There are a lot of great dividend companies out there. Unfortunately, everyone else knows how good they are and their stock prices usually carry a quality premium. So what does a income investor to do? Pay the premium and dollar-cost average your way in? Not hardly, there is a better way!
Fortunately, the market does not always behave in a rational manner. On any given day emotion or today’s news drives the market up or down. As patient, long-term investors, we can use this to our advantage.
Preparing For The Hunt
You would never get up one morning and decide to go on an African Safari, neither should you attempt to purchase dividend stocks unprepared. Here are a few items you should do before pulling the trigger on that dividend stock:
- Rhinos or rabbits?: We must know what we are hunting for. Our homework must be done in advance to identify what dividend stocks would be a good fit in our income portfolio.
- Where is the best place to find a rhino?: We need to know where the watering holes are and at what price we are willing to pull the trigger on that dividend stock that we have been stalking. We won’t find rhinos in the Alps or the right entry prices for our dividend stocks in the mass media.
- Don’t forget the bullets!: You are not going to stop a charging rhino without bullets, neither are you going to buy that dividend stock without cash (or margin). We must plan ahead and make sure we have cash accessible when that dividend stock slips below our target price. Otherwise, we are just firing blanks.
- The trophy goes to the patient: Hunters don’t expect to bag their prize within the first hour of a Safari. Stalking a dividend stock and waiting for it dip below our target price might take months, or even years.
An American Safari
Does it work? Yes it does. I keep a watch list of stocks along with their target prices and patiently wait for the right time to buy. Here are three dividend stocks that I have been stalking for some time now:
BANG: Kimberly-Clark Corporation (KMB)
KMB is a global consumer products company produces tissue, personal care and health care. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark. This is one I have been waiting for the right time to pull the trigger. Last week I did when it dipped below my Buy Below Price of $52.87.
BANG: Clorox Co (CLX)
The Clorox Company is a manufacturer and marketer of consumer products. The Company markets brand names, including Clorox bleach, Armor All, STP, Fresh Step/Scoop Away, Kingsford, Hidden Valley, KC Masterpiece, Brita , Glad, etc. I have stalked CLX for some time now and last week I was able to finally able to pounce when it dipped below my Buy Below Price of $52.69.
Click: Chevron Corporation (CVX)
Chevron Corporation (formerly ChevronTexaco) is a global integrated oil company that has interests in exploration, production, refining and marketing, and petrochemicals. This is the one that has eluded me so far. Not that it hasn’t dipped below my Buy Below Price of $72.91, but it has done it when I was unarmed (no cash in my brokerage account) or when I wasn’t paying attention. It looks like I may have to tag this one with a limit order.
All stocks eventually go on sale. Exercising a little patience and letting our greatest wealth building asset work for us will enhance our long-term returns.