Weekly Watchlist - Week of June 29, 2020

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Happy 4th of July week to all my American friends. May your week be filled with cookouts (with proper social distancing protocols, of course), fireworks, and... undervalued dividend growth stocks?

Only the market will tell if we get a healthy dose of that last item, but I've been on the hunt trying to find the best dividend growth investments to add to my portfolio, and have identified a few stocks I think can fit the description. Here, I'll discuss my method of identifying potentially undervalued dividend growth stocks, which are the core holdings of my stock portfolio, and will also list out the stocks meeting this criteria that I've got my eye on this week, the week of Monday, June 29, 2020.

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Without further adieu, here's the latest of my weekly watchlist series of posts. As a note, all stock metrics noted below in this post are as of market close on Friday, June 26, 2020. 




The Criteria

To arrive at my watchlist, I first gathered a listing of the dividend aristocrats and dividend kings. For anyone who does not know what that means, a dividend aristocrat is a stock in the S&P 500 that has increased their dividend each year, for at least 25 consecutive years. A dividend king has done the same over a 50+ year period, though dividend kings do not have to be included in the S&P 500. 

After combining these two lists, I exported data from yahoo finance, and began performing filters in excel for the following criteria:
  • P/E Ratio below 25
  • Dividend Yield above 3%
  • Current Ratio above 1
  • Payout Ratio below 50%
After identifying all the stocks that met this criteria, I then began examining the 5 year average dividend yield, looking for stocks that currently have a higher yield than this metric. I also examined the 3 and 5 year dividend increase history, and looked for stocks that had average increases above inflation (estimated at 3%). 

After running all these filters, 4 stocks stood strong this week.  


The Stocks


Stocks #1 - 3: AbbVie Inc. ($ABBV), Archer Daniels Midland ($ADM), and Cardinal Health Inc. ($CAH)

Turns out, the three stocks that made up my watchlist last week were present again this week. Rather than go on again about why I like them, I'll just give a quick summary of the metrics on each below, and you can check out last week's list if you'd like to get the full details. 

AbbVie Inc. ($ABBV):
  • P/E Ratio of 8.21
  • Dividend Yield of 4.57%
  • Current Ratio of 3.14
  • Payout Ratio of 37%
  • 3 and 5 Year Average Dividend Growth of 23% and 20%
Archer Daniels Midland ($ADM):
  • P/E Ratio of 12.02
  • Dividend Yield of 3.55%
  • Current Ratio of 1.51
  • Payout Ratio of 43%
  • 3 and 5 Year Average Dividend Growth of 5% and 6%
Cardinal Health Inc. ($CAH):
  • P/E Ratio of 9.36
  • Dividend Yield of 3.71%
  • Current Ratio of 1.05
  • Payout Ratio of 35%
  • 3 and 5 Year Average Dividend Growth of 2% and 7%

Stock #4: General Dynamics ($GD)

General Dynamics has been a stock that's been on my radar for quite a while now, and they have finally triggered the metrics to get them on my official weekly watchlist as the price dropped last week, pushing them into 3%+ yield territory. The company is a defense manufacturer, and their biggest customer is the US government - not a bad customer to have. 

General Dynamics has strong metrics, with a P/E under 12, payout ratio of 36%, and current ratio of 1.34. Further, recent dividend growth has been solid and steady with average growth of 10% over both a 3 and 5 year period. Talk about consistency! I've already begun to build a small position in the company with purchases beginning this month, but I will be looking to add more as long as the metrics keep looking this good. 

Summary

There you have it! Four stocks on the watchlist this week, one of which is a new addition from last week's list. We've got some industry diversity here with AbbVie Inc., Archer Daniels Midland, Cardinal Health Inc., and General Dynamics. Will you be adding any of these Dividend Aristocrats/Kings to your portfolio this week?

Are there any stocks on your watchlist you think I've missed? Drop a comment below!

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