With the final trading day of January upon us, it’s time once again, to outline my potential stock buys for the upcoming month. The point of these posts is to help take some of the guesswork out of where I plan to allocate my fresh capital going forward. By making my selections ahead of time I find it easier to commit to buys as all the homework and investment thesis has already been completed on my end. All that’s left to do is pull the ‘buy’ trigger. Of course, I always qualify these posts with the notion that Mr. Market may present new buying opportunities not mentioned here, and with all the volatility we have been witnessing recently it’s a definite possibility that some new stock buying opportunity will pop up. With that being said, let’s take a look at my February stock considerations.
It should come as no surprise that I still like the value and safe yields being offered among the large Canadian banks. Once again, I am considering The Toronto-Dominion Bank (TD), The Bank of Nova Scotia (BNS) and Royal Bank of Canada (RY) with generous yields of 3.86%, 4.96% and 4.45% respectively. All three banks mentioned have payout ratios under 60% based on current cash flow which makes their dividends quite safe with room for increases. To be blunt, it looks ugly for Canada going forward. Low oil prices, a weakened currency and a potential domestic real estate bust are all putting tremendous pressure on these banks. Of course, that simply translates into an opportune time to initiate or add to positions. Inevitably, the tide will turn but in the meantime you can be paid quite generously to wait it out.
Looking elsewhere for potential stock picks I find a couple dividend stalwart industrial companies back in play. My first consideration in this space is Caterpillar Inc. (CAT). 2015 has been a rough year for this heavy machinery company as weakened economies in Asia and Europe saw less demand for CAT products as well as depressed commodity prices affecting sales as mining activity has been curbed. Still, CAT is a dividend machine that is currently yielding a high 5.04% and a current PE of 12.7 which is well below its five year average. I have held CAT for many years and realize that it’s a company/stock that goes through boom and bust cycles as it is more sensitive to economic activity than say, consumer staples. At that yield, which is sustainable, and value, CAT is very compelling at these levels.
Next on my list of potential buys is another industrial dividend stalwart, Emerson Electric Co. (EMR). Like CAT, EMR had a rough 2015 which is presenting us with a great buying opportunity as it’s yield is sitting at a nice 4.26% and with a current PE of 11.1 is selling at much better value relative to years past. While having a yield over 4% can be a little worrisome for this stock it is fully covered with room for future growth in 2016. What that dividend growth rate will be remains to be seen but I’ll be happy with mid single digits from some of these beaten down names. It’s still an increase and much better than a cut.
I am also considering adding to my Archer-Daniels-Midland Company (ADM). I have been nibbling on this stock for the past few months as it too had a difficult 2015 with falling commodity prices hurting ethanol sales, along with a strong dollar and weakened overseas economies reducing demand for ADM products. Currently offering a historically high yield of 3.23% with a PE of 12.0, ADM is also offering some compelling value at current prices.
Another name that has taken a beating as a result of lower oil prices, stronger dollar and a weaker global economy is Dover Corporation (DOV). A company with a very long history of dividend raises, that is no doubt feeling a bit of pinch as demand for their oil and gas services are weakening in the near term, DOV still looks attractive at current prices. Currently yielding 2.97% with a moderate payout ratio of 43.2% DOV’s dividend still looks to be quite safe with room for future raises. With a current PE of 15.0 DOV is right around its five year average PE but will well below S&P averages.
The last sector I am considering for February is the health REITs. January has not been too kind to the sector as a whole and once again, better prices value and yield are showing up in names like HCP, Inc. (HCP), Welltower, Inc. (HCN) and Ventas, Inc. (VTR) which yield 6.46%, 5.46% and 5.43% respectively.
So there you have it: TD, BNS, RY, CAT, EMR, ADM, DOV, HCN, HCP, VTR. A pretty long list of stocks I’ll potentially be buying in February. I would like to add to my consumer staples but they are holding up quite nicely relative to the Canadian banks and several industrial plays I have mentioned. I tend to follow the red and average down my positions. Are any of the above names on your monthly watch list? Please let me know below?
Disclosure: Long TD, BNS, RY, CAT, EMR, ADM, DOV, HCN, HCP, VTR