We’re almost nearing the end of this crazy year! So how about finishing this year with a bang? While most people love shopping for Christmas presents, I just love to go shopping for Dividend Growth stocks on the stock market.
It’s really not that much different. Often we do our preparation by creating a list of presents we would like to buy and then we’ll go online or to the mall to just buy them. Off course, not every time everything we want is available or available for the right price, so we end up looking for other presents.
That might be the case this month as well regarding the potential dividend stocks to buy on this list. Not every stock is currently available at the right price, but with a little bit of luck we might still see an end-of-year sale.
Who knows, so let’s be patient and hope for the best 🤞.
Actually, I’m also trying to avoid impulse buying. We’re all human and we all fall for it from time to time, but I would argue that my impulsive buys have not been the ones that I’m most proud of. I cleaned most of them up already from my portfolio and it’s one of the lessons that I had to learn.
This also means that you shouldn’t just buy something because I might be a believer in it. I’ve not checked it, but I have most likely not beaten the S&P500 yet from a capital appreciation point. If capital appreciation is your main goal, then you are probably better off following someone else. It just doesn’t match my investment style and I wouldn’t want you to get in to trouble with your hard earned money.
Having said that, I invest for passive income in the form of dividends. The growth in dividend income is my single yard-stick for success, because my goal is to be financially free in up to 8 years from now. I’m on track, but I’m not there yet. So let’s see what the future brings 💪
So let’s go back to the topic of December shopping. I still have my December savings left to make a purchase this year and I would like to share with you the 4 stocks which I have currently on my radar.
Ahold Delhaize ($AD | NL0011794037) is one of the world’s largest food retail groups with it’s headquarter in the Netherlands. It is a leader in supermarkets and e-commerce (e.g. bol.com) in both Belgium and the Netherlands. It also earns slightly more than half of its revenue in the United States via brands like Food Lion and Giant.
Ahold Delhaize is also infamous for its accounting scandal back in 2002. It was especially cooking the books at its subsidiary US Foods and as a consequence it had to cut its dividend. Luckily the company survived it and several directors got prosecuted and went to jail for several months 💪
It took a while for the company to recover, but by 2007 the company was able to reinitiate its dividend. Since then it had a very powerful dividend growth history with an average annual growth of about 14%.
In the meantime it also acquired the Belgium supermarket chain Delhaize. It announced the merger in 2015 and it completed it in 2016. This is also the reason why you see a steep increase in the share count in 2016.
Fast forward to 2020: the company’s dividend has been well covered over the last decade and the stock currently yields 4,2%. The Price to Earnings is 14,4 and the Price to Free Cash Flow is 13,5 based on 2019 earnings.
The question is off course whether Ahold-Delhaize can keep up to these earnings after their main markets get back to normal again. I do expect a dip,, but there’s enough wiggle room to keep paying a growing dividend. Besides that I find the share price still attractive even if we would see 20% or so decline in earnings.
Good to know: Ahold Delhaize has been aggressively buying back shares over the last few years. They have actually spend more on Dividends + Buybacks than what their cashflow brought in. This is something to keep monitoring in case their credit rating would come at risk. For now, I’m fine with it as I don’t feel that the company is buying back shares at exuberant stock price levels. Rather the opposite.
I have a purchase order outstanding to add 50 shares at 22,50 Euro.
Realty Income ($O | US7561091049) calls itself the monthly dividend company because it is dedicated to pay it’s shareholders a monthly dividend.
In case you don’t know the company yet: Realty Income Corporation is a real estate investment trust (REIT) that invests in free-standing, single-tenant commercial properties mainly in the United States. It is focused on clients with strong stable and growing cash flows for whom at the same time Real Estate is critical to their ability to generate revenue.
The company currently yields 4,58% and it has a dividend growth track record of 27 years. The stock trades for $60,00 at a Price to Funds From Operations of 18.
Realty Income has so far been able to weather the impact of Covid-19 very well which has build my confidence even more as a fundamental stock in my portfolio.
The stock is not cheap, but I rather consider it a quality business at a fair price.
I just purchased 10 shares at $60.00 and I have another purchase order outstanding to add 10 shares at $59.00.
It is really a European based consumer staple powerhouse with 12 brands earning at least 1 billion in revenue and a total of more than 400 brands. Several of those well known household named brands are Axe, Cif, Knorr, Magnum, Dove, Omo and Domestos.
It’s main competitors are Procter & Gamble and Nestle. I personally believe that Unilever has a competitive edge compared to both of them due to it’s decade long focus on sustainability. This has maybe gone at the short-term cost of potential margin improvements, but I see it as a way to build businesses that lasts and without the need to overly financially engineer the earnings.
Having said that, the company currently yields 3.27%. The company has not cut it’s dividend for 54 years, but it is good to mention that it didn’t increase its dividend yet this year. No worries from my side regarding this European Dividend Aristocrat, because it seems to be straight out of Unilever’s crisis playbook.
Unilever Plc has a PE ratio of about 21 and based on my calculation the company has a fair value of about 50 Euro. The stock currently trades for ~48 Euros and I aim to add further to my position if it drops to 45 Euro so that it gives me a 10% margin of safety.
Good to know: Unilever recently moved its headquarters to London and it completed its unification instead of having both an NV and a PlC listed.
Novo-Nordisk A/S ($NOVO-B | DK0060534915) is another European Dividend Aristocrat on my dividend stocks to buy watchlist for the upcoming holiday season. I don’t own this stock yet and it has been on my radar for quite some time now.
The company earns the far majority of their revenue (~80%) from insulin and diabetes related drugs and solutions. Covid-19 has made it more difficult for them this year, but we don’t see that really back in their bottom-line numbers. Earnings and Cash Flow are expected to grow again for the full year of 2020. Read more details about the company in Dividend Dane’s guest post on this blog.
Regarding the dividend: the stock currently yields 1.95% with a payout ratio of about 53%. The 5-year average dividend growth rate is 5.5% and the company has paying a growing dividend for over the last 23 years.
The stock generally feels always expensive, because it still spots a Forward Price-Earnings ratio of ~25. This is not something that I feel entirely comfortable with, so if I would purchase something then it will just be a small starting position.
Having said that, I have a purchase order outstanding to acquire 20 shares at 401 DKK.
My watch list is truly a watch list. These are not Buy recommendations, but rather my considerations for dividend stocks to buy if the opportunity arises. It is important to know that most of these are slightly above my target prices and I might end up buying none of them.
I would already be happy if just one of them gets a bad day, so that it dips enough in price to trigger my purchase order.
Having said that, this concludes my post. What are your favorite dividend stocks to buy during this holiday season?
Let me also know via the comment section if you like these kind of posts 👇. I might consider writing them more often.
Enjoy the remainder of this day!
European Dividend Growth Investor