The October Dividend Watchlist consisted of the following dividend growth companies: Wal-Mart (NYSE:WMT), Target (NYSE: TGT), Exxon Mobil (NYSE:XOM), and Coca-cola (NYSE: KO). They are still at good value according to Morningstar.com although they have gone up a little in price since last month.
For this month, I came up with these dividend payers.
- McDonald’s (NYSE:MCD) – $97.41
- Microsoft (NASDAQ: MSFT) – $36.64
- International Business Machines (NYSE:IBM) – $177.85
- Baxter International (NYSE: BAX) – $65.13
McDonald’s has over 34,000 restaurants around the globe in 118 countries. McDonald’s serves 69 million people everyday! It currently pays a yield of 3.3% which is slightly higher than its 5-yr average yield of 3.2%. Further more, Morningstar gives it 4-stars, meaning the shares are currently undervalued. I usually try to get some McDonald’s close to the 3.5% yield.
Although Microsoft had a recent run-up in price, its yield of 3.06% is still much higher than its 5-year average yield of 2.4%. This is partly due to its impressive dividend growth in recent years. Its 3-yr dividend growth is 21% while its 5-yr dividend growth is 16%. That said, its dividend payout ratio is still only at 34%, so there’s still room to grow that dividend. Though, we’ll have to wait a year because Microsoft already recently increased its dividend from $0.23 per share to $0.28 per share. The dividend is paid out quarterly. Any pullback in Microsoft can be seen as an opportunity to scoop up some shares.
International Business Machines
IBM pays a lower dividend of 2.1%. Some investors have been staying away from IBM because of its lagging revenue growth. However, it is still generating free cash flow. It is using some of that to perform share buybacks. As a result, its earnings per share continues to grow as the number of outstanding share reduces. This should translate to continue dividend growth and steady price appreciation. Morningstar marks IBM with 4-stars indicating its shares are undervalued. At the end of the day, it depends if you feel comfortable holding its shares. If you don’t, simply don’t buy. 🙂
Baxter is now at 3% yield. It hasn’t hit that mark for the last decade. That said, it has in the past some scary downward price action that spanned multiple months (Jan. 31, 2002 – Sept. 30, 2002 and again from Jun. 30, 2008 – Mar. 31, 2009)*. Both times were due to overvaluation, and especially so for the former case. The latter case was probably affected by the recession at the time as well. Morningstar indicates the shares are undervalued now. However, due to historical price action, it may not be for the faint of heart.
* eyed the time period from F.A.S.T. graphs
Valuation, Upside, and Technicals
These are just some quick numbers I bring up from Morningstar. The technical comment is just my quick opinion after I look at the Finviz charts. In other words, this is a quick and dirty analysis. Remember to perform your own due diligence before investing.
|Ticker||* Price||* Yield||Morningstar stars||Morningstar Fair Value Estimate||Upside to Fair Value||Finviz Technicals|
|MCD||$97.41||3.33%||4||$105||7.8%||For the past few days, it is trying to break to the upside of the 200 SMA. Otherwise, it’s in the middle of a wide-ranged downward channel between ~$92 and $100.|
|MSFT||$36.64||3.06%||3||$38||3.7%||Upward price action from a sideways channel|
|IBM||$177.85||2.14%||4||$208||17%||Remains in a downward channel|
|BAX||$65.13||3.01%||4||$80||22.8%||In a wide downward channel between $62 and $72|
* Closing Prices & Yields of November 5, 2013.
From my latest article on Seeking Alpha, I wrote about Why Building A Cash Position For My Dividend Income Portfolio Makes Sense. I bought a small position in BAX this past week partly because I want to have some Healthcare sector exposure. I’m still building my cash position at a slow pace.
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Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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