July Stock Considerations

Another month is already upon us and as a dividend growth investor that means I am on the lookout for new purchase opportunities. For those who have been following my recent buys you will note that I have been heavily favoring the financial sector because of its relative value compared to the market as a whole. In general, I am looking to add to my current potions with perhaps the exception of initiating a new position in a stock or two. With that being said, here are my July stock considerations.

 

It’s no surprise that I really like AFLAC Inc. (AFL). A stock that currently yields 2.30% with a low payout ratio of 23.7% and a very long and generous rising dividend history going back over three decades. With an annualized ten year dividend growth rate of 19.97% and a low PE of 9.7 what’s not to like? AFL is already my largest holding in my taxable brokerage account at 6.04% of my total portfolio which may be one reason I may not want to add to my current position.

 

Another stock I am considering purchasing, again, is Wells Fargo & Company (WFC). A long time holding of mine WFC currently yields 2.60% with a low payout ratio of 33.9%. Having recently cut its dividend because of the financial crisis about five years ago WFC has once again continued its dividend raising policy it had for decades prior. With a low current PE of 13.0, WFC seems like a relative bargain compared to the S&P and its peers.

 

Finally, in the financial sector I have been looking to initiate a new position in U.S. Bancorp (USB). A solid banking company by any measure, USB currently yields 2.20% with a relatively low payout ratio of 31.6%. Of course, the big draw for me is the relative low PE of 14.3 which is in line with its five year average, industry peers and below the S&P.

 

Two more companies I am considering are in sectors I do not even own: Energy.

 

I have been looking at BP plc (BP). I have to admit the juicy 4.40% is tempting me to jump in even at current levels. I know BP had a tremendous run up since its oil disaster in 2010 when share prices plummeted to the high $20s but its current yield and relatively moderate payout ratio of 48.1% interests me. On a valuation note, I realize BP is not the cheapest of the bunch at 16.4 but forward valuations of BP are at a ridiculously low 4.0 perhaps making this an interesting pick for the future.

 

Last but not least, I have been considering French oil giant Total SA (TOT). Currently yielding 4.60%, (before foreign tax withholdings), with a moderate payout ratio of 51.7%, TOT looks to be a relative bargain in the energy sector. The current PE for TOT is 12.6 with a forward valuation of only 9.7. With those kind of numbers, in today’s high valuation market, this stock seems to scream “buy me” as it has become increasingly difficult to find high quality companies at relative bargains.

 

What do you think about my stock considerations? Do you think I should initiate new positions in the energy sector or stick with my current portfolio holdings and add to them?

 

Disclosure: Long AFL, WFC

29 thoughts on “July Stock Considerations

    • Hi DGJ,

      For now it seems that the best ‘values’ can be found in the financial sector. I picked up quite a bit from that sector in June and am looking to add more. USB still looks interesting to me but I’m not sure I want to have two banks and two insurance stocks in my portfolio. Thanks for your input.

    • Hi IS,

      Both AFL and WFC have been long time holdings of mine I plan to keep them both for the long haul. I’m still looking to add AFL even though it is one of my largest holdings because I still see value in the shares. Of course, around $60 or less would be ideal. Thanks for the comment.

  1. AFL very nicely valued right now especially with that PE. For Tot i own as well but caution France has 30% withholding tax on it so it will hurt the dividend. Those US banks look good too as they are still recovering and well priced.

    Overall its a good set of stocks and purchasing any of the batch is a good call.
    Asset-Grinder recently posted…June 2014 Dividend and Monthly Report UpdateMy Profile

    • Hi AG,

      AFL seems to be best of the stocks I mention. I am looking to spread out into energy as AFL is my largest holding. I know TOT had a big run up in 2014 but still seems to hold good value even at these levels. I’m not too worried about the tax withholding if I can get capital appreciation too. Thanks for your thoughts.

  2. FWIW, I closed my position in BP last week after seeing a substantial gain. I did that to reallocate funds to sectors that are seriously lacking from my portfolio, financial and industrial. I initiated a position in WFC on Friday and MMM and IBM today. I also added to my position in AFL within the last month.

    I still think BP is going to be a good investment if you decide to go in that direction. But I kept CVX, KMI, SDRL, and NOV in the energy sector, and I like the diversity that these 4 give me.

    Good luck!
    KeithX

    • Hi KeithX,

      Boy, every stock you mention is a solid pick no matter how you look at it. I know BP had a tremendous run up since the oil disaster and I’m sure you locked in some nice gains. IBM seems to be an interesting pick as Dividend Mantra is another investor looking at it as well. Thanks for sharing your stock positions.

  3. Hi Divhut,

    Thanks for this food for thought!
    I’m considering WMT, PG & AFL myself, as my small portfolio does not contain any of these sectors.
    Besides that, all these are at the right side of the scale of the 52-low and 52-high. I don’t like paying the full price 🙂

    Before going into AFL, I have to dig more information about this company tho. As an European I don’t exactly know what this company is doing to prevent a major stock downfall when oil globally runs out in about half a decade from now. This may seem long from now, but we are investing long term, aren’t we?

    Keep up the good work.
    DfS
    Dividend for Starters recently posted…Income & expenses – June 2014My Profile

    • Hi DFS,

      No one likes paying full price for any stock but sometimes, in these expensive markets, you have to pull the trigger on a company that seems to be the best relative bargain. PG is a great dividend stock for starters, though a bit pricey these days. Check back next week as I update my June dividend income. Thanks for stopping by.

    • Hi DL,

      I know that British ADRs usually do not have any tax withholding unlike TOT (French). It’s the same case with UN or UL or with RDS shares. Stick with the British stocks, if you are in USA and you should be OK. I have DEO which is non-USA and no tax is held. Thanks for stopping by.

    • Hi LAH,

      AFL has been a very popular pick among the dividend investor blogs for the past several months and I have been buying it up myself. I’m just trying to look for other options out there as AFL is currently my largest position.

      • If you’re looking for another insurance company then CB might be worth investigating. Slightly higher P/E and lower dividend yield compared to AFL but it has been paying increasing dividends for over 30 years. And it doesn’t have the huge exposure to Japanese bonds like AFL (a problem for some people).
        Jake recently posted…June 2014 UpdateMy Profile

  4. DivHut,

    That’s an interesting list there. I’m a particular fan of AFL, but I have all I need right now.

    I’m currently looking at IBM, V, DE, and GE. That’s in no particular order. I was originally going between IBM and V for a buy this month, but both have shot up on me a bit. Currently evaluating. 🙂

    Have fun shopping!!

    Best wishes.
    Dividend Mantra recently posted…A 0% Allocation to Fixed Income?My Profile

    • Hi DM,

      Can’t complain about this shopping list however, as you know, it is getting increasingly difficult finding great value. Your list is interesting as well. I’m light on tech and IBM is kind of interesting. Thanks for your input.

  5. DivHut,

    Good list for further research and consideration. I’ve been happy with BP and really should have bought them when they crashed to high $20’s following that oil spill. I have a small position now and in the green now at least. I think AFL and WFC are pretty good well run companies as well. I’ve looked at adding TOT, MPC, or RDS.B too.

    Not sure I want a 30% tax for the high yield on TOT though, but still might be worth it.

    Hope you find some good value out there!
    The Dividend SWAN recently posted…A 10% dividend raise from this BDCMy Profile

    • Hi DS,

      So many good comments and ideas for July investing. I think in general every stock I mentioned has a solid long term footing. It’s all about figuring out which direction to take (financial or energy) and which I think presents the best value. Thanks for commenting.

  6. Great post! I do own TOT – and it has performed extremely well, with a solid dividend to boot, that has consistently grown as well. Further – Aflac is also on my radar, I own a position already in them but am eager/seeking to add more soon, depending on what happens with the share price. You can’t go wrong still with Oil I feel, as our dependency on energy is still extremely high, as well as insurance needs of course. Nice options you have, keep us posted!

    -Lanny
    Dividend Diplomats recently posted…Purchase Summary – 7/8/14My Profile

    • Hi DD,

      It’s always comforting to see others thinking in a similar fashion. Quite frankly, I was getting a little tired of reading about all the TGT buys and interest in that stock that I wanted some opinions on other stocks out there. Check back to see which stocks I buy or add to in July. Thanks for the comment.

  7. Hey DivHut,

    I also like TOT pretty much – it was my first stock pick when I started that whole investing-thing last year. TOT’s performance is pretty solid and even with sucking 30 % tax it’s one of my biggest dividend machines. Regarding my own portfolio, I think my energy holding is quite high, but I have PSX on my watchlist, which dipped to under $80 recently.

    I’m also looking for stocks in the financial sector. USB and WFC are on my watchlist for sure. I’m also having an eye on TD, BNS and BK.

    Cheers
    DividElephant
    DividElephant recently posted…Income and Expenses June 2014My Profile

    • Hi DE,

      It seems like your watch list and mine are similar. I guess we both see some real value in those companies TOT, USB & WFC). I’m not too concerned with the foreign tax that gets withheld as long as TOT can provide some real capital appreciation as well. Thanks for your comment.

  8. Nice shopping list. I’m not fond of the banks, but Wells is worth considering.
    In the oil sector I really like Shell (okay I’m Dutch;-)
    The oil sector is at this moment a good addition in any portfolio

    Cheers,
    Pollie

    • Hi Pollie,

      In general I’m not fond of bank stocks as well except for the two mentioned, WFC and USB. Personally, I have a light weight in financials in my portfolio which is why they are on my July stock consideration list. Regarding energy, I know thst Shell has been a popular dividend stock among many of the bloggers out there among many others. As you say oil (energy) is a good addition to any portfolio. Thanks for commenting.

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