At the beginning of every month, I reset my stock watch list and update my thoughts for the coming month. This may seem like an arbitrary cutoff to many but it seems to work well for me.
During my reset I think about what has happened in the macro investing world over the last month or quarter and as many of you know, the largest recent event is the Brexit vote that has created increased uncertainty in the US and global stock markets.
Financial stocks have taken a particularly large hit recently despite the majority of the large US banks passing the Federal stress tests in relation to their capital holding requirements. Many of these banks announced large dividend raises and/or share buyback programs in the wake of these results. However, these actions seemed to do little to excite investors. I’ll be taking a hard look at the financial sector this month.
Individual Stock Observations
The market has seen safety dividend stocks, such as MO, O, T, PM, JNJ, etc., sky rocket in the last month. These stocks are seen by many investors as a safe place to hide out while the market uncertainty is sorted out. In addition to these, gold and other precious metals have seen a significant recovery in market value. I’ll be staying away from these types of securities as they seem overpriced at the moment.
1) Cummins Inc. – CMI
CMI primarily focuses on heavy machinery manufacturing with revenue split into four main segments, engines, power generation, components and distribution.
Stock Price: $110.18
Dividend Yield: 3.54%
Dividend Payout Ratio: 49.1%
Price-to-Earnings Ratio – TTM vs. 5-year avg: 14.59 vs. 13.69
The stock has fluctuated recently but it seems to be in a fair value range at the moment. In order to start a position in CMI I’d like it to drop to below $100, this would put the P/E to ~13.25x and below the 5-year average with a 3.9% dividend yield.
Dividend Stacker Target Price: under $100
2) Starbucks Corporation – SBUX
Is anyone unaware of what SBUX provides for goods and services? Didn’t think so, I figured you all had been outside recently! This is the huge advantage of Starbucks, its branding, I’ve been looking at the company for a long time, just have never pulled the trigger due to the low yield of the stock.
Stock Price: $56.77
Dividend Yield: 1.42%
Dividend Payout Ratio: 42.3%
Price-to-Earnings Ratio – TTM vs. 5-year avg: 33.59 vs. 473
Well it is certainly cheaper than it has been historically based on the P/E, but what that also means is that investors likely missed out on some huge revenue and profit growth over the last 5 years. SBUX was just recently below $55/share, it would be nice to see a short-term pullback for entry.
Dividend Stacker Target Price: under $54
3) JP Morgan Chase & Co – JPM
Wells Fargo and JP Morgan Chase are my two favorite big banks in the United States and I only hold Wells Fargo. The recent financial sector pullback may have created an opportunity to load up on some JP Morgan.
Stock Price: $59.55
Dividend Yield: 3.26%
Dividend Payout Ratio: 33.9%
Price-to-Earnings Ratio – TTM vs. 5-year avg: 10.11 vs. 10.05
JPM seems to be trading at a relatively fair value at the moment and is close to turning into a bargain. If JPM can get down below $57, I think it will pose an extremely attractive option for dividend investors.
Dividend Stacker Target Price: under $57
4) Prudential Financial Inc – PRU
Prudential is a financial company that has been hit hard over the last month or two, they focus in the insurance, investment management and real estate business.
Stock Price: $68.74
Dividend Yield: 4.12%
Dividend Payout Ratio: 29.5%
Price-to-Earnings Ratio – TTM vs. 5-year avg: 6.41 vs. 17.8
I almost don’t know what to do with this one, it seems like a steal as it is? I’ve been reading up on the company a lot and can’t find out why it is struggling in the market so bad? It’s gotten into too good to be true territory for me. It’s at 1/3 of its historic P/E, what’s that about? So naturally I want a little more cushion.
Dividend Stacker Target Price: under $65
5) Apple Inc. – AAPL
Apple is a company I’ll likely keep on my watch lists for a very long time. Below is a clear indication of why.
Stock Price: $94.99
Dividend Yield: 2.41%
Dividend Payout Ratio: 27.5%
Price-to-Earnings Ratio – TTM vs. 5-year avg: 10.57 vs. 13.19
Apple is an absolute cash cow that generates more cash flow on an annual basis than most US companies do in revenue. Despite headwinds with the iPhone, they continue to expand their reach elsewhere, most notably I am thinking, the automobile world. So for now, when it dips, I buy.
Dividend Stacker Target Price: under $92
What is everyone else looking into this month? Any other suggestions?
Full Disclosure: I am long MO, O, T, PM, JNJ & AAPL.