Three Dividend Stocks On My Watch List

With the stock market returning to pre-recession levels it has become a lot more difficult to find a bargain lately.  Corporate earnings have been beating expectations and a lot of stocks have reached their 52 week highs.

Back in early 2009 I picked up the majority of my dividend stock portfolio and there were plenty of bargains to be had, with some blue-chip stocks yielding close to 10%.  Today there are just a few high yielding large cap stocks for the value investor to choose from.  Here’s a look at three dividend stocks currently on my radar:

Bell Canada Enterprises – BCE

BCE is the largest communications company in Canada.  It has roughly 6.5 million fixed-line phone customers, 7.2 million wireless customers, 2 million high-speed internet customers, and 2 million satellite television customers.  They own 15% of both CTV, Canada’s leading private broadcaster, and The Globe and Mail, Canada’s leading national newspaper.  They also hold a 45% stake in the Bell Aliant Regional Communications Income Fund.

Since putting their dividend on hold in mid-2008, BCE has managed 5 dividend increases since 2009 and now yields a juicy 5.5%.  Although the stock currently trades near its 52 week high, with a P/E ratio of just over 12 BCE is still value priced.

I’m not nearly as bearish on the Canadian telecom industry as some investors.  While they continue to lose landline customers, BCE is strong in its wireless business and has Canada’s largest satellite TV operation, making this more like a utility stock with some upside for growth.  I added to my position with Telus back in 2010 and I’m considering doing the same with BCE this year.  My yield on cost is nearly 8.5% already with this stock.

Shoppers Drug Mart – SC

Shoppers Drug Mart is Canada’s leading retail drugstore chain.  It fills about 20% of the nation’s prescriptions and has a network of more than 1,300 retail stores.  Prescription drugs account for almost half of sales.  The remainder of sales comes from convenience items, over-the-counter medications, beauty products, and other items in the front of the store.

This stock took a beating last year after regulatory reforms to selling generic prescription drugs took effect in Ontario and other provinces.  But the changing landscape of retiring baby boomers will have an impact on the health care industry and Shoppers Drug Mart should benefit in the long term.

While the 2.3% yield on this stock won’t thrill investors from the onset, Shoppers Drug Mart is a dividend growth all-star, with an 18% annual dividend growth rate over the past 5 years.

Sun Life Financial – SLF

Sun Life offers financial protection and wealth management products to both individual and corporate customers.  It has worldwide operations. In 2010 approximately 52% of net income came from Sun Life Canada, 19% from Sun Life United States, 13% from MFS Investment Management, 6% from Sun Life Asia, and 10% from Corporate, which includes Sun Life UK, reinsurance businesses, and other unallocated items.

SLF is a real dog right now (along with the rest of the insurance industry), with share prices falling nearly 40% since 2007.  But there appears to be life in the sector lately, and SLF reached a 52 week high back in February.  SLF currently yields 4.8%, which is a full percentage point ahead of their 5 year average dividend yield and a good sign for any bargain hunting dividend investor.

I have been watching SLF closely, waiting for strength to return to the insurance sector.  Dividend increases are expected to be about a year behind the big banks, hopefully resuming in late 2011 or Q1 of 2012.

Dividend Stocks: Waiting to Jump In

I typically keep some cash on hand waiting for a dividend growth stock on my watch list to become value priced.  These three stocks have been on my radar for some time now, but I have been hesitant to pull the trigger thinking that the market is due for a pull back soon.

At some point when you are selecting a dividend stock for the long term you have to ignore the market as a whole and look at the fundamentals of the individual company.  If you feel that there is potential for future earnings growth and dividend growth then don’t be afraid to pull the trigger.

What do you think of these picks, and what dividend stocks are on your radar these days?


11 Responses to Three Dividend Stocks On My Watch List

  1. Those are definitely some solid dividend choices. Just out of curiosity are you investing outside of a retirement account? I only ask because you don’t seem to be considering any big American players and I figured maybe it was because of the tax advantage to investing in Canadian stocks outside of a protected plan?

    I think they are a solid picks with Shoppers Drug Mart being my favourite. They are a Canadian institution at this point, and as you pointed out with an ageing population I can’t see business going down. Their long-term management and branding has been extremely effective.

    I’m a little surprised you aren’t considering one of the big banks (or maybe a big bank ETF?) just because most dividend investors loves the banks’ stability.

    • @My University Money
      I am considering some U.S. stocks, but the core of my portfolio is in Canadian dividend payers.

      I already own shares in BNS, CM and BMO which I picked up when they were a lot cheaper back in ’09.

  2. SunLife has been doing quite a bit of advertising here in the US. Seems like they are at least trying for growth here. And they certainly have the room for it. They are not a popular bank, which is good considering our recent animosity towards our big banks. I expect to see more from them.

    • Hi Ashley, Sun Life has a bigger presence up here in Canada then the US but like you said there is lots of room for growth. where I’m from we actually have a Sun Life call centre that services US customers and they are constantly expanding and looking for more employees, so things must be growing.

  3. All good picks, and I especially like SC.
    It terms of Canadian brands, it ranks right up there with Tim Horton’s. SC is not a cheap store (even when some items are on “sale”), but it still manages to attract all segments inside its stores, and in some areas (Flemingdon Park in Toronto comes to mind), it serves as a de facto grocery/convenience store (the new concept stores that stock, frozen meals, eggs, milk, etc, etc). Actually, the new fancy SC at Flemingdon Park used to be a Food Basics before it got converted to a Shoppers store!!

    • Hi Sam, thanks for your comment. Shoppers is definitely up there as far as Canadian icons go, and their stock price drop over the last year has made it a decent buy.

      In Lethbridge they moved into an old grocery store that went out of business (huge store) and are now building a new store a few blocks up the road. That will make 5 SC locations in a city of 80k.

  4. Hi Echo,

    I was a recent seller of Shoppers, not a buyer. I purchased at $34 last year when all the analysts thought it was finished, and I recently sold at $40. Other than the low dividend yield of 2.4%, all the other fundamentals of the company are great: i.e. Dividend Payout Ratio, Liabilities to Equity etc.

    What you have to understand about Shoppers is the core business – which for the company is the dispensing fee and markup on prescriptions. I’m not sure what the percentage of their income that is, but it would be interesting to find out.

    This is what got Shoppers in trouble last year when the price collapsed from $45+ to $33. The Ontario govt ruled changes to the way Shoppers could charge its dispensing fee. BC and Alberta could easily follow suit. Its all speculation of course, but it could happen again. I felt for the low yield, keeping Shoppers was not worth the added risk. (of course I’ll regret that when it gets to $50 per share).

    Cheers
    Dividend Ninja

    • Hi Dividend Ninja, thanks for stopping by. SC is not a typical stock for my portfolio either, but I’ve been more interested in lower initial yields with higher dividend growth rates lately.

      The core business (prescriptions) for SC makes up about half of its sales, not sure about profit though.

      The Ontario ruling didn’t just affect SC of course, but all pharmacies in the province. I suspect that SC will find a way to remain competitive and it will be the small pharmacies who struggle with these changes.

      Interesting that Costco was only charging half the dispensing fees that SC (and others) were charging in Ontario.

  5. Nice watch list. I already own a few hundred shares of SLF and whenever our LOC is paid off (roof installation this spring) I’ll be looking at some consumer stocks at well, SC being one of them.

    I already own BCE as well, only enough shares to run my synthetic DRIP at this time.

    Back to SC, I have the same concerns about it, their main “line of business” is prescriptions but then again I can’t see folks not shopping there anytime soon. Their dividend is steady and that’s really what I’m after, consistent paycheques and hopefully rising ones at that :)

    Cheers,
    Mark

  6. I’ve actually kept my eye on Sun Life Financial earlier this year, but later took it off my watch list. I started focusing more on entertainment, technology, and energy companies.

    Good list.

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