As a long-term investor, my favourite time to buy stocks and add to my portfolio is when the market is falling and good companies have been marked down sharply. So, with the FTSE 100 down heavily in recent weeks, I’ve been selectively drip-feeding money into the market and picking up more dividend stocks while everyone else has been panicking. Here’s a look at three stocks I have added to in the last few weeks.
Insurer Prudential (LSE: PRU) is a stock that I decided I wanted to own late last year, due to the long-term growth story associated with its exposure to Asian markets and its excellent dividend growth track record. Yet back then, the share price was up near £19 making it far more expensive than its peers, and the yield was a slightly underwhelming 2.5%.
However, Prudential has been out of favour in recent months, due to uncertainty over its forthcoming de-merger and regulatory intervention in the Lifetime Mortgage market, and with the added market volatility recently, I was able to pick the shares up for under £15 last week. That seems to me to be a very reasonable price to pay for a slice of the business, given the long-term growth story, as it translates to a forward P/E of less than 10, and a yield of around 3.4%.
St James’s Place
The next dividend stock I’ve been buying is wealth manager St James’s Place (LSE: STJ). Like many other financial stocks, STJ has been dragged down with the market recently. Investors were also spooked by a Q3 trading update that suggested inflows had slowed. Yet I believe the recent share price fall has created a huge opportunity for dividend investors as the prospective yield on the stock is now a high 5.1%.
St James’s Place has a phenomenal dividend growth track record and has lifted its payout by approximately 900% over the last decade. And while I don’t expect that kind of dividend growth over the next decade, I do expect the payout to keep rising as the company continues to see robust inflows (even if they have slowed recently). It also has a superb client retention rate. Currently, analysts expect dividend growth of 15% this year and 14% next year. To my mind, a 5% yield from STJ is a steal.
Lastly, I also took advantage of the recent market weakness to add to my holding in defence specialist BAE Systems (LSE: BA), as I’m bullish on defence as an investment theme in today’s volatile political climate.
While BAE hasn’t grown its dividend at the same pace as St James’s Place over the last decade, it has still notched up a solid track record, lifting its payout from 12.8p per share to 21.8 per share, representing growth of 70%. An expected payout of 22.3p per share equates to a yield of around 4.3% at the current share price.
While this period is expected to be a ‘transition year’ in which earnings growth is minimal, the group has advised that with its large order book and the positive outlook for defence budgets in a number of key markets, it has a strong foundation to deliver “growth and sustainable cash flow” going forward. After the recent share price fall, the stock is currently trading on a P/E of 11.9, which looks good value in my view.
Edward Sheldon owns shares in Prudential, St James's Place and BAE Systems. The Motley Fool UK has recommended Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.