Category Archives: Top pick

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January’s Pick

This month we’re straying from the rules a little bit. We have to be honest about that right up front. By breaking the rules, we mean we’re ignoring the scoring system and we’re ok with that. The system is meant to point out stocks, from a collection of quality stocks, that are attractive for a variety of reasons – the two most important of which are current price and dividend yield. Our mantra is “buy great companies at good prices and wait.” This month’s pick, while not the top scorer, is a solid company at a pretty good price. The top scorer this month was actually CIBC (TSE: CM) and it’s a great stock to buy if you don’t already own it or want to increase your position if you do own it. If you already own CIBC and want to diversify, our official choice this month is BCE Inc. (TSE: BCE).

Let’s talk about why we like this stock. We’ve owned BCE for some years now (it’s one of our original purchases) and has been a solid performer (it’s up 89% since we bought in May, 2010). The company has increased their dividend almost every year since 1983 (we didn’t look back farther than that) and the current dividend is $0.68 which is 4.7%. If you’ve been investing or learning about investing for any time at all you’ll know that there are lots of people tweeting and blogging about the fantastic 3% dividend yield of their favorite stock. Here at PDI we don’t even consider a stock that doesn’t pay at least 3.5%. So, you can see BCE is an attractive option for dividend investors.

So why did we choose this company this month? Simple. They’re currently trading at 8.5% below their 52-week high which means they are on sale! Now, this isn’t exactly a barn-burner sale but it’s a good price for a great company. Where have we heard that before?…

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December’s Pick

It’s hard to go wrong with banks. Especially Canadian banks. The banking industry in Canada is quite highly regulated and so bank stocks tend to avoid nearly all the risk that comes with owning some American banks. Also, let’s face it – when times are good banks make money and when times are bad banks make money. This month we’re recommending Canadian Imperial Bank of Commerce (TSE: CM) again (we recommended it back in October). GM, Ford and CIBC tied in our points system but it’s important to not have our exposure to any one industry too high so we passed on the two automakers.

CIBC is currently trading right at its 52-week high so it’s definitely not on sale and you might be thinking: “Don’t you always say to buy stocks on sale?” Yep, we do – usually. But price is only one thing to consider. CIBC is such an attractive stock that we are recommending it despite the fact that it is not on sale. We are, after all, dividend investors. That means we really like solid dividends and we really, REALLY like companies that increase their dividends regularly and often. Last time we recommended CIBC it was at $101 (3.7% below its, then, 52-week high) and it’s appreciated 8.7% since then. Not bad for a couple of months, right?

So, 52-week high isn’t everything. If a stock is well-priced it doesn’t really matter what the actual price is. Would we like to buy it for less? Of course! But we’re not going to pass on a great stock because it’s not on sale. We thought it was well-priced back then and we still think that. Why? The P/E is still an attractive 10.26 and the EPS is 10.71. For EPS, that puts CIBC 7th on the list of over 200 stocks we watch and the P/E is 14th on that list. All that and a 4.5% dividend! Did we mention the dividend announced for December offers a 3 cent increase (that’s a hike of 2.5%)?

If you’re not convinced on this pick, have a look at our October pick post (http://www.passivedividendincome.com/2016/10/01/octobers-pick/) for some more raving about CIBC.

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November’s Pick

It’s time, again, for our monthly stock pick and this entry will be short because there really isn’t anything left that we haven’t already said. General Motors Company (NYSE: GM) is our official choice – again. We should point out that Canadian Imperial Bank of Commerce (TSE: CM, our official pick last month) was a close second. The price of GM has been pretty stable over the last 7-8 months so there has been little capital appreciation but their dividend yield is still an attractive 4.8%. The really great thing about GM stock right now is that the P/E ratio is still exceptionally low (3.58). That’s the lowest of the over 200 stocks we follow! Their strong earnings (the EPS is 8.74) contribute to that low P/E. This means the price of the company compared to its value is very low. The only other company with EPS so much higher than their P/E is Gilead Sciences (NASDAQ: GILD). If you’re keen on capital growth, Gilead is a good choice because they are currently trading 34% lower than their 52-week high which is a great sale! Their dividend yield, however, is only 2.6% which is below our 3.5% threshold so we cannot officially recommend them.

Someday, investors will discover the value in GM and the share price should move to a more reasonable P/E. Why not buy them now and enjoy the climb in the stock price!

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October’s Pick

This month’s pick is about diversification. Before we get to that, I have to be honest and say that General Motors Company (NYSE: GM), technically, earned the top score. If you own GM and want to increase your position, go for it! If for some reason you’ve ignored our past recommendations (it’s risen 9% since we suggested it back in March) and haven’t yet purchased GM, do it now. It’s still a good buy. It’s trading nearly 15% off the 52-week high with a spectacularly low P/E of 4 (in fact, the lowest on the S&P 100 except for Berkshire Hathaway) and strong EPS of 7.8. Not to mention the rock solid 4.8% dividend. Buying this stock is still a good choice.

That said, diversification is also good so this month our recommendation is Canadian Imperial Bank of Commerce (TSE: CM). One of Canada’s big banks, this stock offers the protection of a highly regulated and stable banking environment. The stock is currently only 3.7% below the 52-week high, which is not much of a sale, but the rest of the numbers are spectacular. At $101 a share, the P/E is in the single digits at 9.86 and the EPS is 10.32. That’s right – the EPS is higher than the P/E! Oh, did we mention the dividend yield of 4.8%?

 

Those EPS numbers put CIBC at 8th on our watchlist of over 200 stocks! The only companies with stronger earnings include Google, Blackrock, Biogen, and IBM. Of the eight, the next highest dividend return is IBM, offering 3.5% (another of our picks, by the way) and two of the eight offer no dividend at all.

The chart below shows the 5-year performance of CIBC. Notice anything about the dividend? Talk about a dividend growth stock! They’ve raised it every quarter in 2015 and 2016!

cibc_5_year

 

Needless to say, regardless of the 52-week high, CIBC is priced VERY well!

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September’s Pick

Well, the scores have been assigned to identify our stock pick for September and the winner is… General Motors Company (NYSE: GM) or Ford Motor Company (NYSE: F). You choose. Maybe you like a tie and maybe you don’t, but here’s the scoop.

GM earned a higher score (14) than Ford (12) but they both offer strong reasons to own them. GM came out on top for its strong earnings (EPS is 7.82) but is trading at only 14% below the 52-week high. To be sure, that’s a decent discount for a solid company. Ford’s earnings are not as good (EPS is 2.25) but they are currently trading at over 21% below the 52-week high. That’s a much better sale! The dividend yield for the two companies is essentially the same at 4.78% and 4.82% so we left that factor out of our decision. The price of each company has been pretty flat for the last few months so when they begin to recover Ford has a greater potential for capital appreciation. That’s not something to ignore, especially if you get the benefit of the same dividend in the meantime.

Soooo, if you want a company that is earning more per share for you buy GM. If you want to add the potential capital appreciation of Ford to the dividend yield, choose Ford. Our strategy identifies potential stocks to purchase using an objective method of assigning scores for a variety of factors. If you’re a regular reader, you know that we don’t always just simply buy the stock with the highest score. The system identifies potential purchases from which we then make a choice. Because the dividend yields are the same, we’re going to hope for the greater eventual price increase with Ford so that’s our official pick. Honestly, whichever you choose, you can’t lose in the long run with these two.

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August’s Pick

For those of you who like variety, you’ll be happy with this month’s pick. The bottom line is Metlife Inc (NYSE: MET) again because it comes out with the top score, but we have a couple other options for you. Metlife is still trading nearly 25% off the 52-week high and pays a 3.7% dividend. Really, not much has changed since last month so we’re recommending them again. But we promised some variety… While not the top pick (nor our official recommendation) there are a couple of stocks that are worth taking a look at.

First, Canadian Imperial Bank of Commerce (TSE: CM, NYSE: CM). Canadian banks are strictly regulated and so make for very stable choices for investors. For example, here’s the performance of CIBC over the last 5 years. Notice the number of times they’ve raised their dividend! From $0.90 to $1.21 is a 34% increase in five years. Impressive. That dividend currently sits at 4.9% by the way.

CIBC

So why not recommend CIBC you might be wondering? One reason only: they are trading at just 5% below their 52-week high so Metlife offers greater potential for capital appreciation. CIBC would be a great purchase too, though, and that’s why we’re mentioning it.

Second, Capital One Financial (NYSE: COF). With a dividend of under 3.5% (currently, 2.5%), this company does not make our cut but I’m mentioning it here because it’s currently on sale and offers some capital appreciation potential. The stock is nearly 32% under its 52-week high which is a great discount for a solid company. With a P/E of only 9.16 and EPS of 6.87 it’s an attractive option. Our portfolio is a dividend income one so we wouldn’t purchase COF but you might want to allocate a small amount of your portfolio to it to reap the reward of the expected (inevitable?) price increase.

There you have it. Three interesting options for you this month. Happy investing!

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July’s Pick

Well, it ain’t GM. After recommending General Motors Company (NYSE: GM) for each of the last four months, we’re offering something different for July’s stock choice. Before we do, it’s important to be completely transparent and let you know that GM was actually tied again this month with another stock at 14 points each. If you’ve already built a position in GM based on our suggestions, go ahead and add to your holdings this month. It’s still a great-looking stock scoring 14 out of a possible 20 points. More on that later.

Our choice this month is MetLife, Inc (NYSE: MET). MetLife is paying a dividend of 4.05%, considerably less than the 5.26% you’ll get from GM. The P/E ratio for MetLife is 8.46 which is nearly double GM’s 4.33, meaning GM could be viewed as being a little better-priced. GM is also more profitable as measured by their EPS of 6.68 compared to 4.67 of MetLife. Ok, you might be wondering, “Ummm, then why are you going with MetLife instead of GM?” One main reason: MetLife is 32% off their 52-week high while GM is only 22% off theirs. That means MetLife is at a better sale price compared to what people were willing to pay over the last year. Put another way, the price of MetLife stock could appreciate more compared to that of GM in the next several months. We think that possibility will compensate for the lower dividend yield. To be clear, we don’t advocate buying a stock just because you think it might increase in value. That sounds an awful lot like acting on a ‘hot stock tip.’ That’s not the case here. We’re simply trying to choose between two solid, reliable companies and we’re using potential capital appreciation to break a tie. It’s worth noting that another minor advantage to buying MetLife this month is that it increases the diversity in our portfolio by adding an insurance company to the mix.

Honestly, we don’t think you could go wrong with either one of these companies. If you prefer the higher dividend yield of GM then buy them instead. Either way, you can sleep at night and that’s a really nice spot for investors like us to be.

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June’s Pick

To be honest, we had a hard time settling on a stock pick this month. There was a couple of companies at the top but a couple of really tempting, slightly more risky options, too. If you’re looking for something with a little greater reward we still like Potash Corporation of Saskatchewan (TSE: POT) and you could also think about Williams Companies (NYSE: WMB). Beware though, with greater reward comes greater risk. Potash Corp did cut their dividend in April but they’re still paying an attractive 5.9%. Add to that the fact that we think the world will need fertilizer again in the future and this stock has room for growth. Since we started talking about them a few months ago, Williams Companies has risen from $11 to $21, an increase of about 90%. Not bad if we do say so ourselves. As the uncertainty caused by low oil prices levels out, their share price will continue to rise and they’re paying a juicy 12% dividend in the meantime. Remember that means even if the price was flat for a year you could sell it and walk away with a 12% return.

But enough avoiding the issue. The idea is to recommend a single stock each month, so let’s get to it. There’s something inherently uncomfortable about repeatedly recommending the same stock but one strength of our scoring system is its ability to remove subjective biases like that. That said, we’re suggesting General Motors Company (NYSE: GM) – again.

After we assigned the scores this month there was a three-way tie between General Motors, IBM (NYSE: IBM) and Gilead Sciences (NASDAQ: GILD). Although it scored high in other categories, GILD offers a dividend of only 1.9% which is well below our threshold of 3.5% so we eliminated it right away. If this feels a little like deja vu it’s because we had a tie between GM and IBM last month too. Our reasons for choosing GM again are going to read just like last month as well. The 4.7 P/E for GM is significantly better than IBM’s 11.5 which puts GM at a better price even though IBM produces more income per share with an EPS of 13.3 versus GM’s 6.7. The dividend return for GM is still nearly a full percentage point higher than for IBM (4.9% and 3.7%, respectively). Remember, this blog is still about dividend income so GM gets the nod once again.

Like we said last month, you can’t go wrong with either of these. Buy whichever you want – or both – and sleep at night.

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May’s Pick

It’s time to announce the results of our stock analysis for May and there won’t be any surprises this month. We actually had a tie between two stocks we previously recommended: General Motors Company (NYSE: GM) and International Business Machines (NYSE: IBM). After assigning all the points, both earned a final score of 13. If you’re the type of person that wants a little investment advice but also likes some choice, you’ll be happy with our post this month. In fact, there were some other companies that also scored very well but we like to minimize risk so we’re not recommending those ones. Potash Corporation of Saskatchewan (TSE: POT) also scored 13 and is currently trading 46% off their 52-week high while paying an attractive 5.8% dividend. If you don’t mind a little short term uncertainty, buying or increasing a position in POT would be a good move.

Every month we try to simplify things as much as possible so we feel compelled to actually choose a winner in the tie this month. We’re going with GM and here’s why. GM is 17.4% off their 52-week high and IBM is 17.1% off theirs so nothing notable there. We do see a difference in the P/E ratio, however. GM is at 4.8 while IBM is at 11 so, while they’re both similarly depressed from the 52-week high, GM is at a much better price overall, considering the P/E. In other words, their 52-week high should be higher so, technically, they’re on sale at a better price right now. IBM is more profitable on an EPS basis (13 versus 7 for GM) but we’re more interested in looking for a good price on a good company than current profitability. Finally, this is a blog about dividend income so the dividend difference between the two was the most important factor in our decision. The dividend for GM is currently 4.7% while that from IBM is 3.8 – almost a full percentage point difference!

To be honest, we feel both of these are great choices. If you previously bought IBM when we recommended them, it makes sense to buy more shares of that company to increase your DRIP (or compounding) potential. The same could be said for GM if you previously bought them. If you’d like to increase the diversity in your portfolio, buy the one you don’t already own. It’s really a no lose situation so whichever you choose you can sleep at night.

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April’s Pick

If you made a purchase based on our pick last month, you’ll be happy to hear we’re recommending General Motors Company (NYSE: GM) again this month. We bought GM last month at $29.05, earning just over 3% for the month and, because of lucky timing, a dividend payment. Of course, we’re not interested in a month-to-month return but it never hurts to see the price of a recommended stock increase since recommending it.

So why GM again? When the scores had all been assigned, GM came out on top with a total score of 13. The stock is only 16.8% below the 52-week high (a score of 2) which is not a great sale but stocks have generally been recovering lately so there are fewer bargain basement prices available. Mind you, that discount is nothing to scoff at. Basically, if the stock recovers within a year (a reasonable expectation), we’ll have realized a tidy little profit of 16.8%. Nice! Their $0.38 dividend is a yield of 5.1%, earning another 4 points. The P/E is an exceptional 5.19 but the EPS is only 6, for scores of 5 and 2, respectively. So that’s it. GM comes out on top again.

We should mention that Potash Corporation of Saskatchewan (NYSE and TSE: POT) technically beat GM with a score of 14 but it’s not included in the S&P 100 so we won’t recommend it. The recent closure of the Picadilly mine in Sussex, New Brunswick has allowed the company to remain profitable in spite of depressed global potash prices. The stock is currently nearly 50% off the 52-week high and still offering a dividend yield of over 6%. If you’re comfortable with a little more risk, this is definitely a stock to look at. I added it to my personal portfolio back in December.

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