UPS - Dividend Stock Watch List: Lanny's November 2023 Edition
2023-10-26 04:05:00 ET
Summary
- Dividend investing happens, whether the stock market is up or down, whether the fed raises interest rates or lowers, inflation or deflation.
- UPS is projecting to earn between $85 billion to $100 billion in revenue, just large amounts, even during a tough year that we have all been through.
- NSC is down 25% this year, the stock is at/near the 52 week low, from well over $260 per share.
The stock market is starting to cool off, as expectations for high interest rates may last a little longer. As the Fed has been hinting, “higher for longer”.
That has opened up just a little bit more of an opportunity in the stock market, giving more of a discount to dividend stocks.
No matter what happens in the stock market, you can always find dividend stocks to buy out there, just have to look.
Let’s dive into three dividend stocks on my watch list right now!
Dividend stock watch list
Dividend investing happens, whether the stock market is up or down, whether the fed raises interest rates or lowers, inflation or deflation. Banks are failing or being bailed out. Recession, no recession. It’s all about buying dividend income producing stocks – the best source of passive income source on your journey to financial freedom!
The stock market, specifically the S&P 500, is up 9.50% this year, coming down from the 16-17% gains they had earlier this year. The S&P 500 has ying-yanged all year long, as a few months ago, they were below 4,400. Cryptocurrency is also on a tear right now, with the spot ETFs for Bitcoin (BTC-USD) rising, and the BTC halving coming in 2024, as they say.
Here is the S&P 500 chart below – coming back down from the 4,500 – 4,600 range a few months ago:
Interest rates are steadily rising on High Yield Savings Accounts, with many over 4.50%! In fact, I wrote about many in a recent article (see below).
Given the possibility of inflation cooling, bank failures and instability within banking, the Fed may top out at the current 5.25-5.50% or even 5.50%-5.75% (come December 2023 FOMC meeting) in their fight against inflation and to cool any strong signs of an economy. We may have one more rate increase coming up. However, all of the interest rate increases have increased those savings rate. Ally, where I hold a significant amount of cash, is yielding 4.30%, with an 11 month no penalty 4.55% CD. However, there is one specific Bank / Fintech application that I use so much more now…
I keep more savings in my SoFi savings account – as it earns me – now – 4.60% on my savings account. In addition, I’ve been buying stocks on SoFi’s investing application.
In addition, given the uncertainty, I continue to make weekly investments into Vanguard Exchange Traded Funds (ETFs). The specific ETF my wife and I have been loading up on is Vanguard High Dividend Yield (VYM). We are investing approximately $650 per week into Vanguard (pending the VYM stock price), to stay invested in the market, during the uncertain times. In addition, I am also investing $60 per day into Vanguard S&P 500 ETF ( VOO ) and $40 into Vanguard’s Dividend Appreciation ETF (VIG)!
Therefore, on the road to financial freedom, acquiring assets that produce cash flow or income is the goal! Like I always say, there is always a diamond in the rough. How do I find an undervalued dividend stock? Time to introduce our beloved Dividend Diplomat Stock Screener!
Dividend Diplomat Stock Screener
If you don’t know already, we keep the stock screener metrics to three simple items. They are:
- Price to Earnings Ratio – We look for a price to earnings ratio < than the overall Stock Market.
- Payout Ratio – We aim for a payout ratio between of less than 60%.
- Dividend Growth – We like to see history of dividend growth in a company.
Time to find the answer to… how did the dividend stocks on my watch list grade on the stock screener?
Dividend stock watch list
Here is the list of dividend stocks that are on my radar going into the month of November 2023. I typically like to keep it at 2-3 dividend stocks, keeping the focus locked in. Finding dividend stocks isn’t easy, but there are also other factors, such as composition of my portfolio by industry (such as – am I overweight/underweight in an industry), as well as exposure to one stock and the concentration there.
There, the dividend stocks on my list cater to those other facets when building a dividend stock portfolio.
United Parcel Service ( UPS )
I am on a pursuit to 100 shares of United Parcel Service. Once we dig into the metrics, I’ll be curious if you agree. Over $125 billion by market capitalization, they are definitely one of the larger companies in the world.
UPS is projecting to earn between $85 billion to $100 billion in revenue, just large amounts, even during a tough year that we have all been through.
Recently, they’ve been heavy in the news due to the $30 billion labor union contract that was accepted on August 22nd. As you can see from the chart below, it’s been shocked by 10% downward pressure afterwards. Needless to say, I’ve been buying a share here and there, as they’ve come down. Still not at the 100 share count yet!
Therefore, I want to show the stats and why I do like the stock, even at current prices. I am around 4 shares away from 100 of UPS stock. In addition, they finally have the Union strike behind them, close call for UPS.
Therefore, let's run UPS officially through the Dividend Diplomats Stock Screener, which is focused on these 3 metrics.
- Price to Earnings Ratio: Earnings is approximately $10.34 in earnings per share for 2024. Therefore, UPS is trading at ~14x forward earnings right now, very low at the moment, compared to the 24x the S&P 500 is currently priced at.
- Payout Ratio: UPS’ current dividend payout ratio, using that metric is actually at 60.6%. Right at the ceiling of the dividend payout ratio metric. Still safe, but dividend growth may be lower in the future.
- Dividend Growth: See the 10 year chart below. All up from here. Over 13 years of growing dividends, at an average rate of almost 6.5%, not too bad. Given high inflationary times, high interest rates, tightening of consumer spending, UPS keeping this streak alive is great.
The dividend yield is currently at 4.41%. I grabbed 1 share near this price point and would look near the $140 mark or so for another purchase price! Are you buying this stock?
Norfolk Southern ( NSC )
Yes, the beat of a railroad stock is back on my dividend stock screen. Unfortunately, they’ve gotten beat up this year in share price, primarily due to the trains derailing this year and causing mass destruction in Ohio (yes, my hometown state), as well as in other parts of the country.
I am told by many, that derailments happen quite often, though not as severe as the East Palestine one was, though.
Therefore, I am not afraid of the incident. Instead, incidents, unfortunately, again, provide stock buying opportunities.
Now down 25% this year, the stock is at/near the 52 week low, from well over $260 per share. I love the dividend growth to this transportation stock, as well.
Time to look at the dividend metrics.
1.) P/E Ratio: NSC analysts are actually expecting over $11.93 in earnings per share. That pegs the price to earnings ratio at 15.6x current expected earnings right now. Lower than stock market, no doubt about that.
2.) Dividend Payout Ratio: Norfolk pays a quarterly dividend of $1.35 per share, per quarter or $5.40 per year. This equates to a dividend payout ratio of only 45%. That is in the perfect sweet spot of 40% to 60%! Plenty of room to pay and grow the dividend.
3.) Dividend Growth Rate: The 5 year average dividend growth rate is over 13%! Now… that may be lower due to the recent incidents this year, but look at this track record below:
Lastly, we’ll take a look at the dividend yield. As an investor, you want to know how much owning this dividend stock pays you now! The yield for NSC is now yielding 2.91%.
Personally, would love that 3% threshold sweet spot for the price point. That means $180 or < 3% of a price drop to go!
T. Rowe Price ( TROW )
A dividend aristocrat has made the list and hopefully for RIGHT reasons… though I know I’m here to find any troubles in the water here.
Earnings comes out on October 27th, so I’ll be paying CLOSE attention to those results.
T. Rowe has over $1 trillion in assets that they manage. The last earnings release, however, shows a net outflow of $20 billion, which was offset by market gains. I am sure gains slightly dwindled during the 3rd quarter rout we had.
However, T. Rowe seems to state they are managing expenses and that we’ll see the slower pace of expense growth vs. revenue growth, which truly means = margin expansion. We saw signs of that in the 2nd quarter, and I am sure we should anticipate larger margin growth in this last quarter.
However, the stock has just been crushed this year now. They are down 14% and specifically the last month they are 10%, dropping $10 per share.
Now, though T. Rowe is a dividend aristocrat, with a typical high dividend growth rate, that is all changing very fast for T. Rowe in a tough market. Last dividend increase was only 1.67%. I would anticipate that again come 2024, before markets overall truly turn around.
Alright, time for the dividend metrics, right?
1.) P/E Ratio: T. Rowe analysts are projecting $7.13 in annual earnings. A 13x price to earnings ratio. Fairly cheap right now.
2.) Dividend Payout Ratio: T. Rowe now pays a $1.22 per share, per quarter dividend, or $4.88 annually. This equates to a 68% dividend payout ratio, which explains the recent dividend growth trend. See below.
3.) Dividend Growth Rate: T. Rowe’s 5 year dividend growth rate is over 20% BUT… the last dividend increase was only 1.67%. Therefore, I would expect much of the same over the next year or two.
Lastly, we’ll take a look at the dividend yield. The yield for T. Rowe is now at 5.22%.
I think $90 would be a nice, round, re-entry point for me with T. Rowe Price at the moment, giving me time to review a new press release.
Other Dividend Stocks to buy
I am also considering, as a quick hitter approach here, my eyes are on a few other stocks. Those stocks are Hormel (HRL), Main Street (MAIN), Eastman Chemical ( EMN ) and a few others.
I own each stock and am constantly evaluating the stock market, to see if there are undervalued dividend stocks to buy in this wild market.
Dividend Stock Watch List Conclusion
Dividend investing is real and is happening! Of course, prior to making any purchase, I definitely will make sure to run them through the Dividend Diplomat Stock Screener once more.
As always, I highly encourage you to do your own research as this is not financial advice (quick disclaimer!).
As you have noticed, I have trickled many articles on this page. The goal is to educate new dividend investors out there, or to sharpen the terminology for current dividend investors. As always, stick to your investment strategy and dividend stocks will be there. What do you think of these stocks above? Thank you, good luck and happy investing everyone!
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Dividend Stock Watch List: Lanny's November 2023 Edition