I’m back again. This is my first blog post in two weeks, unfortunately. 🙁 I would have loved to write a post earlier in time but had to dedicate most of my spare time on studying for the last exam of my first year of the post-master education IT Audit & Assurance.
The last two weeks I’ve been thinking about my strategy for the upcoming six months, because I have to save a lot of money for the second year of my post-master education. So, I’m inclined to invest half the amount of money I usually invest every month. Another argument for holding back a bit is I’d like to have some extra money to invest in stocks if the financial markets get more turbulent as a reaction to the upcoming trade war between the U.S. and China, Brexit, Italian economy and so forth. Right now, I fully invest all my monthly savings in dividend growth stocks. So I’m shifting a bit towards timing the market instead of the very rewarding principle time-in-market. This shift is actually against my philosophy to monthly invest my savings in order to fully benefit of the compounding effect, but I like to be in a more comfortable position when stock prices go down. This means I’ll probably invest about $700 a month in dividend growth stocks. That’s still a nice amount for the remainder of 2018, but defintely less than my target of a monthly $1.000.
So for the month of July… What am I thinking of? Although stock prices have gone up for consumer staples like Clorox (CLX), PepsiCo (PEP) and Procter & Gamble (PG) the last couple of weeks, companies like General Mills (GIS) and Kimberly-Clark (KMB) are bouncing back to price levels which I think make them attractive again. They’re yielding around 4% and have a low single digit forward growth rate. If GIS gets down to a price of $41 I’m willing to make a deal with this guy Mr. Market. I think the sentiment on GIS will prove to be too negative in two years time. The market was also very negative about two years ago on Target (TGT), T. Rowe Price (TROW) and VF (VFC), remember? And look where they’re trading right now. Earnings, revenues and cash flow are up again in contrary to the headlines and analysts’ consensus. That’s the beauty of investing in companies which have grown their dividend twenty, thirty, or fourty years. They withstood multiple challenges along the way and know how to ride the storm. That’s why they’re able to grow their dividends every year.
Another strong candidate is, off course, AT&T (T). The merger has been approved, but some worries remain about their growth rate, free cash flow and debt levels. Their business model definitely improved by their merger with TWX, so I’m not too worried about their payout ratio. Free cash flow will go up significantly. Besides, their first quarter results are always on the low side as compared to other quarterly numbers. I’m about 15% red on my position with an average price around $36. So by buying T I’m also lowering the average price of my position. That’s a nice side-effect.
Delta Airlines (DAL) is also on my radar. This airline company increased their dividend lately with 15% and trades around 10 times earnings. They’re able to hedge against rising oil prices because of their refinery and will benefit from the growing U.S. economy. Right now I own a half position and would like to buy some extra shares. Southwest Airlines (LUV) was also on my watchlist when they traded for $50. They yield slightly above 1%. This is a company which will never trade for a dividend yield of 2.5% so it’s likely to never be a real candidate judged by this measure. But their dividend growth rate is massive (5-year YoC 10.03%), the dividend payout ratio extremely low (8%), their management is known for their extraordinary customer focus and the stock price has gone up 300% in three to four years.
For me, the finalists are GIS, T, DAL and LUV.
What did you buy, are you going to buy and which company would you advise me to buy in this hot month of July? 😎
In case you’re interested, I passed my exam. There was only one guy with a higher grade. 😊 👊