Dividend Stock Watch List: April 2024 Edition

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The stock market has continued to edge up, setting new all-time highs for what feels like every other day at this point. Therefore, it may be difficult to find undervalued dividend stocks right now, due to the market surging over 24% in 2023 and over 10% so far in 2024. However, you know we never back down from finding undervalued dividend growth stocks.

Let’s dive into three dividend stocks on my watch list right now.

Dividend Stock Watch List

Dividend investing always happens -- whether the stock market is up or down, whether the Fed raises interest rates or lowers them, whether there is a recession or not, etc. It’s all about buying dividend income-producing stocks, which can often be the best source of passive income on your journey to financial freedom.

The stock market, specifically the S&P 500, is up over 10% this year and is now gearing up to reach the 5,300 mark after surpassing the illustrious 5,000 figure. Can you believe the S&P 500 is still on fire? I guess we can thank the AI boom.

The Fed maintained interest rates at the March FOMC meeting, with three planned rate cuts in 2024 and three more in 2025. The stock market reacted favorably to this, but who knows where interest rates will be.

The S&P 500 chart is provided below, as it went up, down, up, down, and now up once more.

So, how do I find an undervalued dividend stock in this uncertain market? Here are the metrics I look for:

  1. Price to Earnings Ratio – We look for a price to earnings ratio less than the overall stock market.
  2. Payout Ratio – We aim for a payout ratio between of less than 60%.
  3. Dividend Growth – We like to see history of dividend growth in a company.

Now, here is the list of dividend stocks that are on my radar going into the month of April 2024. I typically like to keep it at 2-3 dividend stocks, narrowing focus to just a small set of stocks. Finding dividend stocks isn’t easy, but there are also other factors to consider, such as the composition of my portfolio by industry (i.e., am I overweight/underweight in an industry), as well as the level of exposure to one stock.

Therefore, the dividend stocks on my list cater to these factors and more. Now, here is the first stock on my list.

Johnson & Johnson (JNJ)

It was time to bring this iconic Dividend King back to the table, especially as the stock price is still below $160 and hovering around $155.

This could be a foundational stock for a dividend portfolio. The company consistently grows earnings and raises their dividend every year -- and at or around the same rate. Plus, they usually provided a nice dividend yield to boot.

Now, I want to show the numbers and explain why I like the stock. Therefore, here is a look at the stock while applying the metrics I scan for:

  1. Price to Earnings Ratio: Earnings is approximately $9.81 in earnings per share for 2024. Therefore, Johnson & Johnson is trading at ~16x forward earnings. This is still low, especially when compared to the 28x the S&P 500 sits at.
  2. Payout Ratio: The stock's current dividend payout ratio is at 49%. This is a perfect payout ratio, as there is room for reinvestment and room for dividend growth.
  3. Dividend Growth: See the 10-year chart below. This is Johnson & Johnson's little engine just humming along, growing between 5.5%-7.50% every year.

The dividend yield is currently at 3.07%. I would like to see the stock at or below $155 per share.

Chevron (CVX)

Here is another Dividend Aristocrat on the list. Chevron is a beast in the oil and gas industry, historically boasting the better balance sheet than Exxon Mobil (XOM). Chevron was actually a dog of the Dow from 2023, and the stock hasn't popped as much to start 2024.

The stock has been up 3.47% this year, growing dividends, and growing earnings.

It's time to look at the dividend metrics.

  1. P/E Ratio: Chevron analysts are expecting to see over $12.62 in earnings per share. The P/E ratio would then be approximately 12x earnings.
  2. Dividend Payout Ratio: Chevron pays $1.63 per share, per quarter. This represents a dividend payout ratio of 52%, which is solid, safe, and has room to keep growing.
  3. Dividend Growth Rate: The last dividend increase was around 8%. I anticipate seeing around 5%-10% for the next dividend increase.

Lastly, Chevron’s dividend yield is at 4.22%, which is well above the S&P 500. However, most oil companies yield higher.

Starbucks (SBUX)

I know there is currently a debacle with unions and there are battles going on with China. Therefore, things appear to be momentarily rocky for this iconic company. However, where there is red, I see opportunity.

It's once again time to take a look at the dividend metrics.

  1. P/E Ratio: Starbucks analysts see earnings at around $4.06. That is a P/E ratio of 22x, which is actually low for Starbucks, believe it or not.
  2. Dividend Payout Ratio: Starbucks pays $0.57 per share, per quarter dividend, or $2.28 annually. This is another perfect payout ratio, at 56%. We’ll take it, and I would anticipate to see a lower dividend growth rate going forward.
  3. Dividend Growth Rate: Starbucks' five-year average dividend growth rate stands at 9.79%. However, I would anticipate lower going into 2025 through possibly 2026. Time will tell.

Lastly, we’ll take a look at the dividend yield. The yield for Starbucks is now at 2.51%, which is above their five-year average dividend yield of 2.18%. I like the stock under $91 per share.

No other stocks are catching my eye at this point. The market is just too hot. I own each stock, and I am constantly evaluating the stock market to see if there are undervalued dividend stocks to buy in this wild market.

As always, stick to your investment strategy, and dividend stocks will be there. So, what do you think of these stocks above?

More By This Author:

Dividend Stock Purchase Summary - Sunday, Feb. 18
Dividend Stock Watch List: January 2024 Edition
7 Expected Dividend Increases In July 2023

Disclaimer: I do not recommend any decision to the reader or any user, please consult your own research. Thank you.

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