DECEMBER STOCK WATCH LIST

The stock market is a fluid thing.  What seems like a great value one moment can seem overpriced the next. 

Been doing some research on my watch list.  Looked around quite a bit at many of the other dividend growth bloggers and took in their info and excuses as to why "Company ABC is the one to buy at this time!!"

In fact, many of my purchases over the past 5 years has been a result of seeing a pattern of recommendations by these bloggers and narrowing it down to one or two. 

I do have a watch list that lists companies that pass my screening threshold.  You could call that my "master list" from which I pick the ones that I eventually buy from.  The list does fluctuate, but I tend to follow it for a couple months at a time before re-screening.

From that current list, I revisit my screener and see what stands out.  Here's what I want to see:
- P/E under 20
- PEG ratio under 2
- Dividend growth of over 10% over the past 5 years
- A dividend yield over 2%

Here's the three that I seem to like for the upcoming month...

Please note that these are


ROYAL CARIBBEAN CRUISES  (RCL)


Coming in at $119.13 this weekend, that's a nice fall off from this year's high close of $130.89.

It's rice to earnings ratio is at 12.99, which is well below my 19 limit.  Even nicer is that is is well below the industry P/E average of 25.90.

Their EPS growth is at 31.95% with a projection of another 11% in the coming year.  Combine that with a PEG ratio at 1.27, their growth is not overpriced.

The dividend yield is currently at 2.62% and has been growing at a 21.06% clip over the past 5 years.  Not too shabby! Add to that a payout ratio of only 34%, there still is quite a bit of room to grow in this area.  They should have their next Ex-Dividend sometime in mid December.

This stock seems like a good bet at this time.

AMERIPRISE FINANCIAL (AMP)

AMP is riding high right now, but what solid company isn't?  Currently they are trading at $159.77, pretty much their high water mark of the year, but well off the $182 they hit back in January of 2018.

A P/E ratio of 11.14.  Their industry average is 17.37.  Also I like their PEG ratio at an even 1, which they are failry valued at this point.

Their dividend pays at a 2.43% clip.  A payout ratio of only 27.4% and a growth rate of 10.83 over the past 5 years.  Unfortunately I also missed out on their Ex-Dividend of 11/1.


PENSKE AUTOMOTIVE GROUP  (PAG)

Even though PAG is close ($51.09) to its 52 week high of $52.51, I still feel they are a good value.  Their P/E ratio is at a 9.78, well under their industry average of 23.95.

Their dividend pays at a 3.21% clip and has grown 14.32% over the past 5 years.

What makes them interesting is that they have been raising their dividend by .01 per share EVERY QUARTER for over 8 years! It's easy to know what to expect, especially when their payout ratio is still at 31.72%. I just missed their Ex-Div date of 11/7, but I do want to give them a shot, even though their earnings have not been as expected over the past year.

I like them, but they do come in 3st....

 Others that I have been eyeballing are Lockheed Martin (LMT), Principal Financial Group (PFG), and Netapp Inc (NTAP).    In fact NTAP may supplant Penske within this month since their dividend growth and value is impressive.

Thoughts?

HOW I SCREEN FOR STOCKS

How do I pick from the thousands of companies to choose from to invest in?  

I keep it fairly simple with 7 parameters that companies need to meet in order to make.   I use four of them to formulate my list of companies to watch.  Once there, I then use 3 more to narrow the field.  

BTW,  here's a cute bunny....

Ok, back to the subject at hand...  Here are the 4 main things companies have to do to make muster.

A TRACK RECORD OF DIVIDEND INCREASES

 
      This is the most important requirement to be a dividend growth investor.  Duh...  I look for a company with a track record of a few solid years of increasing their dividend.  Sharing profits with owners of the company is the whole reason I invest.  Well, that and retiring someday thanks to the effect of compounding dividends.

The ones with the longest track record are the S&P 500 "Dividend Aristocrats".  These companies have increased their dividend payout for 25 or more consecutive years and have a market capitalization of $3 billion or more.  right now there are 57 companies that have made the list.

But there are many, many more companies that have a solid track record of increasing dividends.

Here's a list of  Dividend Champions, Contenders, and Contenders    Pick from this list.

Another thing to consider is to see if their increases surpass the current inflation rate.

A LOW P/E RATIO

A look into the Price to Earnings ratio is a good way to see if the stock is under or overvalued.   It's the ratio of the share price to the companies' earnings per share.  It's the price of expecting a profit in the future.  The S&P 500 is around 22X as of October 2019.   It also varies within sector and industry.

I look to find companies that are under about 19.  I also look to see how they compare with their competition in the industry they are in.

A LOW DIVIDEND PAYOUT RATIO

Can a company sustain their dividend and have room to raise it?   A company that is paying out a large majority or all of their profits have a hard time keeping up their dividend in the long run.  Ive been burned by some of them in the past few years and now pay close attention to this.

I look for companies that are under 60% or so.  The lower the better, as long as they pass the other parameters.   For example, Apple is around 26% at the time of this writing.  This means they have lots of free cash flow (as long as their debts are low) and have plenty of room to grow that dividend.

A MARKET CAPITALIZATION OF $3 BILLION OR MORE

I prefer companies with scale and a size advantage.  Small cap companies are more risky.   This is why I started with large cap companies.  Once I grew a nice buffer of 50 companies, I then began looking for smaller companies.

Once a company meets these 4 categories (or at least 3 and real close on the 4th), I will start looking at some other parameters.

AN EARNINGS PER SHARE GROWTH OF 5% OR MORE

I am hesitant of a company that is stagnant and has difficulties growing.  Of course there are exceptions to this, like with AT&T.   It's a challenge for them to grow at fast clips unless they assimilate another company like a Borg.

A LOW PRICE TO EARNINGS GROWH

Ideally at 1%. This is a measure of the price of growth.  I would rather not overpay for a company becasue they are growing at a good clip.   In bull markets, this is more of a challenge, but can be found.

A LONG TERM TRACK RECORD OF EPS GROWTH

If a company has a long track record of growth, I believe that the odds of keeping up that growth is better than companies that do not have a tack record.

After all of this, I look at other things

I may look at  which month of the quarter they pay the dividend in an attempt to balance out my earnings.

Or I may look at how much of their industry I already own (exactly why I still do not own Smuckers or Walgreens)


Of course, this is just a guide.

PLEASE DO YOUR OWN RESEARCH.  I AM NOT RECOMMENDING ANY COMPANY WHATSOEVER OR TO  FOLLOW MY RESEARCH METHODS.

This is just how I narrow a list from thousands of companies to a small handful.