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|
|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|
|Chesapeake Financial Shares||14.56||15.27||18%||10.39||8.44||1.43||1.24|
|Computer Services Inc.||19.05||27.61||50%||19.14||6.14||3.53||3.25|
|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|
|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|
|Archer Daniels Midland||38.59||3.96||9.31%|
|Arrow Financial Corp.||29.81||4.64||13.47%|
|Chesapeake Financial Shares||22.3||7.51||25.19%|
|Computer Services Inc.||43.06||1.44||3.24%|
|Eagle Financial Services||28.2||3.85||12.01%|
|J.M. Smucker Co.||99.57||20.97||17.40%|
|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,
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:
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!