My Top Dividend Stock To Buy In August
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July was a scorcher—not just here in Las Vegas, but in the stock market as well. A lot of dividend stocks absolutely took off—WSM climbed over 14%, MAIN jumped 13%, and even JNJ popped nearly 11%. As a result, we’re finding fewer deep discounts out there to take advantage of.
Still, a hot market doesn’t mean that all the opportunities are gone. You just have to dig a little deeper. One of my favorite hidden gems right now is Badger Meter (BMI), which is my top dividend stock to buy in August.
Now, I wouldn’t blame you if you’ve never heard of this company since Badger Meter definitely flies under the radar, but the company has been around for over 120 years. It all started in Milwaukee when two entrepreneurs came up with the first “frost-proof” water meter—a much-needed solution in the northern U.S., where freezing temps made it hard to track water usage during the winter.
Source: Investor Presentation
Fast forward to today, and Badger is still focused on water metering—but the business has evolved a lot. They now make advanced meters and sensors that help cities, municipalities, and commercial customers track water consumption more accurately and efficiently. That’s the core business in a nutshell.
On top of that, Badger has layered in analytics and data services that utilities pay for on a recurring basis. So in addition to the physical meters, they’re generating a steady stream of higher-margin, subscription-like revenue as well.
And because their products are tightly integrated with municipal systems, Badger’s offerings are incredibly sticky. Once a city is embedded in the Badger ecosystem, it’s not likely to switch providers anytime soon.
Source: Investor Presentation
Even though this is not a flashy business by any means—you’re not going to see BMI trending on Reddit anytime soon—that’s part of what I like about it. It’s an essential, behind-the-scenes business that’s quietly compounded for over a century.
Despite that, though, the share price has recently taken a big hit. As I’m writing this, shares are down about 21% over the past month and roughly 8.5% year-to-date. From what I can tell, the main catalyst behind the drop is earnings.
In their most recent report, Badger missed EPS estimates by a whopping 3 cents. That’s it. On the bright side, they still put up record sales for the quarter, which were up 10% year-over-year.
Maybe it’s just me, but a 21% drop on a slight EPS miss feels a bit overdone. I’ll take it though, because BMI has otherwise been an incredibly solid grower.
Over the past five years, revenue has grown at over 18% per year. In the same time period, EPS has grown by nearly 26%, and free cash flow per share has grown by around 15% per year. That’s impressive for any company—let alone a “boring” one that only makes water meters.
Source: Snapstock
With all of that said, companies like Badger are a great example of what makes investing fun to me.
I’m not that interested in chasing the latest hyped-up “it” stock of the moment. I get much more enjoyment out of finding these underappreciated businesses that most people overlook (or haven’t even heard of), but are quietly and aggressively compounding in the background.
Now, to be fair, the one knock you could make about Badger is the dividend yield. Right now, it’s only about 0.5%, but the dividend growth has been very strong.
Both the 5 and 10-year dividend growth rates are in the mid-teens, which is exactly what you want to see from a company with such a low yield. If you’ve got time on your side, that dividend growth can add up fast and increase your yield on cost over time.
Source: Snapstock
So while Badger Meter isn’t the sexiest stock on the market, I think it’s a pretty interesting opportunity right now—especially after its recent selloff. I just added this stock to my watchlist and plan to keep a close eye on it moving forward.
With that said, BMI isn’t the only good buying opportunity on the market right now. It looks like there are quite a handful more, and I want to hear from you: Which discounted stocks do you have your eye on as we head into August? Write to me here and let me know.
And if you want to learn about some other great buying opportunities right now, I've got a few more for you here.
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5 Things NOT To Do As A New Investor | Ep. 29
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📺 Golden Rules - A few timeless investing lessons from my good friend Professor G.
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SINCE YOU ASKED 💬
“Why do some investors dollar-cost average into companies whose stock prices have dropped due to poor performance, instead of buying stocks at all-time highs from companies showing strong growth?"
- Analyticsx3 | YouTube
This is a fantastic question, and it just goes back to that classic buy-the-dip mentality.
We’re wired to want to buy things as cheaply as possible, and it feels counterintuitive to throw money into a stock that’s already surged in share price. Even if it’s a great business, there’s always that mental block telling you that the stock is too expensive.
I’ve wrestled with this myself when it comes to Rollins (ROL) over the past couple of years—to my own detriment, by the way. I watched the stock climb from around $30 per share (and thought it was pricey then) to nearly $60 today.
The logic behind buying the dip is that whatever poor performance a company is going through is just temporary. And if that’s true, then the short-term setback creates an opportunity to buy a long-term winner at a better price.
That was exactly my thinking with Visa (V). I started my position around this time last year after the share price pulled back due to a poor earnings report and growing recession fears.
A lot of investors assumed the business was about to hit a rough patch, but I saw it as a chance to buy an otherwise strong, growing company at a lower price. Since then, Visa has gone from around $250 per share to almost $360.
With that said, you don’t want to buy the dip on just anything. A cheap price doesn’t magically turn a bad business into a good one.
Buying the dip on Visa is very different than buying the dip on something like Walgreens (WBA) or VF Corporation (VFC), which are both littered with red flags. Sure, a lower share price might look like a bargain—but if the fundamentals are weak, then what you're dealing with is no more than a value trap.
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