September was a busy month for dividend stock purchases. In fact, Lanny and his wife invested nearly $5,000 to their portfolio last month! While we didn’t invest that much cash, we still were able to add over $3,300 to our portfolios. Let’s jump right in and review our September Dividend Stock Purchase Summary.
My Dividend Investing Strategy
Ever since the pandemic started, we have been focusing on purchasing high valued, undervalued dividend growth stocks. While that may seem like an obvious statement, that statement holds more meaning after receiving more dividend cuts than ever this year. Therefore, we are focusing on purchasing the best of the best. After all, we want to build a growing dividend income stream. This will help us achieve financial freedom and provide us with income from the easiest passive income source.
That includes Dividend Aristocrats (25+ consecutive dividend increases) and Dividend Kings (50+ consecutive dividend increases. If a company I am reviewing does not have one of those coveted titles, I am reviewing a company’s balance sheet to ensure they have low debt or the company has a perfect dividend payout ratio.
Regardless of title, we run all investments through the famous Dividend Diplomats Dividend Stock Screener. Over the years, we have used this simple, 3-step stock screener to evaluate all dividend stocks for potential investment opportunities. The 3 metrics of the Stock Screener are:
- Price to Earnings Ratio Less Than the S&P 500
- Dividend Payout Ratio Less Than 60%
- Dividend Growth History & Dividend Growth Rate
Now, it is time to share with all of you the 4 dividend stock purchases we made in September.
Dividend Stock #1: Cisco Systems (NASDAQ:CSCO)
The first stock purchase to summarize in this article is a technology company we have been purchasing aggressively over the last few months. We continue to build our position in Cisco Systems. Cisco is a market leader in the network security sector, providing solutions to companies, large and small.
Their products have played a crucial role in this new norm. As corporations shift from in office to working at home (for the foreseeable future), Cisco’s products allow companies to work remotely securely. Personally, I have been on plenty of Webex meetings with many different companies.
Cisco has made several appearances on our dividend stock watch lists since the pandemic started. The company’s stock price was trading in the low $40s in the second quarter. Then, after their latest earnings release, the company’s stock price fell into the high $30 per share range. The metrics looked great in the low $40s. They looked even better in the high $30s. Thus, we continued to lower our cost basis and add to Cisco.
Let’s see how the company performed in the Dividend Diplomats Dividend Stock Screener. Our average stock purchase price was $39.67. We will use the company’s earnings per share of $3.10 per share and annual dividend of $1.44 per share.
- Price to Earnings Ratio (P/E Ratio): 12.8X. Cisco’s 12.8X P/E ratio is significantly below the broader market. Lately, the S&P 500’s P/E ratio is between 28-30X. Further, Cisco’s P/E ratio is also lower than the market’s historical P/E ratio. The S&P 500 historically trades between 18-20X.
- Dividend Payout Ratio: 46%. Ah, the perfect dividend payout ratio. Sure, we look for a dividend payout ratio below 60% when screening for stocks. However, we truly think the perfect dividend payout ratio is between 40-60%. This allows a company to reinvest in their business and pay shareholders a strong dividend. Cisco’s 46% dividend payout ratio is truly perfect.
- Dividend Growth Rate & History: Cisco has increased its dividend for 8 consecutive years. They still have a long way to go before considering a Dividend Aristocrat. 8 years is a great start though for a company looking to earn this coveted title. Cisco’s 5-year average dividend growth rate is strong, at nearly 12%. Their last dividend increase was right before the pandemic in February and was only 2.8%. Not the best; however, in this environment, I will not complain about any dividend increase.
With the strong dividend metrics in hand, we purchased Cisco on multiple occasions this month. In total, we added 39 shares with a cost basis of nearly $1,550. Our purchases added $56 in forward dividend income. This was an average dividend yield of 3.6%. In the tech sector, that is pretty strong!
Dividend Stock #2: AT&T (NYSE:T)
If you have been following my stock purchase articles or our Twitter feed over the last few months, this stock should not surprise you. My wife and I have continued to build our position in AT&T. The telecom giant is a leader in the communications and wireless internet sector. AT&T also has a strong presence in the media sector as well, with their impressive media brand that includes HBO. We love AT&T so much that the company is considered one of our Top 5 Foundation Dividend Stocks.
AT&T’s stock price has fallen between $28 and $31 per share for the last several months. This has resulted in AT&T’s dividend yield to cross 7%. That is a crazy threshold for a company that has a solid dividend payout ratio (see below). For that reason, along with their performance in our stock screener, my wife and I continued to build our position.
We will use our average stock purchase price as $29.075 for this review. We will use T’s earnings per share of $3.23 per share and annual dividend of $2.08 per share.
- Price to Earnings Ratio (P/E Ratio): 9X. AT&T’s 9X P/E ratio is very low. The market is trading at more than 3X the multiple of AT&T. Think about that for a second.
- Dividend Payout Ratio: 64%. AT&T’s dividend payout ratio is a hair above our 60% threshold. Overall, I’m not concerned about the dividend payout ratio at this moment.
- Dividend Growth Rate & History: AT&T is a Dividend Aristocrat. The company has increased its dividend for 35 consecutive years. The company’s dividend growth history is consistent. AT&T regularly increases its quarterly dividend by $.01 per share. Their 5-year average dividend growth rate is only 2% as a result. However, this 2% growth rate, coupled with a 7% dividend yield, offers a strong return to shareholders.
In total, we added 26 shares of AT&T throughout the month of September. Our dividend income increased $54 as a result of the stock purchases. This was an average dividend yield of 7.15% on the stock purchases.
Dividend Stock #3: Walgreens (NASDAQ:WBA)
Next up on my stock purchase list is one of the newer positions in our dividend stock portfolio. We first began adding shares of Walgreens at the end of the second quarter/beginning of the third quarter. WBA’s stock price has remained flat since that time. Therefore, we continued to build our position in September.
Overall, I like Walgreens and the industry in which they operate. Healthcare continues to play a large role in our aging population. Even during a pandemic, people still need their prescriptions filled. Walgreens has one of the largest distribution networks. The company has evolved with the pandemic to accommodate and support their strong consumer base.
Walgreens further won my confidence when the company announced a dividend increase in July. At that time, many companies were cutting or suspending their dividend, especially in the retail sector. So companies simply deferred their dividend increase announcement until they could fully assess the impact of the pandemic. The dividend increase wasn’t large. In fact, it was only 2%. To me, it was about the message that the dividend increase during the pandemic sent to shareholders. That is why I will continue to add to Walgreens.
We will use our average stock purchase price as $36.36 for this review. We will use WBA’s earnings per share of $4.90 per share and annual dividend of $1.87 per share.
- Price to Earnings Ratio (P/E Ratio): 7.4X. WBA’s 7.4X P/E ratio is very low, much like AT&T. This is clearly a discount compared to the market.
- Dividend Payout Ratio: 38%. WBA’s payout ratio is well below our 60% threshold. There is plenty of room to continue growing the company’s dividend going forward, if they choose.
- Dividend Growth Rate & History: WBA is a Dividend Aristocrat. That is why the July dividend increase was such a big deal. It helped keep the streak alive!
In total, we purchased 12 shares of Walgreens. The 12 new shares added $41.14 in dividend income to our portfolio. As an Ohio State fan, that is an awful number of dividend income to have received. For some reason, I will never forget that Ohio State lost the 2006/2007 national championship game 41-14 to Florida. I’m still bitter about that loss to date (as you can tell).
Dividend Stock #4: People’s United (NASDAQ:PBCT)
People’s United is the Dividend Aristocrat with a high dividend yield that you probably have never heard of. People’s United is a large community bank that has over $61 billion in assets (as of June 30, 2020). PBCT’s dividend yield is strong. In fact, their dividend yield is over 7%.
The fact that jumps out to me is that People’s United is a Dividend Aristocrat. The company has increased its dividend for 27 consecutive years. Therefore, that means that People’s United increased their dividend during the financial crisis. Ask yourself to name the banks that achieved that feat. I’m assuming you can’t find too many! That tells me all I need to know about the bank’s commitment to delivering a strong, growing dividend to their shareholders.
Lastly, there is one other fact I love about People’s United. The bank is well-capitalized. Banks’ capital ratios are heavily scrutinized and evaluated by shareholders, regulators, and other parties. As an investor, when times are tough, you want your bank well-capitalized. People’s United passes this mark with flying colors.
Let’s run People’s United through our Dividend Stock Screener. We will use PBCT’s stock purchase price of $10.126 per share for this review. We will use PBCT’s earnings per share of $.97 per share and annual dividend of $.72 per share.
- Price to Earnings Ratio (P/E Ratio): 10.4X. Like every company I purchased this month, PBCT is trading at a discount to the market.
- Dividend Payout Ratio: 74%. Normally, I would be more concerned about a dividend payout ratio of 74%. However, PBCT has demonstrated their ability to continue increasing their dividend during poor economic conditions.
- Dividend Growth Rate & History: I have spoken extensively about PBCT’s dividend history. Their dividend growth rate, on the other hand, is minimal. Their 5-year average dividend growth rate is 1.46%.
My investment in PBCT was small this month. I only added 25 shares to my portfolio. This added $18 to my forward dividend income.
Overall, I couldn’t be happier with our dividend stock purchases in September. Our purchases of these four companies surpassed $3,300 and added nearly $170 in dividend income! That is an average dividend yield of over 5% on purchases. That’s pretty sweet!
The name of the game is buying income producing assets. That is how you achieve financial freedom. My wife and I recently crossed a major investing milestone ($12,000 in dividend income). We still have a long way to go to achieve financial freedom. However, after this month, we are $170 closer to the end game.
What stocks did you purchase in September? How much dividend income did you add? What do you think of our dividend stock purchases?