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