After not investing any new capital in May for a variety of reasons, I’ve now built up a decent little stash of cash ready to be deployed into quality dividend growth stocks that will provide me with a reliable source of passive income going forward.
So what to buy? Looking over my watch list, I struggled to come up with any ideas for a while. Seems like the majority of them are overvalued. Can we please just have a market correction already? 😉
But I figured I’d find some candidates eventually and after going through my list again and looking at other blogs and investing sites, this is what I came up with.
J. M. Smucker Company (SJM)-This dividend contender with 16 years of dividend growth was founded in 1897 and operates in the consumer staples sector. Although a name like Smucker makes you think of grape jelly, the J.M. Smucker Company’s largest business segment is in the brew at home coffee industry which was bolstered by their acquisition of the Folger’s brand in 2008. Smucker is the market leader in the brew at home coffee industry here in the United States and also holds the number one brand in the $2 billion a year peanut butter industry, Jif. Coffee makes up 48% of sales, which is way ahead of their number two product, peanut butter, at 13%. The company’s namesake fruit spreads only account for 6% of all product sales as of 2013, but are the market leader in that category.
Although not undervalued by any means, I think the stock is trading at fair/possibly slightly overvalued price right now with a current P/E of 19.5 and a forward P/E of 16.8. Looking back over the last ten years, SJM has traded between a P/E of 11.45 and 23.95.
Dr. Pepper Snapple Group (DPS)–Thanks to Brian over at Dividend Mongrel for giving me this idea. DPS is a manufacturer and distributor of non-alcoholic beverages that are sold in the United States, Canada, and Mexico. The company’s brands include its flagship Dr. Pepper and Snapple drinks, Sunkist soda, 7UP, A&W, Canada Dry, Crush soda, Hawiian Punch, Mott’s, Schweppes, and my personal favorite as a kid, Yoohoo. Unlike its main competitors, Coca-Cola and Pepsi, both of which are trading at P/E’s of 19+, Dr. Pepper’s P/E comes in at 17.5 with a forward P/E of 15.2, both of which are less than the S&P 500’s current and forward P/E ratios of 18.3 and 17 respectively. Although they have only been growing their dividend for 5 years, the stock does sport dividend growth rates of 10.4% for the past year, and 22.8% average for the last three years while still keeping the payout ratio at 47%. While their current P/E of 17.5 is above their 5 year average of 14.9 since being spun off from Cadbury in 2008, I think we have to take in to account that the P/E stood at a low of 13.01 at year end 2009 due to the recession and bear market which skews the average.
Exxon Mobil (XOM)-I remember reading on The Conservative Income Investor a while back something to the effect of, when in doubt buy Exxon stock. 😉 In all seriousness though, the global oil giant and dividend champion is currently trading at a P/E of 13.9 with a forward P/E of 13.2. What most attracts me to a potential buy of Exxon right now though is the PEG ratio is currently at .9. The PEG, which was popularized by Peter Lynch compares the P/E ratio of a company to its growth rate. A PEG of 1 which is considered fair value by most investors indicates a stock is selling at a P/E equal to its growth rate. Exxon appears slightly undervalued here going by that metric. While not the flashiest of stock picks, Exxon has been and should continue to make for a great long-term dividend growth investment.
Deere & Company (DE)-Another stock that looks undervalued based on the PEG ratio. Although earnings are expected to decrease in the coming few years, I like the long-term growth story of this company which is summed up nicely at their investor page. After keeping their dividend static for five quarters, Deere recently announced a 17.6% increase, bringing the quarterly payout up to $0.60 from $0.51. Sweet. 🙂 Even after the recent run-up in price the stock continues to trade at an attractive valuation with a P/E of just 9.9.
And for some stocks I already own that I would consider adding to at current levels.
Target (TGT)-The dividend champion with 47 years of dividend growth continues to trade at a depressed share price due to the fallout from their data breach and difficult roll-out in Canada. After a very impressive 20.9% increase to their dividend announced last week, shares now trade at with a froward yield of 3.66%.
Visa (V)-Even though shares have run up a bit since my first purchase in April, the company is still trading at an attractive valuation, in my opinion, for those seeking to open a long-term position.
Disclosure: I am long TGT, V, and may initiate a long position in SJM, DPS, XOM, and DE in the coming weeks. Please my portfolio page for a full list of my holdings.
What do you think of these stocks? Are there any others you are looking to buy right now?