I am excited to share three #dividend #stock #picks that are true values right now! One of them, AbbVie (ABBV), I have already discussed recently. However, I want to shed some new light on this value stock, since some investors are thinking about acquiring shares via Allergan (AGN). I also want to share two other stock picks I have not discussed too much recently, Johnson & Johnson (JNJ) and also Caterpillar (CAT). I truly enjoy a good stock market sale.
0:00 Introduction – There are three dividend stocks that offer ridiculous value (as compared to the broader stock market)
0:55 Value stock pick 1 - AbbVie (ABBV)
3:00 Is it better to buy AbbVie (ABBV) or Allergan (AGN)?
9:09 Here’s why it makes no sense for me to buy Allergan (AGN).
12:35 Who would this AGN strategy work for? Probably someone who is extremely heavy on cash (perhaps 50% cash and 50% stocks).
15:17 Value stock pick 2 – Johnson & Johnson (JNJ)
23:08 Value stock pick 3 – Caterpillar (CAT)
Stock Pick 1: AbbVie (ABBV)
On Friday, I bought more at $69.72. That’s after starting my position in ABBV a few weeks back at $69.02. Buying in this range is a no brainer, in my opinion, for a few reasons:
* Starting dividend yield is 6.14%
* Payout ratio (forward 2019) is 49%
* PE ratio (forward 2019) is 7.94
* 5-year dividend CAGR is 21%
Some subscribers are wondering what I think about buying ABBV via shares of AGN, since there is an arbitrage opportunity. Justin Law just wrote a really good article on this topic for Seeking Alpha: https://seekingalpha.com/article/4274785-like-abbvie-buying-allergan
* Here’s the deal: Each share of AGN gets you $120.30 in cash and 0.866 share of ABBV
* AGN is currently at $165.85/share
* With ABBV currently at $70.28 for Justin’s analysis, AGN should be trading at $120.30 + (0.866* $70.28) = $181.16/share.
* There is 9.2% upside on that $165.85 purchase price.
* Put another way… $165.85 - $120.30 = $45.55 for 0.866 shares of ABBV
* $45.55 / 0.866 = $52.6 per share of ABBV
* $70.28 - $52.6 = $17.68
* $17.68 / $70.28 = 25% discount
1) What if the deal doesn’t go through?
2) Paying $165.85 for $45.55 worth of ABBV
a. Low leverage way of buying ABBV (need a lot of money deployed for a meaningful position in ABBV)
b. 27% goes to ABBV, 73% goes back to cash
3) When the cash comes back in 2020, will have to redeploy (what if there are no great opportunities at the time?)
Stock Pick 2: Johnson & Johnson
* Watch today's video for more on this stock pick.
Value Stock Pick 3: Caterpillar
* Watch today's dividend investing video for more!
Learn more about AbbVie (ABBV) in my recent video stock analysis: https://www.youtube.com/watch?v=PencxhwwfIY
I’m now using dividends to pay some of my bills: https://www.youtube.com/watch?v=bM3J2NRq27M
Johnson & Johnson (JNJ) tanked in December. Here’s my video from that time: https://www.youtube.com/watch?v=2tqig5D3l8c
Here’s my complete dividend stock portfolio for your download: https://www.youtube.com/watch?v=hx6pMUZZb9U
Here’s my international dividend stock analysis: https://www.youtube.com/watch?v=WrAR-BK1opU
DISCLOSURE: I am long 3M (MMM), Cedar Fair (FUN), Apple (AAPL), AbbVie (ABBV), Johnson & Johnson (JNJ), and Caterpillar (CAT). I own these stocks in my stock portfolio.
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