Watchlist

July Watchlist – 3 Dividend Stocks to consider

3 dividend stocks to consider

I hope that you’re all doing fine! As you might have noticed, I’ve been a bit quiet lately on the blog and this has all to do with the start of the summer.

I just didn’t realize how much I enjoy by being outside again. The last 1.5 year has mentally been really tough, so I think I appreciate the freedom much more right now.

This is also the reason why I decided to take it a little bit easier and to fully live the summer. I just want to get maximum joy out of this lovely weather right now.

But nevertheless, the great thing about dividend growth investing is that it doesn’t need to take too much time. It typically requires me to make 1 or 2 purchases per month and that’s it.

In the meanwhile the snowball started rolling already and the dividends keep coming in which is a very nice form of passive income.

I’m not sure about you, but I always appreciate the thought that there are probably a few million people working on a daily basis to provide me with growing dividends.

And if you are one of those persons working at a company that I own in my portfolio then just know that I’m very thankful for your contribution πŸ™


But let’s get back to business again. The month just started so it’s time to prepare our watchlists again.

This is why I would like to share 3 dividend growth stocks to consider and which I have on my radar right now.


Pfizer Inc.

Pfizer ($PFE | ISIN: US7170811035) has been founded in 1849 and it is currently the second biggest pharmaceutical company in the world by revenue.

I think we are all familiar with the company, because it is literally pulling us out of this global pandemic. They were very quick in producing the vaccine and it’s giving them a nice one-off boost in additional revenue.

But if you didn’t know the company yet from before the vaccine news, then it’s probably good to know that they also owned the Viagra brand. However, they have recently spun it off in a new company called Viatris.

I would definitely recommend to watch one of Ian Lopuch’s videos about Viatris in case you are interested. He did a pretty good job in analyzing the company from a dividend growth point of view.

Their current top 3 selling drugs after their vaccine are Eliquis (prevention blood clots/strokes), Ibrance (breast cancer treatment) and Xeljanz (rheumatoid arthritis treatment).

These are all in different therapeutic areas and it just shows the diversification in their portfolio. These are also drugs that won’t expire yet in the upcoming 4 years.

Having said that, the company is currently trading at a forward P/E of 10.9. This is not a high multiple compared to others in their industry.

However, you need to consider that approximately a third of their forward earnings is considered a one-off by me due to their massive income from the covid-19 vaccines.

But off course one of the most important factors: Pfizer currently trades at a 4% yield and a payout ratio of ~45%.

The company has been increasing it’s dividends for the last 11 years. It did this with a 5 year compounded annual growth rate (CAGR) of 5.83%.

I find Pfizer still attractively valued and I might consider initiating a position in the upcoming month.

Koninklijke Philips NV

Koninklijke Philips (AMS:PHIA | ISIN: NL0000009538) is a company which I wrote about several months ago (Philips Stock Analysis).

The company is fully dedicated towards advancing medical technology right now. The aging population is real and I find this a very good fit for such a secular growth trend.

Philips is also a proud European Dividend Aristocrat from the Noble 30 index. It has not cut it’s dividend in the last 28 years which is quite unique for a company which just kept on transforming itself.

But it did pay its price, because the 10 year average dividend growth has been really poor with a meager 1.26%. This is even below the level of inflation we have seen in Europe.

Having said that, I believe that the company has pulled out it’s anchors and is about to leave the harbor to enter the open sea. There’s “only” a medical technology business left and management anticipates on a 4-6% growth in sales going forward.

These are strong forecasts, but it shows the opportunity ahead of them. And I actually agree with those numbers, but I’m not sure yet whether management is excellent in it’s execution.

The most recent recalls in sleep and respiratory devices doesn’t help building this confidence which is costing the company 250 million Euro.

On the other hand, management is transparent about it and they are not adjusting their sales forecasts. This is also a bullish signal for me.

But let’s have a look into their stock.

I have often found their share valuation too expensive, because the market already priced in lofty growth numbers.

However, these recalls have resulted in a very nice dip which might just give me an opportunity to start initiating a position.

Philips share price

The stock currently yields 2.09% which is below my typical requirement of 2.75% for starting a position. Also the P/E is very rich, so it still looks expensive from those angles.

However, I believe that it’s fair value is around 39 Euro from a future cash flow point of view. Hence, the question here is whether we are buying a high quality company at a fair price right now?

I tend to think so.

If the company is indeed able to grow it’s sales with 4-6% on an annual basis, then I believe we will see a new period of decent to strong dividend growth in the upcoming decade.

But I must confess, there are a lot of assumptions here and I will need to closely monitor those in the upcoming years.


To conclude on Philips, I do own some Medtronic Plc already and I think that owning both companies gives me the best opportunity to benefit from the aging population as a secular growth trend.

Hence, I might consider initiating a position this month.

But if I do, then it will be a small position as a start.

Vonovia SE

Vovovia SE (ETR:VNA | ISIN: DE000A1ML7J1) is a German Real Estate company which was founded 20 years ago. The company as we know it today is a result of a merger between Deutsche Annington and GAGFAH.

As a fact, It currently owns around 400.000 apartments in Germany, Austria and Sweden. So I think we can fairly say that this is one of the biggest real estate companies in Europe.

And there are not so many Real Estate companies in Europe that are popular in the Dividend Growth Investment community. But Vonovia is being discussed a lot lately and I can fully understand why.

The company loves growing via acquisitions and it recently announced the acquisition of Deutsche Wohnen. This was really big news and especially in Germany.

It seems to be a really good fit from what I could see. Hence, I think it should allow the company to continue growing their dividends for many years.

And it has been growing it’s dividend very well with an average of 14% since it’s inception in 2013 πŸ’ͺ

I’m honestly not sure if the company will be able to maintain such a dividend growth rate. But a 3.05% starting yield is not bad for a high quality company like Vonovia SE.

Their dividend safety also seems to be fine. It currently pays-out 67.5% of their Funds from Operations (FFO) which is within their dividend policy guidance of paying out 70% of dividends from FFO.

Having said this, I like this company a lot.

But I haven’t done a full analysis yet, so I wouldn’t initiate a position without having done my proper homework. Though, it definitely deserves a place on this July watchlist.

If you can’t wait to learn more about Vonovia SE, then I definitely recommend reading the following two articles from my fellow European bloggers:

– De Kleine Kapitalist (Dutch -> use gTranslate, high quality article!) – Dividend Stock of the Month.
– Engineer My Freedom (Irish) – Vovonia Dividend Review.


That’s it from my side!

These are the 3 dividend stocks to consider which I might initiate positions in this month.

But I’m curious to learn from you as well πŸ˜‰

  • Do you own on or more of these companies?
  • What are the stocks you are considering right now?

Having said that, I’m looking forward for your thoughts and let’s have a discussion on it in the comment section below πŸ‘‡

As always: Yours Truly,

European Dividend Growth Investor


Disclosure: I don’t own any of these stocks


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Disclaimer

I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.

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It's my desire to retire early via Dividend Growth Investing as a passive income stream. This is not easy and especially when living in Europe. That's why I started this blog and share my journey: to give you a European perspective.

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Vladi
Vladi
25 days ago

thanks for sharing, great list!

Regarding the Pfizer forward P/E ratio – as you mentioned it here, the low forward P/E ratio might be explained by the vaccine income however it’s unclear whether it’s sustainable. Isn’t it a little bit concerning as their historical P/E ratio is 20.2 => http://financials.morningstar.com/valuation/price-ratio.html?t=PFE&region=usa&culture=en-US ?

What I’m looking into right: the insurance sector becoming more interesting then other sectors are.

Juan
24 days ago

Hi EDGI!!! Good to see you had your deserved break and are now back on track. BTW! Congrats for the 1 year anniversary on Dividend talks with EMF! I happen to own some PFE, and got a VTRS share after they went through the spin-off back in November 2020. In fact VTRS payed its first dividend a few weeks ago. Do keep in mind that PFE dividend is about to be chopped down to compensate the cash flow that went away with VTRS. According to this article the expected yield for PFE after the cut will be about 3.1%. That… Read more »

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