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5 Dividend Stocks To Buy On A Dip

May 24, 2010 | About:

Did May 6th frighten or excite you? I received a few emails from frightened dividend investors letting me know they were getting out of the market, while others asked if this was the beginning of another significant downturn. The first group are destined to always lose money in the market (sell low/buy high) and my answer to the second group was, ‘I hope so!’ Let me explain.

As a long-term dividend investor I love buying blue-chip companies when they go on sale and there is no underlying fundamental business reason. If you can buy a Ferrari at the price of a Camaro, most people would consider that a good thing, but for some reason many long-term investors fret whenever there is a major clearance sale on the stocks they want to own.

I keep a list of great stocks that I would love to buy or add to my current position. Here are a few on that list:

Automatic Data Processing, Inc. (NASDAQ:ADP) | Yield @ Buy Price: 3.57%

Buy Price: $38.11 | Recent Price: $41.80 | Premium: 9.68% | Analysis

International Business Machines (NYSE:IBM) | Yield @ Buy Price: 2.18%

Buy Price: $119.11 | Recent Price: $131.19 | Premium: 10.14%

Pepsico, Inc. (NYSE:PEP) | Yield @ Buy Price: 3.04%

Buy Price: $59.28 | Recent Price: $66.07 | Premium: 11.5%

Genuine Parts Company (NYSE:GPC) | Yield @ Buy Price: 4.68%

Buy Price: $35.04 | Recent Price: $41.25 | Premium: 17.7% | Analysis

Eaton Vance Corp. (NYSE:EV) | Yield @ Buy Price: 2.59%

Buy Price: $24.67 | Recent Price: $32.80 | Premium: 32.93%

If the market drops, there is no need to panic if you are a long-term, buy-and-hold investor. While others are content to give away their stocks, I will pull out my wish list and see if any of my targets ready for harvesting.

Full Disclosure: Long ADP, PEP, GPC. See a list of all my income holdings here.

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Rating: 4.0/5 (7 votes)


Jigar34 - 7 years ago    Report SPAM

I agree with the above list...I would also add PM, BTI, and DEO to the list. Their current yield, payout ratio, and history of dividend increases speak volume.
Hbs - 7 years ago    Report SPAM

If one is really committed to this strategy,just think of the possibility of increasing one's income by selling puts on the stocks on your list.

If the market doesn't go down,you keep the premium;

If the market goes down,you get the stock at a very reduced price from your action date.

A win -win
Cm1750 - 7 years ago    Report SPAM
I also like PM as it is trading at 12.4x 2011 EPS of $3.55 (assumes big Euro F/X hit). With it's 5.3% yield and conservative long-term EPS growth of 8%, you can expect 13% IRR even if P/E stays around 12.5x. Selling puts and calls boosts returns to over 15%.

How do you calculate your PEP buy price? With the new dividend of $1.92, your $59.28 buy price yields 3.23%.

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