With the final trading day of January upon us, it’s time once again, to outline my potential stock buys for the upcoming month. The point of these posts is to help take some of the guesswork out of where I plan to allocate my fresh capital going forward. By making my selections ahead of time I find it easier to commit to buys as all the homework and investment thesis has already been completed on my end. All that’s left to do is pull the ‘buy’ trigger. Of course, I always qualify these posts with the notion that Mr. Market may present new buying opportunities not mentioned here, and with all the volatility we have been witnessing recently it’s a definite possibility that some new stock buying opportunity will pop up. With that being said, let’s take a look at my February stock considerations.
It should come as no surprise that I still like the value and safe yields being offered among the large Canadian banks. Once again, I am considering The Toronto-Dominion Bank (TD), The Bank of Nova Scotia (BNS) and Royal Bank of Canada (RY) with generous yields of 3.86%, 4.96% and 4.45%respectively. All three banks mentioned have payout ratios under 60% based on current cash flow which makes their dividends quite safe with room for increases. To be blunt, it looks ugly for Canada going forward. Low oil prices, a weakened currency and a potential domestic real estate bust are all putting tremendous pressure on these banks. Of course, that simply translates into an opportune time to initiate or add to positions. Inevitably, the tide will turn but in the meantime you can be paid quite generously to wait it out.
Looking elsewhere for potential stock picks I find a couple dividend stalwart industrial companies back in play. My first consideration in this space is Caterpillar Inc. (CAT). 2015 has been a rough year for this heavy machinery company as weakened economies in Asia and Europe saw less demand for CAT products as well as depressed commodity prices affecting sales as mining activity has been curbed. Still, CAT is a dividend machine that is currently yielding a high 5.04% and a current PE of 12.7 which is well below its five year average. I have held CAT for many years and realize that it’s a company/stock that goes through boom and bust cycles as it is more sensitive to economic activity than say, consumer staples. At that yield, which is sustainable, and value, CAT is very compelling at these levels.
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