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The stock market is starting to cool off, as expectations for high interest rates may last a little longer.
That has opened up just a little bit more of an opportunity in the stock market, giving more of a discount to dividend stocks. Putting together a dividend stock watch list each month is always fun, but this year has been continuously difficult, to say the least.
However, you can always find dividend stocks to buy out there, just have to look!
Let’s dive into three dividend stocks on my watch list right now.
Dividend Stock Watch List
Dividend investing happens, whether the stock market is up or down, whether the Fed raises interest rates or lowers. Inflation or deflation. Banks are failing or being bailed out. Recession, no recession. It’s all about buying dividend income-producing stocks – the best source of passive income source on your journey to financial freedom!
The stock market, specifically the S&P 500, is still lurking over 4,400, up 16% this year. The S&P 500 has ying-yanged all year long, as a few months ago, they were below 4,000. Now they are up 16% year to date. Just wow.
Inflation is cooling from the all-time highs, but still rising year over year. Jerome Powell has a lot of stress and work to do. We just received another 25-basis point increase a few weeks back and we may even see another in the 4th quarter, more than likely. Bring the pain baby!
Here is the S&P 500 chart below – coming back down from the 4,500-4,600 range last week:
Interest rates are steadily rising on High Yield Savings Accounts, with many over 4.50%!
Given the possibility of inflation cooling, bank failures and instability within banking, the Fed may top out at the current 5.25-5.50% or even 5.50%-5.75% (come the Q4 of 2023) in their fight against inflation. We may have one more rate increase coming up. However, all of the interest rate increases have increased those savings rates. Ally, where I hold a significant amount of cash, is yielding 4.30%, with a 11-month no penalty 4.55% CD. However, there is one specific Bank / Fintech application that I use so much more now…
I keep more savings in my SoFi savings account – as it earns me – now – 4.50% on my savings account.
In addition, I’ve been buying stocks on SoFi’s investing application.
In addition, given the uncertainty, I continue to make weekly investments into Vanguard Exchange Traded Funds (ETFs). The specific ETF my wife and I have been loading up on is Vanguard High Dividend Yield (VYM). We are investing approximately $650 per week into Vanguard (pending the VYM stock price), to stay invested in the market, during the uncertain times. In addition, I am also investing $60 per day into Vanguard S&P 500 ETF (VOO) and $40 into Vanguard’s Dividend Appreciation ETF (VIG).
Therefore, on the road to financial freedom, acquiring assets that produce cash flow or income is the goal! Like I always say, there is always a diamond in the rough. How do I find an undervalued dividend stock? Time to introduce our beloved Dividend Diplomat Stock Screener!
Dividend Diplomat Stock Screener
If you don’t know already, we keep the stock screener metrics to three simple items. They are:
- Price to Earnings Ratio – We look for a price to earnings ratio < than the overall Stock Market.
- Payout Ratio – We aim for a payout ratio of less than 60%.
- Dividend Growth – We like to see history of dividend growth in a company.
Time to find the answer to… how did the dividend stocks on my watch list grade on the stock screener?
Dividend stock watch list
Here is the list of dividend stocks that are on my radar going into the month of September 2023. I typically like to keep it at 2-3 dividend stocks, keeping the focus locked in. Finding dividend stocks isn’t easy, but there are also other factors, such as composition of my portfolio by industry (such as – am I overweight/underweight in an industry), as well as exposure to one stock and the concentration there.
There, the dividend stocks on my list cater to those other facets when building a dividend stock portfolio.
United Parcel Service (UPS)
I am on a pursuit to 100 shares of United Parcel Service. Once we dig into the metrics, I’ll be curious if you agree. Over $144 billion by market capitalization, they are definitely one of the larger companies in the world.
UPS is projecting to earn between $85 billion to $100 billion in revenue, just large amounts, even during a tough year that we have all been through.
Recently, they’ve been heavy in the news due to the $30 billion labor union contract that was accepted on August 22nd. As you can see from the chart below, it’s been shocked by 10% downward pressure afterwards. Needless to say, I’ve been buying a share here and there, as they’ve come down. Still not at the 100 share count yet!
Therefore, I want to show the stats and why I do like the stock, even at current prices. I am around 9 shares away from 100 of UPS stock. In addition, they finally have the Union strike behind them, close call for UPS.
Therefore, let’s run UPS officially through the Dividend Diplomats Stock Screener, which is focused on these 3 metrics.
- Price to Earnings Ratio: Earnings is approximately $10.69 in earnings per share for 2024. Therefore, UPS is trading at ~16x forward earnings right now, very low at the moment, compared to the 26x the S&P 500 is currently priced at.
- Payout Ratio: UPS’ current dividend payout ratio, using that metric is actually at 60.6%. Right at the ceiling of the dividend payout ratio metric. Still safe, but dividend growth may be lower in the future.
- Dividend Growth: See the 10-year chart below. All up from here. Over 13 years of growing dividends, at an average rate of almost 6.5%, not too bad. Given high inflationary times, high interest rates, tightening of consumer spending, UPS keeping this streak alive is great.
The dividend yield is closing in on 4%, currently at 3.84%. I am looking forward to grabbing shares at or under $165. Keeping my eyes on them.
Canadian Imperial (CM)
The Canadian Banks are back on my dividend stock watch list! CIBC, for short (Canadian Imperial), is one of the big 6 Canadian Banks out there.
Due to real estate and interest rate risk, the entire banking industry is down and this includes Canada.
Similar to UPS above, CM is getting crushed, down almost 9% in the last month and officially below the $40 mark!
I own a ton of CM, over 300 shares, and I may be interested in the $39 range right now. Let’s look at the dividend metrics.
- P/E Ratio: CM analysts are actually expecting over $5.09 in earnings per share. That pegs the price to earnings ratio at 8x current expected earnings right now. Lower than UPS above and the stock market.
- Dividend Payout Ratio: CM pays a quarterly dividend of ~$0.64 (USD) per share or $2.56 per year. This equates to a dividend payout ratio of only 50%. High for a bank, but still safe nonetheless.
- Dividend Growth Rate: Due to currency conversion, not easy to say how long or by how much the dividend has grown. The picture below should do it justice, by showing that it gradually increases over time!
Lastly, we’ll take a look at the dividend yield. As an investor, you want to know how much owning this dividend stock pays you now! The yield for CM is now yielding 6.45%!
Target (TGT)
Target stock has gotten hammered this year, to say the least.
From the social issues they had during Pride month and the millions of theft losses occurring in theirs and other retail stores, has been an issue.
The stock has plummeted from their 52-week highs of $180+ and now down to almost $120 per share, wow. Losing almost 1/3 of the market value, just like that.
Where I see red, I see opportunity!
I own over 100 shares of Target, therefore, this would be to add a small amount here and there while the stock is down. However, let’s look at the metrics.
- P/E Ratio: TGT analysts are actually expecting over $7.60 in earnings per share. That pegs the price to earnings ratio at 16x current expected earnings right now. Very similar to UPS, right now.
- Dividend Payout Ratio: TGT pays a quarterly dividend of $1.10 per quarter, or $4.40 per share, for the year. This equates to a dividend payout ratio of only 58%. Creeping up to the ceiling of 60%! Still safe, in my opinion.
- Dividend Growth Rate: Target is not just a dividend aristocrat, but a dividend king! Over 51 years of growing dividends, at an average rate of 12.04%, over the last 5 years. I believe it will be much smaller over the next 2-3 years.
Lastly, we’ll take a look at the dividend yield. As an investor, you want to know how much owning this dividend stock pays you now! The yield for TGT is now yielding 3.61%!
Other Dividend Stocks to buy
I am also considering, as a quick-hitter approach here, my eyes are on a few other stocks. Those stocks are Hormel (HRL), possibly Viatris (VTRS) and always have an eye on Elevance Health (ELV).
I own each stock and am constantly evaluating the stock market, to see if there are undervalued dividend stocks to buy in this wild market.
Dividend Stock Watch List Conclusion
Dividend investing is real and is happening!
Of course, prior to making any purchase, I definitely will make sure to run them through the Dividend Diplomat Stock Screener once more.
As always, I highly encourage you do your own research as this is not financial advice (quick disclaimer!).
As always, stick to your investment strategy and dividend stocks will be there. What do you think of these stocks above? Thank you, good luck and happy investing everyone!
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
