Dividend Growth Share Valuation cont. - Selling Stanley Black and Decker

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Dividend Growth Share Valuation cont. - Selling Stanley Black and Decker

Published Date: 2018-03-15 | Source: Share Picks USA | Author: Bruce Ingram | Comments

Dividend Growth Share Valuation cont. - Selling Stanley Black and Decker

If a shares current dividend yield is below its average dividend yield this could indicate that the share is overvalued. It may be time to sell and take profits.

I am fast approaching the point where I will begin to live off my dividend income. For this reason, I am selling off low dividend paying shares (Shares that pay less than 3.5%) and replacing them with undervalued higher dividend paying shares.

The criteria above highlighted one of the shares in my portfolio that has performed really well but pays a low dividend. This share is Stanley Black and Decker (SWK). A well-known house brand that has paid an increasing dividend for more than 50 years

I purchased this share in October 2013. Since then it has returned about 16% per annum. I believe the rate of growth is slowing down.

The current dividend yield of 1.58% is 25% below its 5-year average dividend yield of 2.11%, indicating that the share may be overvalued.

The normal P/E ratio for the share is about 16. It is currently sitting at 20.6, another indicator that the stock is overvalued.

Further research shows that the share is most likely to provide a total return of about 6 to 7% in the next 3 to 4 years from its current price.

Although Stanley Black and Decker is a solid Dividend Growth Company and because it is overvalued, its forecast growth and dividend yield is below my targets for my retirement plan.

Previous Article: Dividend growth stock valuation. UPS revisited

I can better deploy the funds from the sale of SWK shares to provide a higher dividend income. When selecting a share to purchase with the funds released by this sale, I will once again look for a Dividend Growth Share with a dividend yield >3.5% that is undervalued and with a dividend yield growth forecast to be higher than 6%

In the 10 to 15 years prior to retirement I believe it pays to hold a higher percentage of Dividend Growth Shares with lower dividend yields. By paying out less in dividends the company will retain more of its profits. A well-managed company will re-invest these profits for higher growth. However, these companies tend to be more cyclical and not ideal for post-retirement holdings.

Going into retirement I will realign my portfolio by purchasing shares with an average of 4 to 5% dividend yield, by selling off low dividend paying shares (Shares that pay less than 3.5%) and replacing them with undervalued higher dividend paying shares (Shares that have a dividend yield of 3.5 to say 7%)

This past week the following shares in my portfolio reported dividend increases as follows:

  • Digital Realty Trust (DLR) 8.6% dividend increase
  • Novartis (NVS) 13% dividend increase
  • Altria Group (MO) 6.1% dividend increase


Disclaimer: Please note that I am not a Registered Financial Planner. The articles I write are based on my own personal research and for my own use and is not to be construed as financial planning advice. At all times readers are urged to exercise caution when investing in any financial instruments, to do their own research.


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