High Dividend Stocks Priced at a Value: February 2015 Watchlist

When I say “high dividends”, I mean companies which are paying 1.8x (or 80%) more dividends than the index. For example, SPDR S&P 500 ETF Trust (NYSEARCA:SPY)’s Friday closing yield is 1.83%. So, a company paying out a high dividend would be one that pays at least a yield of 3.3%. Likewise, on the Canada side, iShares S&P/TSX 60 Index Fund (TSE:XIU) had a yield of 1.93%. So, a Canadian company paying out a high dividend must pay at least a 3.48% yield.

For February, I identified some high dividend/distribution companies in the US and a Canadian retail REIT that I’ve added to this month. Canadians can consider getting monthly income from this Canadian REIT.

High Dividend US Companies

This list shows the current yields, and I believe are good starting yields (with respective to the company’s historical yields) to start buying into these companies if you believe in the future of these companies.

  • AbbVie (NYSE:ABBV) – yield: 3.38%
  • Philip Morris International (NYSE:PM) – yield: 4.83%
  • Chevron (NYSE:CVX) – yield: 3.79%

Chevron was in the last watchlist: Dividend Stocks at a Value: January 2015 Watchlist. Since that article, Chevron’s yield has drop due to price rising a few dollars. Long-term income investors shouldn’t sweat the small changes in price though, as Chevron is still attractive at a yield of 3.79%.

AbbVie

AbbVie logo

AbbVie is a global biopharmaceutical company hardquartered in Illinois. It was spun off from Abbott in January 2013. It has around 25,000 employees and 7 research & development and manufacturing facilities around the world. AbbVie’s focus is on immunology and virology diseases. Currently, Humira, AbbVie’s top drug, makes more than 50% of the company’s profits. Fundamentally, both Morningstar and F.A.S.T. Graphs show it is priced in the fair value range. Technically, it is bouncing off of a recent bottom. Currently marked as in the fair value range by Morningstar, AbbVie is certainly worth considering on a pullback.

Philip Morris International

Philip Morris logo

Philip Morris is a leading global tobacco company, owning 7 of the world’s top 15 international brands, including Marlboro. Philip Morris holds 28% of the global market, excluding China. Other than to provide products to adult smokers, and to generate superior returns for shareholders, Philip Morris also has the goal of reducing harm caused by smoking by developing products which are close in look, feel, and taste to the conventional cigarettes but seem to be less harmful.

Chevron

Chevron logo

Last month, I already included Chevron in the watchlist. Chevron has raised dividends for 27 years in a row, and Chevron should be increasing its dividend in Q2 of 2015 even amidst low oil prices. Additionally, Morningstar gives it 4-stars, meaning the shares are currently undervalued. Some of Chevron’s peers are also rated 4-stars by Morningstar. They include:

  • Exxon Mobil (NYSE:XOM) – yield: 2.96%
  • BP (NYSE:BP) – yield: 5.72%
  • Total SA (NYSE:TOT) – yield: 5.62%

Get Canadian Monthly Income from Plaza Retail REIT

plaza-retail-logo

In 2013, Plaza Retail REIT acquired KEYreit, and converted to the REIT structure. You can also check out what Plaza has done in 2014.

I like Plaza Retail for multiple reasons:

  • It has been paying a growing distribution since 2002.
  • It pays a monthly distribution, which can be easily used to pay the bills or to be reinvested in.
  • It is currently undervalued. As shown by the F.A.S.T. graph below, the upside could be 17% from current levels.
  • Unitholders can reinvest Plaza Retail’s distributions at a 3% discount. (See other companies you can reinvest dividends or distributions at a discount.)

Plaza Retail REIT FAST Graph

If you’re a Canadian investor, and you decide Plaza is a right fit in your portfolio, you can consider buying it in the Tax Free Savings Account (TFSA) or the RRSP to save hassle on dealing with the tax on its distributions. Beware that investing in real estate investment trusts for income is different from investing in dividend stocks.

I see 2 ways of playing this:

  1. Buy some units to get the 5.9% yield monthly income immediately
  2. Buy some units and start reinvesting the distributions at a 3% discount

All investments have risks. Here are some risk factors for Plaza Retail:

  • The Canadian REIT sector is valued generally high.
  • Any interest rate hike will probably lead to (temporary) drop in price for stocks and eREITs, at which time there maybe a better entry price.
  • Plaza Retail earns about 24% of its revenues from Shoppers Drug Mart. One could view that as risky or rock solid depending on one’s views on Shoppers.
  • Plaza Retail is a small cap company of $391M. Thus, it is less liquid, and maybe more difficult to buy or sell at the prices you want. So, make sure to set the limit price if you decide to buy or sell, and set it for a long period of time.

Valuation, Upside, and Technicals

From Morningstar, I brought up some quick numbers. Please note that fair value estimations changes as fundamentals change, so use the percentages as a guide only. The technical comment is 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, and determine whether a stock fits well into your portfolio.

Ticker *Price *Yield M* stars M* FV Est. Margin of Safety Upside Potential Technicals
ABBV $58.05 3.38% 3 $61 4.8% 5% Bouncing off from channel bottom
PM $82.87 4.83% 4 $90 7.9% 8.6% Looks like it could head closer to $81 in the near term
CVX $112.78 3.79% 4 $124 9% 9.9% Broke out of the downtrend!
TSX:PLZ.UN $4.23 5.91% 1$4.95 14.5% 17%
  • * Closing Prices & Yields of February 15, 2015.
  • M* = Morningstar
  • Margin of Safety = Margin of Safety from Fair Value Estimate (FV Est.)
  • Margin of Safety = (FV Est. – Price) / FV Est.
  • Upside Potential = Upside Potential to FV Est.
  • Technicals from Finviz
  • 1Fair Value estimation by end of 2015 in F.A.S.T Graphs

My Opinion

Currently, the USD is too high against the CAD. My online brokerage, Scotiabank, charges me $1.265 CAD for every $1USD. As a result, I’m reluctant to perform any forex from CAD to USD unless there’s a super duper undervalued company on the US exchanges. Additionally, there are some good valued oil companies in Canada in addition to the Canadian REIT that I mentioned. That said, in the near term, the oil prices could remain volatile. Be careful out there!

Resources

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Disclosure: At the time of writing, I am long BP, CVX, TSX:PLZ.UN, and XOM.

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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