Dividend Stock Watchlist: Lanny’s September 2022 Edition

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Galeanu Mihai

Welcome to another article on the dividend stock watchlist! The stock market took a nose dive on August 26, losing more than 3% in some cases on the overall stock market valuation.

What does that mean? Undervalued dividend stocks to buy now, baby! As a thrifty individual and dividend investor, I love nothing more than buying dividend stocks on sale! Bring it on recession and upcoming interest rate hikes, bring it on!

So, as I do every month, here is the September 2022 Dividend Stock Watchlist!

Dividend Stock Watch List

Another watchlist of dividend stocks! The stock market is more volatile than ever since the 2020 pandemic. What does this mean? New Undervalued Dividend Stocks Are Coming Baby! It’s about buying dividend-paying stocks – the best source of passive income on your path to financial freedom!

The stock market, especially the S&P 500, is still hanging above 4000. Didn’t think we’d be here with all the negative news going on.

All time highs of 4800, falling below 4000 and now stable above 4000 for the past 4-5 weeks. We were recently in bearish territory, but have come back from a more than 20% decline to a 15% decline. What an unstable period we are in! The graph is below:

S&P500

Interest rates are still low on your savings, including high-yield savings, accounts, and money market accounts and funds. However, rates are rising, now that the Fed has raised the fed funds rate by 75 basis points and we have a 50 basis point hike coming in September. Ally, where I hold a large sum of money, yields 1.85%. However, there is one specific banking/fintech app that I use a lot more now…

I keep more savings in my SoFi Savings Account – because it earns me – now – 2% on my current account and my savings account! Completely blowing other products out of the water.

What else happened? I’ve been investing more and more in Fundrise lately – I finally topped over $10,000 invested there.

In addition, I bought shares on SoFi’s investment app.

Additionally, given the uncertainty, I continue to make smaller weekly investments in Vanguard’s exchange-traded funds (ETFs). The specific ETF my wife and I loaded onto is Vanguard High Dividend Yield (VYM). We invest about $400-$500 a week in Vanguard (pending VYM stock price), to stay invested in the market, during times of uncertainty. Plus, I also invest $60 a day in Vanguard S&P 500 ETF (VOO)! I was making $50 but recently increased that to $60 on 7/25.

Therefore, on the path to financial freedom, the goal is to acquire assets that produce cash or income! As I always say, there is always a diamond in the rough. How to find an undervalued dividend stock? It’s time to introduce our beloved Dividend Diplomat stock screener!

Diplomat Dividend Stock Screener

If you don’t already know, we limit stock selection metrics to three simple things. They are:

  1. Price/earnings ratio – We are looking for a lower price/earnings ratio than the overall stock market.
  2. Payout Ratio – We are targeting a payout ratio below 60%.
  3. Dividend Growth – We like to see the history of dividend growth in a company.

Time to find the answer to… how did the dividend-paying stocks on my watchlist rank in the stock screener?

Dividend Stock Watch List

Here is the list of dividend stocks that are on my radar heading into September 2022. I generally like to keep it at 2-3 dividend stocks, keeping the focus on me. Finding dividend stocks isn’t easy, but there are also other factors, such as the composition of my portfolio by industry (e.g. am I overweight/underweight in an industry), as well as the exposure to a security and its concentration.

There, the dividend stocks on my list cater to these other facets when building a dividend stock portfolio. This is a rather defensive, consumer-heavy, dividend-equity watchlist!

Diageo

Diageo (DEO) is still on the dividend-paying stock watch list. Diageo is a deep liquor and adult beverage company. They are present in 180 countries, more than 200 brands of alcoholic beverages with more than 27,000 employees, based in England. They remain on my dividend stock watchlist. Why? Well, if they were on my watchlist last month at $190.44, you better believe they’re on my watchlist at $179.58. Diageo stock is now down almost $11 since last month, or 5.7%.

Hence, it increases the dividend yield and dividend stock metric ratios. That’s why I think now is a better time to buy this stock, who doesn’t like a stock when it’s on sale? Diageo is a recession-proof stock because, unfortunately, people flock to drink during tough times. I’m going to applaud the good times, people!

Here is a picture summary of some of their brands:

Diageo Brands
Stock WD

Diageo, since they sell and distribute alcoholic beverages, tends to fare better during times of recession and inflation. Most people continue to drink and consume, and Diageo passes on the cost increases to the consumer. Additionally, they recently published their latest earnings – net sales increased by 21.4%!

However, we first need to run Diageo through the Dividend Diplomat stock screen, which focuses on these 3 metrics.

  1. Price/earnings ratio: Earnings are about $8.15 in earnings per share. Therefore, the stock is trading at around 22 times current earnings. Next year, analysts estimate around $8.75 EPS. However, the stock is still trading a bit higher.
  2. Payout rate: Diageo’s dividend is paid 2x per year – once in April and the second dividend in October. It is an American Depository Receipt (ADR) as they are based in the UK. Therefore, they announce their dividend in Pence, but the conversion is around $4.077 into a full forward dividend. They stick to a 50% dividend payout ratio policy (i.e. earnings coverage of 1.8 to 2.2). Therefore, they are still in that sweet spot, the perfect payout rate range.
  3. Dividend Growth: Being an internationally based company, Diageo’s dividend growth is hard to say. Therefore, I thought the chart would be nice to present below. The trend is upwards, it goes without saying, over the past 10 years. The drinks keep flowing and the dividend keeps growing!

WD Dividend History

The dividend yield is 2.28%, up from last month’s dividend yield of 2.15%. Moreover, Diageo has a yield well above the S&P 500 and a better yield on average than the majority of high-quality stocks. I’ve owned these for years and they’re definitely recession and inflation resistant stock – still in use and able to pass the costs on to the consumer.

Viatris

Yes, the Pfizer Dividend Equity Spin-off (PFE) is on the Equity Watch List – Viatris (VTRS). Viatris actually has a market capitalization of $12 billion and surrounds its portfolio with highly popular health treatment brands. We’re talking about Viagra, Lipitor and Xanax, to name a few. Here is a link to their full range of brands.

VTRS Action

What I love about Viatris is that they paid off $1.5 billion in long-term debt, cleaning up their balance sheet. Viatris aims to pay off $2 billion in debt by the end of the year and will have no problem meeting that goal. Additionally, Viatris has a current ratio and a quick ratio of over 1x, which is certainly a strong track record.

Viatris had over $700 million in free cash flow and over $1.2 billion in EBITDA after the second quarter.

Let’s run Viatris through the dividend stock metrics to see if this might be a dividend stock to buy now.

1.) P/E ratio: Viatris analysts forecast $3.39 in full-year 2022 earnings. At a stock price below $10, the price-to-earnings ratio is less than 3x forecast earnings . Incredibly low, it just doesn’t make sense!

2.) Dividend payout ratio: Viatris pays a quarterly dividend of $0.12 per share or $0.48 per year. This equates to a dividend payout ratio of less than 15%. Viatris definitely leaves room to pay and grow its dividend, while developing other drugs and paying down debt.

3.) Dividend growth rate: Viatris increased its dividend this year by $0.01, from $0.11 to $0.12 or 9%. Strong enough. I expect at least another penny increase to come in the first quarter of 2023, to continue their streak.

Finally, we will look at the dividend yield. As an investor, you want to know how much you are now earning from owning these dividend-paying stocks! VTRS yield is now over 4.85%! The dividend yield exploded as the stock price fell below $10.

Stock price, is it time to buy 10 shares for $100?

Other Dividend Stocks to Buy

I’m also considering, as a quick approach here, my eyes are on a few other stocks. These stocks are 3M (MMM), Scotts Miracle-Gro (SMG), Paramount (PARA) and GSK (GSK). Stocks that are just beaten, no doubt.

I own every stock and constantly assess the stock market to see if there are any undervalued dividend stocks to buy in this wild market.

Conclusion of the watchlist of dividend stocks

Dividend investing is real and happens!

Of course, before making a purchase, I will definitely make sure to get them through the Diplomat Dividend Stock Screener one more time.

Two different industries and two completely different price points. If Diageo falls below $175, it will be hard not to buy a stock or two. Also, if Viatris stays below $10, I can see buy $100 buys to add to the position. I can’t wait to see how much value I end up recovering in September!

Don’t keep an eye out for dividend aristocrats, such as Johnson & Johnson, PepsiCo or Aflac!

As always, stick to your investment strategy and the dividend stocks will be there. What do you think of these actions above? Thank you, good luck and good investment to all!

-Lanny

Original post

Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

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