Though I am still cautious about the stock market in general, I decided to use last week as an opportunity to initiate positions in two companies - BP p.l.c. (BP) and Emerson Electric (EMR). Both stocks were on my recent watch list, so it sure didn’t take long for me to make good on my word, did it? 😉
I still believe in waiting for a larger pullback before putting more skin into the game. However, I did feel comfortable enough with last week’s prices to put a little bit in now. I added 25 shares of EMR at $49/share and 25 shares of BP at $40/share. I used limit orders to make the purchase. When it comes to dividend stocks, I’m okay with dollar cost averaging down if I have to, as I plan on utilizing a ‘buy and hold’ strategy. Yep, I’m in this for the long haul.
When evaluating dividend stocks, I tend to look for the following:
-Growing dividend from year to year
-EPS growth from year to year; overall positive trend in last 5 years; positive outlook next 3 years (not shown in the data below)
-Debt to Equity, Price/Sales, Price/Book below or equal to industry
-Trailing P/E below industry average; respectable forward P/E
Of course, the above is just a general guideline. But I do like to keep things real simple! I don’t feel like investing in stocks needs to be made so complicated. Though, I will make exceptions to the above guidelines for stocks I feel are grossly undervalued, or would make for strong future plays.
EMR is an example of this. At first glance, it does not meet some of the criteria outlined above. On the other hand, it is a dividend stalwart, having increased its dividend every year, for the last 55 years. EMR has been a model of consistency, and although the current forecast / outlook aren’t so great, I am betting on it for the long term. Also, it allows me entry into the industrial sector, which was previously missing in my portfolio.
BP is simply a value play. With so much uncertainty surrounding it, its current P/E is only 5.2. In general, I am bullish on oil, and comfortable on taking a gamble with BP. It also allows me to further diversify in oil companies - its addition complements Chevron (CVX) and ConocoPhillips (COP) in my portfolio.
The stock evaluation program I am using (tinkering with) allows an input for initial price and initial year. For this example, I used $5000 as the initial investment price. I started logging data from January 1, 2000. This was to allow for a sufficient enough range to showcase the dividend growth over time.
EMR: Initial Investment ($5000) grows to ($10,607.45) from January 2000 to May 11, 2012
BP:Initial Investment ($5000) grows to ($5550.58) from January 2000 to May 11, 2012. Not much gain over 12 years, but we all know why 😉
Nice moves here. Looks like solid buys.
EMR is a stalwart. No worries with that one. The dividend growth is a little lower than I’d like, but the valuation is good and the yield is pretty solid. The business is solid.
BP has some questions around it regarding fines from the massive oil spill. The yield is pretty great and if they can get through their troubles relatively unscathed than I imagine this will be a solid investment. The only thing that keeps me away from BP is that oil stocks in general are attractively priced and you can get this kind of yield with COP domestically and you can get a higher yield with other international plays like RDS or TOT.
Thoughts?
Best wishes!
DM,
Thanks for the input! Yes, the dividend growth for EMR is a bit lower than what I would also normally consider. With that 6% or so drop last week, though, I thought now was a decent time to initiate a position. When the market sours, I guess there is comfort taken by owning stocks that have shown they can consistently weather the storms, so to speak. In general, you probably over-pay for blue chips, but I don’t mind owning my fair share, for the peace of mind. I also own AAPL, and the last two months have been nothing short of a rollercoaster ride 🙁
BP has a a very attractive yield, like you mentioned. As such, I don’t really mind waiting for it to bounce back. I’ll just keep cashing in those dividends as I wait. COP is another good one, but I already owned some, so wanted to diversify a little bit. CVX is probably my favorite out of the lot. RDS was the other one I was considering w/ BP. Kind of just flipped a coin, between the two 😉 TOT looks like it has a very attractive yield, but its dividend seems to fluctuate quite a bit. I really haven’t done enough research up to this point to fully understand, or feel comfortable with TOT… Thanks very much for suggesting it, though. I’ll be watching it more closely in the future. I really did like BP’s growing dividend history (up to 2010, that is). In any case, I think I’m done with oil until more significant pullbacks occur. Would like to get some more CVX at around $90. Until then, I’ll be concentrating on other industries.
Cheers!