I get questions from retired and income investors asking about oversold dividend stocks. In the current market, a lot of dividends stocks — particularly the more well-known ones — are hitting new 52-week highs on a regular basis.
These investors want to know if buying at all-time or 52-week highs is a mistake. The answer is usually, “it depends.” If you have a long-term horizon of, say, ten years or more, it doesn’t really matter.
The other answer, however, is that if the investor is looking for solid dividend stocks, there’s no reason to confine oneself to Johnson & Johnson (JNJ). There are other dividend payers out there, and I prefer to look for stock that are 10% or more off their 52-week highs.
It suggests that, in an environment where everyone is looking for yield, that the stock has sold off for reasons that aren’t critical to its ongoing operations. That creates a buying opportunity.
Here are 3 stocks I think fit that bill:
Deere & Company (DE)
Deere & Company (DE) is probably the single greatest American company in the history of agriculture. It was founded back in 1837. Not only is it still around, it continues to grow as a Peter Lynch stalwart, at around 8% long-term.
DE stock has repurchased more than $6 billion over the last 4 years, saving the company almost a quarter of a billion dollars in dividend payments, and reducing share count by almost 25%. It has increased dividends for 111 straight years and paid them to shareholders for the last 77 years. Indeed, earlier this year, DE stock boosted its payout by 17%.
DE stock is considered a cyclical company, but having survived since 1837, it obviously knows how to breathe between up-cycles. It’s just one of those stock you can sleep well at night with. It’s 10% off its 52-week high, pays a 2.6% dividend, and now is a good time to enter.
Church & Dwight (CHD)
Church & Dwight (CHD) is a personal care and specialty product company, and you may be surprised to learn that it’s almost as old as Deere — founded in 1846. Puzzled how you could have missed this name for so long?
That’s because some of its products are better known as Arm & Hammer! I had no idea that CHD stock owns Nair, Orajel, OxiClean, Xtra and my personal favorite … Trojan.
CHD isn’t that well-known as a dividend payer, and while its 1.8% yield may seem small, it only represents about a third of its $400 million or so of annual free cash flow. I think CHD stock has room to increase this dividend. As you would expect, the company has a solid balance sheet, with only $650 million in debt and $500 million in cash.
CHD stock is 10% off its 52-week high, making now a great entry point.
Scotts Miracle-Gro Company (SMG)
Scotts Miracle-Gro Company (SMG) produces more than just plant growth stuff. It is a complete garden care company that joins CHD stock and DE stock as having been founded more than a century ago. Things are a bit slow on the SMG stock top line as sales are expected to be flat. Yet, that’s what a great company does. It cuts expenses in tougher times. It continues to grow at 11% long-term.
Its balance sheet is solid, with $130 million in cash and $478 million in debt. Operating cash flow more than doubled in FY13 over FY12. What I like about SMG stock is that, even after all these years, insiders hold 28% of the company. Their interests are aligned with shareholders, and perhaps that’s a reason why — despite slow sales — only 2% of the float is sold short.
It has a 3% dividend yield, and is 15% off its 52-week high. Buy while it’s still cheap.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets at @ichabodscranium.