Today I bought shares of McDonald's (MCD), one of the largest restaurant chains in the world. My most recent previous purchase of MCD was in December 2013. The stock continues to be weighed down by sluggish sales growth, but I think the company is taking appropriate actions to address the issue, such as revamping its dollar menu to attract value-focused customers and renovating hundreds of restaurants to improve the dining experience. In addition, the company's sponsorship of the Winter Olympics and World Cup this year may give a short-term boost to sales.
I think MCD is slightly undervalued at the current price. It has a P/E of 17.0 (vs. a 5-year historical average of 16.8), P/S of 3.4 (vs. 3.3), P/B of 6.2 (vs. 5.7), and dividend yield of 3.4% (vs. 2.9%). Using a Dividend Discount Model with a dividend growth rate of 7% (lower than the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $100.54. Morningstar gives a fair value of $105.00 and a 4-star rating. The average of those two estimates is $102.77, which implies an 8.6% margin of safety at my purchase price.
I bought 15 shares of MCD at the price of $93.96 per share plus commission, giving me a 3.43% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $12.15 from this purchase, which will add a total of $48.60 to my annual dividend income. This purchase was made in my Roth IRA using rollover money and it reduced the cost basis of my MCD position in that account by 0.5%. I now have a total of 80 shares of MCD and I will receive combined quarterly dividends of $64.80. My forward 12-month dividend total increases to $4,255.
As I did with my previous purchase of MCD, I celebrated this investment with a Big Mac meal on my way home from work. :)
I have now invested all of the rollover money in my Roth IRA, which means my investing activity going forward will return to the normal level of one or two purchases per month. I just contributed $2,500 in new capital to my Roth IRA, with the goal of maxing it out for 2014 by the end of the first quarter. Once I achieve that goal, I will likely turn on Scottrade's flexible dividend reinvestment program for the remaining three quarters of the year and steer my dividend reinvestment toward whichever stock I deem to be attractively valued. I will then resume contributions of new capital to my taxable account.
Showing posts with label Stock Bought. Show all posts
Showing posts with label Stock Bought. Show all posts
Monday, January 27, 2014
Saturday, January 25, 2014
Stock Bought: PM
My third (and final) purchase during this past week occurred mid-afternoon on Friday, when I bought shares of Philip Morris International (PM), one of the largest tobacco companies in the world. My most recent previous purchase of PM was over two years ago (October 2011), before I had started this blog.
I think PM is slightly undervalued at the current price. It has a P/E of 15.9 (vs. a 5-year historical average of 15.1), P/S of 4.3 (vs. 1.6), and dividend yield of 4.6% (vs. 4.0%). Using a Dividend Discount Model with a dividend growth rate of 7% (lower than the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $87.47. Morningstar gives a fair value of $93.00 and a 4-star rating. The average of those two estimates is $90.24, which implies a 9.4% margin of safety at my purchase price.
Josh Peters, Editor of Morningstar's DividendInvestor newsletter, considers PM to be a "top pick" for this year. The stock is profiled in the latest issue of the monthly newsletter, where it is acknowledged that 2014 will be a tough year for the company. However, Peters thinks the short-term slowdown in growth is already reflected in the stock's price, resulting in an excellent buying opportunity. Coincidentally, I had independently reached the same conclusion before reading the newsletter article.
I bought 20 shares of PM at the price of $81.75 per share plus commission, giving me a 4.58% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $18.80 from this purchase, which will add a total of $75.20 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 70 shares of PM and I will receive combined quarterly dividends of $65.80. My forward 12-month dividend total increases to $4,206.
I think PM is slightly undervalued at the current price. It has a P/E of 15.9 (vs. a 5-year historical average of 15.1), P/S of 4.3 (vs. 1.6), and dividend yield of 4.6% (vs. 4.0%). Using a Dividend Discount Model with a dividend growth rate of 7% (lower than the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $87.47. Morningstar gives a fair value of $93.00 and a 4-star rating. The average of those two estimates is $90.24, which implies a 9.4% margin of safety at my purchase price.
Josh Peters, Editor of Morningstar's DividendInvestor newsletter, considers PM to be a "top pick" for this year. The stock is profiled in the latest issue of the monthly newsletter, where it is acknowledged that 2014 will be a tough year for the company. However, Peters thinks the short-term slowdown in growth is already reflected in the stock's price, resulting in an excellent buying opportunity. Coincidentally, I had independently reached the same conclusion before reading the newsletter article.
I bought 20 shares of PM at the price of $81.75 per share plus commission, giving me a 4.58% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $18.80 from this purchase, which will add a total of $75.20 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 70 shares of PM and I will receive combined quarterly dividends of $65.80. My forward 12-month dividend total increases to $4,206.
Stock Bought: CVX (Again)
My second purchase during this past week occurred on Friday, when I bought shares of Chevron (CVX), one of the largest integrated oil and gas companies in the world. My most recent previous purchase of CVX was just two weeks ago. A further decline in the stock price motivated me to make another purchase.
I think CVX is slightly undervalued at the current price. It has a P/E of 9.6 (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 3.4% (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 $127.10. Morningstar gives a fair value of $130.00 and a 4-star rating. The average of those two estimates is $128.55, which implies an 8.9% margin of safety at my purchase price.
I bought 15 shares of CVX at the price of $117.14 per share plus commission, giving me a 3.40% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $15.00 from this purchase, which will add a total of $60.00 to my annual dividend income. This purchase was made in my Roth IRA using rollover money and it reduced the cost basis for my CVX position in that account by 1.5%. I now have a total of 70 shares of CVX and I will receive combined quarterly dividends of $70.00. My forward 12-month dividend total increases to $4,131.
I think CVX is slightly undervalued at the current price. It has a P/E of 9.6 (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 3.4% (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 $127.10. Morningstar gives a fair value of $130.00 and a 4-star rating. The average of those two estimates is $128.55, which implies an 8.9% margin of safety at my purchase price.
I bought 15 shares of CVX at the price of $117.14 per share plus commission, giving me a 3.40% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $15.00 from this purchase, which will add a total of $60.00 to my annual dividend income. This purchase was made in my Roth IRA using rollover money and it reduced the cost basis for my CVX position in that account by 1.5%. I now have a total of 70 shares of CVX and I will receive combined quarterly dividends of $70.00. My forward 12-month dividend total increases to $4,131.
Stock Bought: WMT
I made three purchases during this past week. My first purchase occurred on Tuesday, when I bought shares of Wal-Mart Stores (WMT), the largest retailer in the world by revenue. My most recent previous purchase of WMT was in October 2013 and I wrote an article about it for Seeking Alpha at that time.
I think WMT is fairly valued to slightly undervalued at the current price. It has a P/E of 14.5 (vs. a 5-year historical average of 14.5), P/S of 0.5 (vs. 0.5), P/B of 3.3 (vs. 3.1), and dividend yield of 2.5% (vs. 2.1%). Using a Dividend Discount Model with a dividend growth rate of 10% (lower than the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $83.16. Morningstar gives a fair value of $80.00 and a 4-star rating. The average of those two estimates is $81.58, which implies a 7.3% margin of safety at my purchase price.
I bought 20 shares of WMT at the price of $75.60 per share plus commission, giving me a 2.48% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $9.40 from this purchase, which will add a total of $37.60 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 45 shares of WMT and I will receive combined quarterly dividends of $21.15. My forward 12-month dividend total increases to $4,071.
I think WMT is fairly valued to slightly undervalued at the current price. It has a P/E of 14.5 (vs. a 5-year historical average of 14.5), P/S of 0.5 (vs. 0.5), P/B of 3.3 (vs. 3.1), and dividend yield of 2.5% (vs. 2.1%). Using a Dividend Discount Model with a dividend growth rate of 10% (lower than the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $83.16. Morningstar gives a fair value of $80.00 and a 4-star rating. The average of those two estimates is $81.58, which implies a 7.3% margin of safety at my purchase price.
I bought 20 shares of WMT at the price of $75.60 per share plus commission, giving me a 2.48% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $9.40 from this purchase, which will add a total of $37.60 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 45 shares of WMT and I will receive combined quarterly dividends of $21.15. My forward 12-month dividend total increases to $4,071.
Monday, January 13, 2014
Stock Bought: TGT
Today I bought shares of Target (TGT), operator of over 1,800 retail stores selling general merchandise in the United States and now Canada. My most recent previous purchase of TGT was in November 2013. The stock price has floundered recently after the company revealed in December that hackers had stolen credit/debit card data and personal information of millions of customers. While this kind of security breach is embarrassing and a PR nightmare, I view it as a short-term problem that will eventually fade away. For example, TJ Maxx shows no lasting ill effects of a massive security breach revealed in 2007 that affected the credit/debit card data of over 45 million customers. I expect that Target will recover from the current debacle in due course.
I think TGT is slightly undervalued at the current price. It has a P/E of 16.4 (vs. a 5-year historical average of 13.6), P/S of 0.5 (vs. 0.5), P/B of 2.4 (vs. 2.4), and dividend yield of 2.8% (vs. 1.8%). The current P/E ratio is a bit misleading because earnings have been hurt in recent quarters due to Target's struggles with its expansion into Canada. Using a Dividend Discount Model with a dividend growth rate of 10% (half of the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $67.65. Morningstar gives a fair value of $64.00 and a 3-star rating. The average of those two estimates is $65.83, which implies a 6.6% margin of safety at my purchase price.
I bought 25 shares of TGT at the price of $61.50 per share plus commission, giving me a 2.78% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $10.75 from this purchase, which will add a total of $43.00 to my annual dividend income. This purchase was made in my Roth IRA using rollover money and I was able to reduce my cost basis by 1.6%. I now have a total of 55 shares of TGT and I will receive combined quarterly dividends of $23.65. My forward 12-month dividend total increases to $4,015.
I think TGT is slightly undervalued at the current price. It has a P/E of 16.4 (vs. a 5-year historical average of 13.6), P/S of 0.5 (vs. 0.5), P/B of 2.4 (vs. 2.4), and dividend yield of 2.8% (vs. 1.8%). The current P/E ratio is a bit misleading because earnings have been hurt in recent quarters due to Target's struggles with its expansion into Canada. Using a Dividend Discount Model with a dividend growth rate of 10% (half of the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $67.65. Morningstar gives a fair value of $64.00 and a 3-star rating. The average of those two estimates is $65.83, which implies a 6.6% margin of safety at my purchase price.
I bought 25 shares of TGT at the price of $61.50 per share plus commission, giving me a 2.78% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $10.75 from this purchase, which will add a total of $43.00 to my annual dividend income. This purchase was made in my Roth IRA using rollover money and I was able to reduce my cost basis by 1.6%. I now have a total of 55 shares of TGT and I will receive combined quarterly dividends of $23.65. My forward 12-month dividend total increases to $4,015.
Saturday, January 11, 2014
Stock Bought: CVX
Yesterday I bought shares of Chevron (CVX), one of the largest integrated oil and gas companies in the world. My most recent previous purchase of CVX was in November 2013. The stock price dipped after the company released an interim update on Thursday in which they stated that "earnings for the fourth quarter 2013 are expected to be comparable with third quarter 2013 results." Evidently, this news disappointed some investors and traders.
I think CVX is slightly undervalued at the current price. It has a P/E of 9.9 (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 3.3% (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 $131.00. Morningstar gives a fair value of $130.00 and a 4-star rating. The average of those two estimates is $130.50, which implies a 7.5% margin of safety at my purchase price.
I bought 15 shares of CVX at the price of $120.74 per share plus commission, giving me a 3.30% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $15.00 from this purchase, which will add a total of $60.00 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 55 shares of CVX and I will receive combined quarterly dividends of $55.00. My forward 12-month dividend total increases to $3,972.
I think CVX is slightly undervalued at the current price. It has a P/E of 9.9 (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 3.3% (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 $131.00. Morningstar gives a fair value of $130.00 and a 4-star rating. The average of those two estimates is $130.50, which implies a 7.5% margin of safety at my purchase price.
I bought 15 shares of CVX at the price of $120.74 per share plus commission, giving me a 3.30% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $15.00 from this purchase, which will add a total of $60.00 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 55 shares of CVX and I will receive combined quarterly dividends of $55.00. My forward 12-month dividend total increases to $3,972.
Thursday, December 12, 2013
Stock Bought: MCD
Today I bought shares of McDonald's (MCD), one of the largest restaurant chains in the world. My most recent previous purchase of MCD occurred over a year and a half ago (May 8, 2012), so I was pleased to get an opportunity to increase my position.
McDonald's has experienced sluggish sales growth in 2013, which has weighed on its stock price and was reflected in the most recent dividend increase being only 5.2% (announced on September 18). However, the company has taken steps to address this short-term weakness. It introduced new menu items (e.g., Mighty Wings) over the past year, revamped its dollar menu (now called the "Dollar Menu & More"), and is working on improving efficiency. Store modernization continues to occur; in fact, a McDonald's near my workplace recently finished extensive interior and exterior renovations. It looks great inside and I noticed new technology at the counter, such as electronic displays for the menu (instead of printed placards) and for orders (the order number appears on a screen when it is ready for pick-up). Outside of the U.S., the company continues its expansion in China, announcing a significant hiring initiative earlier this year. For these reasons, I continue to be optimistic about the company's growth prospects.
I think MCD is slightly undervalued to fairly valued at the current price. It has a P/E of 17.1 (vs. a 5-year historical average of 16.8), P/S of 3.4 (vs. 3.3), P/B of 6.2 (vs. 5.7), and dividend yield of 3.4% (vs. 2.9%). Using a Dividend Discount Model with a dividend growth rate of 7% (lower than the 5-year historical rate and Value Line's estimate of 9%) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $101.48. Morningstar gives a fair value of $105.00 and a 4-star rating. The average of those two estimates is $103.24, which implies an 8% margin of safety at my purchase price.
I bought 15 shares of MCD at the price of $94.84 per share plus commission, giving me a 3.40% yield on cost. (I had set a limit order a few days ago that was executed this morning before a much greater intraday decline occurred.) At the current dividend rate, I can expect to receive quarterly dividends of $12.15 from this purchase, which will add a total of $48.60 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 65 shares of MCD and I will receive combined quarterly dividends of $52.65. My forward 12-month dividend total increases to $3,910.
To celebrate this purchase, today I bought a Big Mac meal on my way home from work. :)
I would consider making another similar-sized purchase of MCD if the stock price declines further. It is one of the few consumer-related stocks that is trading at a decent valuation right now. I noticed that the REITs continue to sell off -- it sure is tempting to buy more of them! However, a few of the non-REIT stocks on my watch list are near my target prices, and I might buy another one before the month ends.
McDonald's has experienced sluggish sales growth in 2013, which has weighed on its stock price and was reflected in the most recent dividend increase being only 5.2% (announced on September 18). However, the company has taken steps to address this short-term weakness. It introduced new menu items (e.g., Mighty Wings) over the past year, revamped its dollar menu (now called the "Dollar Menu & More"), and is working on improving efficiency. Store modernization continues to occur; in fact, a McDonald's near my workplace recently finished extensive interior and exterior renovations. It looks great inside and I noticed new technology at the counter, such as electronic displays for the menu (instead of printed placards) and for orders (the order number appears on a screen when it is ready for pick-up). Outside of the U.S., the company continues its expansion in China, announcing a significant hiring initiative earlier this year. For these reasons, I continue to be optimistic about the company's growth prospects.
I think MCD is slightly undervalued to fairly valued at the current price. It has a P/E of 17.1 (vs. a 5-year historical average of 16.8), P/S of 3.4 (vs. 3.3), P/B of 6.2 (vs. 5.7), and dividend yield of 3.4% (vs. 2.9%). Using a Dividend Discount Model with a dividend growth rate of 7% (lower than the 5-year historical rate and Value Line's estimate of 9%) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $101.48. Morningstar gives a fair value of $105.00 and a 4-star rating. The average of those two estimates is $103.24, which implies an 8% margin of safety at my purchase price.
I bought 15 shares of MCD at the price of $94.84 per share plus commission, giving me a 3.40% yield on cost. (I had set a limit order a few days ago that was executed this morning before a much greater intraday decline occurred.) At the current dividend rate, I can expect to receive quarterly dividends of $12.15 from this purchase, which will add a total of $48.60 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 65 shares of MCD and I will receive combined quarterly dividends of $52.65. My forward 12-month dividend total increases to $3,910.
To celebrate this purchase, today I bought a Big Mac meal on my way home from work. :)
I would consider making another similar-sized purchase of MCD if the stock price declines further. It is one of the few consumer-related stocks that is trading at a decent valuation right now. I noticed that the REITs continue to sell off -- it sure is tempting to buy more of them! However, a few of the non-REIT stocks on my watch list are near my target prices, and I might buy another one before the month ends.
Sunday, December 8, 2013
Stock Bought: ARCP
I mentioned previously that I made two purchases last Thursday, the first being KMI. For my second purchase I bought shares of American Realty Capital Properties (ARCP), an equity REIT that has undergone tremendous growth over the past year. It will become the world's largest net lease REIT once its pending merger with Cole Real Estate Investments is completed in the first half of 2014. The company will own over 3,700 properties that are geographically diverse and leased to major tenants such as Walgreens, AT&T, CVS, Dollar General, and FedEx. The occupancy rate is 99% and investment grade credit ratings are held by 47% of tenants (by rent).
There is not much information available about ARCP because it is a relatively new company and has changed substantially in a short time period. Only five analysts cover the company (versus an average of 21 analysts for its peers) and it is not a member of the S&P 500 (yet). It has not been around long enough to establish much of a dividend track record that would attract income investors. For those reasons, its stock seems undervalued at the current price. It has a P/FFO of just 11.4 (using the low point of the company's FFO guidance for 2014), which is less than peer ratios. It has a dividend yield above 7%, which is greater than peer yields. Beyond peer comparisons, I admit that it is difficult to come up with a fair value estimate for ARCP and get a firm handle on its risk profile. However, based on everything I have read, the stock appears to be undervalued at the moment and represents a compelling risk/reward opportunity.
Interested readers can find additional information about ARCP in two recent articles on Seeking Alpha and in an investor presentation about the Cole merger from last month:
I bought 170 shares of ARCP at the price of $12.92 per share plus commission, giving me a 7.25% yield on cost. At the current dividend rate, I can expect to receive monthly dividends of $13.32 from this purchase, which will add a total of $159.80 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. ARCP becomes the 35th stock in my portfolio and the 4th REIT, giving me further diversification in the real estate sector. My forward 12-month dividend total increases to $3,852.
At this point I have a nice set of four REITs in my Roth IRA that make up 9.7% of my overall portfolio by market value. I mentioned in a previous post that I would cap my REIT exposure at 10%, so I will be looking at non-REIT opportunities for my next few purchases. I hope to make one or two more purchases before the end of the year, but it will depend on what Mr. Market decides to do with the stocks on my watch list.
There is not much information available about ARCP because it is a relatively new company and has changed substantially in a short time period. Only five analysts cover the company (versus an average of 21 analysts for its peers) and it is not a member of the S&P 500 (yet). It has not been around long enough to establish much of a dividend track record that would attract income investors. For those reasons, its stock seems undervalued at the current price. It has a P/FFO of just 11.4 (using the low point of the company's FFO guidance for 2014), which is less than peer ratios. It has a dividend yield above 7%, which is greater than peer yields. Beyond peer comparisons, I admit that it is difficult to come up with a fair value estimate for ARCP and get a firm handle on its risk profile. However, based on everything I have read, the stock appears to be undervalued at the moment and represents a compelling risk/reward opportunity.
Interested readers can find additional information about ARCP in two recent articles on Seeking Alpha and in an investor presentation about the Cole merger from last month:
- American Realty Capital Properties: A 'Monthly Dividend Alternative' To Realty Income by Achilles Research, published December 4, 2013
- American Realty Capital Properties 7% Dividend Is Nothing But Net by Brad Thomas, published November 22, 2013
- Revised ARCP/Merger Presentation, November 12, 2013 (PDF file)
I bought 170 shares of ARCP at the price of $12.92 per share plus commission, giving me a 7.25% yield on cost. At the current dividend rate, I can expect to receive monthly dividends of $13.32 from this purchase, which will add a total of $159.80 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. ARCP becomes the 35th stock in my portfolio and the 4th REIT, giving me further diversification in the real estate sector. My forward 12-month dividend total increases to $3,852.
At this point I have a nice set of four REITs in my Roth IRA that make up 9.7% of my overall portfolio by market value. I mentioned in a previous post that I would cap my REIT exposure at 10%, so I will be looking at non-REIT opportunities for my next few purchases. I hope to make one or two more purchases before the end of the year, but it will depend on what Mr. Market decides to do with the stocks on my watch list.
Friday, December 6, 2013
Stock Bought: KMI
Yesterday I made two purchases; I will report one now and the other this weekend, when I have more time. For my first purchase I bought shares of Kinder Morgan, Inc. (KMI), the fourth-largest energy company in North America and operator of an extensive network of pipelines for transporting natural gas, crude oil, and petroleum products. This was my fifth purchase of KMI in 2013.
The stock price declined sharply this week after management released its financial expectations for 2014 (news release). Management expects high, mid, and low single-digit percent dividend/distribution growth for KMI, KMP, and EPB, respectively, in 2014. There seem to be two reasons for the sell-off among those stocks. First, the dividend/distribution growth projections were apparently lower than expected by some analysts. Second, the relatively flat revenue and distribution projections for EPB were disappointing to some investors. I think the sell-off was an over-reaction and the Kinder Morgan family of companies remains well-positioned for the future. I deemed KMI to be undervalued before the sell-off, so this decline made it even more undervalued (in my opinion).
I bought 50 shares of KMI at the price of $32.835 per share plus commission, giving me a 4.97% yield on cost for this purchase and reducing the cost basis of KMI in my taxable account (which is where I bought these shares) by 4.3%. I combined $1,475 of new capital with existing cash in the account to make the purchase. At the current dividend rate, I can expect to receive quarterly dividends of $20.50 from this purchase, which will add a total of $82.00 to my annual dividend income. I now have a total of 275 shares of KMI (130 in my taxable account and 145 in my Roth IRA) and I will receive combined quarterly dividends of $112.75. My forward 12-month dividend total increases to $3,693. Kinder Morgan is now the largest position in my portfolio (7.0% weight), with NSC dropping to second place. Given its size in my portfolio, I will likely refrain from buying additional shares of KMI for a while.
The stock price declined sharply this week after management released its financial expectations for 2014 (news release). Management expects high, mid, and low single-digit percent dividend/distribution growth for KMI, KMP, and EPB, respectively, in 2014. There seem to be two reasons for the sell-off among those stocks. First, the dividend/distribution growth projections were apparently lower than expected by some analysts. Second, the relatively flat revenue and distribution projections for EPB were disappointing to some investors. I think the sell-off was an over-reaction and the Kinder Morgan family of companies remains well-positioned for the future. I deemed KMI to be undervalued before the sell-off, so this decline made it even more undervalued (in my opinion).
I bought 50 shares of KMI at the price of $32.835 per share plus commission, giving me a 4.97% yield on cost for this purchase and reducing the cost basis of KMI in my taxable account (which is where I bought these shares) by 4.3%. I combined $1,475 of new capital with existing cash in the account to make the purchase. At the current dividend rate, I can expect to receive quarterly dividends of $20.50 from this purchase, which will add a total of $82.00 to my annual dividend income. I now have a total of 275 shares of KMI (130 in my taxable account and 145 in my Roth IRA) and I will receive combined quarterly dividends of $112.75. My forward 12-month dividend total increases to $3,693. Kinder Morgan is now the largest position in my portfolio (7.0% weight), with NSC dropping to second place. Given its size in my portfolio, I will likely refrain from buying additional shares of KMI for a while.
Tuesday, December 3, 2013
Stock Bought: VTR
Today I bought shares of Ventas (VTR), a diversified healthcare REIT. The company owns over 1,400 properties and its net operating income (NOI) comes from seniors housing (27%), seniors housing operating assets (27%), skilled nursing facilities (20%), medical office buildings (17%), hospitals (7%), and loan assets (3%). Over half of its NOI comes from triple-net leases and 84% of revenue comes from private pay sources. Ventas is well-positioned to capitalize on the higher healthcare needs of the increasing population of seniors in the United States over the next few decades.
Ventas has a pretty good dividend track record. The 5- and 10-year dividend growth rates are 5.5% and 9.6%, respectively, and the most recent dividend increase was 8.1%, announced in February 2013. The company does not appear on the Dividend Champions, Contenders, and Challengers list because it froze its dividend in 2009, breaking a string of dividend increases that dated back to 2001. However, with a current streak of four consecutive years of dividend growth, Ventas will rejoin the Dividend Challengers with an increase in 2014. The company is in a good position for future dividend growth, with high single-digit percent growth in funds from operations (FFO) and a payout ratio (based on FFO) of just 65%, which is relatively low among REITs.
The company has a stable balance sheet, with a debt/capitalization ratio of 49% and adequate interest coverage. It has investment grade credit ratings from all the major agencies, allowing it to issue debt at low interest rates to fund new acquisitions. Value Line gives the company financial strength and safety ratings of B+ and 3, respectively.
I think VTR is undervalued at the current price. It has a P/FFO of 13.5 (using the estimated FFO for 2013), a P/S of 6.0 (vs. a 5-year historical average of 7.0), P/B of 1.8 (vs. 2.5), and dividend yield of 4.8% (vs. 4.4%). Using a Dividend Discount Model with a dividend growth rate of 5.5% (matching the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $58.97. Morningstar gives a more generous fair value of $70.00 and a 4-star rating. The average of those two estimates is $64.49, which implies a 13% margin of safety at my purchase price.
Interested readers can find additional information about Ventas in two recent articles on Seeking Alpha and in an investor presentation from last month:
I bought 40 shares of VTR at the price of $55.90 per share plus commission, giving me a 4.78% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $26.80 from this purchase, which will add a total of $107.20 to my annual dividend income. The next dividend should be declared any day now and paid in late December, so I will not have to wait long for my first payment. This purchase was made in my Roth IRA using rollover money. Ventas becomes the 34th stock in my portfolio and the third REIT; I think it nicely complements my HCP position in the specialty area of healthcare REITs. My forward 12-month dividend total increases to $3,611.
Ventas has a pretty good dividend track record. The 5- and 10-year dividend growth rates are 5.5% and 9.6%, respectively, and the most recent dividend increase was 8.1%, announced in February 2013. The company does not appear on the Dividend Champions, Contenders, and Challengers list because it froze its dividend in 2009, breaking a string of dividend increases that dated back to 2001. However, with a current streak of four consecutive years of dividend growth, Ventas will rejoin the Dividend Challengers with an increase in 2014. The company is in a good position for future dividend growth, with high single-digit percent growth in funds from operations (FFO) and a payout ratio (based on FFO) of just 65%, which is relatively low among REITs.
The company has a stable balance sheet, with a debt/capitalization ratio of 49% and adequate interest coverage. It has investment grade credit ratings from all the major agencies, allowing it to issue debt at low interest rates to fund new acquisitions. Value Line gives the company financial strength and safety ratings of B+ and 3, respectively.
I think VTR is undervalued at the current price. It has a P/FFO of 13.5 (using the estimated FFO for 2013), a P/S of 6.0 (vs. a 5-year historical average of 7.0), P/B of 1.8 (vs. 2.5), and dividend yield of 4.8% (vs. 4.4%). Using a Dividend Discount Model with a dividend growth rate of 5.5% (matching the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $58.97. Morningstar gives a more generous fair value of $70.00 and a 4-star rating. The average of those two estimates is $64.49, which implies a 13% margin of safety at my purchase price.
Interested readers can find additional information about Ventas in two recent articles on Seeking Alpha and in an investor presentation from last month:
- Ventas: Get Blue Chip Quality Without Paying For It by Dane Bowler, published December 2, 2013
- Ventas Is 'Pound For Pound' One Of The Best REITs Around by Brad Thomas, published October 15, 2013
- Ventas Presentation - NAREIT REITWorld, November 2013 (PDF file)
I bought 40 shares of VTR at the price of $55.90 per share plus commission, giving me a 4.78% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $26.80 from this purchase, which will add a total of $107.20 to my annual dividend income. The next dividend should be declared any day now and paid in late December, so I will not have to wait long for my first payment. This purchase was made in my Roth IRA using rollover money. Ventas becomes the 34th stock in my portfolio and the third REIT; I think it nicely complements my HCP position in the specialty area of healthcare REITs. My forward 12-month dividend total increases to $3,611.
Monday, November 25, 2013
Stock Bought: O (Again)
For my second purchase today I bought shares of Realty Income (O), a large and diversified retail REIT. I provided some information about O in a post last week when I started my position. The continued decline in the stock price motivated me to average down by doubling my position.
I bought 55 shares of O at the price of $38.44 per share plus commission, giving me a 5.66% yield on cost and reducing my cost basis by over 1% to below $39 per share. At the current dividend rate, I can expect to receive monthly dividends of $10.00 from this purchase, which will add a total of $120.00 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 110 shares of O and I will receive combined monthly dividends of $20.00. My forward 12-month dividend total increases to $3,486.
What can I say? I continue to think there are good buying opportunities in the REIT sector, so I figured I might as well take advantage of them. That said, HCP and O are now relatively large, equal-weight positions in my portfolio (3.4% and 3.3% weights, respectively), motivating me to look more closely at other REITs from this point forward. However, I'll likely cap my REIT exposure at a combined weight of no more than 10% of my portfolio. I'm investing rollover money more quickly than I anticipated, but I'm happy to do so if I can find stocks trading at attractive valuations.
I bought 55 shares of O at the price of $38.44 per share plus commission, giving me a 5.66% yield on cost and reducing my cost basis by over 1% to below $39 per share. At the current dividend rate, I can expect to receive monthly dividends of $10.00 from this purchase, which will add a total of $120.00 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 110 shares of O and I will receive combined monthly dividends of $20.00. My forward 12-month dividend total increases to $3,486.
What can I say? I continue to think there are good buying opportunities in the REIT sector, so I figured I might as well take advantage of them. That said, HCP and O are now relatively large, equal-weight positions in my portfolio (3.4% and 3.3% weights, respectively), motivating me to look more closely at other REITs from this point forward. However, I'll likely cap my REIT exposure at a combined weight of no more than 10% of my portfolio. I'm investing rollover money more quickly than I anticipated, but I'm happy to do so if I can find stocks trading at attractive valuations.
Stock Bought: HCP
For my first purchase today I bought shares of HCP, Inc. (HCP), a large and diversified healthcare REIT. I provided some information about HCP in an article on Seeking Alpha when I started my position in August. The continued decline in the stock price (HCP now has a P/FFO below 13) motivated me to average down by increasing my position.
I bought 40 shares of HCP at the price of $37.68 per share plus commission, giving me a 5.55% yield on cost and reducing my cost basis by over 2% to below $40 per share. At the current dividend rate, I can expect to receive quarterly dividends of $21.00 from this purchase, which will add a total of $84.00 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 115 shares of HCP and I will receive combined quarterly dividends of $60.38. My forward 12-month dividend total increases to $3,366.
I bought 40 shares of HCP at the price of $37.68 per share plus commission, giving me a 5.55% yield on cost and reducing my cost basis by over 2% to below $40 per share. At the current dividend rate, I can expect to receive quarterly dividends of $21.00 from this purchase, which will add a total of $84.00 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 115 shares of HCP and I will receive combined quarterly dividends of $60.38. My forward 12-month dividend total increases to $3,366.
Thursday, November 21, 2013
Stock Bought: TGT
Having already made two purchases for my Roth IRA in November, I did not plan on buying anything else this month. However, Mr. Market came knocking on my door this morning with an opportunity that I decided to jump on.
Today I bought shares of Target Corporation (TGT), operator of over 1,800 retail stores selling general merchandise in the United States and now Canada. Target is generally viewed as a more upscale version of its largest competitor, Wal-Mart Stores (WMT).
Target has achieved satisfactory operating results over the past several years, with 5-year growth rates of 3.0% for revenue and 6.3% for earnings. Recent growth has been slowed by Target's expansion into Canada, where it has encountered some difficulties, but I think the company will overcome these short-term growing pains within a year or two. Target's financial position is decent, with a debt/equity ratio of 91%, debt/cap ratio of 45%, 6.9x interest coverage, and a current ratio of 0.9. Value Line gives the company a financial strength rating of A and a safety rating of 2.
Target has an impressive dividend growth record. The company is a Dividend Champion, having increased its dividend for 46 consecutive years. The 5-year dividend growth rate is 20.5% and the most recent increase was 19.4% in August 2013. With a payout ratio of 41% and stable cash flows, I think the dividend can continue to grow in spite of short-term earnings weakness. The company has also excelled at share repurchases, reducing the number of outstanding shares by about 28% since 2004.
I think TGT is slightly undervalued to fairly valued at the current price. It has a P/E of 15.3 (vs. a 5-year historical average of 13.6), P/S of 0.6 (vs. 0.5), P/B of 2.5 (vs. 2.4), and dividend yield of 2.7% (vs. 1.8%). Note that these numbers have not been updated to reflect the results reported by the company earlier today. Using a Dividend Discount Model with a dividend growth rate of 10% (half of the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $70.07. Morningstar gives a fair value of $64.00 and a 3-star rating. S&P Capital IQ gives a fair value of $73.20 and a 4-star rating. The average of those three estimates is $69.09, which implies an 8% margin of safety at my purchase price, hence my conclusion that the stock is slightly undervalued to fairly valued. Today the stock price dropped 3.5% because the company missed earnings and revenue estimates for the latest quarter, but as noted above, I regard this as short-term weakness. Value Line's analyst expects earnings to "ramp up at a solid pace" starting in fiscal 2014 and S&P Capital IQ sees above-average growth from fiscal 2015 onward.
I bought 30 shares of TGT at the price of $63.70 per share (no commission paid due to a free trade -- my last one), giving me a 2.70% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $12.90 from this purchase, which will add a total of $51.60 to my annual dividend income. The stock went ex-dividend a few days ago, so I will not receive the next dividend payment. However, my lower cost basis due to today's price dip is equivalent to about 6.5 quarterly dividend payments, which more than compensates for the missed payment. This purchase was made in my Roth IRA using rollover money. Target becomes the 33rd stock in my portfolio and gives me more diversification in the retail sector, where it is approximately equal-weight with my WMT position. My forward 12-month dividend total increases to $3,282.
I am tempted to say that I am done buying stocks for the month, but Mr. Market could surprise me again. In case you are wondering, I noticed the sell-off in PM today and the after-hours sell-off in ROST, both of which are stocks in my portfolio. I already have a fair-sized position in PM, though, and ROST would need to fall further to become attractively valued, so I do not plan on adding to those positions right away.
Today I bought shares of Target Corporation (TGT), operator of over 1,800 retail stores selling general merchandise in the United States and now Canada. Target is generally viewed as a more upscale version of its largest competitor, Wal-Mart Stores (WMT).
Target has achieved satisfactory operating results over the past several years, with 5-year growth rates of 3.0% for revenue and 6.3% for earnings. Recent growth has been slowed by Target's expansion into Canada, where it has encountered some difficulties, but I think the company will overcome these short-term growing pains within a year or two. Target's financial position is decent, with a debt/equity ratio of 91%, debt/cap ratio of 45%, 6.9x interest coverage, and a current ratio of 0.9. Value Line gives the company a financial strength rating of A and a safety rating of 2.
Target has an impressive dividend growth record. The company is a Dividend Champion, having increased its dividend for 46 consecutive years. The 5-year dividend growth rate is 20.5% and the most recent increase was 19.4% in August 2013. With a payout ratio of 41% and stable cash flows, I think the dividend can continue to grow in spite of short-term earnings weakness. The company has also excelled at share repurchases, reducing the number of outstanding shares by about 28% since 2004.
I think TGT is slightly undervalued to fairly valued at the current price. It has a P/E of 15.3 (vs. a 5-year historical average of 13.6), P/S of 0.6 (vs. 0.5), P/B of 2.5 (vs. 2.4), and dividend yield of 2.7% (vs. 1.8%). Note that these numbers have not been updated to reflect the results reported by the company earlier today. Using a Dividend Discount Model with a dividend growth rate of 10% (half of the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $70.07. Morningstar gives a fair value of $64.00 and a 3-star rating. S&P Capital IQ gives a fair value of $73.20 and a 4-star rating. The average of those three estimates is $69.09, which implies an 8% margin of safety at my purchase price, hence my conclusion that the stock is slightly undervalued to fairly valued. Today the stock price dropped 3.5% because the company missed earnings and revenue estimates for the latest quarter, but as noted above, I regard this as short-term weakness. Value Line's analyst expects earnings to "ramp up at a solid pace" starting in fiscal 2014 and S&P Capital IQ sees above-average growth from fiscal 2015 onward.
I bought 30 shares of TGT at the price of $63.70 per share (no commission paid due to a free trade -- my last one), giving me a 2.70% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $12.90 from this purchase, which will add a total of $51.60 to my annual dividend income. The stock went ex-dividend a few days ago, so I will not receive the next dividend payment. However, my lower cost basis due to today's price dip is equivalent to about 6.5 quarterly dividend payments, which more than compensates for the missed payment. This purchase was made in my Roth IRA using rollover money. Target becomes the 33rd stock in my portfolio and gives me more diversification in the retail sector, where it is approximately equal-weight with my WMT position. My forward 12-month dividend total increases to $3,282.
I am tempted to say that I am done buying stocks for the month, but Mr. Market could surprise me again. In case you are wondering, I noticed the sell-off in PM today and the after-hours sell-off in ROST, both of which are stocks in my portfolio. I already have a fair-sized position in PM, though, and ROST would need to fall further to become attractively valued, so I do not plan on adding to those positions right away.
Stock Bought: O
Yesterday I bought shares of Realty Income (O), an equity REIT with a geographically diverse collection of over 3,800 properties. The company owns free-standing properties that are leased primarily to retail businesses, typically under triple-net leases (tenants pay taxes, maintenance, and insurance). Its properties are 98% occupied and major tenants (by rental revenue) include FedEx, Walgreens, Family Dollar, LA Fitness, AMC Theatres, and Diageo.
Realty Income bills itself as "The Monthly Dividend Company" due to its track record of having paid 520 consecutive monthly dividends. The company is a Dividend Contender, having increased its dividend for 19 consecutive years. In fact, there have been 73 dividend increases since the stock was listed on the NYSE in 1994. With the exception of a 19% dividend increase earlier this year (reflecting the acquisition of American Realty Capital Trust), the dividend growth rate tends to be low, with 5- and 10-year rates of 1.5% and 4.2%, respectively. However, the high dividend yield (over 5.5%) helps to compensate for the weak dividend growth. The company's payout ratio (based on funds from operations, FFO) is about 92%.
The company has a stable balance sheet that should support continued dividend payments and modest growth. Debt/capital is 44% and interest coverage is 2.2x. Notably, 100% of Realty Income's debt is fixed-rate, so its interest payments will not be affected by rising interest rates. However, the company is still sensitive to rising interest rates because it often issues new debt to help fund acquisitions; this is a common practice among REITs and represents the main reason why the entire sector has fallen over the past several months. Debt issuance is affected by credit ratings (companies with higher investment grade ratings can issue debt at lower interest rates) and S&P recently upgraded the company's credit rating to BBB+. In addition, Value Line increased their financial strength rating to A (with a safety rating of 2).
I think O is fairly valued at the current price. It has a P/FFO of 16.5 (using the low point of the company's FFO guidance for full-year 2013), which matches Value Line's estimate of the average annual P/FFO for the next few years. Other useful valuation metrics include a P/S of 10.1 (vs. a 5-year historical average of 9.4), P/B of 1.8 (vs. 2.5), and dividend yield of 5.55% (vs. 5.6%). Using a Dividend Discount Model with a dividend growth rate of just 1.5% (matching the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $39.91. Morningstar gives a fair value of $44.00 and a 3-star rating. The average of those two estimates is $41.95, which implies a 6% margin of safety at my purchase price. Overall, I think it is reasonable to conclude that O represents decent value in the current market, but not a bargain.
I bought 55 shares of O at the price of $39.32 per share (no commission paid due to a free trade), giving me a 5.55% yield on cost. The fact that the stock price promptly fell another 1% after I made my purchase shows why I am not a day trader. At the current dividend rate, I can expect to receive monthly dividends of $10.00 from this purchase, which will add a total of $120.00 to my annual dividend income. The stock goes ex-dividend next week, so the first dividends from this purchase will be paid in December. This purchase was made in my Roth IRA using rollover money. Realty Income becomes the 32nd stock in my portfolio and the 2nd REIT (the other being HCP), giving me a bit of diversification in the real estate sector. My forward 12-month dividend total increases to $3,231.
This month I have made two purchases in my Roth IRA and one purchase in my taxable account, consistent with the plan I laid out in a previous post. If O's stock price falls a few more percentage points, then I would consider increasing my position. However, I am also on the lookout for other REITs that might be good candidates for my Roth IRA.
In case any readers are wondering why I did not write a Seeking Alpha article about O (given that I wrote articles when I started my positions in HCP, WMT, and XOM), there are two reasons. First, I simply do not have much spare time at the moment, especially with the fall semester coming to an end. Second, O is one of the most-covered REITs on SA, and I am not sure how much useful information I would be able to add. Hopefully this blog post partially compensates for the absence of an article.
Realty Income bills itself as "The Monthly Dividend Company" due to its track record of having paid 520 consecutive monthly dividends. The company is a Dividend Contender, having increased its dividend for 19 consecutive years. In fact, there have been 73 dividend increases since the stock was listed on the NYSE in 1994. With the exception of a 19% dividend increase earlier this year (reflecting the acquisition of American Realty Capital Trust), the dividend growth rate tends to be low, with 5- and 10-year rates of 1.5% and 4.2%, respectively. However, the high dividend yield (over 5.5%) helps to compensate for the weak dividend growth. The company's payout ratio (based on funds from operations, FFO) is about 92%.
The company has a stable balance sheet that should support continued dividend payments and modest growth. Debt/capital is 44% and interest coverage is 2.2x. Notably, 100% of Realty Income's debt is fixed-rate, so its interest payments will not be affected by rising interest rates. However, the company is still sensitive to rising interest rates because it often issues new debt to help fund acquisitions; this is a common practice among REITs and represents the main reason why the entire sector has fallen over the past several months. Debt issuance is affected by credit ratings (companies with higher investment grade ratings can issue debt at lower interest rates) and S&P recently upgraded the company's credit rating to BBB+. In addition, Value Line increased their financial strength rating to A (with a safety rating of 2).
I think O is fairly valued at the current price. It has a P/FFO of 16.5 (using the low point of the company's FFO guidance for full-year 2013), which matches Value Line's estimate of the average annual P/FFO for the next few years. Other useful valuation metrics include a P/S of 10.1 (vs. a 5-year historical average of 9.4), P/B of 1.8 (vs. 2.5), and dividend yield of 5.55% (vs. 5.6%). Using a Dividend Discount Model with a dividend growth rate of just 1.5% (matching the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $39.91. Morningstar gives a fair value of $44.00 and a 3-star rating. The average of those two estimates is $41.95, which implies a 6% margin of safety at my purchase price. Overall, I think it is reasonable to conclude that O represents decent value in the current market, but not a bargain.
I bought 55 shares of O at the price of $39.32 per share (no commission paid due to a free trade), giving me a 5.55% yield on cost. The fact that the stock price promptly fell another 1% after I made my purchase shows why I am not a day trader. At the current dividend rate, I can expect to receive monthly dividends of $10.00 from this purchase, which will add a total of $120.00 to my annual dividend income. The stock goes ex-dividend next week, so the first dividends from this purchase will be paid in December. This purchase was made in my Roth IRA using rollover money. Realty Income becomes the 32nd stock in my portfolio and the 2nd REIT (the other being HCP), giving me a bit of diversification in the real estate sector. My forward 12-month dividend total increases to $3,231.
This month I have made two purchases in my Roth IRA and one purchase in my taxable account, consistent with the plan I laid out in a previous post. If O's stock price falls a few more percentage points, then I would consider increasing my position. However, I am also on the lookout for other REITs that might be good candidates for my Roth IRA.
In case any readers are wondering why I did not write a Seeking Alpha article about O (given that I wrote articles when I started my positions in HCP, WMT, and XOM), there are two reasons. First, I simply do not have much spare time at the moment, especially with the fall semester coming to an end. Second, O is one of the most-covered REITs on SA, and I am not sure how much useful information I would be able to add. Hopefully this blog post partially compensates for the absence of an article.
Wednesday, November 13, 2013
Stock Bought: CVX
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.
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.
Stock Bought: KMI
For my first purchase today I bought shares of Kinder Morgan, Inc. (KMI), the third-largest energy company in North America and operator of an extensive network of pipelines for transporting natural gas, crude oil, and petroleum products. My most recent previous purchase of KMI was in September 2013.
I continue to think that KMI is undervalued. Using a Dividend Discount Model with a dividend growth rate of 10% (which is the company's long-term target) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $37.84. Morningstar gives a fair value of $41.00 and a 4-star rating. The average of those two estimates is $39.42, which implies a 13% margin of safety at my purchase price.
I bought 60 shares of KMI at the price of $34.40 per share (no commission paid; I had a free trade), giving me a 4.77% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $24.60 from this purchase, which will add a total of $98.40 to my annual dividend income. This purchase was made in my Roth IRA using rollover money and it reduced my cost basis by a little over 2%. I now have a total of 225 shares of KMI (80 in my taxable account and 145 in my Roth IRA) and I will receive combined quarterly dividends of $92.25. My forward 12-month dividend total increases to $3,031. Kinder Morgan remains the second-largest position in my portfolio (6.0% weight).
I continue to think that KMI is undervalued. Using a Dividend Discount Model with a dividend growth rate of 10% (which is the company's long-term target) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $37.84. Morningstar gives a fair value of $41.00 and a 4-star rating. The average of those two estimates is $39.42, which implies a 13% margin of safety at my purchase price.
I bought 60 shares of KMI at the price of $34.40 per share (no commission paid; I had a free trade), giving me a 4.77% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $24.60 from this purchase, which will add a total of $98.40 to my annual dividend income. This purchase was made in my Roth IRA using rollover money and it reduced my cost basis by a little over 2%. I now have a total of 225 shares of KMI (80 in my taxable account and 145 in my Roth IRA) and I will receive combined quarterly dividends of $92.25. My forward 12-month dividend total increases to $3,031. Kinder Morgan remains the second-largest position in my portfolio (6.0% weight).
Thursday, October 3, 2013
Stock Bought: WMT
On Tuesday I bought shares of Wal-Mart Stores (WMT), the largest retailer in the world by revenue. Some of my research is summarized in an article about WMT that was published today at Seeking Alpha.
I bought 25 shares of WMT at the price of $73.44 per share plus commission, giving me a 2.55% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $11.75 from this purchase, which will add a total of $47.00 to my annual dividend income. My forward 12-month dividend total increases to $2,899. This purchase was made in my taxable account by combining new capital with accumulated dividends. (In fact, some of the dividends that I received on Tuesday were used for this purchase -- now that's rapid selective dividend reinvestment!) WMT becomes the 31st stock in my dividend growth portfolio.
October got off to a quick start on the investing front, with same-day purchases of WMT and XOM. Those purchases used up all the new capital I had just added to my accounts, so there will be no more purchases this month. I plan to sit back and watch as earnings roll in over the next few weeks.
I bought 25 shares of WMT at the price of $73.44 per share plus commission, giving me a 2.55% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $11.75 from this purchase, which will add a total of $47.00 to my annual dividend income. My forward 12-month dividend total increases to $2,899. This purchase was made in my taxable account by combining new capital with accumulated dividends. (In fact, some of the dividends that I received on Tuesday were used for this purchase -- now that's rapid selective dividend reinvestment!) WMT becomes the 31st stock in my dividend growth portfolio.
October got off to a quick start on the investing front, with same-day purchases of WMT and XOM. Those purchases used up all the new capital I had just added to my accounts, so there will be no more purchases this month. I plan to sit back and watch as earnings roll in over the next few weeks.
Tuesday, October 1, 2013
Stock Bought: XOM (Again)
Today I bought more shares of Exxon Mobil (XOM), the largest publicly traded oil and gas company in the world. Last week I published an article about XOM
on Seeking Alpha that summarized some information gathered during my research.
I bought 15 shares of XOM at the price of $85.90 per share plus commission, giving me a 2.92% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $9.45 from this purchase, which will add a total of $37.80 to my annual dividend income. My forward 12-month dividend total increases to $2,852. This purchase was made in my Roth IRA with new capital that maxed out my contribution for 2013. I now have a total of 30 shares of XOM (15 in my taxable account and 15 in my Roth IRA) and I will receive combined quarterly dividends of $18.90.
When my monthly paycheck hit my bank account yesterday, I determined how much money could be allocated toward investments and transferred $2,800 in new capital to my brokerage, of which $1,235 went into my Roth IRA and $1,565 went into my taxable account. When I looked at my watch list today, I saw that XOM was trading slightly lower than where I had purchased it last week, so I decided to go ahead and double my position. I am now satisfied with the overall size of my XOM position, which is about equal weight (in terms of both market value and dividends) with my CVX position.
I also noticed that another stock on my watch list had reached my target price, so I made a second purchase today, using the new capital in my taxable account. It is a new position in my portfolio and I plan to write an article about it soon for Seeking Alpha. In the meantime, can you guess what stock it is?
Update: A few readers guessed correctly that I started a position in WMT. I just finished submitting an article about WMT to Seeking Alpha that will hopefully be published in the next day or two.
I bought 15 shares of XOM at the price of $85.90 per share plus commission, giving me a 2.92% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $9.45 from this purchase, which will add a total of $37.80 to my annual dividend income. My forward 12-month dividend total increases to $2,852. This purchase was made in my Roth IRA with new capital that maxed out my contribution for 2013. I now have a total of 30 shares of XOM (15 in my taxable account and 15 in my Roth IRA) and I will receive combined quarterly dividends of $18.90.
When my monthly paycheck hit my bank account yesterday, I determined how much money could be allocated toward investments and transferred $2,800 in new capital to my brokerage, of which $1,235 went into my Roth IRA and $1,565 went into my taxable account. When I looked at my watch list today, I saw that XOM was trading slightly lower than where I had purchased it last week, so I decided to go ahead and double my position. I am now satisfied with the overall size of my XOM position, which is about equal weight (in terms of both market value and dividends) with my CVX position.
I also noticed that another stock on my watch list had reached my target price, so I made a second purchase today, using the new capital in my taxable account. It is a new position in my portfolio and I plan to write an article about it soon for Seeking Alpha. In the meantime, can you guess what stock it is?
Update: A few readers guessed correctly that I started a position in WMT. I just finished submitting an article about WMT to Seeking Alpha that will hopefully be published in the next day or two.
Friday, September 27, 2013
Stock Bought: XOM
On Tuesday I bought shares of Exxon Mobil (XOM), the largest publicly traded oil and gas company in the world. I have summarized some of my research in an article about XOM
that was published today at Seeking Alpha.
I bought 15 shares of XOM at the price of $87.40 per share plus commission, giving me a 2.87% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $9.45 from this purchase, which will add a total of $37.80 to my annual dividend income. My forward 12-month dividend total increases to $2,814. This purchase was made in my taxable account by combining some new capital with accumulated dividends. Exxon Mobil is now the 30th stock in my dividend growth portfolio.
It was nice to make a second purchase this month and to increase my portfolio's diversification in the energy sector. I would not mind buying more shares of XOM if the stock price stays in this area, but a few other stocks on my watch list are also in (or near) attractively valued territory. On Monday I should be getting my first full-month paycheck from my new job, so I look forward to seeing how much of it I will be able to allocate toward investments in October.
I bought 15 shares of XOM at the price of $87.40 per share plus commission, giving me a 2.87% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $9.45 from this purchase, which will add a total of $37.80 to my annual dividend income. My forward 12-month dividend total increases to $2,814. This purchase was made in my taxable account by combining some new capital with accumulated dividends. Exxon Mobil is now the 30th stock in my dividend growth portfolio.
It was nice to make a second purchase this month and to increase my portfolio's diversification in the energy sector. I would not mind buying more shares of XOM if the stock price stays in this area, but a few other stocks on my watch list are also in (or near) attractively valued territory. On Monday I should be getting my first full-month paycheck from my new job, so I look forward to seeing how much of it I will be able to allocate toward investments in October.
Wednesday, September 4, 2013
Stock Bought: KMI
Today I bought shares of Kinder Morgan, Inc. (KMI), the third-largest energy company in North America and operator of an extensive network of pipelines for transporting natural gas, crude oil, and petroleum products. My most recent previous purchase of KMI was in July 2013.
I had not been planning to increase my position in KMI (it was already the second-largest holding in my portfolio), but today the stock price suddenly fell over 5%, apparently because some hedge fund person voiced a negative view of KMI and its associated entities. I think the decline pushed the stock into undervalued territory. Using a Dividend Discount Model with a dividend growth rate of 10% (which is the company's long-term target) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $39.17. Morningstar gives a fair value of $41.00 and a 3-star rating. The average of those two estimates is $40.09, which implies an 11% margin of safety at my purchase price.
I bought 35 shares of KMI at the price of $35.61 per share plus commission, giving me a 4.47% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $14.00 from this purchase, which will add a total of $56.00 to my annual dividend income. This purchase was made in my Roth IRA by combining $1,215 in new capital with accumulated dividends. I normally prefer to make slightly larger purchases, but I can only contribute another $1,235 to my Roth IRA before I reach the limit for 2013, so I left some room for one more contribution and purchase down the road. I now have a total of 165 shares of KMI (80 in my taxable account and 85 in my Roth IRA) and I will receive combined quarterly dividends of $66.00. My forward 12-month dividend total increases to $2,727. After this purchase, KMI remains the second-largest holding in my portfolio with a weight of 6.5%.
As mentioned in my monthly review, I will likely contribute about $1,000 to my taxable account that I can combine with accumulated dividends to make a purchase. I am satisfied with the size of my KMI position, so I will buy something else -- perhaps a new stock for my portfolio.
I had not been planning to increase my position in KMI (it was already the second-largest holding in my portfolio), but today the stock price suddenly fell over 5%, apparently because some hedge fund person voiced a negative view of KMI and its associated entities. I think the decline pushed the stock into undervalued territory. Using a Dividend Discount Model with a dividend growth rate of 10% (which is the company's long-term target) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $39.17. Morningstar gives a fair value of $41.00 and a 3-star rating. The average of those two estimates is $40.09, which implies an 11% margin of safety at my purchase price.
I bought 35 shares of KMI at the price of $35.61 per share plus commission, giving me a 4.47% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $14.00 from this purchase, which will add a total of $56.00 to my annual dividend income. This purchase was made in my Roth IRA by combining $1,215 in new capital with accumulated dividends. I normally prefer to make slightly larger purchases, but I can only contribute another $1,235 to my Roth IRA before I reach the limit for 2013, so I left some room for one more contribution and purchase down the road. I now have a total of 165 shares of KMI (80 in my taxable account and 85 in my Roth IRA) and I will receive combined quarterly dividends of $66.00. My forward 12-month dividend total increases to $2,727. After this purchase, KMI remains the second-largest holding in my portfolio with a weight of 6.5%.
As mentioned in my monthly review, I will likely contribute about $1,000 to my taxable account that I can combine with accumulated dividends to make a purchase. I am satisfied with the size of my KMI position, so I will buy something else -- perhaps a new stock for my portfolio.
Subscribe to:
Posts (Atom)