October 2015 Stock Considerations

Wow, another quarter of 2015 is in the books. Can you believe how fast time flies? Here we are entering the home stretch of the year when our annual dividend income pictures begin to look a lot clearer as we begin to assess our income goals for the current year and see how close we come to achieving said goals or if we are fortunate to have surpassed our intended goal. Looking forward to October and the final quarter of the year it’s time once again to assess where my fresh capital will be deployed.

 

As we have witnessed in September, the market has continued to function with its increased volatility which started in August. Triple digit moves in the DOW have become a lot more common as market swoons and rebounds seem to occur every few days. Because of this volatility I am finding many great opportunities within my portfolio holdings to average down on some very high quality dividend payers at better prices, value and yield. It’s my intention to add to my existing holdings in October and not initiate any new positions for the month. With that being said, let’s take a look at my October stock considerations.

 

First on my list is Caterpillar Inc. (CAT). A dividend stalwart that needs no introduction, CAT has fallen dramatically out of favor as troubles in China, the energy sector and mining weigh on this cyclical giant. With a current dividend yield sitting around 4.71% this industrial name is hard to ignore. I have held CAT through the great recession and did not sell one single share. I think it’s important to note that if you plan on holding a cyclical industrial like CAT long term, you must expect price swoons from time to time. With a current PE of 11.2 which is well below its five year average of 18.2, CAT is clearly showing signs of near term headwinds. In my book, it’s a great time to add to this dividend machine.

 

In similar vein, another industrial giant that has been taken to the wood chipper and has caught my eye is Emerson Electric Co. (EMR). Another dividend โ€œgiantโ€ with aristocrat status, EMR is sitting near 52 week lows and also sports a relatively high dividend yield approaching 4.26%. Like CAT, EMR is facing the same cyclical headwinds that is typical of an industrial company. With a current PE of 12.2 which is also well below its five year average of 20.2, EMR is looking a lot more enticing than in recent months.

 

Sticking with the industrial theme, Dover Corporation (DOV) is another October consideration of mine. A company with a very long history of dividend raises is no doubt feeling a bit of pinch because of lower oil prices as demand for their oil and gas services are weakening in the near term. While not the highest yielding of the bunch, DOV looks a lot more attractive in recent months as valuation is coming more in line with present cash flow. Currently yielding 2.94% with a current PE of 14.1 DOV is slightly below its five year average PE of 15.7.

 

In the consumer goods space Archer-Daniels-Midland Company (ADM) is making my radar screen as well. Another dividend aristocrat which is currently sporting a PE of 11.5 which is well below its five year average of 15.4 has a current yield of 2.70%. Of course, current commodity price headwinds persist for this name but with the current market swoon ADM prices, value and yield have become a lot more attractive.

 

Of course, no potential pick for the month would be complete without my acknowledging the large Canadian banks in my ROTH, The Toronto-Dominion Bank (TD), The Bank of Nova Scotia (BNS) and Royal Bank of Canada (RY). I am still a fan of the large Canadian banks but with $1,165.00 remaining for my 2015 contribution it appears I have room for just one more buy before we ring in 2016.

 

What do you think about my October stock considerations? Are any of the names mentioned on your potential buy list as well? Please let me know below.

 

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

44 thoughts on “October 2015 Stock Considerations

  1. The list looks solid, CAT is probably the company of most interest for my portfolio. Looking forward seeing how you will spread your coins this month.

    – mraitn

    • Hi mraitn,

      It certainly looks like my next buy(s) will be CAT and EMR. Of course, sometimes Mr. Market points you in another direction when you least expect it. As I stated it’s hard to ignore some of those enticing yields as well. Thank you for commenting.

  2. Great stock considerations you’ve got there. I’m really looking forward to doing my October list, as the recent volatility is just the same here in the UK. However, I am also considering US stocks right now, as I’m thinking of opening up a second tax-free retirement account (SIPP) in which I can buy US stocks tax-free. The only sad part of it is that one cannot do the same for our regular tax-free trading accounts, which are subject to 15% tax.

    Emerson is one of the stocks on my US list, as is CAT. Really love both of these!

    Cheers
    M from There’s Value recently posted…Do I Need an Emergency Fund?My Profile

    • Hi M,

      Looking forward to seeing where you deploy your fresh capital. For obvious reasons, many dividend bloggers have their eyes on EMR and CAT. I’m no exception. I guess volatility has gripped financial markets all over the world. Of course, the Asian markets have seen some very dramatic swoons and recoveries.

      Regarding CAT and EMR, even if you had to pay a 15% tax you’d still be doing quite well as both are yielding well over 4%. It’s still a great yield even with the tax. As always, I appreciate your comment.

  3. I’ve been waiting for this post. EMR and CAT are looking more attractive each day. I’d probably jump on EMR after the wall street get off from getting “high” from the House approving the Budget (more like extended it for 10-weeks). The next few weeks it’s probably won’t yo-yo as much.

    • Hi vivianne,

      These are always fun posts to write and read as it lays out a roadmap for potential buys in the coming month. This way, the thinking has already been done and if conditions are right you can just act and buy your intended stocks. Of course, the way the market is recently, new potential buys may come up that you haven’t thought of. As I mentioned in another comment, it looks like a CAT and/or EMR buy will be made this month. Two very popular names in recent weeks among our DGI community. Thank you for stopping by and commenting.

  4. Ciao DH,
    Jumped on EMR already, will leave it there at the moment, I have considered CAT but decided to go for MMM instead that starting another position… Still CAT is quite interesting.
    Got recently into O and MWP (both reit), but I will cover the reasons later in my blog, here it would be a bit too long… Still plenty of occasions there, wish I had more cash to invest…

    ciao ciao

    Stal

    • Hi Stalflare,

      Choosing MMM over CAT is good move if you don’t like volatility. I have held MMM since 2007 with no intentions to sell. I do, however, want to add more to my holdings but not at current price/value. Don’t get me wrong. I love MMM and think it’s an awesome long term dividend hold. I just like better value and yield in the more cyclical industrial names, CAT and EMR.

      I have not heard of MWP before in the REIT space but I do know O quite well. For me, I am just invested in the large health REITs, VTR, HCP and HCN with the CCP spin off too. As far as REITs, I really like the health REITs and perhaps might get into some apartments such as AVB. Thank you for stopping by and sharing your thoughts.

  5. Keith,
    I always love reading your blog. As we have discussed in the past, your stocks have little overlap with mine. I will note that I am in agreement that industrials look like good values, and also the biotechs after Hillary’s comments.

    I ran my own portfolio to see what stocks were (a) selling for less than a P/E of 15, (b) selling at a discount to the 5 year average P/E, (c) have an even lower forward P/E, and (d) have a 5 year forward earning growth estimate of 8% or higher. All of these metrics are from Morningstar except for (d) which is from Merrill Lynch/Bank of America. Six of our holdings met all of these criteria, AAPL, CSCO, GILD, KSS, TROW, and UNP. Then the biotechs got hit and I added to our position in AMGN. HA! Best laid plans and such. AAPL and GILD were already in our top 10 holdings, and AMGN came close to meeting the 4 criteria with the exception of the current P/E (19). AMGN has a forward P/E of 11.5 and an estimated growth rate of 10.3%, and adding shares brings it to parity with GILD.

    If I had more dollars available today, I would be looking at TROW and UNP very closely. See any similarities to your choices? A financial and an industrial. ๐Ÿ™‚
    Best of luck,
    KeithX

    • Hi KeithX,

      The beauty of personal finance. It’s personal. While we have little overlap between our portfolios we both seem to be headed in the same direction. As you stated in the end of your comment, we both are looking at financial and/or industrial names this month. The names might be different but the journey and path is the same. I tell you, GILD does look very, very interesting to me but I am a little closed minded in the sense that I have built my portfolio on the premise of seeking companies with extensive dividend histories. And while GILD does look very promising from a growth and dividend perspective they simply do not have a long enough history for me to start an investment. It’s just how I started my DGI journey and, for now, plan to continue. From the names you do mention, TROW looks the most compelling to me as a potential buy. I also have TRV on the back burner but as I mentioned in the post I am looking to add to my current holdings this month and not initiate any new positions. As always, I appreciate your comment and insight.

  6. I have a lot of companies on my watch list and I do have to say that DOV is looking really good here. TROW, UNP, MMM, ETN. CL also isn’t too far from where I’d like to buy some shares either. Also wouldn’t mind adding to some of my REITs like O, VTR, WPC. There’s lots to like in terms of value now. I remember just a few months ago when the watchlists were either a long list of companies that would need pullbacks of 5-10% or the watchlists were 1-2 companies long that were actually in the buy zone. What a difference a few months can make!
    JC @ Passive-Income-Pursuit recently posted…3M Company: A Diversified Conglomerate Poised To Continue Delivering ResultsMy Profile

    • Hi JC,

      What a difference a few months can make, indeed. I too remember the common gripe among the DGI bloggers about how there was no value to be had in the market. Now, it seems we are flooded with many energy, financial, industrial and even a splash of consumer staples sporting better price, value and yield. I just commented to KeithX that I like TROW as well but for the foreseeable future I do not plan to initiate and new positions rather add to my current holdings.

      Keep reminding me of ETN ๐Ÿ™‚ I added that name to my watch list as it also looks quite compelling at current levels. Looking forward to seeing your October buys. Thank you for stopping by and commenting.

    • Hi MC,

      I think we’ll be seeing a lot more industrial buying this month as better price, value and yield are making appearances in some very solid long term dividend payers. DOV looks like an interesting energy proxy if you don’t want to own an oil directly. A lot of their revenue comes from the oil and gas services they offer and with depressed oil prices DOV’s top line has been hurt. I would just caution against buying too quickly in the sector as many have jumped on the energy bandwagon way too early only to watch values and yield keep climbing as stock prices kept going lower and lower. Keep hunting for that sustainable yield and dividend growth. Thank you for stopping by and commenting.

  7. Nice watchlist, DivHut. I hear you on holding thru the cyclical lows…probably a good time to load up for the long haul. Of the ones you’ve mentioned, I just have the Cdn on my watchlist. Would love to add EMR to my portfolio – like you said, its hard to ignore a 4%+ starting yield for a dividend aristocrat!

    Looking forward to see what you purchase in Oct.

    Happy investing
    R2R
    Roadmap2Retire recently posted…Outlook for October 2015My Profile

    • Hi R2R,

      I always say you must be willing to hold through all economic cycles when buying a cyclical company like CAT or EMR for that matter. It’s these low business cycles that enable us to add to our positions at better prices, value and yield. Both CAT and EMR have very, very enticing current yield as a result of their stock price swoon which is why they are at the top of my list for October. At these levels I’d also love to add to my Canadian banks but it looks like I’ll just have one more buy in 2015 for my ROTH so we’ll see if I max out my contributions this month or not. As always, I appreciate you stopping by and commenting.

    • Hi DC,

      I intend to add to my portfolios for at least a couple decades so I’m comfortable holding through economic downgrades. After all, I held CAT, EMR, MMM, IR and more through the great recession. Believe me, my industrial sector was deep in the red during that time but I simply used that major price decline to load up on some very solid long term dividend payers at much better prices, value and yield. Today, IR and MMM are some of my top performing stocks and IR even threw off the spin off, ALLE. CAT, EMR and DOV are all on my short list for October. CMI is another name that I have taken a cursory look at. I need to dig a little deeper on that name when I’m ready to initiate a new position in my portfolio. Thank you for stopping by and commenting.

      • Smart.

        If you have the time frame load up while the getting is good.

        I’m a big fan of MMM there have been some great dividend increases in the past two years and I have a small holding. The price has reached a range that exceeds the amount I want to option…. I need a 3:1 split.

        (not advocating it), but I just did a fresh report on CMI, hit me up on Twitter if you want I can send it to you.

        Will be following along to see who you pick up.
        Dividend Chimp recently posted…5 Stocks with Double Digit Dividend GrowthMy Profile

        • Hi DC,

          That’s how I tend to invest. Buy stocks that are already in my portfolio if they are down. Prior to 2014 I did not initiate a new position for about seven years in my portfolio. I always look to my existing holdings first and as you stated, “load up while the getting is good.” Thanks for the CMI offer. I’ll tweet you.

    • Hi Geblin,

      It’s refreshing to see so many great names go on sale in recent weeks. Not that long ago we struggled to find value, besides in energy of course. Curious to see where you will deploy your fresh money in October as it looks like you have a pretty long list of potential buys. Thank you for commenting.

  8. DivHut,
    I like all of those companies, especially the industrials (EMR, CAT, and DOV). There are so many good opportunities floating around out there its hard to settle on just one. Going forward, I plan to hit a bunch of those plus financial stocks with my wife being kind of on board and having a new higher paying job.

    Nice casual nod there to the Canadian Banks as well. Its hard to understand how good they are and how much you love them!
    – Gremlin
    Dividend Gremlin recently posted…September Review / October Preview, 2015My Profile

    • Hi DG,

      Congrats on getting your wife aboard your DGI journey. It’s very important to have all parties on the exact same page when it comes to finances. I’m always excited at the start of every month as I look forward to tallying my dividend income as well as look forward to potential new buys. I have commented before that I think we’ll be seeing a lot of industrial buys this month. I am still waiting for a consumer staples sell off but not sure when that will come. Those names are just so defensive that despite slowing global growth and a strong dollar they are still holding up quite nicely. You know the saying, sometimes you have to pay up for quality. Thank you for stopping by and commenting.

    • Hi DG,

      Yes, yes, yes! I guess I know where you will be deploying your money this month. While the CAT price might not be at historic lows that yield is at historic highs which no doubt got the attention of many DGI bloggers out there, myself included. Where has the year gone? Just goes to show we must make the most of each day. Thank you for commenting.

  9. Hi Divhut,

    EMR, CAT, BNS, TROW are certainly in the top of my watch list. Most likely my next moves. I also contemplate the idea of opening new positions in MMM and also PX soon. I added a new column in my portfolio showing the dividend growth rate, and want to make an effort growing my average growth rate: we’ll see ๐Ÿ™‚
    Fab recently posted…Automatic Purchases: WMT, BNS, EMRMy Profile

    • Hi Fab,

      Thanks for sharing your October considerations. I am seeing many similar names among the dividend bloggers as the industrial sector has been beaten down pretty bad. For now my focus is on my existing holdings but if I was looking to expand my portfolio, TROW would make the list. PX is another great name to add to a long term dividend portfolio. I bought APD instead. The truth is that APD, PX and ARG are all great companies in the industrial gasses space. Thank you for stopping by and commenting.

    • Hi FV,

      I also like the long term prospects of ADM. They are growing through acquisitions as well as their top line revenue from the Asian markets. My short list puts the industrial names first with CAT and EMR my likely next buys but ADM is not far behind. Thank you for sharing your thoughts.

    • Hi JT,

      Thanks for sharing your holdings. All three are solid long term dividend payers and raisers and over time you should do quite well with them. It can be tough to watch your stocks lose value but a long term dividend investor understands that prices of stocks and portfolio values rise and fall on a whim. It’s the ever increasing dividend stream that’s most important. Happy to be a fellow shareholder with you in some amazing companies. Thank you for commenting.

    • Hi OBFW,

      Well, you are definitely not alone in liking the Canadian banks. Even with all these near term headwinds they continue to pay and raise their dividends. A testament, as you stated, to their financial strength. I only have room for one more buy in my ROTH so for now it’s a toss up between an industrial or a bank. I may max out my ROTH this month. As always, I appreciate your comment.

    • Hi BSR,

      That’s what I always say. As long as the fundamentals are strong and the business hasn’t changed but is just facing an economic downturn I’ll gladly add to my position and enjoy the better price, value and yield. It’s a given that industrial companies will always go through boom and bust cycles and I’m OK with that as long as the dividend remains safe. Thank you for stopping by and commenting.

  10. Great picks so far. I find myself looking at the industrial sector now. I recently averaged down on EMR and initiated a position in MMM, and I’d like to buy more CAT and initiate with either UTX or DOV (I was aiming for the former until a friend told me they were also heavily in the defense sector. I don’t like the defense sector).

    I REALLY have to get in on the Canadian banks, especially BNS and TD. Maybe if the Canadian housing market bubble bursts, I will move them up the queue.

    Sincerely,
    ARB–Angry Retail Banker
    ARB recently posted…How To Write Out A Check 101My Profile

    • Hi ARB,

      Great job taking advantage of averaging down on EMR. I’m doing the same with my portfolio as several positions of mine are in the red and yielding well over 4%. Why not take advantage of a Mr. Market sale especially if it’s in some ultra-high quality names.

      I think the Canadian banks are feeling a lot of pain already with a depressed currency and weaker oil prices. It’s definitely showing in their stock prices. A housing bubble burst will be a certain blow to the banks but who knows when that might happen. I still see a lot of value in the Canadian banks at these levels. As always, I appreciate your comment.

  11. Keith,

    Nice list for sure. CAT and EMR attracted some of my capital last month. Tough to pass them up here, especially EMR. Not sure I’ll be buying anymore, though, since Emerson is now a rather large position for me.

    But there is a lot of value across the Industrials sector. Some stocks are near multi-year lows, sporting all-time high (or near) yields. A good time to be a dividend growth investor for sure.

    Keep it up!

    Cheers.

    • Hi JF,

      At these levels it looks like I’ll continue to nibble on CAT and EMR even if those positions become a bit too heavy. It’s just very tough to pass up adding to a high quality position that’s trading at such attractive levels from a value and yield perspective. As you stated, “A good time to be a dividend growth investor for sure.” Couldn’t have said it better myself. Thank you for commenting.

  12. Hi Keith,

    It must be hard to decide on your next pick, but easy to live with the decision as all the stocks on this shortlist would be great additions.

    I am also looking at the industrial sector for my next purchase. CAT and EMR are both high quality businesses that are presently trading at attractive levels. While I do not have either in my portfolio yet, they are both on my watch list.

    I look forward to hearing how the last quarter goes for you. Cheers
    Dividendniche recently posted…Dividend Income Update September 2015My Profile

    • Hi Dividendniche,

      These days, it’s actually a lot easier for me to decide where to deploy my fresh capital as I am focusing exclusively on my current holdings rather than look for that next dividend company addition. That being said, with the market off its recent highs of a few months ago, quite a few buying opportunities have presented themselves to me as I seek to average down my buy price on some great quality names. Companies like CAT, EMR, DOV, ADM, TD, BNS and RY. Unless things change drastically, my focus will remain on those names through 2015. Happy to have you on board the dividend growth train. Thank you for commenting.

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