All posts by PDI

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.

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.

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.

May’s Pick

This month’s entry is going to be short and sweet because we’re recommending a stock we’ve suggested twice before. This company continues to perform well and has made it to the top of our list again this month. We’re talking about Canadian Imperial Bank of Commerce (TSX: CM). The stock is currently trading just below $109 which is nearly 10% below its 52-week high. That’s not a bargain basement price but it’s a decent discount for a stock with a history of steadily increasing price and regularly increasing dividends. Here’s what the five year history looked like a couple of days ago according to Google Finance:

Notice there really wasn’t a bad time to buy this stock over the last five years. Also, have we mentioned the regular dividend increases?! The company has increased the dividend payment at least twice a year, and in some years every quarter! Both the P/E (9.28) and EPS (11.77) continue to be outstanding for this company. Again, it’s worth mentioning that we do not often see a stock with EPS greater than the P/E – a strong indicator of the excellent value of the company. There are only a couple of other stocks on our list that can make that boast and a few more that are close.

So that’s it. CIBC is a company operating in a traditionally stable sector in Canada and continues to offer good value to investors with an attractive price and regular dividends. If you need more convincing, check out our previous posts recommending this stock.

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!

March’s Pick

If you liked our pick last month, you’re going to really like this month’s. We’re going with Target (NYSE: TGT) again. “But, Target is trading nearly 12% below the price you paid last month!” you exclaim. That’s exactly WHY we’re recommending it again this month. If it was a good deal last month, it’s a better deal this month. About a week ago Target got clobbered because they missed their EPS forecast (and not by a little) and their sales were down from the same period the year before. Most big investors don’t like that news which resulted in a huge sell-off. Well, we’re not big investors. We’re amateur investors just looking for good companies at great prices to hold for a really long time. Target fits that description. Does missing their EPS forecast change the company in any way? No. Have other great companies ever missed their EPS forecasts? Of course! So, don’t sweat it. A few years from now nobody will even remember this price dip, and we will have enjoyed the long, slow climb back up.

Target’s P/E is still an attractive 12.21 and EPS are 4.28. Not to mention the dividend has increased to nearly 4.3% because of the price drop. If buying Target makes you nervous, wait another month to see what happens. Remember, we’re in this for the long term so a month or two is nothing.

Some ‘experts’ are suggesting Wal-Mart Stores (NYSE: WMT) as a better investment than Target. If it helps you sleep at night, buy them instead. They have a P/E of 16.35 and similar EPS of 4.39 but they are only 5% off their year long high and their dividend yield is only 2.8% (that’s why they aren’t on our radar – our minimum is 3.5%). But are they really a better investment? In January, 2015 they were trading at $90 compared to the current price of $70. That’s a 22% decline. The wouldn’t have been better had you bought then. The price bottomed out around $57 before the stock began to recover. Overall, that’s a 37% decline. Still doesn’t seem better had you endured that gut-wrenching plummet. That would have been a scary time to own a company that some say is a better investment today. But the price did recover, didn’t it? Was there ever any doubt? Of course not! Wal-Mart is a great company. We just don’t think it’s at a good price right now. The point is, every stock has ups and downs. By watching the 52-week highs and lows, we try to buy when the price is good and seems to be recovering. Admittedly, Target hasn’t started to recover yet but we think it will soon enough.

February’s Pick

It might seem as though choosing a stock is a tricky thing to do. It is. Every month we update the relevant financials for each stock we follow (all 194 of them), assign the scores and narrow the list down to two or three candidates. Anyone who’s been following this blog will recognize that we often have trouble settling on just one. We’ve committed to always choosing a single stock, so, sometimes with much hesitation, we force ourselves to make a single recommendation. Regular readers will also note that we often add “But, hey – any of these suggestions would be a great choice.” This month is no different…

Target (NYSE: TGT) came out on top once the scores had been assigned and that’s official choice. The stock has been beaten down from $78 to $63 the last three months and is currently 24% off their 52-week high. The decline seems to have stopped as the price has stabilized over the last month or so and that’s why we’re suggesting it now. The company hasn’t changed – they still still reasonably priced products that we all want. That’s a good thing. What’s changed is that we can now buy shares in the company at a price that seems to be a pretty deep discount. Target has EPS of 5.45 and a P/E of 11.7. That P/E puts them in the top 10 of all stocks we follow which means lots of people out there will soon discover this stock is underpriced and will want to buy it. That’s also good for us. The current dividend rate is 3.76% which is not stellar but for a $36 B company is pretty much a guarantee and sure to increase year over year. We are, after all, dividend investors so we can enjoy that dividend payment while we ride the share price up. The other thing we like about this purchase is that it’s in the retail sector so it increases the diversity of our portfolio.

In case you’re wondering, CIBC (TSE: CM, NYSE CM), General Motors (NYSE: GM) and Ford (NYSE: F) rounded out the top four picks this month in a very close race.

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?…

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.

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!