DivGro Pulse: October 2016

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Positions To Boost

Based on the information presented here, I consider several stocks to be suitable for further investment. Please note that I’m not recommending these stocks. Readers should do their due diligence!

In the following descriptions, the yield is calculated on closing prices on 21 October 2016, payout is the EPS (earnings per share) payout ratio, and debt is the stock’s debt to equity ratio. I also include Morningstar’s moat rating and Standard and Poor’s credit rating. Value Line’s safety and financial strength ratings round things out.

T. Rowe Price Group, Inc (TROW)
streak 30 years | 5-year growth rate 14% | yield 3.27% @ $65.96 | payout 52% | debt 0% |moat wide | credit rating N/A | safety 2 | financial strength A+
Dividend Champion 

TROW is the top-ranked stock in my portfolio and the only 7-star stock. Trading at a 7% discount to fair value, I like the stock’s yield, dividend growth rate, and it’s zero debt. S&P Capital IQ gives TROW a Quality Ranking of A-.

• Qualcomm Inc (QCOM)
streak 14 years 5-year growth rate 20% yield 3.12% @ $55.76 payout 62% debt 38% moat narrow credit rating A+ safety financial strength A++
Although QCOM is trading at a slight premium of 3% to my fair value estimate, the stock looks very attractive. I own 100 shares, but those shares are in one of my FolioInvesting accounts and not eligible for options trading. I’m thinking about writing a put option to see if I can buy additional shares below fair value. Alternatively, I could just go for a straight covered call trade.
Cisco Systems, Inc (CSCO)

streak 6 years 3-year growth rate 32% yield 3.45% @ $30.15 payout 49% debt 45% moat narrow credit rating AA- safety financial strength A++

CSCO is trading at a 7% discount to my fair value estimate. In August I bought 300 shares when put options I had sold got exercised. My effective buy price of $30.31 was well below fair value at the time. Subsequently, I wrote covered calls on these shares. One call option was exercised earlier this month when CSCO briefly traded above the $31 strike price. The other two put options expired worthless yesterday. I’m looking to replace the 100 shares I gave up and write more covered calls.
• Target Corporation (TGT) streak 49 years | 5-year growth rate 21% yield 3.52% @ $68.23 payout 47% debt 110% moat none credit rating A- safety 1 financial strength A
I already mentioned my open short put option on TGT. With the stock trading 11% below fair value, I’m thinking about writing additional put options. TGT is ranked #6 out of 29 DivGro stocks, and has a 6-star rating. I like the stock’s dividend history and, of course, its dividend yield and growth rate.

• Valero Energy Corporation (VLO) streak 36 years 5-year growth rate 56% yield 4.30% @ $67.93 payout 39% debt 36% moat narrow credit rating BBB safety financial strength A+

I continue to like VLO for its attractive dividend yield and excellent dividend growth rate. Thes stock trades at a discount of 19% to my fair value estimate and is ranked #3 out of 49 DivGro stocks. While the stock’s credit rating is on the low side and Value Line’s safety rating is a 3, the payout ratio of only 39% provides ample room to continue aggressive dividend growth.

Thanks for reading and take care, everybody!

Note: FerdiS manages and writes about DivGro, his portfolio of dividend growth stocks created in January 2013. Please visit divgro.blogspot.com.

Additional Links:

(1) http://www.wsj.com/articles/wells-fargo-profit-slides-as-bank-battles-to-restore-reputation-1476446682

(2) http://divgro.blogspot.com/2016/07/recent-buy-nike-inc.html

(3) http://seekingalpha.com/news/3214453-cat-ceo-oberhelmans-early-departure-warning-analysts-say

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