Tag Archives: picking a stock

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May’s Pick

After a brief hiatus, I’m happy to say I’m back and excited to start my monthly stock pick again. Those of you who follow my picks will know not to expect excitement, “hot” picks, or “buy now” suggestions. Nope. I’m all about trying to keep things simple by looking at a few key financial indicators and choosing a really safe stock that will let you sleep well at night.

This month is about diversity. My pick is General Mills, Inc (NYSE: GIS). The company is trading 30% below the 52-week high which represents a considerable sale on a solid company. The P/E is 14.78 which isn’t as low as some S&P 100 companies but nothing to turn up your nose at. The EPS is, admittedly, a little lower than many stocks I follow at 2.88. The stock is currently paying a dividend of 4.6% which is the name of the game for dividend investors. Basically, this stock offers a nice combination of dividend income at an attractive price. General Mills wasn’t the top-ranked stock this month (that honor was shared by IBM and Laurentian Bank of Canada) but it’s a huge company that is different from everything else in the portfolio and it’s currently on sale. Both IBM and Laurentian would make fine choices I might add.

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January’s Pick

When assigning the scores to the stocks on my watchlist to identify January’s pick, I ended up with a tie. Both International Business Machines (NYSE: IBM) and Gamestop (NYSE: GME) scored 13 out of a possible 20 points. Before we get to those stocks, I have to mention that, while Corus Entertainment (TSE: CJR.B) beat them both with a score of 15, it is not my official recommendation. I’m not comfortable recommending this stock because of the recent speculation about the future security of the company’s ad revenue. Also, the stock is just 3% above the 52-week low, indicating the price has not yet started to rebound. Having said that, if you can stomach a little extra risk, the stock is currently 36% off the 52-week high and offering a spectacular 12% dividend. Even if the stock price remains flat for a year you would have made 12% in just the dividend income!

Now, to this month’s pick. As I said there was a tie and that’s good for people who like choice. The top stocks are attractive for different reasons. IBM, as always, is still posting excellent earnings and is still priced attractively. The P/E is 13.69 on EPS of 11.98. Truly fantastic! Less exciting is the fact that the current price is only 10% below the 52-week high. Now, if the stock recovered that 10% in 2018 you’ll have made a respectable return to be sure but we’d like to catch stocks when they’re a little more beaten down if we can. Gamestop, on the other hand, is 33% below the 52-week high which is a much better discount but the numbers, while still attractive, are not as good. The stock has a P/E of 5.2 which is exceptionally low but the earnings are only 3.42 per share which puts it well below average on my list. Oh wait! Have I mentioned the Gamestop dividend? It’s 8.5%. Just saying’. And since they started paying a dividend in 2012, the company has raised it every year. Of course, past performance is no indication of future performance.

As a dividend investor, when I find a stock that pays a fat dividend that I can buy at a discount, I can’t say no so Gamestop is my official pick this month. Happy investing!

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December’s Pick

Sometimes life gets in the way of even the most well-intentioned among us. That was me last month. I got about halfway through November and realized I didn’t put out a stock pick for the month. Oops! Well, that’s all water under the bridge now and I’m back with a pick for December. Actually, two picks. Regular readers will recognize that I’m not afraid to give you options. Well this month I’m giving you just that! My two picks are International Business Machines (NYSE: IBM) and Altria (NSYE: MO).

I’ve recommended these two stocks several times before so I don’t think I need to repeat my reasons here. If you missed it, feel free to browse through the archives to find out why I like these companies. By the way, Altria is my all-time best performer. In a nutshell, IBM and Altria are both trading below their 52-week highs (15% and 8%, respectively). For Altria that’s not a great sale but the rest of the numbers make up for that. Both companies have impressive P/E and EPS equal to the P/E. That’s what I call value. Basically, they’re earning money (lots of it) yet priced as if they aren’t. While that’s a gross simplification of how to valuate a company, my philosophy is all about keeping it simple. We look for great companies at a good price and these companies are both good value. The dividend yields are under 4% which barely makes our cut but they are solid companies with a long history of increasing dividends.

There you have it. Short and simple. Two great choices this month. While either one is a good bet, I’m adding IBM to the PDI portfolio because it scored 14 while Altria scored 13.

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October’s Pick

When all the scores were assigned this month we found ourselves faced with a three-way tie for top spot. Three stocks, IBM (NYSE: IBM), Altria (NYSE: MO) and Gamestop (NYSE: GME) earned a score of 14 out of a possible 20.

Let’s deal with Gamestop first. This company is not on the S&P 100 and would normally never be one of our recommendations. Why? Because it might not be a buy and hold kind of stock. The future is unclear for bricks and mortar video game retailers so it remains to be seen if Gamestop will be able to successfully continue to navigate its transition to a greater online and wireless presence. It’s currently 27% off the 52-week high but hasn’t shown any real price growth in the last five years. One thing it’s managed to do well is pay a dividend that increases every year and is currently at 7.8%. Not too shabby. Not too shabby at all. So while we prefer to see some appreciation in value, you will likely enjoy a great return just from the dividend. That will be enough to attract some of our readers to this stock.

Next, IBM. We’ve written about IBM before and we’ve recommended it in three different months in late 2015 and early 2016. By the way, in that 18 month period it’s appreciated 11% and paid a 4% dividend every year. You’re welcome. If you hold IBM and you want to increase your position – go for it. It’s still a company we believe has value and has stellar earnings (EPS is 12!). If you already own IBM and would rather diversify, pass on them this month – they’ll still be great next month.

Now for our official recommendation – Altria. Altria made headlines in July when the FDA introduced regulations to limit the amount of nicotine in cigarettes. We wrote about all that business last month because Altria was our pick in September too! If you missed it – go read our September entry now! The stock gained about 2% in September since we recommended it. Not bad for one month but that means nothing to a long-term investor. We remain convinced the company will weather this storm and a couple of years from now we’ll be happy we bought at this price and enjoyed that rock-solid 4% dividend in the meantime.

There you have it. Lots of choice this month so you can go with the one that allows you sleep well at night.

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September’s Pick

After a brief summer break, we’re back with our monthly stock picks. To be honest, this month’s choice was actually made before we even assigned scores to the stocks we follow. Occasionally, the market presents an opportunity to purchase a great company at a good price. Think Deepwater Horizon oil spill or the Volkswagen emission scandal. A few months after those stories broke the stock prices had rebounded considerably. These events don’t cause lasting damage to really large, successful companies. Recent regulatory changes in the tobacco industry in the United States have created such an opportunity.

Our choice this month is Altria (NYSE: MO). The US government is proposing to reduce the nicotine level allowed in cigarettes to below addictive concentrations. This news sent shares of tobacco companies (considerably) lower as investors sold to take their profits. The question is: does this news pose a serious threat to the future of big tobacco companies. We think the answer is “probably not.” Any large industry faces periodic changes in government regulation and this is no different. Big sugar survived, big pharma survived, big oil survived. Big tobacco will survive. For us, this represents an opportunity to purchase a company at a discount created because many others are selling.

Altria dropped about 17% on the news – a considerable discount if you believe the company continues to have a solid future. With EPS of 7.58 and a P/E of 8.28 they score an impressive 14 when we assign our scores. Oh, did we mention they also announced a 5 cent (8%) dividend hike effective this month? That makes their current dividend yield 4.2%. Not bad for a company that some say was shaken by these new regulations. Large, successful companies find ways to innovate and remain profitable. Altria is no exception.

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June’s Pick

If you like having options you are going to LOVE this month’s entry. We’re actually suggesting three stocks because we think they are all great choices. In no particular order they are: CIBC, IBM, and BMO.

Canadian Imperial Bank of Commerce (TSE: CM) continues to offer great value to investors again this month. This will make the fourth time CIBC is our top pick and the reasons we like it haven’t changed. The stock is still nearly 13% below its 52-week high with EPS (12.01) larger than P/E (8.78). We’ve pointed out before how remarkable it is for a stock to have EPS greater than P/E and only three or four of the nearly 200 stocks we follow enjoy that distinction. CIBC offers all that and a dividend rate of 4.82%. In a highly regulated and stable banking environment, this stock is a no-brainer.

Choice number two is International Business Machines (NYSE: IBM). When Warren Buffet sold a third of his position in IBM a few weeks investors responded by selling their shares and the stock price tumbled about 6% almost overnight. We see things differently. While he sold a third of his shares, he kept two thirds! What does that tell you? The stock is now trading about 16% below the 52-week high which signals a buying opportunity for us. The EPS (12.17) and P/E (12.56) are both very attractive values and the stock pays a 3.9% dividend to boot! Speaking of dividends, let’s look at the dividend of this stock over the last few years. In 2012 it was $0.85. In 2013 it was $0.95. 2014? $1.10. 2015? $1.30. In 2016 it was $1.40. It’s currently $1.50. Anybody notice a trend? That’s a 76% increase in 5 years! By the way, you can look back through more than 20 years of regular increases (it was 6 cents a share in 1993).

Our third choice is another Canadian bank: Bank of Montreal (TSE:BMO). We like this stock for pretty much the same reasons as we like CIBC. The stock is more than 12% off the 52-week high which is a significant discount for a very safe stock. The P/E of 11.47, EPS of 7.95 and dividend rate of 3.95% round out the attractive features of the stock. Do we really need to say more?

The lower P/E and higher dividend rate mean we will officially recommend CIBC but, to be honest, you’d do well buying any of these three.

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April’s Pick

This month makes for some interesting choices for us when it comes to choosing a stock. After assigning the scores to the stocks we follow (all those listed on the S&P 100 plus a few other Canadian dividend champs), there was a three-way tie for first place but we aren’t comfortable recommending any of the three – all for different reasons. The three top choices were: Home Capital Group (TSE: HCG), Alaris Royalty Corp. (TSE: AD) and Target Corp. (NYSE: TGT).

Here’s what we like and dislike about each one. Home Capital is trading 35% below their 52-week high so that’s a very attractive discount. They are in the consumer finance sector, providing mortgage lending, credit cards, line of credit lending, etc. It currently yields 4.2% with a long history of increasing dividend payments. As dividend investors, those are things we REALLY like. They have a P/E of 7 and EPS of 3.71 – both good-looking numbers. So what’s the problem? Their 10 year price history shows very slow growth with decreasing prices since August, 2014. That might not be good for a company with a market cap of only 1.6B. Also somewhat concerning is there has been some considerable insider selling of pretty sizeable blocks of stock.

Alaris Royalty Corp is trading at a discount of 28% below their 52-week high which is a solid discount and they pay a stable dividend of over 7%. Wow! The company has been increasing that dividend for at least the last 10 years despite a lack-lustre price performance history over the same period. From a purely dividend investing perspective this is a very attractive stock to own as in the worst case you’ll enjoy a return of over 7% a year. Again, this company is small with a market cap of under a billion dollars (about 800 million) so there is a little more risk. Also, remember that past performance is not a guarantee of future yield so that dividend is not a guarantee but it seems like a pretty good bet. We should also point out that the current price is 25% above the 52-week low which might suggest a recovery is underway.

We recommended Target for each of the last two months and we still think this stock is worth a look. See our last two posts if you’d like to know why we like it. So why not recommend it for a third month in a row? Simple. The stock price has declined in each of the last two months. Generally, we like to purchase a stock when it is showing signs of recovery. While we did suggest Target last month on a lower price from the month before, we felt it was a good enough opportunity to overlook the decrease in price. Three months in a row is more than we’re comfortable recommending to people. Would we suggest this stock to a friend asking for advice? You bet we would! It’s worth reminding readers that a price decrease means a dividend yield increase so the yield of 4.3% on last month’s price has increased to 4.5% on this month’s price.

Well, there you have three stocks worth considering. Now it’s time for our official recommendation which is Canadian Imperial Bank of Commerce (TSE: CM). Canadian banks are very stable and CIBC is sporting a P/E of 9.77 with EPS of 11.77. That’s right – their earnings per share are greater than the price to earnings ratio. That’s not something you see everyday and indicates a stock that is very well-priced. The stock is trading at only 4.8% off it’s 52-week high but as Warren Buffet always says: “It’s better to buy a great company at a fair price than a fair company at a great price.” We happen to think this is a great company at a better than fair price so it’s our pick for the month. When in doubt, stick with what you know!

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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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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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