Over the last 12-18 months, there have been several prognosticators saying dividend stocks are extremely over valued. In many cases, I would tend to agree. This has been reflected in my weekly stock analyses. If so, what's an investor to do? When is the right time to start investing?
If you are a trader, peaks and bottoms are very important. You want to sell at the peak and buy back into the market at the bottom and wait for the next peak. The problem is peaks and bottoms are much easier to identify once some time has passed. An alternative to this market timing approach is a long-term buy-and-hold strategy that focus on dividend stocks selected using a value oriented approach.
Not many dividend stocks are selling at a discount to their calculated fair values. However, there are still some out there. Here are several big-name stocks for your consideration:
AT&T Inc. (T) provides telephone and broadband service and holds full ownership of AT&T Mobility (formerly Cingular Wireless).
- Calculated Fair Value: $39.94
- Recent Price: $35.03
- Yield: 5.3%
Chevron Corporation (CVX) is a global integrated oil company (formerly ChevronTexaco) has interests in exploration, production, refining and marketing, and petrochemicals.
- Calculated Fair Value: $136.13
- Recent Price: $127.26
- Yield: 3.3%
Abbott Laboratories (ABT) is a diversified healthcare products company that is now focused on nutritionals, diagnostics, generic drugs, and medical devices, following the spinoff of its R&D-based prescription pharmaceuticals business at the beginning of 2013.
- Calculated Fair Value: $42.69
- Recent Price: $39.79
- Yield: 2.2%
Health Care Property Investors, Inc. (HCP) is an equity-oriented real estate investment trust, based in California, that has direct or joint venture investments in health care-related facilities across the U.S.
- Calculated Fair Value: $46.63
- Recent Price: $41.49
- Yield: 5.3%
The Coca-Cola Company (KO) is the world's largest soft drink company, KO also has a sizable fruit juice business.
- Calculated Fair Value: $46.04
- Recent Price: $40.37
- Yield: 3.0%
Exxon Mobil Corp. (XOM), formed through the merger of Exxon and Mobil in late 1999, is the world's largest publicly owned integrated oil company.
- Calculated Fair Value: $123.97
- Recent Price: $102.65
- Yield: 2.6%
The beauty of an income focused long-term, buy-and-hold strategy is the future declines are not necessarily a bad thing. This allows you to buy more shares at a lower price which in turn will provide you with a higher yield. There isn't going to be a giant neon sign in the sky that tells you, "The market has now reached its top or bottom."
Needless to say, we need to consider a lot more than just valuation when making a stock purchase. As investors in dividend growth stocks, I would argue that dividend fundamentals are more important than valuation. As long-term buy and hold investors, we can over-come paying too much for a great stock with time. However, time is unlikely to help a fairly valued stock with poor dividend fundamentals.
Full Disclosure: Long T, CVX, HCP, KO, XOM in my Dividend Growth Portfolio. See a list of all my dividend growth holdings here.
- The 2013 Elite Dividend Stocks List
- 6 High-Yield Dividend Achievers With 25 Years of Increases
- Investments That Pay Monthly Dividends
- 12 Higher Yielding Stocks With A Low Dividend Payout Ratio
- Early Warning Signs of a Dividend Cut
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