Being a dividend growth investor I try to always focus on stocks that have a history of rising dividends and make my stock purchases accordingly while at the same time make consistent investments on a monthly basis. Of course, this is easier said than done in today’s market environment where PE’s and other traditional metrics used to value stocks are at or near all time highs. Sometimes, a month or two may pass without any new investments. Over time, this may limit your yearly dividend income as you forfeit compounding time that would naturally raise your dividend income on an annual basis. That being said let’s review my recent trades made in my taxable brokerage account. As you can see I have added to my positions in my account and have focused on the financial sector for the month of June. Of the five purchases made only one was in the consumer staple space, KRFT. I consider GE a quasi-financial stock because of its large financial division which will spin off later this year as Synchrony Financial (SYF).
The reason for my focus on the financial sector for the month of June was twofold. First, I found relative value in the names I have purchased as PE’s in many stocks of the financial sector remain well below the S&P and low relative to historical PE pricing. The second reason for investing in the financial space was simply to increase my exposure to the sector. As it stands now my investment in the financial sector stands at 8.90% which is way below my two largest sector holdings consumer staples at 20.28% and industrial at 18.44%.
First up is a stock I also purchased in May, AFLAC Inc. (AFL). AFL currently yields a decent 2.30% with a low payout ratio of only 23.7%. AFL has a long history of raising dividends going back 31 years and has a ten year annualized dividend growth rate of 19.97%. AFL also sports a low current PE relative to the S&P at only 9.67 which is also less than its five year average PE of 11.0. I think AFL is a great buy in this sky high expensive market.
Continuing in the insurance sector I added to my position of The Chubb Corporation (CB). CB currently yields 2.10% with a low payout ratio of 27.3% making its dividend very safe. Like AFL, CB has a very long history of raising dividends going back 48 years! Another impressive stat for CB is its ten year annualized dividend growth which is very respectable at 9.35%. Another factor that drew me to CB was its low PE relative to the S&P at only 11.1 which is a little higher than its five year PE average but still below industry peers. CB is another good value in the market today.
Next, I invested in General Electric Company (GE). I guess you could say the central reason for investing in GE was its current juicy yield of 3.30%. GE has a moderate payout ratio of 52.4% which means there is more than enough cash to cover this current yield. In terms of dividend history, GE has been paying shareholders for decades and only recently had to cut its dividend payment as a result of the financial crisis in 2009. The resulting cut in dividends gives GE a ten year annualized dividend growth rate of only 0.26%. Nevertheless, GE has been raising dividends aggressively for the last four years and I’m sure will continue for many more years to come. In terms of valuation GE is the highest among my new purchases at 21.86 but its forward valuation is only 14.6 finally convincing me to pull the trigger.
Finally, in the financial space I have added to my position of Wells Fargo & Company (WFC). WFC currently yields 2.60% with a relatively low payout ratio of 33.9%. Like GE, WFC had to cut its dividend to save cash during the financial crisis but has since been raising its payout for the last two years. This decrease in dividend has resulted in a low ten year annualized dividend growth rate of only 4.37%. With its current dividend policy in place I would look for the dividend growth rate to continue to climb going forward. On a valuation basis WFC has a low PE of 13.06 which is well below the S&P and industry peers and is in line with its own five year PE average.
Stepping away from the financial sector I added some Kraft Foods Group, Inc. (KRFT) to my holdings. Like GE, the juicy 3.50% yield of KRFT drew me in. KRFT currently sports a moderate payout ratio of 65.6% which is sufficient to cover its current dividend. I realize that KRFT is not a high growth stock nor offer a high growth dividend but does have enough cash and stability to maintain its current relative high yield which is something every dividend investor seeks. Because of the low growth prospects for KRFT you can imagine it having a low valuation as well. KRFT currently has a PE of 12.96 putting it well below its peers making it a relative bargain compared to others in the space giving me reason to buy some more in June.
As you can see from my June purchases there is a lot of relative value still to be found in the market today. AFL, CB, WFC and KRFT all sport low PE’s relative to the S&P and are in line or below historical PE’s as well. GE has the highest current PE of the stocks purchased, however the current yield, future dividend increases, forward PE of only 14.6 and stock spin off of Synchrony Financial (SYF) later this year piqued my interest.
What do you think about me recent purchases for the month? Let me know below.
Disclosure: Long AFL, CB, GE, WFC, KRFT