currently unable to buy more REITs or energy stocks (both are 25% of my portfolio). Currently, I only have limits on two companies, CVS Health and Bristol-Myers (BMY). Both are under my 5% position size, and healthcare makes up 18% of my portfolio, so I can afford to keep adding to this beaten down sector for now.

Dividend Yield Theory: Market-Beating Blue-Chip Returns Since 1966

This group of dividend growth blue-chips represents what I consider the best stocks you can buy today. They are presented in 5 categories, sorted by most undervalued (based on dividend yield theory using a 5-year average yield).

  • High yield (4+% yield)
  • Fast dividend growth
  • Dividend Aristocrats
  • Dividend Kings
  • My Bear Market Buy List (my master watchlist of quality dividend stocks worth owning)

The goal is to allow readers to know what are the best low-risk dividend growth stocks to buy at any given time. You can think of these as my "highest-conviction" recommendations for conservative income investors that represent what I consider to be the best opportunities for low-risk income investors available in the market today. Over time, a portfolio built based on these watchlists will be highly diversified, low-risk and a great source of safe and rising income over time.

The rankings are based on the discount to fair value. The valuations are determined by dividend yield theory, which Investment Quality Trends, or IQT, has proven works well for dividend stocks since 1966, generating market-crushing long-term returns with far less volatility.

(Source: Investment Quality Trends)

That's because, for stable business income stocks, yields tend to mean-revert over time, meaning cycle around a relatively fixed value approximating fair value. If you buy a dividend stock when the yield is far above its historical average, then you'll likely outperform when its valuation returns to its normal level over time.

For the purposes of these valuation-adjusted total return potentials, I use the Gordon Dividend Growth Model, or GDGM (which is what Brookfield Asset Management (NYSE:BAM) uses). Since 1956, this has proven relatively accurate at modeling long-term total returns via the formula: Yield + Dividend growth. That's because, assuming no change in valuation, a stable business model (doesn't change much over time), and a constant payout ratio, dividend growth tracks cash flow growth.

The valuation adjustment assumes that a stock's yield will revert to its historical norm within 10 years (over that time period, stock prices are purely a function of fundamentals). Thus, these valuation total return models are based on the formula: Yield + Projected 10-year dividend growth (analyst consensus, confirmed by historical growth rate) + 10-year yield reversion return boost.

For example, if a stock with a historical average yield of 2% is trading at 3%, then the yield is 50% above its historical yield. This implies the stock is (3% current yield - 2% historical yield)/3% current yield = 33% undervalued. If the stock mean-reverts over 10 years, then this means the price will rise by 50% over 10 years just to correct the undervaluation.

That represents a 4.1% annual total return just from valuation mean regression. If the stock grows its cash flow (and dividend) at 10% over this time, then the total return one would expect from this stock would be 3% yield + 10% dividend (and FCF/share) growth + 4.1% valuation boost = 17.1%.

The historical margin of error for this valuation-adjusted model is about 20% (the most accurate I've yet discovered).

Top 5 High-Yield Blue-Chips To Buy Today

Company Ticker Sector Yield Fair Value Yield Historical Yield Range Discount To Fair Value Expected 5 Year Annualized Cash flow Growth

Valuation Adjusted Total Return Potential

Tanger Factory Outlet Centers (SKT) REIT 6.9% 3.7% 2.2% to 6.8% 47% 3.5% 16.7%
Enbridge (ENB) Energy 6.1% 3.9% 2.3% to 6.6% 36% 6% 18.9%
Kimco Realty (KIM) REIT 6.1% 4.1% 2.7% to 24.5% 32% 3.6% 14.9%
Altria (MO) Consumer Staples 5.8% 4.0% 3.1% to 14.4% 31% 8% 17.0%
Magellan Midstream Partners (uses K1) (MMP) Energy 6.4% 5.0% 2.7% to 12.0% 27% 6.5% 16.4%

(Sources: Management guidance, GuruFocus, F.A.S.T. Graphs, Simply Safe Dividends, Dividend Yield Theory, Gordon Dividend Growth Model) Note: Margin of error on total return potential is 20%.

Top 5 Fast-Growing Dividend Blue-Chips To Buy Today

Company Ticker Sector Yield Fair Value Yield Historical Yield Range Discount To Fair Value Expected 5 Year Annualized Cash flow Growth

Valuation Adjusted Total Return Potential

FedEx (FDX) Industrial 1.4% 0.7% 0.3% to 1.5% 41% 13.0% 19.3%
Snap-on (SNA) Industrials 2.4% 1.6% 1.2% to 5.6% 31% 9.8% 15.7%
Thor Industries (THO) Consumer Discretionary 2.4% 1.6% 0.8% to 2.7% 30% 10.0% 16.2%
A.O. Smith (AOS) Industrials 1.6% 1.1% 0.8% to 3.4% 29% 8.9% 14.4%
Home Depot (HD) Consumer Discretionary 2.7% 2.1% 1.6% to 5.0% 22% 10.0% 15.1%

(Sources: Management guidance, GuruFocus, F.A.S.T. Graphs, Simply Safe Dividends, Dividend Yield Theory, Gordon Dividend Growth Model) - Note margin of error on total return potential is 20%.

Top 5 Dividend Aristocrats To Buy Today

Company Ticker Sector Yield Fair Value Yield Historical Yield Range Discount To Fair Value Expected 5 Year Annualized Cash flow Growth

Valuation Adjusted Total Return Potential

Cardinal Health (CAH) Healthcare 4.0% 2.3% 1.2% to 4.3% 42% 4.8% 14.1%
Walgreens Boots Alliance (WBA) Consumer Staples 2.8% 1.9% 1.0% to 3.1% 33% 9.5% 16.0%
AbbVie (ABBV) Healthcare 5.3% 3.6% 0.9% to 5.5% 32% 8.5% 17.2%
General Dynamics (GD) Industrials 2.4% 1.9% 1.0% to 4.9% 20% 9.8% 14.0%
Illinois Tool Works (ITW) Industrials 2.6% 2.1% 1.6% to 4.5% 18% 4.9% 10.3%

(Sources: Management guidance, GuruFocus, F.A.S.T. Graphs, Simply Safe Dividends, Dividend Yield Theory, Gordon Dividend Growth Model) Note: Margin of error on total return potential is 20%.

Top 5 Dividend Kings To Buy Today

Company Ticker Sector Yield Fair Value Yield Historical Yield Range Discount To Fair Value Expected 5 Year Annualized Cash flow Growth

Valuation Adjusted Total Return Potential

Colgate-Palmolive (CL) Consumer Staples 2.5% 2.2% 1.8% to 2.9% 12% 5.9% 9.8%
Hormel Foods (HRL) Consumer Staples 2.0% 1.8% 1.2% to 2.8% 10% 8.5% 11.0%
Coca-Cola (KO) Consumer Staples 3.4% 3.2% 2.3% to 4.0% 7% 7.2% 11.2%
3M (MMM) Industrials 2.7% 2.5% 1.8% to 4.8% 6% 10.0% 13.7%
Federal Realty Investment Trust (FRT) REIT 2.9% 2.8% 2.2% to 6.4% 5% 7.0% 10.7%

(Sources: Management guidance, GuruFocus, F.A.S.T. Graphs, Simply Safe Dividends, Dividend Yield Theory, Gordon Dividend Growth Model) Note: Margin of error on total return potential is 20%.

My Bear Market Buy List (AKA "Master Watchlist")

These are the blue-chips which I expect will generate 13+% total returns at their target yields. Note that all total return estimates are on a 10-year annualized basis. That's because total return models are most accurate over longer time frames (5+ years) when prices trade purely on fundamentals and not sentiment. This allows valuations to mean-revert and allows for relatively accurate (80% to 95%) modeling of returns.

The list itself is ranked by long-term CAGR total return potential from target yield. Stocks at their target yield or better (bolded) are good buys today.

This week, I added Automatic Data Processing (ADP) to the watchlist.

Company Ticker Current Yield Fair Value Yield Target Yield Historical Yield Range Long-Term Expected Cash Flow Growth (Analyst Consensus or Management Guidance)

Long-Term Valuation Adjusted Annualized Total Return Potential At Target Yield

Antero Midstream Corp (AM) 8.8% 5.0% 5.0% 0.1% to 9.4% 22.0% 27%
Mastercard (MA) 0.6% 0.7% 0.7% 0.1% to 0.8% 21.0% 21%
Skyworks Solutions (SWKS) 1.8% 1.2% 2.0% 0.1% to 2.5% 13.5% 21%
Brookfield Asset Management (BAM) 1.4% 1.5% 1.5% 1.1% to 4.2% 18.0% 20%
Lazard (LAZ) 4.6% 2.8% 4.0% 0.8% to 4.8% 12.5% 20%
EOG Resources (EOG) 0.9% 0.7% 0.7% 0.3% to 1.1% 19.0% 20%
Automatic Data Processing (ADP) 2.0% 2.3% 2.3% 1.7% to 4.3% 17.5% 20%
Visa (V) 0.6% 0.7% 0.7% 0.1% to 0.8% 17.0% 18%
Boeing (BA) 2.1% 2.4% 2.4% 1.4% to 5.4% 15.9% 18%
Southwest Airlines (LUV) 1.2% 0.8% 0.8% 0.1% to 1.3% 17.2% 18%
Lowe's (LOW) 1.7% 1.7% 1.7% 1.2% to 2.5% 15.0% 17%
Pattern Energy (PEGI) 7.5% 7.3% 7.3% 1.0% to 9% 10.0% 17%
Qualcomm (QCOM) 4.3% 3.5% 4.5% 1.0% to 5.0% 9.8% 17%
British American Tobacco (BTI) 6.6% 4.0% 6.0% 2.7% to 8.6% 5.5% 17%
Ameriprise Financial (AMP) 2.6% 2.4% 2.6% 1.1% to 5.0% 11.8% 17%
NextEra Energy Partners (NEP) 3.9% 3.9% 3.9% 0.4% to 5.4% 13.5% 17%
Atlantica Yield (AY) 7.0% 5.9% 6.5% 0.9% to 10.4% 9.0% 17%
Vodafone (VOD) 9.3% 5.7% 8.0% 3.9% to 13.7% 4.7% 17%
Oasis Midstream Partners (uses K1) (OMP) 8.8% 4.4% 4.4% 2.1% to 11.5% 13.0% 17%
Texas Instruments (TXN) 2.7% 2.5% 2.5% 0.9% to 3.5% 13.8% 16%
MPLX (uses k1) (MPLX) 7.9% 6.1% 7.0% 0.5% to 9.3% 6.0% 16%
Citigroup (C) 2.8% 2.3% 2.5% 0% to 78.6% 13.1% 16%
Goldman Sachs (GS) 1.6% 1.3% 1.8% 0.7% to 2.6% 12.1% 16%
Philip Morris International (PM) 5.3% 4.5% 6.0% 0.8% to 6.8% 6.8% 16%
American Tower (AMT) 1.8% 1.9% 1.9% 0.6% to 2.1% 15.1% 16%
S&P Global (SPGI) 1.1% 1.3% 1.3% 0.6% to 5.0% 14.2% 16%
Nike (NKE) 1.0% 1.2% 1.2% 0.9% to 2.4% 14.8% 16%
Home Bancshares (HOMB) 2.6% 1.5% 2.0% 0.7% to 2.8% 10.2% 15%
TD Ameritrade (AMTD) 2.3% 1.7% 2.0% 0.2 to 2.4% 10.0% 15%
Microsoft (MSFT) 1.5% 2.6% 2.6% 1.1% to 3.1% 12.3% 15%
ONEOK (OKE) 4.9% 5.1% 5.1% 2.4% to 12.8% 10.0% 15%
Essential Properties Realty Trust (EPRT) 4.4% 5.0% 5.0% 1.5% to 6% 10.0% 15%
American Express (AXP) 1.4% 1.5% 2.0% 0.7 to 8.7% 10.0% 15%
Brookfield Infrastructure Partners (uses K1) (BIP) 4.8% 4.6% 4.6% 3.7% to 8% 10.0% 15%
EQM Midstream Partners (uses K1) (EQM) 9.6% 4.1% 5.5% 0.9% to 10.7% 7.0% 15%
Lincoln National Corp (LNC) 2.3% 1.7% 2.2% 0.1% to 27.1% 10.0% 15%
CVS Health (CVS) 3.7% 1.8% 2.5% 0.6% to 3.3% 8.0% 14%
BlackRock (BLK) 3.0% 2.5% 2.5% 1.2% to 3.5% 11.3% 14%
Energy Transfer LP (uses K1) (ET) 7.8% 6.4% 6.4% 2.2% to 18.3% 7.9% 14%
A.O Smith (AOS) 1.6% 1.1% 1.6% 0.8% to 3.4% 8.9% 14%
Noble Midstream Partners (uses a K1) (NBLX) 6.2% 3.9% 3.9% 0.8% to 7.4% 10.3% 14%
QTS Realty Trust (QTS) 3.8% 3.2% 3.2% 0.9% to 4.7% 11.0% 14%
TransCanada (TRP) 4.6% 3.9% 4.5% 3.1% to 5.9% 8.0% 14%
Magellan Midstream Partners (uses K1) (MMP) 6.4% 4.6% 6.0% 2.7% to 12.0% 5.2% 14%
Apple (AAPL) 1.5% 1.7% 2.0% 0.4% to 2.8% 10.0% 14%
Brookfield Renewable Partners (uses K1) (BEP) 6.6% 5.7% 6.5% 3.8% to 8.4% 6.5% 14%
TerraForm Power (TERP) 5.7% 5.0% 6.0% 0.5% to 16.3% 6.5% 14%
Iron Mountain (IRM) 6.7% 6.0% 6.9% 0.2% to 8% 5.6% 14%
Bank of America (BAC) 2.1% 1.8% 2.0% 0.2% to 59.1% 10.5% 14%
Equinix (EQIX) 2.1% 2.1% 2.2% 0.6% to 2.5% 10.0% 14%
Roper Technologies (ROP) 0.5% 0.6% 0.8% 0.3% to 1.0% 10.0% 14%
Synchrony Financial (SYF) 2.6% 1.8% 2.4% 0.4% to 2.9% 8.2% 14%
Discover Financial (DFS) 2.1% 2.0% 2.5% 0.3% to 4.9% 8.0% 14%
Zoetis (ZTS) 0.6% 0.7% 0.7% 0.2% to 1.1% 13.1% 14%
Bristol-Myers Squibb (BMY) 3.5% 2.6% 3.4% 2.0% to 7.1% 8.5% 13%
Medtronic (MDT) 2.3% 2.1% 2.7% 1.0% to 2.9% 7.9% 13%
Abbott Labs (ABT) 1.6% 2.1% 2.2% 1.4% to 7.9% 11.0% 13%
Genuine Parts Company (GPC) 2.7% 2.8% 3.4% 2.1% to 6.1% 8.5% 13%
Pepsi (PEP) 3.1% 2.9% 3.5% 2.1% to 3.6% 7.7% 13%
General Dynamics (GD) 2.4% 1.9% 2.3% 1% to 4.9% 9.8% 13%
McDonald's (MCD) 2.4% 3.0% 3.5% 2.1% to 5.0% 8.0% 13%
Broadridge Financial (BR) 1.8% 2.0% 2.2% 1.1% to 3.2% 10.2% 13%
Ameris Bancorp (ABCB) 1.1% 0.8% 1.0% 0.2% to 7.7% 10.0% 13%
Stanley Black & Decker (SWK) 1.9% 2.0% 2.0% 1.4% to 5.4% 11.0% 13%
Suncor Energy (SU) 3.8% 3.0% 3.1% 0.4% to 4.0% 9.7% 13%
Intercontinental Exchange (ICE) 1.4% 1.3% 1.4% 0.3% to 1.5% 12.6% 13%
Waste Management (WM) 2.0% 2.6% 2.6% 1.9% to 4.7% 10.7% 13%
EPR Properties (EPR) 5.7% 6.1% 7.3% 4.5% to 24.8% 4.0% 13%
Merck (MRK) 2.7% 3.1% 3.3% 2.4% to 6.7% 9.4% 13%
Brookfield Property REIT (BPR) 6.3% 5.0% 5.0% 1.2% to 8.4% 8.0% 13%
Enterprise Products Partners (uses K1) (EPD) 5.9% 5.9% 6.0% 3.4% to 11.7% 7.0% 13%
Air Products And Chemicals (APD) 2.4% 2.4% 2.4% 1.7% to 4.1% 12.3% 13%
Jack Henry & Associates (JKHY) 1.1% 1.3% 1.5% 0.9% to 2.1% 10.5% 13%
Dominion Energy (D) 4.7% 3.8% 4.9% 3% to 5.8% 5.5% 13%
Disney (DIS) 1.5% 1.5% 2.0% 0.9% to 2.2% 8.5% 13%
Emerson Electric (EMR) 2.8% 3.2% 3.5% 1.9% to 5% 9.0% 13%
Chevron (CVX) 3.8% 3.9% 4.6% 2.3% to 5.7% 7.0% 13%
Broadcom (AVGO) 3.5% 3.0% 3.0% 0.2% to 4.6% 10.0% 13%
Home Depot (HD) 2.7% 2.1% 2.3% 1.6% to 5% 10.0% 13%
3M (MMM) 2.7% 2.5% 2.7% 1.8% to 4.8% 10.0% 13%
JPMorgan Chase (JPM) 3.0% 2.6% 3.5% 0.4% to 7.6% 6.5% 13%
LeMaitre Vascular (LMAT) 1.1% 1.1% 1.1% 0.3% to 2.0% 12.0% 13%
Lam Research (LRCX) 2.3% 2.4% 3.0% 0.3% to 3.6% 8.0% 13%
TELUS (TU) 4.4% 4.1% 5.0% 3.3% to 6.3% 6.5% 13%
Digital Realty Trust (DLR) 3.5% 3.9% 4.3% 2.5% to 7% 8.0% 13%
LyondellBasell Industries (LYB) 4.4% 3.6% 4.5% 0.2% to 4.9% 6.7% 13%
CyrusOne (CONE) 3.3% 3.3% 3.3% 0.7% to 3.8% 10.0% 13%
Simon Property Group (SPG) 4.4% 3.5% 4.7% 2.4% to 14.6% 5.1% 13%
Crown Castle (CCI) 3.5% 3.9% 4.5% 0.5% to 4.4% 7.5% 13%
W.P Carey (WPC) 5.3% 6.1% 7.3% 3.4% to 10.9% 4.0% 13%
Welltower (WELL) 4.5% 5.0% 6.5% 3.8% to 10.0% 4.0% 13%
STORE Capital (STOR) 3.9% 4.7% 5.9% 0.5% to 5.7% 5.0% 13%
Realty Income (O) 3.8% 4.6% 5.7% 3.3% to 11.2% 5.3% 13%
Average 3.4% 3.0% 3.5% 9.9% 15%

(Sources: Management guidance, GuruFocus, F.A.S.T. Graphs, Simply Safe Dividends, Dividend Yield Theory, Gordon Dividend Growth Model) Note: Margin of error on total return potential is 20%.

Note that the bolded stocks are all at target yield or better, meaning it's a great time to either add them to your portfolio or add to an existing position.

Bottom Line: While Recession Clock Isn't Ticking Just Yet, With Market Now Historically Overvalued Caution Is Warranted

The good news is the economic data is supporting the idea of slower but still positive economic growth. The bad news is, based on the New York Fed's recession probability model (based on several yield curves, the most accurate recession forecasters in history) 12-month recession risk is about 50%. That's the highest level in 10 years.

Estimate as of January 2019

With the yield curve now approximately at the same level as it was in January, this indicates the risks of a 2020 recession are about 50%. A coin-flip chance of bear market is no reason to panic, BUT with the market now trading at 16.7 times forward earnings (vs. 16.2 25-year average), caution is warranted.

This is why it's so important to have the proper assets allocation (mix of stocks/bonds/cash) to ensure you cannot just sleep well at night during a future bear market, but meet your expenses without having to sell quality dividend stocks at historically undervalued prices.

And in terms of putting new money to work, stay focused on top quality, undervalued blue-chip companies that have the greatest probability of sailing through a downturn with safe and growing dividends (and who generally fall less than the broader market).

This weekly watchlist series is designed to be a tool to give you solid investing ideas, so you can always know what's the best place to put your hard-earned money to work at any given time. Specifically, in companies with high margins of safety that have less to fall in a market correction or bear market, and which are all coiled springs that are likely to deliver outsized total returns if their valuations return to historical levels.

The addition of the "fat pitch" blue-chip watchlist this week is meant to highlight the valuation approach that I happen to be using with my retirement portfolio. By no means am I saying this is the best strategy to use. Rather like all the watchlists I present here, it's one of several reasonable approaches for generating good investing ideas at any given time.

The reason I've added it to this weekly series is to highlight the fact that, no matter how hot the market may get, quality blue-chips are almost always on sale.

Disclosure: I am/we are long WBA, SKT, VGLT, BPY, ABBV, ET, BIP, NEP, EPR, MPLX, IRM, AM, ENB, SPG, BLK, AOS, AAPL, CVS, BMY. 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.