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Great dividend stocks offering a good entry point

AT&T (T)

AT&T is another of my favorite stocks recently beaten down by investors who no longer see a growth potential in this stock. Some say that the decline in contracts and returning customers is so serious that this company will contract.

The company has been around for more than 100 years and it survived. It has always found ways how to adapt to new markets and new technologies. Will they be able to do it again? I believe so. Today the company is expanding and innovating. It has been aggressive in promoting post-paid upgrades in the last quarter and it grew its year-to-year revenue by 4%.

AT&T

The stock is approaching its long term uptrend support (unfortunately not visible on the chart, since the stock is still trading a lot higher). It may not get there as it is currently touching its one year support so we may expect the stock to bounce from here and continue up again. Since it is now trading below 200 day MA and 50 day MA, I would just watch this stock closely before adding it to the portfolio. It still may continue drifting lower.

Morningstar values this stock at $32 a share, which is slightly below its long term support line. Based on Morningstar, this stock is still expensive.

Stock details

Consecutive Dividend Increase: 8 years
Dividend yield today: 5.10%
Dividend 5yr Growth: 2.86%
Dividend paid since: 1881

Realty Income (O)

I tried to find why are investors dumping Realty Income stock. It makes money renting properties, not selling mortgages, so the interest spreads and all those MBS (or should I say only BS?) issues and fears won’t affect this company. I also do not see the point why rising interest rates would affect any revenue of this company. Would the tenants suddenly drop their leases? I don’t think so. As the real estate market will be recovering, more and more existing empty houses and building will find their tenants and owners, the rents will raise again and companies like Realty Income will profit more. Or am I missing something here?

I think that this company was dumped by mistake (or should I say ignorance?). It wouldn’t be a first case I saw investors dumping a stock because they thought (something) and they thought it wrong. Many years ago the government wanted to cut interest on credit cards issuers could charge and investors were dumping Visa and MasterCard companies, yet they had absolutely nothing to do with interest rates charged by issuers.

The stock however was so elevated, that at $55.20 a share I wasn’t willing to be buying this stock. So this drop is a welcome correction allowing once again adding shares to my portfolio.

O

From the chart above you may be able to see, that the stock returned back to its long term support line (a diagonal blue line which merges into a yellow one). It is a level, where I am willing to be adding more shares myself.

This stock pays dividend monthly and it has been doing it for many years. Their motto is actually provide dividends to shareholders. Morningstar values this stock at $44 a share and we are currently trading below this price.

Stock details

Consecutive Dividend Increase: 15 years
Dividend yield today: 5.18%
Dividend 5yr Growth: 4.44%
Dividend paid since: 1994

I think the stocks above are now providing an opportunity to add more shares to your portfolio or initiate a new position. They retreated from their insane highs to more reasonable levels and closer to their estimated fair values.

However, I see the entire stock market being tired of further growth and we may see a correction. September is usually considered as a nightmare for Wall Street and in many occasions in history this month provided the worst results ever. If the events and history at the market repeats, we may see further drops in prices. S&P 500 recently created a new higher high and is slowing down. When you take a look at its chart, you will see it reversing. If so it may go as low as 160-ish level (SPY)

I will be adding one of those stocks to my portfolio, but I will use my contingency order or trailing entry order method to enter the desired stock. I will not be jumping all in, but wait for even better price, while trailing my buy order lower.

What stocks arte you planning on adding to your portfolio?

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11 responses to “Great dividend stocks offering a good entry point”

  1. Integrator says:

    I have a small holding in Lorilard, the potential methanol ban has got reevaluating this position. I’m looking to top up my McDonalds holding given where it is trading right now. I may do a swap out of Lorilard and into McDonalds.

    • Martin says:

      For that same reason I am not increasing my stack in LO although it is very appealing to buy. But I will keep the existing position and watch it closely.

  2. Great pick on Lorillard. It’s kind of like a sleeper I forgot with Altria standing in the way. Do you happen to know what assets they have or could utilize in the event of a menthol ban? Many have made the argument that the tobacco companies are actually well-equipped for all out tobacco bans. Some are even going so far as to suggest, patents they have on the production and distribution of marijuana (if legal) will keep them afloat. Do you know of Lorillard has any of this?

    • Martin says:

      Unfortunately LO is pretty vulnerable to the regulation. 90% of its revenue comes from menthol cigarettes. They sold their international rights to their brand in 1977 so they won’t be able to generate revenue overseas and the only I know right now is a production of blue e-cigarettes, for which they are gaining nice market share. However the revenue from e-cig is miniscule. Marijuana ma be a good replacement, but I do not know if LO will be participating. However, if FDA bans menthol, it will be the end of LO, so if investors are not willing to take this risk, they shouldn’t invest in LO. I do not think FDA will take this step although they have been talking about it for years. First they claimed that they need to take scientific approach to study the impact of menthol cigarettes. None of the studies revealed that menthol cigarettes are worse than any other cigarettes on the market. All what happened so far was a recommendation from Tobacco Products Scientific Advisory Committee that removal of menthol cigarettes would benefit to the public health. FDA then must weight the black market and almost $10 billion of lost government revenue if they ban it. So far this step from FDA is very unlikely. But everything can happen.

  3. WStreet Stocks Weekend Reads | WStreet Stocks says:

    […] Great dividend stocks offering a good entry point by Martin […]

  4. Sfi says:

    Another correction to the upside. Most financial sites don’t list the correct dividend for Realty Income. It’s 2.179/year which puts the yield at 5.2%.

    • Martin says:

      That is correct. My own spreadsheet list the last dividend times 12 to get the yield, but sometimes I use my broker’s listing. I asked them why they are showing a different rate and yield and they responded that they calculate last 12 dividends paid rather than the last dividend times 12. That’s why you may see different yields. However for consistency matter I will list last dividend times 12 next time. I corrected the yield on this one.

  5. Jake @ Common Cents Wealth says:

    Thanks for the stock tips. I’ll have to add these to my watch list. It’s been a bit difficult to find value lately, but it looks like these may be good buys.

  6. Rita P @ Digital Spikes says:

    Thanks for sharing detailed insights about KMP. I will check it out

  7. I like KMP and will probably pick up a few shares soon. O looks good to me too. thanks for the suggestions.

  8. MG says:

    Hello!

    Enjoy reading your entertaining posts. Just wanted to point out that I think you have an error with respect to the MCD dividend changing from $0.52 to $0.58. Last time I checked it is $0.77 per share!

    Cheers,

    MG

    • Martin says:

      Hey, thanks for the catch. I checked it out and the rate was for KMP and MCD. I mistakenly looked at the wrong line. MCD doesn’t seem to have raised the dividend recently at all. I will correct the post. And yes, it is 0.77 a share / quarter.

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