My Dividend Stock Shopping List


Check out my stocks shopping list!

I maintain a shopping list of stocks that I'm interested in buying under right buying conditions.

The right buying conditions come true when certain valuation, dividend, and price movement metrics reach a reasonable value or an attractive range.


The overall goal of this shopping list or watch list is to help me identify most attractive buy candidates from a group of stocks that I'm interested in buying at some point in the future.

I also do preliminary research before adding any stocks to my shopping list as I only want to track and buy stocks that are high quality in terms of their credit ratings, dividend sustainability, and future growth.

Below is a snapshot of my current shopping list with various metrics I track.



In today's article, I'm going to talk about three basic metrics that I track in my watch/shopping list to identify top buying candidate stocks. These three metrics are discount-to-fair value, current dividend yield to 5 year average yield comparison, and % below 52 wk high.

This is by no means a complete list of metrics or due diligence that one should do before buying any stocks. Instead, these metrics are simply a starting point in identifying attractive buy candidates for further analysis and research.

Discount to Fair Value (FV)

Fair value is simply a price at which we think the intrinsic value of a stock lies and what the underlying business is worth. Stock price can go up and down, sometimes becoming overvalued and other times undervalued.

It is however expected that over a long-term, a stock price will regress to its mean value. We can think of this mean value as the fair value that can be calculated using various different methods and tools. I have covered in a past blog post how I determine a FV, you can read it here if you are interested: Having A Stock Watch list Can Help You Become A Better Investor

In my shopping or watch list, I have a FV calculated for each stock and I use it as a reference to determine the discount or premium rate at which the stock is currently trading.

General Electric (GE),  IBM, and William Sonoma (WSM) are currently the most attractive stocks in my watch list based on the highest Discount-to-Fair Value (FV) metric. Whereas General Mills (GIS) is about neutral and currently trading at its fair value and AWR is the most expensive or trading at highest premium to FV.


Current Yield to 5 Yr Ave Yield Delta

This metric tells me which stocks are currently paying a dividend yield that is greater than their 5 year average dividend yield. It is another metric to determine how cheap or expensive an stock is based on their historic yield.

Dividend stocks tend to have bottom support around their 5 year average yield and hence the 5 year average yield can be used as a good indicator for the bottom.

The top three stocks that have yields higher than their 5 year average are IBM, WSM, and XOM. This implies these stocks are trading at historic lows and paying yields that we haven't seen in over 5 years.

The chart below shows the delta between current yield and 5 year average yield. Both IBM and WSM tops the list by considerably exceeding their 5 year average yields by maintaining very generous current yields of 4.24% and 3.36%, respectively.


% Below 52 wk High

The third metric in my watch list tells me how far low a stock is from its 52 wk high. You can think of it as a way to determine how big a dip is for a given stock.

Generally speaking, a stock closest to its 52 wk high tends to be more expensive, and a stock farthest from 52 wk high is least expensive.

In this case, IBM, GIS, and GE are currently trading farthest from their 52 wk highs and therefore have the most potential to go up and likely the cheapest of the bunch.



Conclusion

Based on these simple metrics, IBM, GIS, GE, and WSM achieve top positions in my shopping list of high quality dividend paying stocks that are becoming very attractive for a purchase.

Even though many of these stocks look cheap, the overall market is still trading at quite high multiples and a small or medium size correction is imminent, especially given recent geopolitical risks.

Therefore, I would continue to be patient and sit tight for even better entry points for my top buy candidate stocks before pulling a buy trigger.

What are your top buying candidate stocks?

Disclaimer: Author of this article is not a licensed/registered financial or investment adviser and does not provide investment advice. Any mention of stock names/tickers in this article or website is not a recommendation to buy or sell. This article is for informational and entertainment purposes only. Full disclaimer can be read here: Full Disclaimer

Comments

  1. I like the four finalists. I've been buying GIS and GE lately, so I'm on the right track. ;-)

    ReplyDelete
  2. Great list. I don't know a few of those so I will for sure have to add them to my watch list for further research. I keep picking up more shares of GIS at these prices. Thought about adding more to my GE but I think I may try to open a new position with something else. There seems to be decent value in the market right now compared to a few months back. Thanks for sharing your list. Looking forward to seeing what you buy.

    ReplyDelete
    Replies
    1. Thanks DD. Yes, dollar-cost-averaging down is the way to go, even when these companies are trading at cheap valuations.

      I'm very cheap when it comes to buying stocks, I wait for the cheapest price I can get :) Will let you know when I start buying again.

      Delete
  3. Great list! Thanks for sharing your analysis. From a financial engineering standpoint, IBM has a beautiful balance sheet. I was previously an owner of IBM but sold my position because I needed the funds. I would definitely be a buyer again, especially with the dividend yield above 4%. They also have a great dividend growth rate. However, I haven't been buying many U.S. positions because the exchange rate is so bad. With that in mind, my top positions that I'm focussing on are ENB and CM on the TSE. Thanks again for sharing!

    ReplyDelete
    Replies
    1. Thanks Graham. Yes IBM is looking good at 4.2% yield, looks like it has hit the bottom for now. Though, there is still potential for the stock to go further down. I would like to see some signs of revenue growth before investing and maybe a share price somewhere around $125, that would give us a near 5% yield.

      I also own ENB and exchange rate is actually working in my favor for now. This is the only Canadian company I own. Will check out CM.

      Thanks for reading and commenting!

      Delete
  4. That is some amazing watchlist. Would you mind sharing some of your code to get all the metrics?

    ReplyDelete
    Replies
    1. Hi Mr. Robot,

      Thank you for the compliment.

      I use Google Sheet with Google Finance API for several of the metrics in the spreadsheet such as price, price change, 52wk H/L, PE, etc.

      There are several metrics that Google Finance doesn't support, therefore I have to look those up from M*,FastGraphs, and CFRA. Such metrics are div/Sh, historic div yield, and Fair Value. For FV, I have a method I use to calculate an average FV across four different sources. There is a link in the article above where I talk about it in detail.

      So there is no code per se, instead I'm using Google Sheet and Google Finance built-in functions and then I have formulas that I implemented to derive certain secondary metrics in the spreadsheet like discount FV percentage etc.

      Metrics like div/sh and FV, I update them for all stocks once a quarter and for a specific stock just before I'm ready to buy it. While other metrics are updated automatically.

      Hope this answers your question, if not let me know.

      Thanks for reading and commenting.

      Delete
  5. Wow, very cool watch list. You make use of your engineering skills.

    I added GE today $24.xx, maybe It'll fall some more. GE, right now, is unable to make enough money to cover dividend though. But they have so much cash. I think when the next CEO come in, (like microsoft announcing window 10), they'll make some AI acquisition or something to spruce things up.

    ReplyDelete
    Replies
    1. Hi Vivianne,

      Thank you for the compliment, yes it took a while for me to build this spreadsheet and I'm constantly updating it. I even have a dashboard that goes with it.

      Regrading GE, it's a great company and I want to own it as well but it's just a tad bit over my buy target price. Once it reaches my target yield of 4%, I start a position.

      Thanks for stopping by.

      Delete
  6. I bought Gilead(GILD) and W W Grainger(GWW). I didn't buy them for the div, they just happen to pay one. Gilead was above 3% when I bought, now at 2.46%. Grainger currently supports a 3.08 yield.

    Enjoying the blog,

    Caleb

    ReplyDelete
  7. As a guy who spends a lot of time creating spreadsheets, I must say that what you create is top noch. High quality stuff. I read your post about fair value, but don´t you think you shoud do some valuation work yourself?

    I just mean that becoming good at valuation is important for us long term investors. I´m lucky enough to have this knowlegde from uni, but the fair value estimates from brokers are normally short term. My point is that it´s easier if one does the work themself, however, I do understand that time is limited. Anyhow, great stuff ATM!

    ReplyDelete
    Replies
    1. Hi Stockles,

      The article I wrote about fair value was targeted for readers who know nothing or very little about valuation and gives them a few good and easy ways to get that information without getting into the nuts and bolts of valuation techniques.

      BTW, the options I mentioned are quite reputable and based on either proprietary valuation methods such as utilized by CFRA/Morningstar or based on legendary Graham/Dodd valuation formula (via FastGraphs). So, these are not direct broker provided numbers.

      I think, I did mention in that post that fair value doesn't mean that I would buy a stock when it gets to that price/value. Instead, it's just a ballpark number that makes the stock attractive for more analysis.

      There is additional work/analysis I normally do to determine discount rate that I must apply on top of the obtained fair value. This additional discount rate depends on any risks that I see based on my own qualitative analysis of the company.

      For me, it’s all about learning the fundamentals and then later using the tools for efficiency. But not everyone is interested in fundamentals.

      Again, thanks for the compliments and for your thoughtful comment.😊

      Delete

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