John Buckingham, editor of the Prudent Speculator newsletter, paraphrases Warren Buffett when he says “whether it is socks or stocks, we like to buy quality merchandise that is marked down.”
And 2022 is a year that has set up attractive buying opportunities.
Pouring money into stocks during a bull market means you’re buying high. But if you’re building a nest egg over decades, lower prices will get you a better return.
Buckingham screened 15 dividend stocks, starting with those that pass the value criteria to be included in the Prudent Speculator’s flagship strategy. They are listed below.
The Prudent Speculator is published by Kovitz Investment Group of Chicago and tops the list for 30-year returns among newsletters tracked by the Hulbert Financial Digest. The TPS portfolio’s average annualized 30-year return is 14.5% through June 30, compared with 9.9% for the S&P 500
with dividends reinvested monthly, according to Hulbert.
The Prudent Speculator’s portfolio includes 80 stocks identified as long-term investments, drawn from an initial group of about 3,000 publicly traded U.S. companies. Buckingham and his colleagues narrow the list to identify highly liquid, “potentially undervalued” names relative to the market. Then they subject companies to a number of proprietary screens for quality.
Buckingham has said that making good selections has been an important part of the TPS approach’s success, but he has also said “we are superior stockholders,” to emphasize the importance of remaining committed over the long term. Investors must expect the market to stage dramatic pullbacks fairly frequently. Those can provide advantages if you are putting money to work. But it is important not to try to time a market downturn — the tendency is for investors to return after the market has started its recovery, so the timing efforts tend to worsen long-term performance.
This chart, provided by Buckingham, shows how investors’ movement in and out of funds has hurt their performance, relative to the broader market:
A ‘creative’ dividend stock screen
Buckingham listed 15 stocks that passed the TPS screens and also met these criteria:
Dividend yield greater than 3.0%. “Yes, interest rates have jumped this year, but for those who share our three-to-five-year-or-longer time horizon, I think dividend-paying stocks remain very attractive vs. bond alternatives for those seeking income from their portfolios,” Buckingham wrote in an email..
Year-to-date price change down more than 22%. “[W]e think each of these names has substantial capital appreciation potential in addition to the income component, with a significant amount of bad news already priced in. In short, the upside from the currently depressed levels, we believe, is substantial, compensating for the business risk of further near-term economic weakness,” Buckingham wrote.
Next-12-month consensus analyst P/E estimates at a level below the current 14.0 forward P/E of the Russell 3000 Value Index. These names are not only cheaper on a forward P/E basis than the broad value-stock benchmark, they have a higher dividend yield than the Russell 3000 Value Index’s
dividend yield of 2.3%.
Here are the 15 dividend stocks Buckingham listed, sorted alphabetically by ticker:
Closing price – July 27
TPS Target Price
Price change – 2022 through July 27
Bank of New York Mellon Corp.
Cisco Systems Inc.
Fifth Third Bancorp
Foot Locker Inc.
Greenbrier Cos. Inc.
JPMorgan Chase & Co.
M.D.C. Holdings Inc.
New York Community Bancorp Inc.
Seagate Technology Holdings PLC
Click on the tickers for more about each company.
You should do your own research to form your own opinion before making any investment. Click here for Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.
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