5 Reliable Dividend Stocks I'm Buying If Market Drops
Summary
- The US market is looking expensive again as it did pre-crash.
- I'm not willing to chase the stocks from my watchlist if they are trading at overvalued levels.
- Yesterday (11 June) showed that volatility might be back.
- I have 5 buy orders in place in case the market turns down from current levels.
As the last few months have shown, nobody can accurately predict the direction of the market in the short run.
Doesn't matter the credentials, it's an impossible task - I'm surprised to see many investors still trying to make predictions.
It's not a part of my investing plan to try and make money off short-term market moves.
What I'm focusing on, is being able to buy ownership stakes in dividend paying companies at the price which is reasonable in my opinion.
Those investments will hopefully fund my expenses in retirement, which is currently planned for 2026.
My full portfolio that I want to retire on, is public here.
If the market were to drop further from the S&P 500(SPY) decline of -5.76% yesterday, some of my limit buy orders might get filled.
If the market resumes to go up, then so be it - I will have to continue researching to find value.
I share the 5 limit buy orders I have for reliable dividend stocks.
Limit Buy Order #1
Monmouth Real Estate Investment Corporation (MNR) at $12.50 per share
Monmouth's business has been largely unaffected by the pandemic. They were able to collect a very impressive 99% of rents in April and have been expanding their business. (latest acquisitions to their portfolio)
Long-term triple net leases, strong balance sheet and long-term tailwinds from the rise of e-commerce make this a great income pick.
I analysed MNR at length in one of my previous articles here.
At the price of $12.50 per share, the dividend yield would be 5.4%.
The dividend is covered with a FFO payout ratio of 81%.
The dividend is not being raised every single year. But the conservative payout ratio and the fact that the dividend remained intact during GFC give investors some peace of mind regarding the sustainability of the dividend.
My buy order would represent a valuation of just 15x P/FFO based on current forward FFO estimate of $0.84 per share.
At the time of writing, my buy order is 3.5% below the current share price.
| MONMOUTH REAL ESTATE | |
| Dividend Yield at buy price | 5.4% |
| Payout Ratio | 81% (FFO) |
| Valuation at buy price | 15x (FFO) |
| Required drop for order to fill | 3.5% |
Limit Buy Order #2
Realty Income (O) at $53.00 per share.
I bought at just below this price in the start of May and I'm looking to increase my position if the opportunity presents itself.
O is the strongest operator in the triple-net lease space and one of the very few REITs that belongs to the Dividend Aristocrats list. O also has a very impressive A- credit rating.
Its biggest strength lies in the quality of its tenants.
Around 50% of revenue is derived from investment grade tenants. This helped O to collect 83% of April rents.
The company even came through with a small dividend raise for their latest payment.
My full analysis article on Realty Income is available here.
If my buy order gets filled, my dividend yield would be around 5.3% on that investment. The FFO dividend payout ratio is 84% based on the forward FFO estimates.
At $53.00 per share, O is valued at 16x forward P/FFO.
My buy order is around 10% below the current price.
| REALTY INCOME | |
| Dividend Yield at buy price | 5.3% |
| Payout Ratio | 84% (FFO) |
| Valuation at buy price | 16x (FFO) |
| Required drop for order to fill | 10% |
Limit Buy Order #3
Blackrock (BLK) at $450.00 per share
I first wrote about Blackrock in the end of October '19. Since then the company has significantly outperformed the S&P 500. (15% gain vs flat S&P)
BLK is the world's largest asset management company and the biggest provider of ETFs through its iShares offering.
As passive investing is becoming more and more popular, active investors can benefit from that trend by buying shares in BLK.
BLK has a conservatively managed balance sheet that should be able to withstand prolonged periods of economic turmoil.
At my limit buy price of $450, I would get a 3.2% dividend yield. Based on estimated forward earnings, the dividend is covered with a safe 54% earnings payout ratio.
Buying at $450, the valuation would be just under 17x forward Earnings.
At the time of writing, BLKs shares are trading 14% higher than my limit order price.
| BLACKROCK | |
| Dividend Yield at buy price | 3.2% |
| Payout Ratio | 54% |
| Valuation at buy price | 17x |
| Required drop for order to fill | 14% |
Limit Buy Order #4
Brookfield Infrastructure Corporation (BIPC) at $38.00 per share.
I am very bullish on this investment, if purchased at the right price. I initiated a position in BIPC in mid-April at the same price ($38.00).
This company has a well-diversified global portfolio of essential infrastructure assets that produce reliable cash flows. No region or sector makes up more than 33% of cash flows. Around 95% of cash flows are either contracted or regulated which makes the cash flows (and therefore dividends) more predictable.
If you are worried about inflation, this can also be a great hedge because around 75% of EBITDA is linked to inflation.
At $38 per share, investors are getting a 5.1% dividend yield.
Management is aiming for dividend growth of around 5-9% per year and FFO payout ratio between 60-70%. On top of an already high yield, the expected dividend growth is very attractive. Although the payout ratio is currently above the ratio where management wants it to be, they can glide into that payout ratio without cutting the dividend if they keep growing their FFO.
Based on annualized aFFO of $2.32, a price of $38 per share would represent a valuation of around 16x P/FFO.
As of today (12 June'20 before market open), BIPC is trading 19% away from the price I would like to buy shares at.
My full analysis on Brookfield Infrastructure Corporation can be found in one of my previous articles here.
| BROOKFIELD INFRASTRUCTURE CORPORATION | |
| Dividend Yield at buy price | 5.1% |
| Payout Ratio | 84% (aFFO) |
| Valuation at buy price | 16x (aFFO) |
| Required drop for order to fill | 19% |
Limit Buy Order #5
Home Depot (HD) at $150.00 per share.
I acknowledge that there is not much chance for this one to be filled, unless we test the previous lows.
HD briefly traded at this level during the March lows. It would take a significant drop of 37% for my order to be filled.
However, I'm not willing to chase this stock at current levels. I'm just not interested at 24 times earnings.
HD, the home improvement retailer, has been a great investment for dividend growth investors. It has grown its dividend yearly for 11 years now, with a 10-yr CAGR growth rate of almost 20%. The current dividend is covered by a 61% forward earnings payout ratio.
At the price of $150 per share, HD would yield 4% and I would invest at a P/E ratio of just over 15x.
| HOME DEPOT | |
Dividend Yield at buy price | 4% |
| Payout Ratio | 61% |
| Valuation at buy price | 15x |
| Required drop for order to fill | 37% |
Summary
With the stock market showing volatility with a big downside move yesterday, there might be some opportunities coming. The market as a whole is looking very expensive again as it did in the start of 2020 pre-crash. I have those 5 buy orders in for dividend stocks that fit my investment criteria. I recommend income investors look into those 5 stocks and see if it fits their portfolio. I rate all 5 companies as strong "BUY" at the mentioned price points.
This article was written by
Analyst’s Disclosure: I am/we are long O, BIPC. 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.
I have limit buy orders at the prices specified in the article.
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