September 2016 Stock Considerations

With half of September over, it’s time for me to take a look at some potential stock picks for my long term dividend growth portfolios. The last few months have seen me make one or more small buys as I continue to nibble on stocks as many of them remain on the expensive side from a valuation and yield perspective. Of course, sometimes all the planning and calculations made for potential stock picks can get thrown out the window when the market drops unexpectedly as we saw last week. Because of that big drop I took advantage and nibbled on four positions already in my portfolio which included, The Coca-Cola Company (KO), General Mills, Inc. (GIS), McDonald’s Corp. (MCD) and V.F. Corporation (VFC).

 

I had mentioned over the summer that I am looking to diversify my dividend income as much as possible so as to not become too reliant on just a handful of stocks for the majority of my dividend stream. With that being said, I am looking to initiate a new position or two from my watch list and add further diversification to my portfolio.

 

My first consideration for the remaining half of September is a dividend stalwart in every respect, Cardinal Health, Inc. (CAH). As I’m a fan of the consumer staples for their predictability and reliability in their space, so too I am a long term fan of the health sector for the same reason. With a decent current yield of 2.39% and low payout ratio of 31.9%, CAH has room to continue to pay and raise its dividend based on current cash flow. My primary concern for any stock I own is dividend sustainability. The stock has faltered a bit in recent weeks and is currently sporting a PE of 17.4 which is well below its five year average. While the current yield may not be ‘super juicy,’ its ten year annualized dividend growth rate of 21.76% is.

 

Another new stock I am considering for my portfolio is T. Rowe Price Group, Inc. (TROW). This financial stock sports a more attractive yield of 3.22% with a moderate payout ratio of 46.7% based on current cash flow. Again, this dividend appears to be safe based on current cash flow which is what I’m always after with all my holdings. As with CAH, TROW sports an attractive current PE of 16.2 which is below its average of 20.0 making it an interesting potential pick these days. Of course, having a annualized dividend growth rate of 23.73% doesn’t hurt either.

 

In the same financial vein, I am also considering an American bank that has been quite popular among the DGI community as of late, but not in the media, Wells Fargo & Company (WFC). Finally, in the financial sector I am considering initiating a new position in The Travelers Companies, Inc. (TRV). It’s been a long time since I added a new stock to any of my portfolios and with TRV’s yield of around 2.36%, low payout ratio of 28.4% and a PE of 11.0 which is in line with its five year average, this insurer suddenly looks like a decent buy. Other names I’m considering include, W.W. Grainger, Inc. (GWW) and V.F. Corporation (VFC) as well, which have been on my ‘considerations’ list throughout the summer.

 

What do you think about my potential stock picks for September? I’m considering three new positions as well as some of my old favorites. Are any of the above names on your monthly watch list? Please let me know below and I welcome any suggestions too.

 

Disclosure: Long KO, GIS, MCD, VFC, WFC, GWW

22 thoughts on “September 2016 Stock Considerations

    • Hi DC,

      WFC could become extremely attractive as share prices continue to fall. The yield is certainly moving in the right direction and I think with enough patience, WFC could pay off for anyone with a longer term horizon. Of course, in the short to medium run it could get pretty ugly for the stock. As always, I appreciate your comment.

    • Hi FC,

      It’s not a good thing to come to light for WFC but in all I feel that over time this “scandal” will become a distant memory. People tend to forget after a while and WFC still has a solid mortgage business and one of the largest depositor bases in the world. It could get quite ugly for WFC in the short to medium term but in the long run I think they’ll be just fine. I held my WFC during the financial crisis when no one showed any love for any bank and they still came out OK. I’m holding on to my WFC shares. Thank you for sharing your thoughts.

  1. Maybe it’s just me, but I don’t really get all the hubub with the Wells Fargo “scandal”. I realize that in today’s narrative it’s really easy to pick on “greedy wall street bankers,” so the headlines practically write themselves, but this whole thing strikes me as more dumb than it is greedy.

    The fake accounts didn’t make them very much money, and the fine is proportionately small as a result.

    The people that made the fake accounts got fired for it. So what’s the big deal? It was a high pressure sales culture? Every sales culture is high pressure. I’ve been in sales for 10 years and I don’t think I’ve ever had a quota that I thought was reasonable.

    I’m not really in love with my WFC investment, but I took a long position because I hoped that it was the least evil big bank (I can’t for the life of me figure out or differentiate the fiscal fundamentals of US SIFIs).

    Now that they’re under federal investigation for having a partially lazy and dumb sales force, I’m not ready to give up on the “not evil” investment thesis…although is “dumb” really that much better?

    • Hi catfishwizard,

      It’s not just you. The media loves to pounce on anything large or small and sensationalize it. The narrative of a big bank is easy to paint in an evil and devious manner when things like this come to light. I’m not saying WFC was an angel here, but I do believe things will blow over. Whether it’s evil Wall Street bankers “stealing” our money or E.coli scares that actually kill people, the media loves to pounce on these occurrences and milk it for everything it’s worth. I feel, in time, all will be forgotten but in the short to medium term it could get ugly for WFC and maybe a good time to pick up some shares while beaten down. Thank you for stopping by and commenting.

    • Banker here. Lemme just chime in.

      The whole thing about this scandal is the numbers and the environment. This sort of thing happens in all banks. But usually you will see on or two bankers open up a few fake accounts and get caught. It was the branch banker’s fault, not the bank’s.

      This is different. 5,300 employees fired and 1.5 million fraudulent accounts opened over a period of years isn’t a bunch of employees not following the rules. It’s a systemic problem that comes from higher up. It also reflects a MASSIVE compliance failure in one of our nation’s most powerful banks, and that is a huge problem.

      And with that top-down systemic problem comes another issue: the fact that only low level employees have gotten the axe and not the senior managers whose pockets were lined with millions of dollars while this was going on (due to their negligence at best or complicity at worst).

      As for the sales environment, Wells Fargo has been long documented to have abusive sales practices, both towards customers and employees. Employees were literally backed to the wall with very few choices, and managers left them with nothing but a threat and an ultimatum. I’ve worked in high and not-so-high pressure sales myself, and the stuff I read about Wells Fargo shocked me. Plus, I don’t think many people who signed on with them knew what they were getting into. Obviously the company doesn’t tell you about your ridiculous sales goals or the required aggressive tactics until after you’ve accepted the offer and quit your old job.

      Hope this helps put things in perspective.

      Sincerely,
      ARB–Angry Retail Banker
      ARB recently posted…Wells Fargo Fires 5,300 For Opening Fake AccountsMy Profile

    • Hi TCF,

      I definitely like all my current holdings and wouldn’t mind adding to them but I think it may be time to nibble on some new positions for my portfolio. Both CAH and TROW seem quite popular among many of our fellow dividend investors and both seem like they are selling at pretty good values and yields. Thank you for commenting.

  2. Very nice list, gives good segment variation to pick from. We bought WFC recently ourselves and are watching it closely due to the recent media coverage. You know what the say when people get fearful… Still interesting to see what will happen over the next few weeks. We saw something similar with VWA (Volkswagen) and their diesel gate story. Although their price is still not totally recovered.

    • Hi Divnomics,

      These days there seems to be quite a few names that are looking attractive. Just a couple weeks ago or so it seemed like everything was too expensive. My how things change. Now, some very solid dividend payers appear to be going on sale. WFC will have a rough near and medium term but further down the road I think they’ll be just fine. For now, the banking business itself hasn’t changed. We’ll see what more fines and potentially new regulations may do though. Thank you for commenting.

  3. Good list, as always. My take: TRV and WFC will benefit on any rate increase – but Congressional hearings loom for WFC. CAH may face some indirect EpiPen fallout My issue with TROW is that they’re lawsuit happy when their own internal controls fail. Where there’s smoke …

    I agree WFC’s issues (as well as CAH’s) are short term in nature with what we currently know.

    • Hi Charlie,

      I think we’ll still be waiting a long time for any meaningful rate increase, though it is coming down the line so, those financial names will have to wait to benefit from increased interest rates. In the meantime, it looks like the WFC ‘scandal’ is giving us some better buying opportunities and other names mentioned are selling at much better prices, value and yield. So far, September has proven to be quite a volatile month giving us more potential stocks to invest. As always, I appreciate your comment.

  4. DivHut,

    Wells Fargo is definitely making a claw back into the eyes of us investors – stock has dropped a few $’s and they are nearing that 3.30%+ yield, which is impressive. Great list you have there, may have bought some TROW on Monday, and may (haha) have also been able to capture the 3rd quarter dividend. Good luck and keep us posted!

    -Lanny

    • Hi DD,

      September has really given us a lot more dividend stocks to choose from than recent previous months. It will be interesting to see if September has a serious shake out like we saw in the beginning of 2016 when the market took a serious dive. No matter what happens, I still plan to nibble on stocks. A few small purchases here and there all add up to more dividend income down the line. Look forward to seeing where you have deployed your fresh capital. Thank you for commenting.

    • Hi DT,

      These days we definitely have more choices about where to invest our fresh capital. There are quite a few solid dividend plays out there offering a good yield and much better value too. Thank you for commenting.

  5. I’ve looked into KO in the past as well and have even owned it at one point. Do you think they need to purchase a snack/food company in the future for growth (similar to PEP)? Or can they do it just with beverages?

    • Hi TDL,

      KO is a great long term dividend payer and I have held that name since 2007 with plans to keep it for the foreseeable future. I think KO is doing a good enough job for now in terms of diversifying their beverage portfolio. KO is so much more than their namesake product as they have expanded into juices, sports drinks, teas, vitamin and other waters and new trending beverages like coconut water and more. Of course, there is always room to expand into other markets and longer term getting into a snack food game might make sense but not today. Thank you for sharing your thoughts.

  6. After my recent article about Wells Fargo, you’d think I’d be selling all my shares on moral grounds. But quite the opposite. I’m looking to take advantage of the current issues and buy more.

    The current issues they are facing are short term and they’re still a great business. The cross sell numbers only make a small piece of bank profitability and I read somewhere that most of the customers weren’t charged more than $25 (though the extent of the damages ranges greatly from person to person).

    Plus, by buying more shares, I have more voting power. So when those responsible for creating this abusive culture are up for reelection, I’ll be happy to cast my vote for them to be kicked to the curb.

    Hopefully the bank will revamp it’s sales practices and do a wholesale reform of how it treats its employees, coming away a more profitable and trustworthy institution that doesn’t make all bankers and all WFC investors look bad.

    Sincerely,
    ARB–Angry Retail Banker
    ARB recently posted…Wells Fargo Fires 5,300 For Opening Fake AccountsMy Profile

    • Hi ARB,

      Well said. I also agree that these banking issues are short term in nature and that over time these problems will subside and another media focus will be making the headlines. You are not alone in taking advantage of the WFC dip in recent days as quite a few of our fellow dividend bloggers have been adding to their holdings as well taking advantage of much better values and yields. After reading your post I didn’t really get the impression that you would want to cash out of WFC entirely. Being on the inside of the retail banking world you tend to know what’s a serious problem to banking health versus sensationalism. Thank you for sharing your thoughts.

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