April 2016 Stock Considerations

What a difference a few short months can bring. As 2016 was getting underway, negativity surrounding the marketplace was mounting. It seemed that with each passing day and week all the major averages were getting decimated as we saw the DOW and S&P fall from their late 2015 highs and all the talking heads and financial headlines beginning to tout the beginning of a brutal bear market and the worst start to a new year for the averages, ever! With new lows being set for January and most of February, it was relatively easy to find great bargains in the market. Energy, industrial and even financial names were starting to trade at amazing prices, value and yield. Names like Caterpillar Inc. (CAT) were trading with a 5% yield, as other names like Emerson Electric Co. (EMR), Archer-Daniels-Midland Company (ADM) and the large Canadian banks, The Toronto-Dominion Bank (TD), The Bank of Nova Scotia (BNS) and Royal Bank of Canada (RY) were sporting some eye popping yields north of 3.5% and even 4%. Of course, we cannot forget the health REITs all falling of a cliff too because of the weak HCP, Inc. (HCP) earnings and guidance, and… as I opened this post, what a difference a few short months can bring.

 

The DOW and S&P are both back to their similar highs at the start of the year. These events and market uncertainty just further proves to me that no one can predict the future with any degree of certainty. It’s really all a guess. I can just imagine the poor investors that got shaken out of the market in mid-February, at the worst possible time, only to see the markets rise with a vengeance. Knowing that market predictability is all a guess, all I can really do is diversify my investments among companies that sport safe and reliable yields all the while simply holding and averaging down my cost should prices fall dramatically and make monthly buys no matter what’s going on in the world or market. I can say with confidence that a market drop of 50% or more would not give me reason to sell my stocks.

 

One of the benefits of starting as a dividend growth investor in 2007 was my real world test of how I’d react to a financial crisis. I did not have to wait long as the financial crisis of 2008/09 was just around the corner and after watching my entire portfolio go deep in the red, I remained calm, continued to make buys every month and did not sell one single share. Almost every stock I hold in my current portfolio has been with me during those dark financial days. The point I’m trying to make… I will continue to make monthly buys at market highs and market lows as over time it all averages out and being a dividend growth investor I’m looking to take advantage of time in order to maximize my compounding returns. With that being said, let’s take a look at my April stock considerations.

 

Without sounding too repetitive, I will continue to look at the large Canadian banks, The Toronto-Dominion Bank (TD), The Bank of Nova Scotia (BNS) and Royal Bank of Canada (RY) in April. Though all three banks have come up quite a bit from their February lows, they each currently offer attractive, safe yields and good value. I realize that stock prices may swoon once again for this sector as Canada as a whole is still facing serious headwinds from musltiple fronts but my main focus with the Canadian banks will continue to be their dividend sustainability. Based on the current information all three dividends remain sustainable.

 

Looking elsewhere I am considering adding to my HCP, Inc. (HCP). We all saw how HCP’s earnings and guidance essentially brought down the entire health REIT sector in February which no doubt created some interesting buying opportunities within the space as stock price swoons created some very enticing yield. As with the other names mentioned a significant bounce in the health REIT space has occurred in the last month making many of the other health REITs less attractive than in days past, however, HCP still remains relatively weak for a variety of reasons and presents the best value (and risk) for potential returns.

 

On a side note, I really would love to add to my consumer staples but not at current valuations and yield. Perhaps I’ll get that chance as I always qualify these posts with the notion that Mr. Market may offer up some new opportunities not mentioned here. I still find value in these “considerations” posts as they provide a road map to the month ahead and point me in a direction that I can simply act upon instead of having to go through a decision making process which may delay me taking action.

 

What do you think about my potential stock picks for April? Are any of the above names on your monthly watch list? Please let me know below?

 

Disclosure: Long CAT, EMR, ADM, TD, BNS, RY, HCP

32 thoughts on “April 2016 Stock Considerations

  1. Thx for the write up.

    As in indexer, I spend little time on individual stocks. I have an oil stock that pays me a decent dividend. Way better than any savings account :-). So, I am interested.

    Just like you, consumer staples looks attractive to me, as soon as Mr Markets does a new downside dance. In this space, KO and UNA are the ones I look at.
    amber tree recently posted…Banking Perks – Quality TimeMy Profile

    • Hi at,

      Nothing wrong with being an indexer. That’s the beauty of personal finance. It’s personal. I feel that investing is not a one size fits all endeavor and index funds, individual stocks, precious metals, real estate, bonds or whatever have a place in various portfolios. For the foreseeable future I plan to stick with individual stocks and hope to add to other sectors going forward and not just to the Canadian banks or beaten down industrial stocks. If KO, PEP, UL, PG, CL, CLX, KMB, GIS and other seemingly always expensive stocks do go on sale I’ll be pulling the trigger there. Thank you for commenting.

  2. It definitely seems like a repeat of previous months but the problem is where is the value? Unless you want to go with some energy sector companies or a few other select financials there’s not much else. Even at the lows in February many of the consumer staples/DG stalwarts were trading for premium valuations so they only offered better relative value. It looks like a solid list/roadmap for April but maybe we’ll get some downward movement to unlock more value opportunities. All the best.
    JC @ Passive-Income-Pursuit recently posted…PepsiCo: Too Pricey?My Profile

    • Hi JC,

      Rinse and repeat it seems. I know I must sound like a broken record… Canadian banks, Canadian banks, Canadian banks but I try and follow value and yield. I’m sure that if things remain the same for the next month or two even I’ll just veer off into the consumer staples, even if they are a bit pricey. The goal is to remain diversified and not get too top heavy in any one stock or sector. We’ll see how April unfolds in the coming days but for now it still looks like Canada is on my mind. Thank you for stopping by and commenting.

  3. Thank you for sharing your thoughts on which stocks you’ll consider this month. Kudos by the way on your patience during the 2008/2009 recession. I started investing in 2007 and definitely remember those steep declines. I held course but should have added more to my holdings. Like you I’ve got RY, TD and BNS on my radar this month. I would really like to add to my staples but the valuations haven’t really been attractive since opportunity provided my Mr. Market in August. The two names I’m looking at the staples space are KO and NSRGY.
    Dividendniche recently posted…Dividend Income Update MarchMy Profile

    • Hi Dividendniche,

      Kudos to you as well for not panic selling during those tough financial days. You may not have added to your positions but you stayed on course which is more than most people have done and if you held quality dividend stocks you were still getting paid during that rocky period. Happy to be a fellow shareholder with you in a couple Canadian banks. They seem to be quite popular among many of our fellow bloggers. As I always state, who knows what the future will bring but as long as those dividends remain safe and the stocks trade at good value and yield I’ll continue to nibble. Like you and others, we are all really itching to add to the consumer staples. They never seem to go on sale but that’s a testament to the sector as a whole and sometimes quality and security comes with a premium attached. As always, I appreciate your comment.

  4. I think there’s nothing wrong with loading up on Canadian banks if they present value to you now, as I’m sure at other times they won’t be good value and other sectors will be good in the future. Perhaps now is a good time to steadily grow the cash pile if the value isn’t there, you don’t have to swing at every pitch.

    Tristan
    Dividendsdownunder recently posted…Dividend update: MarchMy Profile

    • Hi Dividendsdownunder,

      I think every dividend growth investor gravitates to where the best value and yield can be found and for many months, the Canadian banks seemed to offer both which is why I continue to nibble in that sector. You are correct that I, “…don’t have to swing at every pitch,” but I have found that remaining consistent with my buys (making at least one buy every month) helps take some of the guesswork out of trying to time the market and find the best possible time to invest. As we all know, that’s impossible. By nibbling on positions instead of gorging I am able to slowly build up a holding and still have some cash on the side to take advantage of a sharp decline should it happen. Thank you for sharing your thoughts.

  5. Keith, you do have a knack to see values. That’s why I keep coming back here for inspiration.
    I’m looking to add back these great stocks with great yields back to my portfolio once my investment property went through and I have some cash again.

    • Hi vivianne,

      The way the market and world economies are behaving in recent months I think you will have plenty of time to buy stocks trading at good values. After all, at market highs and lows there’s always something that’s worth buying. You are doing the right thing by waiting for the dust to settle on your investment property. After all, unforeseen expenses tend to crop up at the worst possible time. Thank you for checking in regularly and for your comment.

    • Hi R2R,

      That’s the name of the game. Finding strong names that can be with me for many, many years. You already know that I do not chase high yield fantasies but gravitate to value, sustainable yield and stability and for now, at these depressed levels the Canadian banks seem to fit that bill. Will be interesting to see how April unfolds and where we’ll all be adding our fresh capital. Thank you for commenting.

  6. DivHut,

    How do you feel about the Canadian markets? More specifically to oil/gas there and housing and the impacts on the big banks there? I too have been watching the big 6 over there, but haven’t invested any further, as I am trying to analyze of any current/short-term bubbles are going to pop there. Any thoughts consideration to this? I ask because you are more intimately in the Canadian markets! Thanks DH and keep on investing over there!

    -Lanny
    Dividend Diplomats recently posted…Bert’s March Dividend Income SummaryMy Profile

    • Hi DD,

      All good questions and as you can see form my considerations and buys in recent months I still feel confident about the Canadian markets. I found this information regarding oil/gas exposure a few months ago and from what I see the exposure seems quite minimal when looking at total loans the banks currently have.

      BNS’s direct oil and gas exposure is C$12.8 billion, or 2.9% of total loans.

      RY has an energy portfolio valued at C$9.6 billion, which amounts to 2.1% of the bank’s total loans.

      BMO’s oil and gas portfolio is estimated at C$5.9 billion, or 1.9% of total loans.

      CM’s oil and gas portfolio is valued at C$5.2 billion, or 2% of total loans.

      TD’s, energy exposure, including pipelines along with oil and gas, is put at C$3.6 billion or 0.7% of total loans. Source: WSJ

      Of course, housing may be a bigger issue and the talk of a bubble in that sector has been simmering for a few years. It all may come to a head one day but who knows if and when. All I can do is look at the information I have today and despite the severe headwinds that Canada is facing with a weaker currency, lower oil prices, higher personal debt ratios and a potential housing bubble, the Canadian banks are continuing to raise their dividends and still have the cash to sustain them. It’s amazing how resilient the Canadian banking sector remains with nothing but negative financial news surrounding them which is why I continue to nibble on the sector. I really look for dividend safety first. A company doesn’t have to raise its dividend every year but it should continue to pay them. As always, I appreciate your comment.

    • Hi R2R,

      Tough less attractive than in February, the Canadian banks are still sporting some attractive values and juicy yields despite their run up which is why I am continuing to look at the sector in April. Like CAT and EMR as potential buys too, but not at current levels. I was happy to add them both when the industrial sector took a dive earlier this year. The race continues! Thanks for commenting.

    • Hi IH,

      All nice pick ups in the Canadian banking sector and happy to be a fellow shareholder with you in all three names. For now, those stocks continue to offer good value and safe yield which is why they make my potential buy list month after month. Thank you for stopping by and commenting.

  7. I did buy one stock during the big downturn. I was looking at HPQ for as it trended down from 12 to 10 and then to 9 a share despite financials being solid and the dividend close to 5%. I scooped some up when it was around 9.50, but obviously not enough 😛

    • Hi MP,

      Thanks for sharing your recent buy during the recent downturn we experienced. It’s nice to know that fear did not overtake your common sense in finding good relative value and yield. That’s the name of the game in my opinion… consistently be buying solid names during all market conditions. Thank you for sharing your thoughts.

  8. There is nothing wrong with sounding repetitive. If the market continues to provide you with opportunities in the Canadian banking market, you would be stupid not to consider them. Especially considering there are barely any other discounted stocks out there. Like you, I am always looking to add to consumer staples. There is something nice about investing in stocks that are in every household or facet of our daily lives. It just sucks the valuations are a little high right now. But don’t worry, I’m sure they will come down eventually.

    Bert
    Dividend Diplomats recently posted…Bert’s March Dividend Income SummaryMy Profile

    • Hi DD,

      You said it. Besides, the energy sector that still seems to offer great value and yield I find that it’s the Canadian banks that continue to offer the best value and safest yield today which is why I go back to that sector often. Besides, with their current prices I can also average down my cost. I always say that with the consumer staples you have to pay a premium for that quality. That sector and dividend stalwarts within that sector rarely go on sale. Thank you for commenting.

  9. As someone who recently bought HCP before the dip, I love seeing it coming back! It’s great seeing the market rebound, but getting harder for novice dividend investors to spot a deal. However I still have TD on my watchlist from some of your previous posts. It may be time to pull the trigger.
    Wallet Squirrel recently posted…Income Report – March, 2016My Profile

    • Hi WS,

      Buying before a dip simply highlights how impossible it is to accurately time the markets or specific stocks for that matter. Stocks many times rise and fall on a seeming whim as most price reactions are exaggerated. HCP has rebounded quite nicely from its recent lows but still faces some near term headwinds. I plan to hold my stake in HCP for now and simply reinvest my dividends when they come in. These days, I think the Canadian banks still offer the best value and safe yield which is really what I’m after… a safe and sustainable yield. Thank you for stopping by and commenting.

  10. Right you are that the CAN banks are a great place to place money with the current way of things. It only saddens me because I wish we had more deals state side! Either way, it’s good to diversify. On the other hand, HCP stands still at a great price even today. It wouldn’t hurt to grab a few while they’re basically on discount. They won’t stay down long as the health market is always a great market to be in. This is especially true when you think of how many boomers need their healthcare on a consistent basis. The flood is on the horizon.

    -Dividend Reaper
    Dividend Reaper recently posted…Positive Net WorthMy Profile

    • Hi DR,

      What’s a dividend investor to do when most sectors and individual stocks are trading at less attractive values and yield? You have to go to where the safe value and yield remains and for now I see the large Canadian banks as the place to be. I realize that they still face many great headwinds going forward but their distributions remain very safe based on current cash flow which is my main concern. HCP had a nice rebound in recent weeks from its lows and I agree still offers some compelling yield and better value than in months past. Thank you for sharing your thoughts.

  11. While I own many of the Canadian banks and am still monitoring them, I am a little heavy on the finance side at the moment, so I just recently picked up some industrials, which I was lighter on. I added to my UNP position, and initiated a position in CMI. I also initiated a position for my son’s portfolio as well.

    • Hi DH,

      I can understand your hesitation in wanting to add Canadian banks to your portfolio as you already are weighted on the heavy side in that sector. Many of our fellow dividend bloggers became too eager as energy stocks fell only to become way overweight in a troubled and volatile sector. Nice industrial pick ups instead. I think staying consistent with your buys is as important as what you buy. Keep putting that money to work. Thank you for sharing your thoughts.

    • Hi DP,

      Your list is looking good to me as well, just a little less appealing these days. I added to my EMR and CAT when stocks were getting hammered earlier this year but now will wait to buy more in the industrial sector. The consumer staples always look good to me but not at current values. Still, all those names you mention are solid long term dividend payers that sport a relatively safe yield which is most important to a dividend growth investor. Thank you for commenting.

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