May 2019 Dividend Watch List

Dividend Stock Watch List

It has been awhile since I shared a dividend stock watch list, therefore I thought it was about time to review some of the stocks that have been on my radar recently.

My focus has primarily been on building my existing positions rather than adding more new positions to the portfolio, however lately the buying opportunities have been a little sparse. As a result, I expanded my horizon to look more broadly and have been contemplating whether or not I would like to add a new position.

Let’s take a look at what has caught my eye recently.

Dividend Stock Watch List

If I were to add a new position, it would most likely be in a sector that is currently a bit underweight. For my dividend portfolio, two of those sectors are Materials and Utilities.

I fired up the Dividend Screener in Simply Safe Dividends, and here are a few that look interesting:

  • $AMGN – Amgen (Healthcare)
  • $CASS – Cass Information Systems (Information Technology)
  • $D – Dominion Energy (Utilities)
  • $EMN – Eastman Chemical Company (Materials)
  • $INGR – Ingredion Incorporated (Consumer Staples)
  • $OGE – OGE Energy Corporation (Utilities)

While I am quite happy with my weighting in healthcare, information technology, and consumer staples right now, the three companies noted above certainly make a compelling case for further consideration.

Of these companies, I currently own $OGE and have highlighted that below to reflect ownership.

Dividend Stock Watch List - May 2019

Looking at the table above, you will notice that the current dividend yield for each of these companies (with the exception being my holding in $OGE) is above the 5-year average dividend yield.

This signals that a stock may be under-valued.

This comparison of the current dividend yield to the 5-year average dividend yield (or other time periods) is known as dividend yield theory. The team at Simply Safe Dividends has a great article on dividend yield theory and I encourage you to check that out for more details.

Note: This alone does not signal a buy for any stock as there is more to be considered, but it is a great addition to a screen.

In the case of $OGE, the current yield is roughly the same as the 5-year yield and this indicates that a stock may be fairly valued. As a result, I’m currently looking for a price closer to $35.00 per share before I want to add more to this position.

Looking beyond the current dividend yield, you can see that each of these companies has had solid dividend growth over the last year with all of them having either double-digit increases or just shy of double-digit increases. I also look out over a 5-year and 20-year time period to see the trend in dividend growth, and again each company has impressive numbers.

The two utilities are on the lower end of the spectrum, particularly over the longer term, but that is quite common in the sector.

Digging Deeper

As I mentioned, you do not want to make decisions based solely on dividend yield and dividend growth as that can hide a lot of issues. In the article shared from SSD, they share an example with GE where the yield looked extremely enticing but had you bought based on that alone, you would have lost money.

So let’s dig a little deeper.

Dividend Stock Watch List Details - May 2019

First, I look at how long a company has been raising their dividend as well as how long they have been paying their dividend without any interruption. One of my personal guidelines is to look for an absolute minimum of 5 years with consecutive dividend increases, and all of these check that box.

It is also worthwhile to look at the payout ratio, and my guideline is to look for 60-65% as a top-end.

Here you can see that $D and $OGE are higher than that; however, certain sectors require slight adjustments and the Utilities sector is one of those where the payout ratios tend to be higher. Although $D at an 86% payout ratio is a little high for my taste and would need some additional consideration.

I also like to look at how many times a company has had positive free cash flow in the last 10 years. This is important because when a company does not have any free cash flow, a down-turn in earnings will increase the risk with sustaining their dividend. It is important to note that the Utilities again have some exceptions here, as that sector is a very capital-intensive business and they tend to have little to no free cash flow.

The last two factors are a look at the Net Debt to EBITDA and how the company performed in the Great Recession.

The Net Debt to EBITDA shows how many years a company would need to pay off their debt and the lower the number the better. However, as in most cases, there are exceptions and some sectors will trend higher.

Looking at how a company performed during the Great Recession will shed some light on what may happen when the next bear market hits, and while the history is no guarantee of the future, it is a reference point to consider.

Summary

Hopefully the above has not only shared some insight into the companies that I am watching right now, but also a little bit about the thought process and data that I look at when making my watch list.

When companies make it this far, that is not the end of the process but really just the beginning to determine what companies are worth spending the time to investigate farther. From here it is a good idea to read the latest quarterly and/or annual report to get more feedback on how the company is performing and their guidance moving forward.

Time will tell whether I add any of these positions. As I said, right now my preference is to add to existing positions but the group above caught my eye when running through my screening process.

What are you watching right now?

8 thoughts on “May 2019 Dividend Watch List”

  1. nice breakdown dd

    D has to be the most popular out of all those listed amongst the dgi community.

    will be interesting what you decide.

    Im debating telus bell nutrien or even more 3m.

    cheers man

    1. Thanks PCI; I just recently had added to my 3M position, therefore I’d like to see a bit larger pullback before I add more to that position.

    1. I’m leaning towards EMN if I decide for a brand new position, as I already have decent coverage in the healthcare sector. Also looking at a few potential adds to existing positions, so we will see what ends up reaching my price point first.

  2. Nice analysis DivvyDad, I like the different perspectives you’ve used here – not just dividends. CASS looks interesting – no debt is always a big plus! When I come back to the US I might look closer at a couple of these 🙂

    Cheers, Gary

    1. Thanks Gary, glad you liked it! I’ll admit that CASS had not crossed my radar previously but there is quite a bit to like about their numbers. I am still doing my due diligence on the company as I am not very familiar with them.

  3. Great minds think alike! EMN was on my watch list the past few weeks and I finally decided to pull the trigger on it. Of course, my timing wasn’t the greatest and this time I missed picking up shares at the 52 week low. However, I still got a pretty decent deal on EMN and one other company which I’ll be detailing in the near future.

  4. Nice list and the thought process behind it DivvyDad! I currently don’t have enough savings for a new investment but am looking at MMM (which caught a lot of attention from everybody recently).
    Regarding your list, D is in my watchlist since December of last year but I still didn’t add to it and I don’t yet have any Utility company. But it looks like it would be the riskiest move out of your mentioned companies as well, based on payout ratio and debt levels…
    I loved your watchlist, so I would be happy if you share your thoughts more often 🙂

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