THREE Undervalued Dividend Stocks WE'RE BUYING! | Adding Passive Income to Reach Financial Freedom!

Summary

In this episode of the Dividend Diplomats, hosts Mr. Buckeye and Lanny discuss three dividend stocks on their watch list, emphasizing their focus on passive income through dividend growth. The stocks highlighted are Johnson & Johnson, Starbucks, and Pepsi, all of which have strong histories of dividend increases and are currently trading at attractive valuations. The hosts use specific metrics such as price-to-earnings ratio, dividend payout ratio, and dividend growth rate to evaluate these stocks, highlighting their appeal for long-term investors seeking financial freedom.

Takeaways

• 📈 The video discusses three dividend stocks that the hosts, Mr. Buckeye and Lanny, are closely watching and have recently invested in.
• 💰 The hosts emphasize the importance of investing in dividend stocks as a pathway to financial freedom and building a passive income stream.
• 🔍 The video focuses on three key metrics for evaluating dividend stocks: price-to-earnings (PE) ratio, dividend payout ratio, and a history of growing dividends.
• 🏆 Johnson & Johnson (JNJ), Starbucks (SBUX), and Pepsi (PEP) are identified as the three stocks being discussed, with two of them being dividend kings.
• 📉 The PE ratios for all three stocks are below that of the S&P 500, with J&J at 14.3, Starbucks at 21.4, and Pepsi at 20.75, indicating potential undervaluation.
• 💹 The dividend payout ratios for J&J and Starbucks are within the desired range of below 60%, while Pepsi's is slightly above at 62%.
• 📊 J&J has a 5-year dividend growth rate of 5.75% and has increased dividends for over 50 years, making it a dividend king. Starbucks has a growth rate of 9.79% and has increased dividends for over 13 years. Pepsi has a growth rate of 6.43% and has a history of increasing dividends for over 50 years.
• 🌟 The hosts mention that they have personally bought all three stocks in 2024, highlighting their confidence in these investments.
• 🤑 The video encourages viewers to share their own stock investments in the comments and to subscribe to the channel for more content.
• 🚀 The hosts conclude by reiterating that all three stocks (JNJ, SBUX, PEP) are great choices for dividend investors, with Starbucks offering the best dividend yield and growth combination.

Q & A

What is the main focus of the Dividend Diplomats YouTube channel?

The main focus of the Dividend Diplomats YouTube channel is to help viewers reach financial freedom by building a passive income stream through investing in dividend stocks.

What are the three stocks that Lanny is watching and potentially buying according to the video?

The three stocks that Lanny is watching and potentially buying are Johnson & Johnson (ticker symbol JNJ), Starbucks (ticker symbol SBUX), and Pepsi (ticker symbol PP).

What are the three metrics used by the Dividend Diplomat stock screener as mentioned in the video?

The three metrics used by the Dividend Diplomat stock screener are: 1) Price earnings ratio less than the S&P 500, 2) Dividend pay ratio less than 60%, and 3) A history of growing dividends with strong dividend growth rates.

What is the significance of a company being a 'Dividend King' or a 'Dividend Aristocrat'?

A 'Dividend King' or a 'Dividend Aristocrat' refers to a company that has a strong history of consistently increasing its dividends over a significant number of years, indicating a reliable and growing passive income stream for investors.

What is the price-to-earnings (PE) ratio of Johnson & Johnson as discussed in the video?

The price-to-earnings (PE) ratio of Johnson & Johnson discussed in the video is 14.3.

What is the dividend payout ratio for Starbucks and how does it compare to the ideal threshold?

The dividend payout ratio for Starbucks is 56.3%, which is slightly above the ideal threshold of 60% for ensuring dividend safety.

What is the five-year dividend growth rate for Pepsi and how long has the company been increasing its dividends?

The five-year dividend growth rate for Pepsi is 6.43%, and the company has been increasing its dividends for over 52 years, making it a Dividend Aristocrat.

What are the dividend yields for the three stocks featured in the video?

The dividend yields for the three stocks are as follows: Johnson & Johnson has a yield of 3.12%, Starbucks has a yield of 2.63%, and Pepsi has a yield of 2.99%.

What advice does Lanny give regarding buying Pepsi stock according to the video?

Lanny advises that Pepsi stock is a good buy, preferably below $165 per share, but acknowledges that it can be difficult to catch Pepsi at a great valuation. He also mentions that for those who are not in a position to be as selective as he is, Pepsi could still be a good foundational stock to start building a position in.

How does the video emphasize the importance of dividend growth rate and yield for dividend investors?

The video emphasizes that a combination of a strong dividend growth rate and a modest dividend yield is ideal for dividend investors. This combination indicates not only a reliable passive income stream but also the potential for that income to grow over time, increasing the investor's overall return on investment.

What is the state of the S&P 500 index as of the end of the period discussed in the video?

As of April 5th, the S&P 500 index was up 99.73%, indicating a strong performance over the period discussed in the video.

Outlines

00:00

📈 Dividend Investing with Top Stocks to Watch

This paragraph introduces the viewers to the dividend investment strategy discussed on the channel, highlighting the focus on three specific stocks that are being closely watched by Lanny. The hosts, Mr. Buckeye, Ber, and Lanny, emphasize their commitment to investing in dividend stocks and share their excitement about potentially buying these stocks. They outline their strategy for evaluating stocks using the Dividend Diplomat stock screener, focusing on metrics such as price-to-earnings ratio, dividend pay ratio, and a history of dividend growth. The paragraph sets the stage for a detailed analysis of three stocks, two of which are dividend kings, and one is close to becoming a dividend aristocrat.

05:00

💹 In-Depth Analysis of Dividend Stocks: J&J, Starbucks, and Pepsi

This paragraph delves into a detailed analysis of three specific dividend stocks: Johnson & Johnson, Starbucks, and Pepsi. It begins with an examination of the undervaluation metric, comparing the price-to-earnings (PE) ratios of these stocks to the S&P 500. The discussion then moves to the dividend payout ratio, which indicates the safety of the dividend. The paragraph also covers the history of dividend growth over a five-year period and the number of consecutive years these companies have increased their dividends. Finally, the yields of the three stocks are compared, with Starbucks offering the best dividend growth combination. The hosts share their personal investment strategies, noting their preference for buying these stocks at certain prices, and encourage viewers to do their own research before investing.

Keywords

💡Dividend Diplomats

The term 'Dividend Diplomats' refers to the YouTube channel hosting the video, which focuses on providing investment advice centered around dividend stocks. It is a thematic element that sets the stage for the content, indicating that the video is about strategic investment in the stock market, particularly for achieving financial freedom through passive income from dividends.

💡Financial Freedom

Financial freedom is a state where an individual has enough savings, investments, and other financial assets to cover their living expenses without the need to work actively. In the context of the video, it is the ultimate goal for the investors who follow the advice of the 'Dividend Diplomats', achieved by building a passive income stream through dividend stocks.

💡Passive Income

Passive income refers to the earnings derived from a variety of sources that require little to no daily active involvement from the investor. In the video, the hosts emphasize the importance of creating a passive income stream through dividend-paying stocks as a means to achieve financial freedom.

💡Dividend Stocks

Dividend stocks are shares of companies that pay out a portion of their earnings to shareholders in the form of dividends. These are the primary investment vehicles discussed in the video, as they are seen as a reliable way to generate passive income and achieve financial freedom.

💡Price Earnings Ratio (PE Ratio)

The price-to-earnings ratio, commonly known as the P/E ratio, is a financial metric that compares a company's market price per share to its earnings per share (EPS), indicating the price investors are willing to pay for each dollar of earnings. A lower P/E ratio can suggest that a stock is undervalued compared to the broader market, which is a key factor the hosts consider when selecting stocks for investment.

💡Dividend Payout Ratio

The dividend payout ratio is a financial metric that indicates the proportion of earnings a company pays its shareholders in the form of dividends, expressed as a percentage of the company's total earnings. A lower payout ratio can indicate that a company has room to grow its dividends in the future, which is important for investors seeking passive income and long-term growth.

💡Dividend Growth

Dividend growth refers to the consistent increase in dividend payments made by a company to its shareholders over time. It is a key attribute that the hosts of the 'Dividend Diplomats' channel look for in stocks, as it indicates the financial health and stability of a company, and its commitment to rewarding shareholders.

💡Yield

Yield in the context of stocks refers to the annual dividend payment divided by the market price per share, expressed as a percentage. It is a critical metric for dividend investors as it represents the return on investment they can expect from a stock in the form of dividend payments.

💡Dividend Kings

The term 'Dividend Kings' is used to describe companies that have a long, uninterrupted history of increasing their dividend payments to shareholders. It is a prestigious title in the investment community, indicating that these companies have consistently performed well and have a track record of rewarding investors.

💡Stock Screening

Stock screening is the process of analyzing and filtering stocks based on specific criteria to identify potential investments. In the video, the hosts apply a stock screener focused on metrics such as PE ratio, dividend payout ratio, and dividend growth to narrow down their investment choices.

💡Investment Strategy

An investment strategy refers to a well-defined plan or approach that an investor uses to achieve their financial goals. In the context of the video, the investment strategy revolves around selecting high-quality dividend stocks that can provide a steady income stream and potential for capital appreciation.

Highlights

The Dividend Diplomats YouTube channel focuses on helping investors achieve financial freedom through dividend stock investments.

The hosts, Mr. Buckeye and Lanny, not only discuss stocks but also invest in them, demonstrating their commitment to the strategies they share.

Three dividend stocks are featured in the video, all of which are closely watched by Lanny and have been added to his dividend stock watch list.

One of the stocks had a price increase earlier in the year but has since returned to a desirable level for investment.

The Dividend Diplomats Stock Screener is introduced, focusing on three key metrics: P/E ratio, dividend pay ratio, and a history of growing dividends.

The importance of a strong dividend growth rate is emphasized for building a reliable passive income stream.

All three companies discussed have a history of increasing dividends, with two being Dividend Kings and one close to becoming a Dividend Aristocrat.

Johnson & Johnson (JNJ) is highlighted as a favorite dividend stock with a current P/E ratio of 14.3, making it undervalued.

Starbucks (SBUX) is noted for its solid stock performance and a P/E ratio of 21.4, which is well below its historical average.

Pepsi (PEP) is discussed as a consistent performer with a P/E ratio of 20.75, despite a slight drop in stock price.

The dividend payout ratios for JNJ, Starbucks, and Pepsi are examined, with JNJ and Starbucks having ratios below 60%, and Pepsi just above at 62%.

JNJ's status as a Dividend King is highlighted, with 50 consecutive years of dividend increases and a 5-year dividend growth rate of 5.75%.

Starbucks is noted for its impressive 5-year dividend growth rate of 9.79% and consecutive annual dividend increases.

Pepsi's 5-year dividend growth rate is 6.43%, marking its status as a Dividend King with over 50 years of increasing dividends.

The yields for JNJ, Starbucks, and Pepsi are discussed, with JNJ offering the highest yield at 3.12%, followed by Starbucks at 2.63%, and Pepsi at 2.99%.

The combination of modest yields and strong dividend growth rates is praised as the ideal investment strategy for dividend-focused investors.

The hosts share their personal investment activities, noting that they have been buying all three stocks, particularly favoring JNJ and Starbucks at their current prices.

The video encourages viewers to share their own stock investments in the comments and to subscribe to the channel for more investment insights.

Transcripts

welcome back to the dividend diplomats

YouTube channel you got Mr Buckeye there

ber The Hurt Locker and your boy Lanny

the best dividend investors here on

YouTube helping you reach Financial

Freedom by building that passive income

stream by talking and investing into

dividend stocks baby subscribe to the

channel give this video a thumbs up

can't wait we have three stocks that

Lanny is watching Lanny is keeping very

close to the top of his dividend stock

watch list and oh wait he might actually

be buying the stocks that are going to

be featured in today's video as well

absolutely guys you know we just don't

talk about stocks we put our money

withth our mouth is we buy these stocks

and in fact I know for sure I've bought

all three of these stocks in

2024 um One stock you know actually had

a little bit of run up so I didn't grab

as much as I wanted to um earlier this

year but now they're finally back below

a certain price so my eyes are back on

the stock so which makes me very happy

um so we're going run them through guys

three stocks here we're going to run

them through the dividend Diplomat stock

screener focused on those three

wonderful metrics and I'll run them down

the price earnings ratio less than the

S&P 500 the dividend pay ratio less than

60% and third that history of growing

dividends strong dividend growth rates

looking at the longevity to Growing the

passive income stream because that's

what Berke and I are going to do we're

going to be living off the dividend

income so we want those income streams

to go that way that's what it's all

about yeah and all three of these

companies have great histories of

increasing dividends two of them are

dividend Kings cannot wait to do it and

the other one is over halfway to

becoming a dividend Aristocrat so it's

getting close to that journey of the

consistent dividend increases so we

cannot wait to talk to you about these

three stocks exactly guys I mean you

guys tell us what stocks have you been

buying here while the S&P 500 is up

99.73% to finish off on April 5th um let

us know in the comments guys um you know

it's been it's been a fun year you know

we're all building um we're all trying

to keep our eyes out on those high

quality stocks right now and for bird

it's high quality dividend stocks and we

got three of them here for you two of

them are dividend Kings and Bert and I

we were talking before this we're going

to go again metric by Metric across all

three stocks versus bouncing from one

stock to the next to the next so this

way you'll know all three stocks and

then you'll just follow along with the

metrics and let us know if you own all

three or what are the three stocks we're

featuring here today all right number

one one of my favorites one of the goat

Johnson and Johnson ticker symbol J N J

dividend stock number

two one of my favorites right now

Starbucks ticker symbol s b u x number

three another dividend King here

everybody we're talking the soda battles

Buffett sorry we're not with you on this

one we're talking about heepsy today

ticker symbol p

p yes we are oh it's true it's damn true

guys so let's look at the undervaluation

metric the price to earnings ratio J&J

if you didn't catch it on Monday's video

J&J's PE ratio right now is at 14.3

because that stock price now is in the

low 150s at

5239 um down about

4.74% this year so the PE Ratio is under

15 for this dividend K Wow Johnson and

Johnson under a 15 p PE ratio pH

Starbucks we've talked about this one

here their price is 8685 at the time

we're recording earnings is a little

over four that gives you a p ratio 21.4

four well below their historical mark on

their average which has recently been

around 30X before the price started to

drop yep yeah still still solid stock

keeps dropping a few dollars a week they

were hanging in that above that $90 a

share but they finally broke through the

floor guys um lastly you know we talk

about Pepsi

P so stocks down only 2% this year down

almost eight% since last year but it's

hard to always catch Pepsi you know

dropping I think I was buying them in

the 163 to 165 range somewhere in that

range

um they're at 16914 so broke back

through the 170 mark p ratio right now

is at

20.75 yeah so let's summarize the PE

ratios here Johnson and Johnson's PE

ratio is 14.3 Starbucks PE ratio is at

2144 Pepsi's PE ratio is at 20.75 all

three are below the S&P 500 there it is

guys now it's time to get into the

dividend payout ratio which is the

safety in the dividend you don't want to

be up all night sweating here wondering

if that dividend is going to be safe or

not for your stock that you own J&J Good

Old Reliable guys they have a payout

ratio at

45% so sweet Good Old Reliable Starbucks

annual dividends 228 that's a perfect

payout ratio as well of

56.3% now we couldn't get the trifecta

with the perfect payout ratio below 60%

but Pepsi right now is at

62% again typically a lower growth

business you know just depending on how

much penetration that they're doing in

the international markets but Pepsi at

62% so just a hair above that 60%

threshold all right let's look at

dividend growth the history of

increasing dividends we're going to look

at that five-year dividend growth rate

and the number of years increasing that

dividend lny what about Johnson and

Johnson well they're dividend King guys

and a dividend King's increase or

dividence 50 straight years so they're

an aristocrat they're a king guys

5.75% fiveyear growth rate at 61 plus

years Starbuck five-year dividend growth

rat is 99.79% they've increase that

dividend for 13 plus consecutive years

oh then they're rolls right back into

Pepsi for those who think Young fiveyear

growth rate

6.43% again a dividend King dividend

Aristocrat status here um been doing it

for 52 plus years man we've seen a lot

of those years yes we have so let's talk

yield Lanny everybody's favorite topic

for dividend investors Johnson and

Johnson oh I love this yield right now

for Jay and Jay Lanny what is it

3.12% above

2.71% about 41 basis points higher than

that average yes they broke through the

3% yield Starbucks's yield is

2.63% that's 49 basis points above their

fiveyear average of

2.14% woo got to like that as well and

Pepsi oh so close 2.99% yield um which

is about 20 basis points higher than

their

2.79% fiveyear yield average oh man so

all three have pretty modest yields and

strong dividend growth rate combinations

it is beautiful for these dividend

stocks that's the combo you want

Starbucks offering typically and

technically the best yielding dividend

growth combo the onew punch followed by

um pep see than J&J guys you know again

I've been buying all three stocks you

know I like the price where J&J and

Starbucks is obviously do your own

research but I like the stocks these are

two stocks to buy Pepsi you can't go

wrong buying the stock at this price

preferably I'd like it below 165 yeah I

agree all three are great stocks and

you're right Pepsi below 165 is great

but as you've said the one thing to

caution with Pepsi it's really hard to

get Pepsi when the valuation is looking

great so if you're also at a beginning

stage where you're not you don't you're

not in the position to be as stubborn as

Lanny right now um and you're looking

for that Foundation stock Pepsi this

could potentially be a great time to

start building that position let us know

what you guys think of these three

stocks we got Johnson and Johnson stock

Starbucks stock and Pepsi stock do you

think these are three stocks to buy

right now what other stocks are you

buying here in 2024 let us know in those

comments below you haven't already

subscribe to the channel

give this video a good oldfashioned

thumbs up and remember H what do we need

to tell these diplom Maniacs out there

Lanny you listen up to Bronies you're

either with us or you're against us Jack

that was Bert the herd in Lanny from the

dividend diplomats over and

out