The stock market is finally starting to correct. Will it turn into an all out crash? We shall see! Industrial stocks are getting hit particularly hard, with some of my favorites tanking after not meeting analyst expectations. This is good news for dividend investors. I can generate more dividends (more cash flow) for my money invested. I have taken advantage of the recent drops to buy some dividend stocks. You know I already purchased some 3M (MMM), IBM (IBM), and PepsiCo (PEP) this month. I actually bought more shares of another holding this morning - Leggett & Platt (LEG). Today's video is all about Leggett & Platt (LEG) and my strategy for the upcoming crash).
First, I discuss Leggett & Platt (LEG), a lesser known (boring, if you will) industrial company! (Although, they are not too boring from a dividend investing standpoint, that's for sure.) With a 4.6 billion market cap, I love how this company gives me exposure to a small cap within the industrial sector. A manufacturer of furniture (and furniture parts), aerospace parts, and automotive parts, their business is not very well known by consumers. Investors, on the other hand, know Leggett for their dividend aristocrat status.
I first started buying this stock in 2013 at $29.43 per share. They have increased their dividend 27% over the five years I have owned the company, making my yield on cost 5.16% (on my original shares purchased). They sure have fallen over the last year and are now at $35.75 with a 4.25% starting yield.
Why is this dividend stock tanking? They announced earnings today that did not meet analyst expectations. (From a dividend investing standpoint, I sure love it when my holdings don’t live up to the analyst targets.) Sales are up 8% year over year, earnings are up 10% year over year, but EPS guidance is down for the year.
At a forward PE of 14.89 (on the low end of the new guidance), I felt compelled to buy (and that's what I did)! Next, I share some stats from their most recent 10-K (annual report). Over the 5 year period from 2012 – 2017:
* Sales are up 15%
* Earnings are up 27%
* EPS is up 25%
* Dividend is up 24.6% (my favorite metric, by far)
* Debt is up 19%
* Cash flow is down -1.3% (the one red flag that I found)
Next, I transition into my general thoughts about stock market crashes and my personal strategy for dealing with a potential upcoming crash. I don't know if this current correction will turn into a crash or not. However, I do know we're at the end of a late stage bull market. At some point, the crash will occur and I'm ready!
In a crash environment:
1) I always assume the stocks I buy will immediately head lower. This helps me deal with falling stock prices and short term portfolio value.
2) This is really good thing. I know that falling stock prices create higher starting yields and get me more cash flow for my dollars invested.
3) I need to have discipline. I don't want to buy too much too soon. During a crash, prices will be progressively lower. I cannot time the bottom perfectly, so I need to keep averaging like clockwork.
4) My emergency fund is very strategic to me in 2018 and beyond. I will not tap into my emergency fund to buy more stock. I will stay disciplined and true to my emergency fund.
5) During a major market decline, I will not spend much time looking at my aggregate portfolio value. That just will not serve me well.
6) I don't want to dwell on share prices too closely, and it's important to live a well rounded life. Stock invested is one of my favorite things, but I need to remember the balance in life!
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I didn't always have an emergency fund! Here's how I used to go all in with my dividend stock investing:
Here's a fun video that shares what I do when I can't stop buying dividend stocks:
Disclosure: I am long Leggett & Platt (LEG), 3M (MMM), IBM (IBM), Cedar Fair (FUN), and PepsiCo (PEP). I own these stocks in my stock portfolio.
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