After the longest bull market in US history, it’s hard to find good deals. Although, there are two dividend stocks that I might buy soon. Investors have beaten down these companies’ valuations. Their shares are more than 35% and 46% below their highs, respectively. But fear is likely overblown. They both have a long history of rewarding shareholders.
One has paid and raised its dividend for over 36 years. And the other comes in at 46 years. This makes them both elite dividend aristocrats. And there’s a high probability they’ll be able to keep paying bigger dividends. Let’s take a closer look at… Exxon Mobil and Walgreens Boots Alliance.
#1 Dividend Stock on My Watch List
Exxon Mobil (XOM) is an integrated oil company. At every stage of production, refinement and further processing, Exxon makes money. This setup and its global network help the company collect steady streams of income.
One big fear is that fossil fuels are on their way out. And I have no doubt renewables will take over. That’ll be a positive change for our world but it’ll take many decades. Along the way, Exxon will continue to have healthy cashflows.
Over the last five years, it’s been tough for oil producers. WTI crude oil has dropped from a price of $100 per barrel to about $50 today. As a result, profitability has decreased. Although, Exxon Mobil has a stronger balance sheet than the other supermajors.
Fun fact: Exxon Mobil had a higher credit rating than the U.S. government. But after a downgrade in 2016, it now has the same AA+ rating as the federal government.
With a sustained drop in oil prices, there’s been better buying opportunities as smaller producers have struggled. This consolidation – often forced – is good for the bigger players. And Exxon is focusing on higher margin projects. Even if oil drops to $40 a barrel, Exxon still expects to see strong free cash flow growth. This will help support paying bigger dividends.
With a drop in share price, the dividend yield has climbed above 5.2%. And its other valuation metrics are looking more enticing. Now if and when I pull the trigger to buy, you’ll find more detailed analysis on my blog.
#2 Dividend Stock on My Watch List
Walgreens Boots Alliance (WBA) is the runner-up on my dividend stocks watch list. The company is the largest drug store chain in the U.S. And as the population ages, more Americans will visit its network of over 9,200 stores.
The two main drivers of its dropping share price are regulatory and new competitor fears. Although healthcare costs have skyrocketed, profit margins remain thin. But new policy changes might put even more pressure on profitability. On the competitor side, Amazon bought PillPack, an online pharmacy business. Amazon and other business might start taking a bigger bite of pharmacy sales.
These fears have helped knock off more than $50 billion from Walgreen’s market cap since 2015. But is the company really worth less than half of what it was back then?
Sure, there are new challenges ahead, but Walgreens has a long history of adapting. Today’s fears are likely overblown and as a result, the dividend yield now tops 3.5%. Some of the other metrics are also looking more attractive. If I do end up buy shares, you’ll find a more detailed write-up on my blog.
Final Thoughts on Dividend Stocks to Watch
These two companies are on the top of my dividend stocks watch list. With any investment comes risk but the potential reward might justify the risk. And if their prices drop further, I’ll have a wider margin of safety.
I monitor hundreds of dividend-paying stocks each year. Although, I don’t have time to do a deep dive on every company. What dividend stocks are on the top of your watch list? Please share them in the comments below and any other thoughts.