In my last Monday Musings post I shared 5 tips to help have a successful earnings season as an investor. Now I wanted to share my specific watchlist that I have researched thouroughly and am anxiously waiting to possibly add to my portfolio.
THE DIVIDEND FUND
First off let's take a little look at what I call my "DIVIDEND FUND". This portfolio was created in late 2016 to showcase how to build a "safe" investment portfolio that would have a nice sized yield. Currently this is how the portfolio sits:
As you can see I have done relatively well for myself thus far, even though I am currently in the red for 2018. The big reason for this has been my continual goal of the first quarter to raise my Yield On Cost (YOC), which I have successfully done by utilizing the decline in the REIT sector. Being down for 2018 also is a little bit skewed as it really is just a well timed correction of the portfolio that honestly had started to get out of hand, in terms of PE ratios.
As you can see my largest weight is in my "High Yield" category (stocks yielding over 5%) and I am pretty evenly stacked in my "Bond" and "Growth" categories. The Bond category simply are stocks that I believe are undervalued at my time of purchase (some still are) but do not have a high yield or an outstanding dividend growth record. These stocks are nicknamed "Bond" due to their relatively close dividend yield to the 10 year. The Growth category simply has companies that have grown their dividend for at least 10 consecutive years and that I also believed were undervalued when I purchased them. As you can see Mr. Market and I do not always see eye to eye.
Anyways now that you have gotten a look at the fund let me tell you what exactly I am looking to do going into this year's earnings.
- Add to both my Growth & Bond categories.
As you can see the weight of my high yielders are well over 1/2 of my portfolio. I do not like this because along with a high yield also comes a risk. If I am to develop a "safe" portfolio then I would like to be more diversified, which means entering into businesses that may be well suited for dividend growth or simply have large amounts of free cash flow.
- Diversify Sectors
Currently I do not own every a position in every sector. That being said, earnings is a perfect time to begin to watch the market shift from one sector to the next and place my money accordingly.
- Lower the Yield
Now I know this may sound counter-intuitive to what I just presented about having a high yield portfolio but listen up. While I love the higher yield of the portfolio it also is cornering me into a portfolio without a lot of blue chips. That is what I am seeking now and that will lower my YOC.
I am currently limiting myself to 5 stocks on the watchlist, out of which I will select two to purchase full positions in.
They are as follows:
- (DIS) The Walt Disney Company
This is the massive entertainment monster that I want to own not Netflix (NFLX). This is the epitome of a cash cow and I believe that it actually is relatively undervalued at the current price. The dividend yield is a paltry 1.6% but it has plenty of room to grow and may be the safest dividend on the list.
- (SBUX) Starbucks Corporation
The current king of coffee is still yet to create major growth in the fast growing economy of China. The latest economic report from the country show growth to the count of above 6% and although some say it is the government skewing numbers I believe that it probably is true. SBUX is a great company that is sitting at a pretty fair price, but add in a miss to the current controversy and we could see a nice price to add it to a portfolio.
- (PG) The Proctor & Gamble Company
The name everyone's parents have owned for their investing careers is now at a price that I believe is very fair. The yield is at a very nice 3.66% and it has grown the dividend for over 60 years! Why the bad year then? The question of where the future growth will come from. I think that this could be an add for me if they show me something to look forward to in the ER.
- (WMT) Walmart Inc.
Not reporting until May but still has my interest and I will be watching its movement throughout the entire season. In the ever eternal boxing match with Amazon (AMZN) we could see this one dip on any AMZN announcement in their April ER. If this gets over a 2.6% yield (~$80) I am buying up a ton of it. The dividend growth history alone is intriguing but so is the internet sales growth of late as well as free cash flow that, pun-intended, shows me the money.
- (NWL) Newell Brands Inc.
Home to some of the biggest brand names around, NWL has been absolutely obliterated over the past year and it may continue to hurt until the craziness around Icahn and Starboard Value is over. There are a lot of questions about this company, but one that I believe can be answered is whether the risk is worth it. I would say yes. I think that with a yield of over 3% and a growth history that shows a lot of shareholder love is worth taking a stab at. The company has hit a rough patch but a turnaround is definitely possible. That being said this is a ER that I will definitely be watching for.
The five stocks on my watchlist probably are of no surprise to anyone that has been around the market for any significant time at all. Most are legendary companies that produce major amounts of revenue and whose dividend are safe, if not ready to grow. I will be watching all of them for possible entry but really just need to narrow it down to two.
As always feel free to leave me any comments below.