Are You A Buyer Or A Seller In This Market?

Includes: COP, CVX, JNJ, LMT, NUE, RAI, T, VZ, WBA
by: David Crosetti

While doing my month end portfolio review, I noticed that the value of my portfolio had declined 6.3% from its recent "high point." In other words, there was a time, not to long ago, that my portfolio value was 6.3% higher than it is today.

Now, that may not seem like a lot, considering how the market has declined, but as grocer daddy used to say, "You don't deposit percentages, son. You deposit dollars." So when you translate that 6.3% into dollars, you have to consider the total amount that is in a given portfolio. For someone that has $100k, a 6% decline might not be very concerning. For someone with a 1m portfolio, that same 6% decline in value might make you swallow a little harder.

As a Dividend Growth investor, however, the value of my portfolio at any given time does not matter to me as much as the income that the portfolio is bringing me, year after year. That can be a little hard for some folks to understand, but the reason I invest in Dividend Growth stocks is for - you got it - Dividend Growth.

You see, I am attempting to manage my portfolio in such a way that at a given point in the future, I will be able to replace my income from work, with an income from those dividends. Selling stock in the companies that I own in the portfolio is not part of the equation. It is my intention to live on the dividend income and leave the actual shares to my wife, who will do the same as me, by living on the dividends and leaving the stock to the kids, so they can do the same.

Wash, rinse, repeat at its finest level.

What You Need To Know:

I have mentioned, time and time again, David Fish and his remarkable Dividend Champion, Challenger, and Contender's lists.

The reason that companies make these lists is because they have raised their dividends on an annual basis for a specific number of years. That does not mean, by any stretch of the imagination, that every company on this list is a worthy investment. Quite the contrary. There are a number of companies on these lists, that frankly, I wouldn't buy, even if I were using your money.

By the same token, there are a number of companies on these lists that have fared very well during the recent market downturn and at this time do not necessarily represent a value purchase. Companies like Verizon (NYSE:VZ), AT&T (NYSE:T), Reynolds American (NYSE:RAI), just to mention a few.

But, there are a number of stocks that have corrected with this market and the question is, "are those companies a relative value at this point in time?" A lot depends on two factors.

First, your current cost factor, if you own the company; second, a starting point from where you are going to determine a price value. For example. Nucor Steel was priced at a 4% yield at a point in time last year. Over the last 12 months, as the price of Nucor (NYSE:NUE) began to increase, the yield on cost for a new investment began to decrease. Today, you can purchase NUE with a 4.1% yield on cost as the company price is down 9% since the beginning of the year and the company is off around 21% from its 52 week high.

Now Here's The Question:

Based on the market action in the last month or so, "Is now the right time to be buying stocks?" If I say so myself that is a great question! For me, the answer is, "It all depends."

For my particular strategy, Dividend Growth, I like to purchase companies that:

  1. Have a history of raising dividends on an annual basis for a minimum of 5 years in a row

  2. Raise those dividends at a rate of growth that is greater than the rate of inflation

  3. Can be purchased at a price that will give me a specific dividend yield point

  4. Have the earnings power to continue to raise their dividend in the coming years

Now, if these were the only metrics that I used in stock selection, then I would be almost as well off as throwing darts at a list of companies that meet these criteria. But I don't. Most DG investors don't either. Instead, we use fundamental stock evaluation tools and/or technical analysis tools to separate the wheat from the chaff. So, please, don't get all critical of my "simplistic" metrics list. It is only a part of the thought process. But I digress.

What I Know:

Depending on your own criteria for purchasing a position in a particular company, now may or may not be a good time for you to be investing. Can the market go even lower? Sure it can. Can the market rally from here? Sure it can. But as investors, we are putting our capital at risk, not for a day or a week, but for a lifetime.

As things change, regarding a particular company, we may have to come to the decision to sell. That's fine. There are more attractive stock choices in the market than we are able to own. But as long as the value of a particular company remains in place, there is no reason to sell only because of a price decline and conversely only because of a price increase.

Companies In My Portfolio:

Chevron (NYSE:CVX). Chevron is currently has a PE Ratio of 7.06. The current yield is 3.70% and the company is down 9.39% year to date and is off 14.13% from its 52 week high.

Conoco (NYSE:COP). After the recent spin off. Conoco is selling with a PE Ratio of 6.42. The company is currently yielding over 5% and if company holds this dividend, it is a company that I may add more shares to my existing position.

Johnson and Johnson (NYSE:JNJ). While JNJ is down 5.7% year to date, this dividend stalwart is currently yielding 3.9% at current prices. I will be adding to my position, if and when I can get more shares with a 4% yield on cost.

Lockheed Martin (NYSE:LMT). This company has been relatively flat since the first of the year, but is currently yielding 4.9%. It is off around 12% from its 52 week high, and I will be looking to add additional shares with a 5% yield point.

Walgreen (WAG). Again, year to date, Walgreen has held up well. It is off 30% from its 52 week high and at current pricing is yielding 3%. I am looking at adding Walgreen to my portfolio.


Again, there is no reason to panic about pricing at this point in time.

  • Look to companies that have strong fundamentals and that offer the potential for growth moving forward.

  • Determine your own metric for "why" you want to add to an existing position or starting a new one. Every purchase should have a reason "why" it's being made.

  • Think longer term. If you own a company like MCD at $95-$100 a share, this might be a good time to add to your position. That is your decision-- not mine-- to make.

Again, as a Dividend Growth investor, my main goal is to have my income from dividends grow every year. My portfolio is doing that, even in spite of the recent downturn. That's the game I'm playing and in spite of the correction, I am still winning. You can too!

Disclosure: I am long MCD, JNJ, LMT, COP, CVX, NUE, VZ, T, RAI.

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