March Dividend Growth Portfolio Update

by Evan

At the current time this is probably my least favorite post to prepare of the three that I do monthly.  While I definitely like preparing this post it is far behind screening for my next purchase, and way further behind preparing my net worth post every month.  I think the reason is that this particular account, while it is my favorite account, is tiny in comparison to my net worth.  I am hoping in the next few years that the account will be so large and the income so significant that this moves up in priority.

My Undervalued Dividend Growth Stock Purchase

After screening the dividend champion and part of the dividend contender list I was left with the following watch list.  Please note that these metrics are from the night of March 21, so do not rely on them for making any decisions.  

Name Price to Earnings PE Industry Payout Ratio ROE ROE Industry P/B P/B Industry
AFLAC Inc. 7.88 13.25 15% 21.14 10.16 1.46 1.18
Archer Daniels Midland 15.49 20.69 46% 9.11 8.32 1.31 1.7
Arrow Financial Corp. 16.46 15.27 47% 12.18 8.44 1.94 1.24
AT&T Inc. 7.74 18.38 41% 23.1 7.21 1.61 2.17
Chesapeake Financial Shares 14.56 15.27 18% 10.39 8.44 1.43 1.24
Cincinnati Financial 11.94 17.27 32% 13.95 8.75 1.49 1.43
Computer Services Inc. 19.05 27.61 50% 19.14 6.14 3.53 3.25
Consolidated Edison 15.53 16.76 56% 10.88 8.59 1.55 1.59
Eagle Financial Services 14.38 15.27 39% 9.48 8.48 1.33 1.24
J.M. Smucker Co. 11.29 20.69 28% 17.52 8.32 1.83 1.7
Matthews International 16.69 18.26 23% 13.31 10.71 2.04 2.22
NACCO Industries 9.04 20.34 24% 13.76 7.59 1.26 1.72
Old Republic International 11.19 11.69 40% 12.09 10.53 1.19 1.25
Weyco Group Inc. 20.37 20.38 54% 8.3 7.59 1.67 1.72

For past few months I would decide what I wanted to buy in terms of a category (i.e. new company I haven’t owned before, adding to a current position, financial company, non-financial company, etc. etc.).  This month I want a company that is really close to its 52 week low.  So I calculated (on 3/22) how far the current stock price is compared to the 52 week low:

Name 52 Week Low $ Diff % Diff
AFLAC Inc. 35.32 9.52 21.23%
Archer Daniels Midland 38.59 3.96 9.31%
Arrow Financial Corp. 29.81 4.64 13.47%
AT&T Inc. 32.55 3.01 8.46%
Chesapeake Financial Shares 22.3 7.51 25.19%
Cincinnati Financial 68.49 6.43 8.58%
Computer Services Inc. 43.06 1.44 3.24%
Consolidated Edison 73.73 3.98 5.12%
Eagle Financial Services 28.2 3.85 12.01%
J.M. Smucker Co. 99.57 20.97 17.40%
Matthews International 50.1 1.75 3.38%
NACCO Industries 19.95 21.85 52.27%
Old Republic International 17.92 3.64 16.88%
Weyco Group Inc. 25.85 6.56 20.24%

So taking the bottom few I decided to take a deeper dive into those companies that were 10% or less off their 52 week low:

  • ADM (3.05%)
  • T (5.49%)
  • CINF (2.71%)
  • CSVI (2.72%)
  • ED (3.54)
  • MATW (1.4%)

Not that I am dividend yield hunting it seems like a good place to start and so I eliminated MATW because of its sub 2% dividend yield.  Next I took off of CINF because I am particularly heavy when it comes to banks and insurance companies.  This left me with ADM, T, CSVI and ED.  I remember that the CSVI was thinly traded on the pink sheets and that didn’t feel all that appropriate this month (other months I may be really into that possibility).  So I am left with the massive companies that are ADM, T and ED.

The next stat I looked at that will be included in my new screen was Yield on Cost which Gurufocus calculates as,

Dividend Yield % and dividend growth of a stock is an important factor for income investors. But if company A raises its dividend constantly faster than company B, company A’s future dividend yield might be much higher than Company B’s even if their yields are the same now and their stock prices do not change.

Yield on Cost assumes that you buy and the stock today, and hold it for 5 years. If the company raises it dividends at the same rate as it did over the past 5 years, the dividends investors receive annually in 5 years relative to the stock price today.

Obviously, my YOC would be different, but this seems like a good, quick way to capture if they are growing their dividend faster than the other 2 remaining companies

  • ADM – 5.89%
  • T – 6.10%
  • ED – 4.16%

So in March I went with 15 shares of T at $35.583/share.

My March Dividend Income

My Dividend Income for March  was $102.77.  Year to Date it looks like:

  Dividend Income 
January $29.73
February $81.64
March $102.77

My March Margin Interest

I paid $16.05 in margin interest in March.  I am holding a few positions that I do not want, but not worth rolling out to avoid this small of a cost.

My March Option Income

Even before preparing to write this post I knew it was going to be ugly.  I was forced to roll a few naked puts which means I take the hit today, hopefully to bump up a future month.  I don’t usually share specifics, but I think in this case an example would be helpful.  It has to do with CVS’s fall from grace in the past 3 months or so:

  • 1/30 CVS is trading at about $80/share
  • 1/30 – Sold 2 March 2 CVS Puts with a Strike price of $70 for .24 each contract (so took in $48 of premium). Figured I had a built in cushion of approximately 10%+ so that is good enough for me.
  • Well, on 3/1 the price had crumbled down to $67 putting me in the money on the trade.  So I rolled the put.  Which basically means I bought back my in the money put that is expiring really soon and selling a further one out.  So I bought back the 3/2 puts for $2.12 or a total of ($427.03) and immediately sold the 3/23 $70 put for $2.86 bringing in $568.96.
  • Things did not get better by 3/20 – CVS was trading at about $62 (off from a $60 low).  I rolled again.
  • I bought back the CVS puts for (7.63/contract) for a total hit of ($1,529.03) and immediately sold the $70 strike in August for $1,852.93.

Mouthful, right? So basically I keep kicking the can down the road on this one rather than take the 200 share position in CVS.  So, this month when I ran the gain/loss it shows me taking a loss on the first roll (bringing in income of $586 but subtracting the buy back price of $1,529.03 for a loss of $900).  Let’s say this trade works out and CVS is trading above $70 in August and I let it expire worthless I will then be showing a profit of the $1,852!

I am not particularly worried about this trade as CVS’s metrics seem to indicate it’ll be fine even if I have to roll this out even further:

So there you have it! One bad trade brought my month down, but I am not too worried!

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4 comments

Dividend Diplomats April 7, 2018 - 10:49 am

Great results this month MJM and that is a very solid dividend stock watch list. I don’t think you could go wrong investing in any of those companies!

Bert

Reply
Evan April 17, 2018 - 12:52 pm

Thanks!

Reply
Engineering Dividends April 15, 2018 - 5:28 pm

CVS has been a downer this calendar year. With the pending Aetna buyout, I’m wondering if the stock price will continue to trade in the $60s, even through August. If you are still below $70, do you see yourself rolling the option out again?
I’ve been trading options for a few months, but haven’t decided to roll out any options yet. Thus far I’ve been willing let the options be assigned.
Regarding the stocks you are watching, that’s a good short list. I don’t own any of the final 3 at this time, but might lean to ADM. You’d think I’d be partial to ED since that’s the acronym for my site. 🙂

Reply
Evan April 17, 2018 - 12:44 pm

Whether I take the assignment or not depends on a few factors, but mainly 1) Am I holding another position, on margin, that I am very close to getting out of; 2) What is the current stock price/valuations of the company. At the time of the roll of CVS I felt it was being unfairly punished b/c of amazon and aetna. It was severely down the actual day I did the roll (I think at like $61 or $62). I sell A LOT of naked puts, but usually with a margin of safety between price and strike of 10 to 15%.

I just created my new watch list for April, I’d love your thoughts:

https://www.myjourneytomillions.com/articles/april-2018-dividend-growth-undervalued-watch-list/

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