For my second purchase today I bought shares of Chevron (CVX), one of the largest integrated oil and gas companies in the world. My only previous purchase of CVX occurred nearly two years ago (November 23, 2011) and I have been wanting to increase my position for some time.
I think CVX is moderately undervalued at the current price. It has a P/E of 9.8 (vs. a 5-year historical average of 9.3), P/S of 1.1 (vs. 0.8), P/B of 1.6 (vs. 1.7), and dividend yield of 3.35% (vs. 3.2%). Using a Dividend Discount Model with a dividend growth rate of 8.5% (slightly lower than recent dividend increases) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $129.70. Morningstar gives a fair value of $130.00 and a 4-star rating. The average of those two estimates is $129.85, which implies an 8% margin of safety at my purchase price.
I bought 20 shares of CVX at the price of $119.54 per share plus commission, giving me a 3.34% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $20.00 from this purchase, which will add a total of $80.00 to my annual dividend income. The stock happens to go ex-dividend tomorrow, so the first dividends from this purchase will be paid in less than a month. This purchase was made in my taxable account using accumulated dividends and $2,275 of new capital. I now have a total of 40 shares of CVX and I will receive combined quarterly dividends of $40.00. My forward 12-month dividend total increases to $3,111. Chevron is now the fourth-largest position in my portfolio (3.7% weight).
As mentioned in a recent post, I plan to use the rollover money in my Roth IRA to make two purchases per month. After buying shares of KMI earlier today, that leaves one more purchase for November. The next purchase for my taxable account will not be until December.
Wow, not wasting any time at all in deploying capital. As with KMI, I like the purchase. Was it just by chance or valuation that drove the two energy purchases, and will you be looking to the REITS you mentioned on your KMI post or any other sectors in general for future puchases? I guess, are you concerned at all with asset allocation at this point or does your position in the accumulation phase allow you the flexibility to invest in the best position possible regardless of sector?ReplyDelete
w2r: The decision to buy two energy stocks was based mainly on valuation. I am looking at a few possibilities in the REIT sector and various stocks spread out over other sectors. I don't strive for any specific sector allocation; instead, I just focus on individual stocks and whatever sectors they happen to be in. I tend to favor some sectors (consumer staples, healthcare, and energy) over others (financial and technology), but I honestly don't pay much attention to what percentage of my stocks are in each sector. As you point out, being in the accumulation phase, I'm better off looking for the best stocks regardless of sector. Underperforming sectors tend to change from year to year, so at any given time the best opportunities might be concentrated in just a few sectors, but over a longer time period there will likely be good buying opportunities in all sectors.Delete
Both good buys here. And I like the timing on Chevron. Had to keep track of all those dates.ReplyDelete
RBD: Thank you -- it will be nice to get a dividend from CVX so soon after my purchase.Delete
Great purchases. I'm currently supplementing my KMI holdings with Breitburn (BBEP). Have you looked into it? Solid growth with 10% yield and safer than Linn.ReplyDelete
BidAsk: I haven't looked at BBEP, but I'll check it out. It would be nice to have some diversification in this sub-sector.Delete
I have owned Chevron for about three months and have been considering buying more or possibly some Exxon on a pull back. I missed a good opportunity to buy Exxon in the mid 80s last month.ReplyDelete
What do you think about CSCO on a big earnings miss today? I bought MSFT on a similar miss a couple of months ago and it has paid off with a big divvy increase as well as a nice price increase.
Edge: I'm glad I bought XOM in September and October. It was nice to finally increase my CVX position.Delete
I noticed the action in CSCO today, but I haven't done much due diligence on the company. MSFT has quickly turned out to be a great investment for me: I bought shares in January and February, and in less than a year my total return is about 40% and I'm receiving a nice dividend.
I like the buys here! I think energy offers some of the best values on the market right now, so you made a great move concentrating your efforts there. I also like the retailers here a bit, and I'm currently looking at TGT.
I think KMI is particularly compelling. That yield and growth rate is simply ridiculous. However, it's already a large part of my portfolio and the heavy leverage within the partnership structure leaves me leery on adding any more. I go back and forth on things like this sometimes. :)
DM: Thank you! I agree that the energy sector has some of the more attractively valued stocks in the market at the moment. Like you, I'm also interested in some retail names, including TGT.Delete
KMI has a mix of attractive features (good yield, high dividend growth, favorable IDR) and unattractive features (heavy leverage, interest rate sensitivity). The influx of rollover money into my portfolio reduced its weight quite a bit, so my latest purchase brings the weight up to around 6%, which is acceptable. However, I'm leery to go much higher than that, simply to maintain adequate diversification in my portfolio.
I look forward to seeing what you buy next!