Tuesday, January 12, 2016

KSS and MRK questionable for 2016

Looking for stocks in this crazy market that have solid balance sheets and good dividend cushions.  Should they also meet my 2016 criteria, I will add them to the portfolio.

Merck MRK

I Found 37 stocks that on first pass met my 2016 criteria but when you dig deeper few actually make the grade.

Merck just misses the grade on only one criteria and that is dividend growth. My criteria are set at a minimal annual average of 4% dividend growth. MRK comes in at 3.82% for the past 5 years. You could average it up to 4% which is why I am taking a serious look at adding MRK. See the table below.

MRK 2016 Portfolio Fundamentals

I currently hold Merck and have to decide if I should add.   Because the market is so sloppy, I would sell a call on any new position while staying long on my original holdings.  A disciplined approach is the best way to deal with a market like this.  It eliminates the emotions that go with investing.  With that in time, I just may take my time and hope that I do not miss snagging this good stock at a low.

Disclosure: Long MRK and may add.

Kohl's KSS

This stock has a lot going for it including a dividend yield of 3.59%.  Their four year dividend growth rate of 20% per year makes me take notice.  I use D/E equity ratio (debt to equity) to measure balance sheet strength and KSS sports a D/E ratio of .5831.

Revenues are the mother's milk of dividends and this year I am looking more carefully at revenues.  And that is the rub with KSS.  Last three years of revenue growth has been tepid at just over 1%.

Earnings are robust at $3.75 per share and could easily cover continued dividend increases, but eventually KSS will have to generate more revenues.  They have been able to increase earnings at a clip of 13% per year so they know how to manage their finances.

Icing on the cake of this retailer is covered call activity.  Today an April $55 call fetched around $1.80.

The table below illustrates the fundamentals that make KSS a consideration.

I will keep you posted if I add this stock.  Currently I have no position in Kohl's.