You’d think with ownership stakes in 51 different companies, I’d be pretty content with just adding to those stakes and increasing my positions.
However, as I’ve discussed a few times, the universe of high-quality dividend growth stocks is certainly greater than just ~50 companies. As such, I’m not interested in artificially limiting myself or placing a ceiling on how many stocks I may or may not own. And on that note, there are a number of great companies I continue to track in the interest of eventually investing in.
Though I see a few companies in the Freedom Fund that are fairly valued or better, there’s a chance that my next purchase will be a new stock due to the fact that most of the very few stocks that I think are attractively valued in my own portfolio are already mostly maxed out in terms of allocation.
United Parcel Service, Inc. (UPS)
Perhaps one of the most well-known companies in the world, this is a stock that has alluded me for a while now. Though I’m not real excited by the growth generated by the company over the last decade, I can’t see any scenario where UPS isn’t alive and well over the next 10 years and beyond. Their geographical exposure is enviable and they’re about as entrenched as a company can be. The continued rise in e-commerce means shipment volume should continue to increase over the long term, which is volume that UPS is well-placed to capture a good chunk of.
The stock trades for a P/E ratio of 31.26, which expanded after fourth quarter results were released at the beginning of the month. Nonetheless, the company appears more or less fairly valued around $100 here. Offering a yield of 2.85%, a five-year dividend growth rate of 8.3% and solid fundamentals across the board, this company and its stock is right up my alley. The dividend growth streak, at only five consecutive years, is a little light, but I expect that to be a bit more impressive over time.
Archer Daniels Midland Company (ADM)
This is another stock that has alluded me for some time now, but I may change that within the next few weeks or months, warranting capital, stock valuation, and competing opportunities. Archer Daniels is one of the largest agricultural firms on the planet, with major businesses in food agricultural commodities processing and the manufacturing of certain foods and fuels. Trends like the planet’s demand for food and feed bode well for the company and its offerings, which is somewhat countered by the possibility that the renewable fuel standard will be changed in a way that will negatively affect ADM over the long term.
The stock’s P/E ratio of 13.9 is attractive in this market, though the yield of 2.34% leaves a bit to be desired. But the company’s dividend growth pedigree is unquestioned, as the company just recently increased its dividend by 16.7%, which is the 40th consecutive year in which ADM has increased its dividend. A low payout ratio of just 32.6% seems to ensure continued raises for the foreseeable future. This stock has a really great combination of yield and growth, though with more focus on the latter.
T. Rowe Price Group Inc. (TROW)
T. Rowe Price offers global investment and asset management services. A really underrated stock, they’ve posted excellent results as a business (and returns as a stock) over the last decade. Revenue has more than doubled over that time frame and EPS has almost tripled. The company’s position in financial services sector with over $700 billion in assets under management is enviable and should provide continued revenue and profit for years to come. Furthermore, the company sports excellent fundamentals across the board.
TROW is trading hands for a P/E ratio of 18.55, which is a bit below its five-year average. The stock appears slightly undervalued here, all considered. Though the yield of 2.13%isn’t particularly compelling, the five-year dividend growth rate of 12% compensates for that. And a fairly low payout ratio, at just 39.6%, indicates to me that it’s unlikely that TROW will stop growing its dividend at a rather robust rate looking forward. After all, the company has managed to hand out dividend raises for the past 27 consecutive years.
Praxair, Inc. (PX)
Praxair is a leader in the global industrial gases industry. This company would complement my investment in Air Products & Chemicals, Inc. (APD) really well due to their stronger concentration on gases. Providing gases is extremely lucrative because a constant and reliable supply of the product is necessary for a variety of processes across a variety of industries. And PX benefits from being able to sign long-term contracts that provide an ability to index certain input costs to inflation, and these contracts provide great revenue visibility.
The stock’s P/E ratio of 22.25 is more or less in line with their five-year average, although the yield, at 2.24%, is a bit higher than its average over that period. A 22-year streak of dividend increases is very attractive, as is the five-year dividend growth rate of 10.2%. The payout ratio is moderate and I see no reason why the dividend (along with the business and its profits) won’t continue to grow. The business model and PX’s fundamentals offer a lot to like here.
Microsoft Corporation (MSFT)
Though I’m not a fan of technology companies, I’m interested in a strategy whereby I strategically invest across three to five high-quality blue-chip tech companies in small amounts to mitigate risk while also allowing some exposure to the tech industry. Microsoft seems to fit the mold for me with a proven business model licensing its extremely successful and robust software, a lengthy history of growing the top and bottom lines, and a penchant for rewarding shareholders with increasing dividends.
The P/E ratio of 17.59 seems a bit high after a weak quarter which prompted the stock to sell off a bit, but MSFT appears to be more or less fairly valued from what I can see. The yield, at 2.85%, is attractive for this stock and the industry, and the company has been increasing its dividend for the past 12 consecutive years. Meanwhile, the payout ratio is moderate and the company continues to produce prodigious amounts of cash flow. Not my top pick right now, but I think there are some really good qualities here including the over $90 billion in cash, equivalents, and short-term investments on the balance sheet.
Conclusion
So these are a few companies that may be competing for my capital over the coming months. I don’t think any of the aforementioned stocks are a steal right now, but I certainly don’t mind paying fair price for a high-quality business. And I think that all of the above businesses are high in quality, to varying degrees. Furthermore, I have room in my portfolio for all five, based on my current exposure and allocation.
I continue to think that there’s some value in select energy stocks, but I also remain cautious about increasing my exposure to that sector. As such, my watch list reflects mycurrent interests right now. If I weren’t already as heavily invested in energy, I might be a bit more aggressive there. However, you’ll also notice that I’ve invested rather substantial fresh capital in that sector over the last six months, even though I hadn’t planned to. Value is value, and a value-oriented investor like myself sometimes gets a little excited, but I also have to manage risk and allocation correctly by remaining vigilant and prudent.
Full Disclosure: Long APD.
What do you think of my watch list right now? What’s on your watch list? Anything you’re excited about buying?
Thanks for reading.
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