Three Ideas For September

lookingAs I type this, the S&P 500 index is just a shade under 2,000 points. Meanwhile, the Dow Jones Industrial Average is sitting over 17,000 points. These are near all-time highs.

I’d have to be crazy to continue investing new capital here, right?

Nope.

It’s hard to maintain long-term perspective when we’re living in the present. And right now, the S&P 500 index sitting near 2,000 points seems quite high.

But the S&P 500 index seemed expensive when it was over 300 points in 1987; over 500 points in 1995; over 1,000 points in 1998.

The truth is this: Great businesses will continue to grow, and with that growth comes more profit. And more profit means more dividends. More dividends means more income coming my way, which I can reinvest for now (buying more equity in great businesses), but later use to pay for my lifestyle.

That’s really it. It’s no more or less complicated. 

Therefore, it doesn’t matter where the stock market is at. Furthermore, I’m not buying the stock market anyway. I’m buying equity in individual businesses which are appropriately priced individually.

As such, I continue to stick to my plan, whereby I invest the savings I generate from living below my means into great businesses that exhibit strong quantitative and qualitative aspects and pay shareholders increasing dividends. And this plan seems to be working pretty well so far, since I’ve gone from $0 to $450 in monthly passive income in a little over four years. I expect to be in even better shape in four more years, but that will require me to ignore the noise and stick to doing what I’m doing.

But the wonderful news is that you can do this too. You can ignore the noise, generate excess capital from savings, and invest that capital month in and month out in great businesses, regardless of what doomsayers might be telling you. After all, if doomsayers had it correct they’d be incredibly wealthy and chilling on a beach somewhere in the Caribbean, not waking up at 5 a.m. to prepare for a morning telecast where they tell you how the stock market is going to crash and the world will end. Optimism is far more powerful and productive than pessimism.

So on that note, I’ve got three stocks on my September watch list. I’m invested in all three of these companies, but they’re all somewhat smaller positions for me. As I near 50 positions, I’ve found myself with renewed interest in rounding out some smaller positions and committing more capital to companies I believe in, yet lack more tangible proof.

General Electric Company (GE) 

As I noted in last month’s watch list, this is a stock I continue to keep my eye on.

There’s a lot to like. You have the shift toward more focus on the core industrial businesses, where the future is bright. Management continues to believe in the long-term stories in infrastructure, energy, and transportation. And, frankly, I do as well. They’ve been busy reducing the reliance on the financial side of the company while reallocating some of those resources toward industrial businesses. And they’ve been shedding assets that no longer make sense, like media holdings and potentially the low-margin appliance business. Furthermore, they have a $200+ billion backlog they continue to work through, which should keep GE busy for the foreseeable future.

Obviously, and rightly so, many investors are still feeling the sting of the dividend cut back in 2009. But GE has been making up for lost ground over the last few years, and they’ve been increasing the payout regularly and aggressively. I’m willing to bet we’ll see high single-digit or low double-digit dividend growth for the foreseeable future. The payout ratio, at 60.3%, still allows room for future dividend raises roughly in line with earnings.

Shares appear attractively valued with a P/E ratio of ~18 and a yield of 3.33%. The listing of Synchrony Financial (SYF) (formerly GE Capital’s retail finance division) has already occurred, which paves the way for GE’s unloading of the other 80% of its holdings to shareholders via a tax-free share swap. However, I most likely will just continue to keep my GE shares intact. I think GE is slightly undervalued here, and it remains at the top of my watch list for a September purchase.

Verizon Communications (VZ)

I’m actually invested in VZ via indirect means, as shares came my way after the sale of the 45% of Verizon Wireless that Vodafone Group Plc (VOD) owned, giving up their ownership to VZ in exchange for VZ shares and cash.

I had a fairly sizable VOD position that has since been reduced after the sale of this massive asset, but I now have VZ shares (and cash that was already invested) in its wake. I haven’t yet added to this VZ position, but I am now contemplating it.

Certainly, Warren Buffett’s recent addition to his investment in the company via the massive Berkshire Hathaway Inc. (BRK.B) portfolio has some sway, and I would be remiss if I didn’t admit that has got me thinking a bit. However, I always blaze my own trail and make my own decisions. But there appears to be a lot to like here. VZ is one of the biggest telecommunications companies on the planet, while they also offer media delivery and broadband services.

Profitability and free cash flow have both been improving as of late, and the healthy yield of 4.34% is currently covered quite well by both earnings and cash flow. Plus, a dividend raise is likely on the horizon, as VZ usually boosts the dividend in early September. The stock’s P/E ratio of 10.39 seems attractive, and I think the stock is fairly valued or slightly better here, depending on what kind of growth you think they’ll be able to maintain. My only issue with the stock is the balance sheet, as they had to issue quite a bit of debt to buy the 45% of Verizon Wireless it didn’t own from VOD.

AT&T Inc. (T) 

Another smaller position for me and in the telecommunications sector as well. I’m not a huge fan of this sector in general, which is why VZ and T are both smaller investments in my portfolio. And this is because there is little growth to be had in a saturated and competitive marketplace. However, I remain attracted to the sizable and stable dividend payouts that are currently well-covered. Current income goes a long way in that it allows me to reinvest more and more capital, thus rolling my snowball downhill at a more rapid pace.

T is one of those stocks that I find people either love or hate, almost like GE. And that’s because you have contrasting elements. You have a great yield, a fair valuation, and 30 years of dividend growth on one side. But on the other side you have limited prospects for growth, a service that people hate to pay big bucks for, and an extremely competitive marketplace. In addition, you have a number of mobile virtual network operators that have cropped up over the last few years offering service for much less. In addition, competition among the smaller players seems to be heating up, as Sprint Corporation (S) has recently announced some aggressive moves with its pricing strategy.

However, the service that T offers is ubiquitous. People can’t go on without their phones, especially if they’re mobile. And they also offer more than just telecommunications services, as they do have offerings in content delivery and broadband. Furthermore, they are potentially acquiring Directv (DTV) (another Buffett holding), which T feels will give them synergies, cost savings, bundling opportunities, and access to a healthy Latin American market.

I love the 5.31% yield with a 54.1% payout ratio, although the dividend payout against free cash flow is a bit high. But their debt load is manageable, especially compared to peers. In the end, you have a company that has a massive network that collects fees for people and other companies to use it, and the odds are quite strong that people and companies will continue to access it and pay the necessary fees. After all, those shiny new smartphones and tablets don’t just load the internet or make phone calls for free. And as people continue to access more and more data on the go, the fees they pay will grow and become a part of their everyday life. T looks fairly valued or better here, if they can slightly increase their dividend growth rate. The one issue I don’t like here is that low dividend growth rate – just 2.4% over the last five years – so I’m hoping T will give shareholders more than $0.04 annual raises at some point in the near future.

In conclusion, I feel all three of the above stocks offer a decent mix of value, growth, and yield in today’s market. They all have pretty solid prospects, though some look brighter than others. But what one company may lack in growth they offer in current dividend income, and vice versa. I wish I had enough capital to buy all three this coming month, but I highly doubt that will be the case. I also continue to watch Deere & Company (DE), as I continue to believe in the value there. But I might take a break from DE after buying shares in the company over the last two months.

Full Disclosure: Long GE, VZ, VOD, T, and DE.

How about you? Think these are good picks? What’s on your watch list for September? 

Thanks for reading.

Photo Credit: bplanet/FreeDigitalPhotos.net

Comments

  1. says

    Can’t fault you as all 3 of those are companies that I’m looking to add to as well. T and VZ seem pretty good right now but I’ll probably hold off a bit more on GE. Especially if I end up adding some more DE. I also wouldn’t mind adding a second insurer to the mix to go with my AFL position. I’m thinking CB but I need to check on the overlap of products.

    • says

      JC,

      Another insurer sounds like a great idea. If I invest in the financial sector any more it’ll most likely be an insurer. CB has an outstanding track record, so I can’t imagine you’d go wrong there. Plus, you’d be diversifying your insurance mix as CB is P&C.

      I agree that T and VZ seem pretty solid right now. Neither is a steal, and neither offers a fantastic growth profile. But both would boost the dividend income pretty nicely right away. :)

      Thanks for stopping by. Hope all is well with your family. Wishing you the best for your unborn son.

      Cheers!

    • says

      MCY has been on my watchlist for adding to the insurance space. Good fundamentals, solid dividend payer, and the forecast looks promising. I was looking for a $47 entry point, but missed that window with it’s recent bullish upsurge

  2. says

    Hi Jason,
    Interesting post. I’m looking in to increasing my stake in AT&T in september. I like their business and I find the dividend very reliable. In my mind they are still live and kicking and paying dividends twenty years from now.

    Best regards

    • says

      petrusko,

      Hard to say what will happen 20 years from now, and technological advances could create some type of obsolescence in AT&T’s (and Verizon’s) business model that we can’t foresee. However, I think T and VZ should be safe investments for the next decade and beyond. I’m glad both are diversifying into other businesses a bit and offer a nice mix of media delivery services. We’ll see how it goes!

      Take care.

  3. says

    The way I see it, timing the market is kinda pointless. When the market is high like now, people are worried about a crash; when market is low, people are worried that it’ll continue to go down. When is the right time to invest? The right time is really now.

    I received some VZ shares from the VOD transition as well, been thinking about adding to my VZ position as well. VZ and T both are in good positions, considering that people will always have cellphones and the data usage market is only going to go up moving forward.

    • says

      Tawcan,

      I agree completely. It’s about time in the market, not timing the market.

      Yeah, I think T and VZ are both positioned pretty well in a competitive market. It’s pretty much an oligopoly, and they’re the two juggernauts. I don’t suspect that will change, and so the dividends should be safe for quite a while.

      Appreciate you stopping by!

      Best regards.

  4. Keith says

    Jason,
    Interesting choices, I hold stock in all 3 companies and am not considering lowering my positions in any of them. I did, however, sell part of my stake in both TGT and AAPL today. I am taking money off of the table to free up cash in the event of a correction. You have a much longer time horizon, and are probably better off just continuing to invest every month.
    Good luck,
    Keith

    • says

      Keith,

      Nothing wrong with that, especially if you’re not particularly enamored with either the business models of either one or the current valuations. I’m not particularly ever interested in selling anything to raise cash; however, I’m always open to pruning positions if I think the future prospects aren’t that bright. I’m watching BBL right now. It’s a small position for me, and I’m not a fan of the recent move to list the spin-off on the Australian stock market. I’ll either just sell my shares in the new entity, or sell BBL before it happens. The most recent dividend increase wasn’t all that impressive anyhow.

      Thanks for sharing your recent moves. Hope the cash serves you well. :)

      Best wishes.

      • Keith says

        Jason,
        I don’t have time to wait for the market to rebound like you, so I’m trimming positions that either (a) have gotten bigger than I would like as a percent of my portfolio or (b) have gotten overpriced on a risk/reward basis based on my analysis. I also trimmed my position in KSS this week. AAPL is in the first category, while TGT and KSS the second category. Remember what Warren Buffett always says: buy when everyone is selling, and sell when everyone is buying. Right now, everyone is buying.

        I have been through 3 major corrections/bear markets so far, and another 1 or 2 are probable in my lifetime. Accumulating cash during a hot market and redeploying it when the market cools is generally a good strategy. Buy low, sell high mentality.

        Again, I agree that for someone in your position, accumulating shares every month is probably a better strategy. So, I agree/support/encourage you to continue. :)
        Keith

        • j-harr22 says

          Totally agree with your opinion about this market. I’ve built most of my positions in down markets. (BAC) currently 2.3% YOC. as well as GE. Looking for exceptional values and don’t mind holding excessive cash!!!! Great post.

          All the Best,

  5. says

    DM,

    I own and love all three of your choices. I also just noticed that MO raised its dividend from $.48 to $.52 today. This puts the yield close to 5%. I know it has run up quite a bit (what hasn’t) but it is back on my radar as well.

    MDP

    • says

      MDP,

      Yeah, I love that recent raise. MO just keeps on performing.

      I’m not interested in adding to any of my tobacco states, and would actually rather reduce them (on a weighting % basis) via buying stakes in other companies in unrelated sectors. But MO has been a fantastic investment for me. I honestly thought that PM would have done much better over the last couple of years, but MO has held its own and then some.

      Cheers!

  6. j-harr22 says

    DM,

    I currently own GE. I’ve been building positions in KMI,ARCP over the last few months. Both look like solid picks with great yield as well. What’s your thoughts on PFE, I think it could be ready for a break out, low PE good yield? trading near a 52w low. What about your BP position?

    Goodluck,

    • says

      j-harr22,

      I don’t actually follow PFE at all, so I probably can’t be of assistance. I prefer avoiding pharmaceutical companies for more diversified companies in the healthcare space, like JNJ, BAX, MDT, BDX, and ABT.

      There’s a lot to like about BP right now. However, the risk is pretty elevated with everything going on in Russia. And it’s not just the sanctions to worry about, but also the recent ruling over Yukos. Pretty interesting developments, but I’m not sure how that plays out with Rosneft.

      Happy shopping! :)

      Take care.

  7. says

    Everytime I read investment advice in the media I typically do the exact opposite. Afterall.. if the masses are all investing or withdrawing from one area.. that’s going to create great opportunities for people to do the other.

    I agree; optimism is defiantly the way forward and it’s been doing you well so far so why not keep it up? Great inspirational post again Jason!

    • says

      ERG,

      That’s an interesting way to do it. I don’t really follow trends one way or the other. I simply develop a plan that gets me to where I want to be. My whole strategy really relies on reverse engineering, and following a pretty strict path.

      Appreciate the support! Glad optimism is alive and well. :)

      Best regards.

  8. says

    Hey – all DJIA stocks :)
    All great stocks Jason. I own GE and T and will be looking to add VZ to add to my portfolio in the future – maybe next year. GE still sees some weakness from all the guessers and speculators which makes it a perfect time to load up. I wish I had more capital to invest – but subsequent additions will have to wait a bit.

    Happy investing
    R2R

    • says

      R2R,

      Yeah, I wonder where GE would be if there wasn’t so much vitriol around the company’s stock. I imagine at least a few bucks higher, maybe more. Interesting thought.

      I also wish I had more capital to continue loading up. So many stocks, so little capital. :)

      Cheers!

  9. says

    I have to agree with your VZ and T assessment. They seem like great companies that every individual and business relies upon yet hates to pay for. Like you I am not a fan of the telecom sector and do not own anything in the space. However, the yield really tempts me and both seem fairly priced at current levels. Dividend growth rates for both are on the low end which I’m not a fan of either. I have my ED for that. I know the current yield might be tempting but my choice is for GE. Have a great yield with better growth than the telecom though I’d like share price to drop a bit. It might between now and September. Thanks for sharing.

    • says

      DivHut,

      Thanks for the thoughts!

      I do like GE here. I really like all three, but for different reasons. They offer varying degrees of yield and growth, so you’ve got a nice blend across the board. We’ll see what happens over the coming weeks, and how much capital I have to work with. I’m hoping for enough capital to buy two stocks, but it might be tight.

      Best wishes.

  10. says

    I’ve held GE for a couple years and it has performed moderately well. I’m in no hurry to add more though. It will get my attention if it drops below $25. I do like T. It seems fairly valued and perhaps even slightly undervalued. T has been in our portfolio since 2011, occupies about 6% of NAV and 8.5% of dividend income.

    From an allocation perspective, I’m not attracted to T. However, I view it as something of a bond substitute, so I may just be adding a bit more before the end of the month. I need to make an August purchase. T might just fit the bill.

    • says

      Steve,

      T is a pretty big position for you over there. I’d also be in no hurry to add in that case. AT&T is about 1% of my portfolio, so I’m in a different position. Wouldn’t mind bringing that up to 2%.

      And I agree that T is something of a bond substitute. I hate to use that terminology because stocks and bonds are so different, but I think it’s a somewhat apt comparison in this low-rate environment. Of course, if rates rise and bonds become more attractive that might mean stocks like T are less attractive. And that goes back to whether or not high-yield stocks are attractive or not in a rising rate environment.

      Cheers!

      • says

        Jason:
        Yes, indeed. My current T allocation is rather hefty, making me less than anxious to buy more. I’m still thinking about it though. Any purchase I make is not likely to be very large. Gotta find something to buy for August and I’m going through my list of possibilities. The list seems pretty short, but I’ll keep looking.

  11. says

    Solid buy list as I own them all. Market timers are getting pretty scared to invest latley. Even Buffet is sittin on 15% cash right now. As long as there is some decent value why not jump in!

    • says

      AS, I’m waiting for the Jackson hole report this weekend from the KCfeds. If we can improving slowly or not at all, I expect the dow to reach 18,000 this december. If we are back on track and no more QE, I expect people to freak out and crash the stock market.

    • says

      A-G,

      Buffett usually sits on a pretty hefty chunk of change over there. Of course, with insurance operations he has to hold some cash.

      I think how much cash one holds really depends on their goals and their risk tolerance. If you can’t sleep well at night then you should probably have more cash sitting around.

      But market timing is a fool’s game. That’s been proven over and over again. I’d rather worry about business performance, not stock prices. :)

      Cheers!

  12. says

    2 communication companies and General Electric are solid companies for long term holds… People will always have a need for the products of those 3 companies.. Cellphones are owned by teenagers all the way up to people in the 70s… A family use to have one landline and almost everyone in the family has one these days…. People want access to information anytime and anywhere.

    I own 3 communication companies in my portfolio.

    • says

      IP,

      The big story is really data, and the access of it. You’ve got more people using tablets and smartphones that have access to tons of data. And the networks that supply that data are currently owned by the big boys for the most part (T and VZ). Plus, they have some media delivery assets, so there’s some diversification there.

      Thanks for stopping by!!

      Best wishes.

  13. says

    DM,

    I’m actually waiting for the next quarterly report. Sprint is already on a warpath launching salvos against VZ and TMUS. I have a feeling that VZ and T will both miss expectation by this price war. both will probably fall just like any other price war.

    Btw I am currently thinking of starting a position in JNJ, KMB, or MO but can’t decide on which. I can only invest 550 dollars for the rest of this month. all three are trading at a premium, but which one do you think would be the best long term value? Thanks.

    • says

      Broke,

      I’m actually not all that concerned about the “price war”. From what I can see, there’s always a price war of some sort going on in the telecom industry. And the small guy usually loses these battles. Could cause some short-term fluctuations, however. But I’m really after 10-20 years of performance, of which a S price war would provide just a blip.

      Between those three companies I would go with JNJ. All have similar valuations, but I think JNJ’s prospects are brightest. Just my take on it. :)

      Happy shopping!

      Cheers.

  14. says

    Like the options here, and GE is my favorite of the group. After that I would look at Deere since they are still a company I see some value in at this point. The telecom industry in general is going to undergo significant changes as new revenue models will develop given the number of smaller companies “leasing” bandwidth and as phones develop the ability to transition from Wi-Fi to traditional signals (a la Republic Wireless) en mass. Still they are likely to be solid, cash generating machines, but not something I’m ready to jump into just yet.

    • says

      W2R,

      Yeah, DE still seems to be a pretty decent value here. I mentioned at the bottom of the post that I’m still interested in accumulating shares. But I’m just not sure I’m going to buy shares for the third month in a row. Might take a break and look elsewhere. I never intended for DE to be a very large position anyhow. But it is a great company with a lot to like.

      I hear you on the changes in telecom. The MVNOs come with benefits and drawbacks. You have the revenue source because they’re paying for bulk access, but you have the potential loss of customers. I remember the big boys used to fight these guys tooth and nail, but they’ve seemed to back off a bit since then.

      Looking forward to seeing what you might have been busy buying!

      Take care.

  15. says

    I find GE to be the most interesting for my personal portfolio. Currently T is a pretty large holding for me so I doubt I’d add more at the moment unless it goes ‘on sale’. As you say I only wish the dividend growth was a bit higher. Speaking of dividend growth Altria (MO) just announced another generous 8.3% dividend raise. Gotta love that.

    I don’t really have anything in mind for my next buy but Yum Brands (YUM) kinda caught my eye. it’s ‘on sale’ now after the recent china chicken scare, but I think that’s just short term. It has a 1.8% yield but has great dividend growth of 10%.

    Cheers,
    CD

    • says

      Captain,

      Love that dividend raise from MO. Especially considering the yield is already quite attractive. I didn’t think MO was going to perform so strongly, but it has definitely surprised me to the upside. :)

      YUM has been a great stock. I’m not sure I’m a big fan of restaurants in general, but they’ve got some great exposure to China there. And I understand KFC is very popular over there.

      Have fun deciding on your next purchase!

      Best wishes.

  16. says

    Jason,
    Disregarding naysayers and doomsayers and investing as we speak. Interesting choice for telecoms, I believe that telecom sector should only continue to grow bigger and bigger. Verizon and AT&T seem to be solid companies(but that might be me being bias as i hold the Canadian big 3 telecoms rogers, bell, and telus under my belt), and coincidentally I’ve been eyeing GE myself. Thanks for sharing

    Ace

    • says

      Ace,

      I understand the big telecoms up in Canada operate much in the same way as ours, as you guys have an oligopoly going on. Gotta love the yield on many of those stocks, but the growth leaves a little to be desired.

      GE seems pretty solid here. I can’t find much to dislike. And I’m anxious to see how the buybacks look after the 80% of SYF is unloaded.

      Cheers!

      Thanks for stopping by!

  17. says

    DM,
    VZ is one of my largest holdings. I’ve held it for more than 10 years and it’s been a great dividend payer. Now that the wireless deal is figured out, they should create even more cash. We should see a modest increase here soon. Because it’s a big holding, I’ve shied away from T. But perhaps not for long. As for GE, I got out of it before the dividend cut so I didn’t feel the pain. I put more of my money into EMR back then and still prefer it because of the strong balance sheet and reliable dividend increases. But they are different animals.

    As for the market, I’m also putting cash to work, but holding back somewhat for small pullback. That way I am making new investments every month (big lots and drips), but have dry powder in case better values emerge, or a great opportunity like another property or bigger market dip.
    -RBD

    • says

      RBD,

      Nice holding period there. Many say they are buy-and-hold investors, but you are living and breathing it. :)

      EMR is another great company in GE’s space, but they have a very different asset mix. I’m a shareholder in EMR as well.

      I like your strategy there. I’ve been doing something somewhat similar, though I don’t have a ton of cash on the sidelines. I’m actually holding a little more cash than usual only because this transition to writing is fraught with risk. But so far, so good!

      Thanks for all the support. And I appreciate you stopping by. I hope we both get that dip; cheaper stocks are always most welcome.

      Best wishes.

  18. says

    Hey Jason,

    Looks like some solid options here! I bit the bullet and purchases some AT&T… even with low growth, it is still very hard to beat that current yield. I like the look of VZ and GE as well. I will be in the market again soon whenever the ROTH IRA rollover is done, I just don’t know when that will be yet.

    Keep that dividend income rolling!

    • says

      Kipp,

      Nice buy there. I may be joining you over the coming month with some additional T shares. We’ll see how much capital I have and what Mr. Market presents me. Always look forward to some additional shares. :)

      You keep that income rolling too!!

      Take care.

  19. says

    So many nice shares on the market and so few $ in the wallet :o Very frustrating :p. In my case there’s probably not going to be any September stock purchase at all. However for what it’s worth I already have GE, T & VZ in the portfolio. So far I’m happy and wouldn’t mind owning more of them. Might very well buy some new ones when I manage to get cash next time. Though I still need to diversify so I’m more likely to look at other stocks. For example I still have neither Baxter nor Medtronic in the portfolio.

    • says

      Felix,

      I hear you. I’m always in a situation of not enough cash for all of my stock ideas. Which is funny. I couldn’t imagine being someone who holds $20k or something on the sidelines. I just always have ideas for that capital. And I want to keep the snowball rolling. :)

      BAX and MDT are both great companies. Although, I’m not a big fan of this inversion that MDT is doing. I’m going to have a taxable sale now. First world problems!

      Best regards.

  20. says

    Hi Jason,

    I just bought some VZ yesterday… and I love it when dividend guru bloggers like yourself are also showing an interest in something I just bought :)
    Also thinking of adding a bit on T at some point next month.
    I really have to start blog posting more on my purchases, I am really behind on my blog… oh well, at least the portfolio and dividend sections is almost up-to-date!

    • says

      Fab,

      Nice buy there with VZ. The only thing I really don’t like about VZ is the debt load. But they’ve got a great network, and I like their diversification into content delivery and broadband. The yield is very attractive and I’m expecting a dividend raise in a few weeks. Good stuff! :)

      That’s a great looking portfolio you have there. And I see you’ve been very busy over the last six months. Keep it up!!

      Take care.

  21. says

    Yup, definitely agree with just buying when you can. If its a good company and you did your research/due diligence than you ought to be fine in the long run. And so long as the dividend is good and steadily rising then it should be no problem to hold on to it and let the money filter in :)

    • says

      Dividend Wisp,

      Definitely. If my dividend income is rising month after month, then I know I’m closer and closer to financial independence. And that’s ultimately what matters the most to me.

      Now, cheaper stocks come with a higher yield, and can make the journey faster. But stock prices are out of my control. I choose to focus on what I can control. :)

      Cheers!

  22. presone says

    My wife will be rolling over her 401k to an IRA, so I am preparing a shopping list. On the last dip I added to UNP, CSX, GE, and UTX. You might want to check out UTX- a little lower yield, but good growth, and not totally overvalued. I think GE is still a great value here, and I sold some puts on VZ recently as well, and would be perfectly happy if I get assigned. Have you looked at selling calls and puts on stocks like T and VZ? It really helps me supercharge my income, and since the prices do not move all that much I usually do not get assigned. If I do I just sell a call and wait to collect the dividend at the same time.

    • says

      presone,

      Those are great names there. And I’m a particular fan of railroads. I just have NSC right now, but would love to add UNP at some point. And I just recently analyzed CSX; it looks to be attractive here. However, the track is similar to NSC, so I’d probably diversify with UNP for access to the western US.

      UTX is a great pick as well. I may end up owning a chunk of the company at one point. I love industrial companies, and I have a few already. But they’re really the backbone of everything we do.

      Keep up the great work over there!!

      Cheers.

  23. says

    If GE is undervalued, isn’t that a good thing for investors? Just curious as to why you are waiting more time and “watching” it for September as opposed to buying in right now?

    Great blog, really helping me out

    • says

      charlesrumeo,

      Thanks for the readership!

      Capital is always limited. Just because a stock is undervalued doesn’t mean I have thousands of dollars on hand to rush out and buy it. I make monthly purchases as capital becomes available, and I like to have a shopping list ready for when capital hits my account. That way I’m ready to strike.

      Cheers!

    • says

      Chad,

      Nice list there. I think those are all very solid picks. DE is attractive here, and I might just make it three months in a row for that one. I think KMI still has some value with the dividend projections, but it’s already a very large position for me. IBM looks cheap.

      Have fun shopping!! :)

      Best wishes.

  24. Zol says

    Perfect article for investing steadily as money becomes available (what i’m doing currently). Hypothetical, lets say a decent sized lump sum became available in the near future that was previously locked up. Emergency fund for this person is sound, they have a budding DGI portfolio and debts are minimal. What would one do?

    I thought of 3 options:

    1) Continue dollar cost averaging in but at a higher rate until the cash pile is depleted
    2) Continue dollar cost averaging in at current rate and save some money for the maybe-who-knows-when-pullback
    3) Continue dollar cost averaging in at current rate and just invest the cash pile into whats best at the time (building up other positions in the future)

    I would have gut reaction rejected #3 based on somewhat frothy markets. Except for a few articles in the same vein seem to indicate otherwise when I started digging (such as this one https://pressroom.vanguard.com/content/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf). But i can’t find many good articles outside of that one analyzing the problem.

    For now, i told this person to do more research and don’t be hasty =P

    • Zol says

      PS: Not me, just my friend who inherited a small house from 97 year old grandma. Follows DGI approach but isn’t nearly as avid at reading PF blogs / doing due diligence. Asked me for advice and realized i was at a loss and told him as much. I have a much smaller amount (but same fundamental problem) coming up.

      • says

        Zol,

        I personally would follow strategy #1. That would allow me to DCA at a rapid pace, but cash would be also on the side just in case a major correction hits.

        However, the research I’ve come across suggests you’re better off just investing it all in one shot. I think one’s strategy really depends a lot on their risk tolerance, time horizon, and psychological makeup. Some of us can plop $100k into the market all in one swoop. Some cannot. I’d prefer to DCA the money in simply because that’s what I’m used to and comfortable with.

        Although, this is really just a first world problem. Trying to eke out an extra percentage return out of a large sum of money is a good problem to have. :)

        Best regards.

  25. says

    Hi DM,

    I have held AT&T (T) for some time, I do like the current yield, but like you, I am not thrilled with the dividend growth. I hold Consolidated Edison as well and it shows the same high yield, but low growth prospects that T is showing.

    However T has a share repurchase plan in 2014 to purchase up to 300 million shares (…that is number of shares, not dollars….)
    T repurchased 175 million shares in 2013 (….they could have bought back a max of 300 million, but market conditions were not favourable)
    Since 2012 T has repurchased 775 million outstanding shares or roughly 13%.
    If you combine these repurchases with the meager dividend growth, overall shareholder value has been increased more than just the small dividend growth.

    It should be noted, that the share buyback is not guaranteed, T does not have to buyback a single share if they don’t want to.
    My belief is they will wait until they are fairly certain Direct TV can happen and repurchase the bulk of the shares before the price jumps with the acquisition.

    Link to AT&T share repurchase news
    http://about.att.com/story/att_approves_new_300_million_share_repurchase_authorization.html

    • says

      Duane,

      That’s a great point there. I didn’t get into buybacks in this article for purposes of trying to be concise, but share buybacks are certainly an attractive aspect of T, along with many other businesses. I much prefer more capital going to dividends than buybacks, but I certainly see the benefit of reducing the float. Buybacks are part of shareholder return, though sometimes that doesn’t really materialize. But buybacks are another reason I prefer cheap stocks; it allows both me and the business to buy shares at more advantageous prices. :)

      Thanks for stopping by!

      Cheers.

  26. CC says

    DM, I have just started dividend stocks investing earlier this month with positions in DE and BP. I’ve just stumbled onto your site (which is very informative btw). It is a coincidence that I have my eyes on T and VZ. At the moment, I am waiting for these two to go slightly lower though. The yields are attractive, and being #1 and #2 operators in the US are definitely good points.
    Thanks
    CC

    • says

      CC,

      Glad you came across my humble spot on the internet. :)

      DE and BP are great buys right now, in my opinion. Though, BP certainly has a more aggressive risk/reward profile.

      T and VZ seem like no-brainers right now. Great yield, secure payouts, and entrenched positions in telecommunications and media delivery. VZ has more debt and lower yield, but arguably offers the better growth potential. So there’s an interesting mix of possibilities here.

      Thanks for stopping by. Stay in touch!

      Best regards.

  27. says

    DM,

    I’m definitely itching for a little VZ. I think VZ is a great company and has better growth possibilities over T. Nothing against T, especially those needing income, but VZ to me seems to be positioned well for the future.

    DE is probably going to drop at least another 5% in my opinion based upon layoffs and insight from them today (8/22/14) on low revenues. It might be a better buy next month or the month after! I love the stock and the company long term, but I think there will be a much better entry point soon.

    GE is another great stock. Institutions seem to love it right now. Maybe that is the purchase this month?

    If I had some extra capital in my taxable accounts, I would be pondering a VZ vs. GE purchase. I’ll be interested to see what you end up choosing!

    Happy investing!

    Andy

    • says

      andyschabo,

      I definitely wouldn’t mind more DE if we see it near $80. I’ll probably take a break from DE this month, but I’m not against buying more if we see it near that level or so.

      I hear you on VZ. It’s arguably the better business with better growth potential. Of course, it offers a lower yield and much more debt. So there are trade-offs. No free lunch. :)

      GE seems pretty solid right now. Attractive yield, attractive valuation, and I expect the dividend to continue growing as the business reshapes itself. They seem to be making a lot of great moves that I mostly agree with. GE is at the top of my watch list right now, but the telecoms are also interesting. Perhaps GE and VZ if I have enough capital. We’ll see.

      Thanks for stopping by! Happy investing to you too.

      Take care.

  28. says

    Hi DM,

    These companies have been on my rader as well. In fact started a position in T not too long ago. Since I am still in the building phase of my portfolio, I won’t be adding to either T or start a position in VZ as it would give telecom a too large presence in my portfolio. But GE and also your recent buy DE are on the top of my watch list for September, and definitely deserve some further investigation on my side!

    Best,

    DW

    • says

      DW,

      Thanks for stopping by!

      I definitely hope you give GE and/or DE a good look to see if either or both fits in your portfolio. They both appear to be solid companies to me, but I can also see how others may invest elsewhere.

      Happy shopping for September. :)

      Best regards.

  29. says

    Great post. I appreciate the insight about the 3 companies but I think you especially hit it on the head with your intro. The economy continues to grow and that’s been the trend for a while now. There’s no reason to assume the S&P will decrease over time, and if it does we will have a lot bigger problems in this country. Ignoring the noise is hard but is essential to reach your investment goals.

    • says

      Syed,

      Thanks!

      I agree. It’s tough to ignore the noise in the present, especially when things are happening in real time. And following the crowd and buying/selling based off of noise is a pitfall that consumes people. I’m not saying I’m somehow immune to it myself, but I simply try to keep a long-term perspective. And when you look at the stock market going back decades you can see how “major corrections” are now just blips on our screen. I keep that in mind when everyone else is going crazy.

      Best wishes!

  30. says

    Nice watchlist Jason. I think I like GE the most of the stocks you mentioned, just because of the higher dividend growth potential. Can’t go wrong with any of the 3 though. I loaded up on T last year so I think I’m set for a while with telecoms. Like a few others mentioned, DE is still a pretty good value here as well. Shares have dropped a bit since my recent purchase and I’m debating on buying more. I’m leaning towards buying Visa again in September if shares stay around the $215 mark.

    Hope things are going well man.

    -SFZ

    • says

      SFZ,

      Thanks for dropping by!

      I’m with you. GE and DE both seem like pretty solid companies from the metrics and fundamentals. GE still has a lot to prove, but I really believe they’re making some great moves to right the ship and put themselves on track for long-term success.

      V is another fantastic company. I don’t want to load up on it too much because I’m a little out of my comfort zone on that one with the low yield, but I do like having a little exposure to the potential.

      Things are going pretty well over here. I hope the same for you and your journey!

      Best regards.

    • says

      GMS,

      Exactly. Averaging into the market month in and month out means you’re naturally going to catch stocks at both highs and lows. But if you pay more attention to business performance and less to stock performance you’ll notice the stock market gyrations a lot less.

      Cheers!

  31. says

    Interesting. I was recently looking to purchase US stock and I look at five companies: PG, GE, T, VZ and UTX. Three of yours were on my list. I finally move on PG and VZ, keeping an eye on UTC and GE hopping to see the market giving me a break.

    • says

      Hemgi,

      That’s a great list there. All are really fantastic companies. UTX is a great industrial company, with a great track record of success. Would love to be a shareholder at some point here. :)

      Glad to have you as a fellow shareholder in some of these companies. Keep up the great work!

      Cheers.

  32. says

    Hi DM,

    Thanks for the sharing. I’m holding GE & T. Don’t think I’ll add VZ at the moment as it will make my portfolio too much on telecom sector. DE is one of my them in my watch list.

    • says

      David,

      Good call there on telecom. I wouldn’t want my portfolio to be too strongly exposed to telecom either. My overall exposure to the sector is about 4% right now, so I think I can move that up a percentage point or so. But I definitely wouldn’t want to go over the ~5% range long-term. I just fear the lack of growth and strong competition.

      Cheers!

  33. says

    Hi Jason

    Once again, great post, and good outline analysis of the companies.

    I would love to buy shares in US companies and then DRIP, but haven’t yet found a way to do this cost effectively. I may look at buying a single share in KO from one of the share fifth sites (One share, FrameaStock etc) and then register with computershare and see if this creates an account that I can use to invest.

    Best Wishes for your writing
    FI UK

    • says

      FI UK,

      Hmm, I wish I knew more about your brokerage system over there in the UK. That’s unfortunate you can’t cost-effectively purchase shares in US companies. I suppose we’re lucky here in the US with firsthand access to some of these companies, and the ability to buy shares in foreign companies that trade on our exchanges (through ADRs) quite easily and cheaply. That’s a shame that this isn’t more widespread throughout the world.

      The good news, however, is that you have firsthand access to a number of great companies over on your side of the world. BP, Shell, Unilever, Vodafone, etc. Those are all pretty solid companies one can invest in.

      Best of luck trying to find a solution that works for you!

      Take care.

  34. says

    DM,

    I nominated you for the Liebster even though you are not a new blogger. Just didn’t want you to feel left out, but if don’t have time that’s fine too. Anyway those are all good picks today for some dividend income. Do you plan to go to FinCon next year? I finally got an article published outside of my blog, but now have to write an autobiography and make a bunch of social media sites.

    • says

      SWAN,

      Thanks for the nomination! I’ll have to head over and answer the questions. :)

      Congrats on publishing some of your writing elsewhere. That’s fantastic! Keep it up.

      I’m not sure when I’ll be able to make it to FinCon. I’d truly LOVE to go, but it’s hard for me to justify the cost and everything. I could look at it as an investment, but it’s still a lot of money. This year was impossible with the move back to Michigan and everything else, but I’ll have to see how things go next year.

      I hope you’re able to make it, though. Seems like a great time and a great way to meet like-minded people.

      Cheers!

  35. Reepekg says

    You keep saying you think DE is good value, but I’d like to hear why. Personally, I think you’re way off. Agricultural equipment has been going through an up cycle for the past few years. Since 2010, Case New Holland has sold enough machines to harvest 3x the total annual US crop production by themselves. A downturn is inevitable with the market saturated and the entire industry is planning ahead to scale back. The layoffs at DE are just the first signs.

    Hold off from ag for 2-3 years and then pick up DE and CNHi on sale.

    • says

      Reepekg,

      Well, I’ve made my case with my last couple of posts on DE. But not everyone will agree with that assessment, which is fine. That’s why it’s a market; there is always a buyer and a seller. :)

      For me, I’m a long-term dividend growth investor. I’m not really particularly worried about business cycles. If DE is a bigger, better company 10-20 years from now and payout a proportionately bigger dividend to me then I’m a happy investor. I noted that the forecasts are for a drop in earnings over the next 2-3 years for the next cycle, which will likely result in a P/E ratio expansion, price compression, or both. But who’s really to say how bad it will be or how DE’s sales will hold up. I know the metrics look favorable and the dividend is safe even if earnings are cut in half (which I don’t expect). Furthermore, I don’t plan on DE being a large position for me.

      Best wishes!

  36. Spoonman says

    That’s a fine list of companies. I own both T and VZ and I’ve been a very happy owner for years. One thing that I love about both of those companies is they are, well, -famous-. You can see their ads on a TV and other places, they are in many people’s minds. If something is awry with either company it’ll be easy to know because many people are watching it.

    We had lots of fun in Florida, the beaches were great!

    • says

      Spoonman,

      Glad to hear you had a great time! Florida will always hold a special place in my heart. :)

      I hear you on T and VZ. Their market share is enviable, though I still think it’s a bit more competitive than I’d like to see. You have to wonder if phone plans will be higher or lower 10 or 20 years from now, which begs to wonder about revenue for these companies. Phone plans, cable, and broadband are all things people hate to pay for, but they are also services that people require. So it’s an interesting dynamic.

      Thanks for stopping by!

      Cheers.

  37. Dave says

    Hi Jason. I’ve been following your blog for the past couple months as I’m new to dividend investing. Thanks for all the info. I have only made 3 purchases thus far and have bought mostly value and growth stocks. I’m having a hard time in deciding the appropriate way to move forward building my portfolio. Do I continue to buy stocks that seem to have more value and growth or do I start building my core knowing that I will be paying close to or above fair market value? Buying for value seems great for you and most other dividend bloggers who already have a strong core holdings, but for someone just starting out it seems like I should be focusing on my core. Any opinion or thoughts would be great!

    Thanks, Dave

    • says

      Dave,

      Congrats on starting your portfolio and journey. That’s a very exciting time!!! :)

      As far as your question goes, I don’t really build a “core”. I actually accidentally ended up with some mismatched positions where certain companies (JNJ, PM, KMI) are big positions. And that was exactly because I thought the value was incredibly strong at the time of purchase, especially considering the quality fundamentals of the respective businesses.

      As far as value and growth, I don’t buy stocks that I don’t feel have value. And I don’t buy stocks that I don’t think will grow. I buy equity in companies because I think they will be outstanding investments and pay me rising dividends for the next 10, 20, or 30 years.

      I would build my portfolio today the same way I did in 2010. I would buy equity in companies that have lengthy histories of rising dividends and profitability, strong fundamentals, excellent qualitative aspects, and a high likelihood of paying out rising dividends on the back of rising profits for the next decade and beyond. And I would only buy these shares of equity at appropriate values – fair or better.

      I wrote about what I would do in your spot here:

      http://www.dividendmantra.com/2014/05/if-i-were-starting-all-over-again/

      Best of luck. :)

      Take care.

      • Dave says

        Thanks. I agree about the value part of it. It’s exciting and can be overwhelming at times trying to decide what to buy next. I feel like there are so many options. I just have to remember that over time I will continue to add.Thanks again and I’ll be back soon.

    • says

      Good question about where to start. The way I started my portfolio was looking at the dividend aristocrat list and start small positions in a few companies to diversify. I bought consumer staples, industrial, health and financial to start. From there I added new positions over the years till I built out my current portfolio. There are always values in the market on any given day no matter if we are in a recession or the market is at all time highs. Just know where to look and have a long term perspective measured in decades not years.

  38. Justin says

    Every morning I check my watch list to see what to buy this month, and every day the entire list is all green and I close it in irritation. Values are getting very hard to come by. About to start a position in JNJ or XOM just to get it out of the way.

    • says

      Justin,

      I hear you. It’s hard to buy when everything keeps going up, up, up.

      But remember to keep a long-term perspective. Thirty years from now, you’ll look back and WISH you could buy more JNJ at ~$100. I’m not saying stocks aren’t pricey right now as a group, but those with a long-term time horizon really have little to worry about.

      Cheers!

  39. Alex says

    What do you think about ROE of GE of only 10%? I see Sales past 5y of -4.30% and EPS of the last 5y at -3.80% too? There are 3 of my required indicators to add the stock in my watcklist.

    Is GE already a good investiment in your opinion?
    Thanks

    • says

      Alex,

      Their growth has been negative over the last few years because they’ve been shrinking the company. The already unloaded significant media assets, and they’re currently in the process of spinning off substantial financial assets. Furthermore, they’re in talks to potentially sell off the appliances business.

      I’m a shareholder. But GE’s worthiness as an investment will largely depend on whether you think their future plans are going to pan out or not. Will the move to focus on core industrial businesses be a good move? Do you think infrastructure, transportation, and energy markets will grow like GE predicts? Will they be a leader in these areas?

      I think their future will be far brighter than their recent past, but, like every investment, there’s an element of risk and betting there.

      Best of luck!

      Cheers.

  40. walletengineers says

    I’m definitely glad you blaze your own trail and do not blindly follow Berkshire. Buffett doesn’t often pay “face value” for stocks. It’s a good indication of what companies he likes, but it doesn’t tell us at what price he likes them or finds them financially appealing.

    Thanks,
    WE#1

    • says

      WE#1,

      Yeah, hard to say exactly what he paid for VZ. In addition, Berkshire’s portfolio these days seems to be less about beating the market and more about capital preservation by way of investing in great companies. I suppose that’s Buffett remembering his two biggest rules (don’t lose money).

      Of course, there’s a lot to be said for reducing risk when and where possible…which is the same way I invest! :)

      Take care.

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