My second sell of the day. Way back in November 2019–if you remember a period when projected earnings growth was strong and before the coronavirus recession–I argued for a dividend strategy that focused on companies with fast growing and solidly predictable earnings that were, in my opinion, likely to raise their dividends significantly over the next five years or more. It didn’t matter all that much, I argued, that these stocks didn’t pay a big yield now. Buy them now for the future dividend increases. And rather than focusing on the steady dividend growers in the S&P Dividend Aristocrats list, I added stocks like Visa (V) and Illinois Tool Works (ITW) because if their stronger projected earnings growth.
Well, it’s a new world now. Companies are struggling to find the cash to get them through the coronavirus recession–a recession of unpredictable length that the optimists predict will be over by the third quarter and the pessimists see stretching to the end of 2021–and that’s not an economy where companies with small payouts are looking to break into the big leagues on yield.
So the new dividend picks that I’m rolling out as part of my Special Report on dividends–the first picks will get posted today after the market close–pay more attention to high current yields–maybe pushed higher by the coronavirus-induced volatility of 2020–and to companies with the revenue and cash flow strength to keep pushing high dividends higher despite this economy.
To make room for those new picks and to close off a dividend strategy that isn’t much suited to the current economy, I’m selling a couple of picks from the Dividend Portfolio today, May 18.
The first sell, just a moment ago, was Visa. I noted that the stock remains in my Jubak Picks Portfolio. This isn’t a call to sell Visa out of all portfolios but a decision that I can find better dividend plays in this coronavirus market
My second sell is Illinois Tool Works (ITW). The stock pays more than Visa with its 2.75% yield, but some of that higher yield is a result of the stock’s 16.56% slide in the last three months. Industrial companies won’t be among the first to recover from the coronavirus recession. The company has already seen margins fall and I think that will continue through the rest of 2020. That’s not a situation that usually see big additions to dividends. Looking out further, I think margins will again advance in 2021 and I like the company’s positioning in an economy where customers will be looking to streamline their processes and cut their own costs. If I could get the shares closer to $140 than to the current $164.71 close on May 18, I’d be a buyer later in 2020. The shares gained 5.8% today.
I added these shares to my Dividend Portfolio on November 11, 2019. The position is down 4.93% as of the close on May 18.