Hey everybody! Like I said before, every quarter, I run my criteria for purchase on my current watchlist of stocks I want to buy. This allows me to quickly see what companies are more attractive buys, thereby telling me which stocks I should be keeping a close eye on. I like to post this list online as well. I know most of you don’t use my exact criteria, but enough of you use similar-enough criteria that you may find it useful. Hope it helps!
Just because Google Docs likes to be wonky at times, here’s a clean PDF for you to download.
A few quick notes:
- The sector breakdown is from Scottrade; your own classifications may differ.
- This spreadsheet only includes companies I don’t already own. Once my wishlist is small enough and I start reinvesting into older positions, I will do this same process on my current portfolio.
- A green box means it passes my criterion, a red box means it doesn’t, and a yellow box means data isn’t available.
- I still don’t include my new yield criterion here since my wishlist was populated before that criterion’s creation.
Now that that’s out of the way, what’s a good buy?
- Companies that pass all criteria: DLR (Digital Realty Trust), HCP (HCP Inc)
- Companies that pass all but one criteria: AFL (Aflac), CB (Chubb), OHI (Omega Healthcare Investors), WPC (WP Carey), EXPD (Expeditors International), WTR (Aqua America), BIIB (Biogen)
- Companies that pass all criteria except valuation: PX (Praxair), GPC (Genuine Parts), DIS (Disney), BUD (Anheuser-Busch), DEO (Diageo), MKC (McCormick), VTR (Ventas), LMT (Lockheed Martin), UNP (Union Pacific), MMM (3M), V (Visa), AWK (American Water Works), MA (Mastercard)
- These are suitable for starter positions, but not for initiating full positions.
- Interestingly, most companies will fall into this category, so I only listed the ones that are only slightly overvalued, not in OMG-WTF territory.
And with this list, which companies am I permanently removing?
- Anheuser-Busch (BUD) – I’d prefer an American company that (a) pays quarterly, and (b) has more readily available financial data. I feel I can get my exposure to alcohol via Brown-Forman (BF/A) and Altria’s (MO) stake in SABMiller. Of course, BUD isn’t a bad company at all. I just don’t want to overdo it, in terms of how many companies I own.
- Diageo (DEO) – Same reason as BUD.
- General Mills (GIS) – There’s a lot to be said for GIS. But I don’t like the payout ratio and the societal trends involving cereals and “junk food”. I prefer to get my exposure to that area via Pepsi’s (PEP) Frito-Lay division and Hershey (HSY), and that’s good enough.
- JM Smucker (SJM) – Same reasons as GIS (mostly). I do like it better though, especially with the coffee exposure.
- Chubb Corp (CB) – It came down to Aflac (AFL) and CB for my pure-play insurer. Both are great companies. AFL has the dividend yield and payout ratio advantage; CB wins in S&P Quality and Chowder number. The reason I chose AFL was earnings growth. As you can see in the FAST Graphs below, AFL has grown earnings (the orange line) much more smoothly and consistently than CB. To me, that’s a positive sign, even if AFL’s earnings are slightly riskier. Kind of weird, considering CB was a final consideration for my most recent purchase, but hey.
- HCP Inc (HCP) – I figure I get the same exposure to healthcare-related properties with an exposure to Omega Healthcare (OHI) or Ventas (VTR). So either OHI+VTR or VTR+spinoff works for me, and with a much higher Chowder number to boot.
- Snap-On (SNA) – I love tools. They’re always needed in pretty much all aspects of life. I also love SNA since they’ve never cut their dividend. However, they are heavily exposed to the automotive industry (which I get through CMI and GPC). Plus Stanley Black & Decker (SWK) has both a higher yield and a much longer history of uninterrupted dividend increases. Although I’m sorry to say it, SNA has to go.
- Southern Co (SO) – I really don’t like utilities too much. They have attractive dividends, but low growth. Not to mention they often like to cut the dividend every decade or two. I really don’t like those with risky payout ratios like SO. The high dividend doesn’t compensate me for the risk of a near-term freeze or cut, and I feel SO isn’t a sleep-well-at-night stock.
- American Water Works (AWK) – Like I said for SO, I don’t like utilities in general. Plus, I’m not all that bullish on water utilities specifically due to potentially massive costs from upgrading shitty water infrastructure over the next few years. I would rather buy Aqua America (WTR) instead, since WTR has a longer dividend growth streak and a high quality ranking.
- Biogen Inc (BIIB) – I will never understand the pipeline as much as I want. The probable chance of making oodles of cash isn’t worth the risk that I could lose a lot of principal too. Plus, Johnson & Johnson (JNJ), Gilead (GILD), and Baxalta will give me exposure to pharma, and may pay/already pay dividends too.
- Chicago Bridge & Iron (CBI) – It presents a great value, but for the reasons I talked about a bit here, it’s not risk-free either. There are other less-riskier investments I’d prefer to focus on.
And anything on “probation” that I may remove later on?
- VF Corp (VFC) – The clothing space is really competitive, and although VFC has a top-notch stable of brands, and has 42 years of success behind it, I’m not sure I’m completely comfortable with the cyclicality and competitiveness.
- WP Carey (WPC) – I already own Realty Income (O), which I consider the best of the best. No reason to overexpose myself to the area.
So that’s that! At this point, I consider my watchlist complete. I will no longer be adding to it, except in extremely rare circumstances. I have enough solid companies to monitor, and I feel that they give me the diversification I need to be comfortable. Index funds will give me exposure to the rest.
Which companies on the list do you have your eye on?
Disclosure: Long CMI, GILD, HSY, JNJ, O, PEP. Please read my disclaimer here before choosing to invest. Image source is available here. Data source is Scottrade Research, FAST Graphs, and David Fish’s US Dividend Champions List.
14 Comments
Nice list, thanks for sharing. DEO and OHI are at the very top of my list. I almost pulled the trigger on OHI today and I most likely will tomorrow. As for DEO, their growth prospects are tremendous. I’m just waiting to see if the $108-$110 support level will hold for the 5th time in the last 7 months.
Dividend Empire recently posted…Stock Purchase: Union Pacific Corp (UNP)
No prob, hope you found it useful. Are you concerned with the higher payout ratio and lower dividend growth rate DEO? I definitely feel that DEO has unparalleled brand exposure, but I don’t know if the risks presented there are worth it. Like I said, I get exposure to hard liquor with BR/A and beers and wines with SABMiller and MO, so for me, I said no. Just curious on your thoughts there.
The payout ratio definitely concerns me but they have been between 50-60% for the past 10 years. It seems sustainable. I think the dividend growth has been just fine. The 5-year average growth is 8.9% by my calculation and the 2013-2014 increase was 15%. Like I said above, I’ll wait to see if the current support level holds – if it breaks through maybe I can pick some up for $100. Thanks again for the post.
Dividend Empire recently posted…Stock Purchase: Union Pacific Corp (UNP)
Fair enough; good luck, and hope you can open up a position at a solid price point soon.
Great wishlist. I want to own all of them. I have been looking CAT, XOM, CB and AFL but I will have to wait a bit more for more favorable timing. Thanks for sharing!
Cheers,
BeSmartRich
BeSmartRich recently posted…Do you know how much your CEO make? (US edition)
Good choices, all. Already own XOM, which is why I didn’t include it here. And CAT is a bit cyclical for me; can’t deny it’s a good value. Hope you can get your hands on some shares soon!
Thanks for sharing! Personally, I have a dynamic watch list that I update monthly, because sectors fall into and out of favor. I do like your approach of playing off like companies against each other. That’s an interesting way of simplifying.
Take care!
FerdiS recently posted…15 Dividend Increases, April 27-May 1, 2015
Hey, whatever works! The only real risk is that if I sell a company, it’s often hard to find a pure equivalent that maintains proper diversification. At least I dislike selling, right? Thanks for stopping by!
Nice list DD. I hear you on WPC, I was looking into that until it hit me, I am too heavy on REITs with O and DLR being the major players.
Nick recently posted…April ’15 Income and Expenses
Thanks, Nick. Glad I’m not alone in my thought process.
Very solid list, we are looking at similar stocks that’s for sure. HCP and OHI both look very interesting to me. I would like to add DEO but the evaluation is a bit too much for me right now.
Tawcan recently posted…What is frugality? Frugality is…
Yeah, I do like the REITs’ valuations as well. For me, I’m still hesitant due to the interest rate uncertainty, but I seem to be in the minority. Thanks for reading.
Some great ideas and insights in this list bro. I just might have to use it to help me decide where to deploy my capital next 😉
Cheers
Glad to hear it’s useful!