Dividend stock purchase – June 2014 ( 2)

It’s time for another dividend stock purchase and this time I’m following my new dividend investing rules. This week I’m looking at stocks in the Healthcare sector which is currently the lowest value sector in my dividend stock Portfolio as you can see in the following table.

Dividend stock purchase in June. The healthcare sector is my lowest valued sector as of 06 June, followed by Utilities then Financial Services.
My stock portfolio as of 06 June showing Healthcare as the lowest valued sector, followed by Utilities, then Financial Services.

4 Healthcare stocks

I have positions in JNJ and PFE currently in Healthcare. But with just two stocks, I’m interested if there are any additional positions worth considering. First a quick look at my two current stocks, JNJ & PFE.

Johnson & Johnson [JNJ] is a $290B healthcare holding company that has increased its dividend for the last 51 years. Its payout ratio is a reasonable 47.6% with a current dividend yield of 2.6%. As mentioned in a recent post @ DivHut, many of JNJ’s consumer products are well known brands such as Johnson’s baby products, Band-Aid, Tylenol and also Savlon which I remember as being the go-to antiseptic cream in the UK. JNJ’s P/E of 19.7 is higher than the industry average of 18.7.

Pfizer [PFE] is a biopharmaceutical with divisions in Primary Care, Speciality Care / Oncology, Established Products and Emerging Markets; Animal Health; and Consumer Healthcare.

You may know some of PFE’s products from Advil, Robitussin or ThermaCare. Its share price has been dropping a little of late and it’s cheaper than the industry average with a P/E of 17.9 compared to 18.7. Its dividend yield is 3.3% with a dividend ratio of 46%.

So what else is there? Healthcare is a somewhat controversial topic these days with the rollout of the Affordable Care Act and potentially long term changes to the industry.

UnitedHealth Group [UNH] is one of the largest healthcare service provider companies in the US with competition from WellPoint, Aetna, Cigna and Humana. Its dividend yield is fairly low at 1.8% but it has a low payout ratio of 20%. Its P/E of 14.7 is cheaper than the industry average.

Abbott Laboratories [ABT] is a long term dividend champion having increased its dividend each year for the last 41 years. Its dividend yield is 2.2% with a payout ratio of 40%. ABT makes and sells medical products including equipment for Lasik eye correction and markets pharmaceuticals. The P/E ratio is high at 28.7 although this is lower than the industry average of 30.

Dividend stock purchase

I’ve decided to purchase only PFE this time as that’s the only stock meeting my stock purchasing criteria. I consider all 4 stocks to be fairly priced and all have increased dividends in the last 5 years. However the yields of UNH and ABT are below 2% and I think I’ll wait for the yield to increase. Considering both ABT and UNH’s dividend growth rate, I don’t think it’ll take long.

PFE beat JNJ based on yield and growth rate: I’m valuing PFE’s 3.3% yield and 10% average dividend growth over JNJ’s 2.6% yield at 7% growth.

I keep adding to my taxable Vanguard funds in order to obtain cheaper Admiral class expense ratios and to quality for $2 brokerage trades.

So total purchases are:

  • $330 Individual Stocks (PFE)
  • $750 Vanguard High-Yield Corporate Fund (VWHEX)

These investments should increase my yearly dividend income by about $27.

Full disclosure: I am long PFE & JNJ.

Quote of the day

In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.

2 thoughts on “Dividend stock purchase – June 2014 ( 2)”

  1. Hi DividenLife,

    I like the quote from Theodore Roosevelt.

    I currently mostly sit on cash as I expect a small market correction to occur pretty soon. But since timing the market is near to impossible I decided to buy some shares anyway. In may I bought shares of Tim Hortons and this week I bought my first REIT – American Realty Capital Properties. It was trading at its 52 weeks low and while I expect a lot of volatility with this title, its juicy 8% yield was appealing.

    I plan to buy JNJ shares as soon as an opportunity arise to get them at better valuation.

    Keep going!

    1. Hi Allan,

      Thanks for stopping by! Yes that quote seemed appropriate especially because of the high stock prices and whether buying into the market now is a good thing. I’m with you in that I have cash on the sidelines which I’m investing over time – if I catch a market correction then all the better.

      I like JNJ but I am pretty ignorant of Tim Hortons so that’ll be worth a look. I don’t own any REITs currently; when I first started investing a couple years ago I did buy the PCL REIT as I thought that wood / paper will always be in demand. I sold the shares last April after learning that they paid non-qualified dividends.

      Best wishes on your journey and I look forward to reading about your future purchases!

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