For my second purchase today I bought shares of General Dynamics (GD), a company that is the fifth largest defense contractor in the world. GD has four main business groups: Aerospace (e.g., Gulfstream business jets), Combat Systems (e.g., Abrams tanks), Marine Systems (e.g., submarines), and Information Systems and Technology (e.g., thermal cameras and satellite components). Although defense stocks in general have been beaten down due to concerns about U.S. government spending cuts, I think GD is sufficiently diversified to cope with some reduced spending.
GD is a good dividend-growth stock. The company has increased its dividend for 20 consecutive years, which I think is the longest streak among companies in the defense industry. The 5-year average annual dividend growth rate is 15.5% and the most recent increase was 11.9% in April 2011. With a payout ratio of only 26% and relatively low debt, the dividend appears to be sustainable even in the event of short-term earnings fluctuations.
In terms of valuation, GD has a P/E (ttm) of 9.73, P/S (ttm) of 0.78, P/B of 1.84, and PEG of 1.24. These numbers suggest that the stock is undervalued, so I decided to start a position.
I bought 20 shares of GD at the price of $69.60 per share, giving me a 2.70% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $9.40, which would add a total of $37.60 to my annual dividend income.
To demonstrate the foibles of trying to time the market, I was watching GD back in mid-December when it was trading at around $63. However, instead of buying it at that time, I kept waiting to see whether it would go down more so I could get a better entry price. It did not dawn on me until later that $63 was already a great price and I was being too greedy. Of course, over the next month and a half the price went up to over $72 and I was kicking myself. I am slowly realizing that when a stock I want is trading at a price that I deem to be "good enough" I just need to pull the trigger instead of waiting to see whether it goes down further -- because it might not go down in the near future. Thus, when GD dipped back below $70 today, I decided to buy it. It may go down further -- maybe even to $63 -- and if it does, then I will simply buy more shares and average down. I consider this experience to be another part of the learning process in becoming a better investor.
Monday, January 30, 2012
Stock Bought: NSC
For my first purchase today I bought shares of Norfolk Southern (NSC), a company that operates a major North American railroad network with over 21500 route miles of track predominantly in the eastern United States. This purchase adds to my existing position in NSC and comes on the heels of my recent purchase of Canadian National Railway (CNI).
NSC is a good dividend-growth stock. The company has paid uninterrupted dividends since going public in 1982 and increased its dividend for 11 consecutive years. As I noted in a recent post, NSC increased its dividend by 9.3% earlier this month. Since mid-2010 the company has been increasing its dividend every two quarters, so there might be another increase in August, which could result in an overall increase for 2012 that is near the 5-year average annual dividend growth rate of 19.5%.
I bought 15 shares of NSC at the price of $72.53 per share, which is less than the price of my existing position, so I was able to average down. I now have a total of 35 shares at an average price of $73.82 per share, giving me a 2.55% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $16.45, which is quite a bit more than the $8.60 I was getting before the recent dividend increase and this additional purchase. Moreover, given that the stock goes ex-dividend in just two days, my next dividend payment will reflect the higher amount. NSC will now contribute a total of $65.80 to my annual dividend income.
I am satisfied with my current railroad holdings and I do not plan to make any further additions soon. At some point in the future (maybe in the second half of 2012) I would like to start a position in Union Pacific (UNP) to complete my geographic diversification. However, in the meantime I will work on strengthening and diversifying other aspects of my portfolio.
NSC is a good dividend-growth stock. The company has paid uninterrupted dividends since going public in 1982 and increased its dividend for 11 consecutive years. As I noted in a recent post, NSC increased its dividend by 9.3% earlier this month. Since mid-2010 the company has been increasing its dividend every two quarters, so there might be another increase in August, which could result in an overall increase for 2012 that is near the 5-year average annual dividend growth rate of 19.5%.
I bought 15 shares of NSC at the price of $72.53 per share, which is less than the price of my existing position, so I was able to average down. I now have a total of 35 shares at an average price of $73.82 per share, giving me a 2.55% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $16.45, which is quite a bit more than the $8.60 I was getting before the recent dividend increase and this additional purchase. Moreover, given that the stock goes ex-dividend in just two days, my next dividend payment will reflect the higher amount. NSC will now contribute a total of $65.80 to my annual dividend income.
I am satisfied with my current railroad holdings and I do not plan to make any further additions soon. At some point in the future (maybe in the second half of 2012) I would like to start a position in Union Pacific (UNP) to complete my geographic diversification. However, in the meantime I will work on strengthening and diversifying other aspects of my portfolio.
Tuesday, January 24, 2012
Stock Bought: CNI
Today I bought shares of Canadian National Railway (CNI), a company that operates a major North American railroad network with over 20600 route miles of track for transporting petroleum, coal, chemicals, metals, minerals, grain, fertilizer, forestry products, and automotive products.
I consider CNI to be a good long-term investment because I think railroads will continue to play an important role in fulfilling large-scale, cross-country transportation needs in the U.S. and Canada. Apparently, Bill Gates thinks the same way: He is the largest shareholder of CNI, owning just over 10% of the company (over 46 million shares). No doubt his investment in CNI was influenced by his friend Warren Buffett, whose holding company Berkshire Hathaway bought BNSF Railway for $44 billion in 2010. Interestingly, Buffett previously held sizable positions in two other major railroads, Union Pacific (UNP) and Norfolk Southern (NSC), which he sold to avoid any conflict of interest when BNSF was bought. I currently have a position in NSC (which increased its dividend today) and I think my investment in CNI provides some nice geographic diversification.
CNI is also a good dividend-growth stock. The company has paid uninterrupted dividends since going public and increased its dividend for 16 consecutive years. The 5-year average annual dividend growth rate is 18.0% and today the dividend was increased by 15.4%. With a payout ratio of only 26%, good cash flows, and manageable debt, the dividend appears to be very sustainable.
The stock dipped almost 5% today despite the company reporting great numbers (e.g., record revenues). In terms of valuation, it has a P/E (ttm) of 14.71, P/S (ttm) of 4.06, P/B of 3.05, and PEG of 1.17. In my opinion, these numbers suggest that the stock is fairly valued. The combination of the drop in price and the dividend increase suggested it was a good time to buy.
I bought 20 shares of CNI at the price of $75.00 per share, giving me a 2.00% yield on cost. Although this is the lowest yield of any stock I own, I think it will pay off in the long run due to dividend growth and capital appreciation. At the current dividend rate, I can expect to receive quarterly dividends of $7.50, which would add a total of $30.00 to my annual dividend income. (Note that the exact dividend amount I receive will depend on the Canada-U.S. currency exchange rate at the time of the payment. Moreover, the dividends will be subject to 15% foreign tax withholding, but I can claim that when I file my taxes.)
I consider CNI to be a good long-term investment because I think railroads will continue to play an important role in fulfilling large-scale, cross-country transportation needs in the U.S. and Canada. Apparently, Bill Gates thinks the same way: He is the largest shareholder of CNI, owning just over 10% of the company (over 46 million shares). No doubt his investment in CNI was influenced by his friend Warren Buffett, whose holding company Berkshire Hathaway bought BNSF Railway for $44 billion in 2010. Interestingly, Buffett previously held sizable positions in two other major railroads, Union Pacific (UNP) and Norfolk Southern (NSC), which he sold to avoid any conflict of interest when BNSF was bought. I currently have a position in NSC (which increased its dividend today) and I think my investment in CNI provides some nice geographic diversification.
CNI is also a good dividend-growth stock. The company has paid uninterrupted dividends since going public and increased its dividend for 16 consecutive years. The 5-year average annual dividend growth rate is 18.0% and today the dividend was increased by 15.4%. With a payout ratio of only 26%, good cash flows, and manageable debt, the dividend appears to be very sustainable.
The stock dipped almost 5% today despite the company reporting great numbers (e.g., record revenues). In terms of valuation, it has a P/E (ttm) of 14.71, P/S (ttm) of 4.06, P/B of 3.05, and PEG of 1.17. In my opinion, these numbers suggest that the stock is fairly valued. The combination of the drop in price and the dividend increase suggested it was a good time to buy.
I bought 20 shares of CNI at the price of $75.00 per share, giving me a 2.00% yield on cost. Although this is the lowest yield of any stock I own, I think it will pay off in the long run due to dividend growth and capital appreciation. At the current dividend rate, I can expect to receive quarterly dividends of $7.50, which would add a total of $30.00 to my annual dividend income. (Note that the exact dividend amount I receive will depend on the Canada-U.S. currency exchange rate at the time of the payment. Moreover, the dividends will be subject to 15% foreign tax withholding, but I can claim that when I file my taxes.)
Dividend Increase: NSC
One of my dividend-growth stocks, Norfolk Southern (NSC), increased its quarterly dividend by 9.3% today, raising the payment from $0.43 to $0.47 per share. This is the fourth dividend increase from NSC since mid-2010 and puts the company on track for its 11th consecutive year of dividend growth. Given that I own 20 shares of NSC, my quarterly dividend increases from $8.60 to $9.40, which will add an extra $3.20 to my annual dividend income.
Tuesday, January 17, 2012
Stock Bought: ADM
Today I bought shares of Archer Daniels Midland (ADM), a company that buys, transports, stores, processes, and sells various agricultural commodities and products around the world. I consider ADM to be a good long-term investment because the company is well-positioned to play a major role in addressing the greater food needs of an ever-increasing world population.
ADM is also a good dividend-growth stock. The company has paid uninterrupted dividends for 80 consecutive years and increased its dividend for 36 consecutive years. The 5-year average annual dividend growth rate is 10.4% and last quarter the dividend was increased by 9.4%, which was the second increase in 2011. Here is an excerpt from the press release on November 3, 2011, about the dividend increase:
The stock has been beaten down lately and is trading 24% below its 52-week high. In terms of valuation, it has a P/E (ttm) of 8.57, P/S (ttm) of 0.23, P/B of 1.06, and PEG of 1.17. These numbers suggest that the stock is considerably undervalued, so I figured it was a good time to buy.
I bought 60 shares of ADM at the price of $28.93 per share, giving me a 2.42% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $10.50, which would add a total of $42.00 to my annual dividend income.
ADM is also a good dividend-growth stock. The company has paid uninterrupted dividends for 80 consecutive years and increased its dividend for 36 consecutive years. The 5-year average annual dividend growth rate is 10.4% and last quarter the dividend was increased by 9.4%, which was the second increase in 2011. Here is an excerpt from the press release on November 3, 2011, about the dividend increase:
"We are increasing our dividend to reflect the earnings growth we have experienced during the past fiscal year and our commitment to deliver returns to our shareholders for both the near term and the long term," said Chairman, CEO and President Patricia A. Woertz. "We have a strong balance sheet to support this increase and we are confident we have a solid foundation to drive long-term earnings growth for our company."This statement is encouraging and suggests that ADM is able to cope with challenging business conditions (e.g., rising raw commodity costs). Moreover, with a payout ratio of only 21%, the dividend appears to be very sustainable.
The stock has been beaten down lately and is trading 24% below its 52-week high. In terms of valuation, it has a P/E (ttm) of 8.57, P/S (ttm) of 0.23, P/B of 1.06, and PEG of 1.17. These numbers suggest that the stock is considerably undervalued, so I figured it was a good time to buy.
I bought 60 shares of ADM at the price of $28.93 per share, giving me a 2.42% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $10.50, which would add a total of $42.00 to my annual dividend income.
Sunday, January 15, 2012
Book Review: Buffett Beyond Value
Buffett Beyond Value (2010) by Prem C. Jain
The main argument in this book is that Warren Buffett is more than just a value investor -- he also looks for strong growth prospects and excellent management. In the first half of the book, the argument is adequately supported by insightful analyses of some of Buffett's most important investments. However, the second half of the book is a hodgepodge of short chapters dealing with risk, diversification, market efficiency, arbitrage, accounting, psychology, and corporate governance. Although the author makes some useful points, the connections to Buffett tend to be weaker, there seems to be more of the author's personal views than those of Buffett, and the book begins to lack coherence. In the section on corporate governance, there is a chapter about dividends that is just plain bad -- the author is clearly anti-dividend but his arguments against dividends are shallow. Overall, I agree with the author's view of Buffett as a "renaissance investor" rather than as a pure value investor, but the book is weakened by digressions from the main thesis.
Note: I read this book in January 2012.
The main argument in this book is that Warren Buffett is more than just a value investor -- he also looks for strong growth prospects and excellent management. In the first half of the book, the argument is adequately supported by insightful analyses of some of Buffett's most important investments. However, the second half of the book is a hodgepodge of short chapters dealing with risk, diversification, market efficiency, arbitrage, accounting, psychology, and corporate governance. Although the author makes some useful points, the connections to Buffett tend to be weaker, there seems to be more of the author's personal views than those of Buffett, and the book begins to lack coherence. In the section on corporate governance, there is a chapter about dividends that is just plain bad -- the author is clearly anti-dividend but his arguments against dividends are shallow. Overall, I agree with the author's view of Buffett as a "renaissance investor" rather than as a pure value investor, but the book is weakened by digressions from the main thesis.
Note: I read this book in January 2012.
Wednesday, January 11, 2012
Goals for 2012
As I start my first full year of investing, I thought it would be a good idea to set some goals. These goals will provide me with a way of monitoring my progress during the year and assessing the final results at the end of the year. I am setting fairly conservative goals that I expect to meet if I can continue to invest and save as I have done in the recent past. My investing goals for 2012 are:
Goal 1: Dividend income of $1300: This goal is based primarily on the assumptions underlying the projection of annual dividend income on my Strategy page. My dividend income based on 2011 rates will be insufficient to achieve this goal, so I will need to get there by a combination of dividend growth, dividend reinvestment, and investment of new funds.
Goal 2: Savings of $12000: This goal is based on a rough estimate of my savings rate over the past few years. This will be the first year that I keep track of exactly how much I save each month. My goal works out to saving an average of $1000 per month. These savings will be considered new funds for investment because I already have enough money reserved for emergencies.
I am reasonably confident that I can achieve these goals. I am not setting a goal for my portfolio's total return because the market is too unpredictable. Indeed, market unpredictability is one of the reasons why I am a dividend-growth investor: I will receive a steady and rising stream of dividends regardless of whether the market goes up or down. However, I will still monitor my portfolio's value and see how it compares with benchmark indices such as the S&P 500.
I look forward to reporting the progress I make toward my goals throughout the year. I hope everyone has a great investing experience in 2012.
Goal 1: Dividend income of $1300: This goal is based primarily on the assumptions underlying the projection of annual dividend income on my Strategy page. My dividend income based on 2011 rates will be insufficient to achieve this goal, so I will need to get there by a combination of dividend growth, dividend reinvestment, and investment of new funds.
Goal 2: Savings of $12000: This goal is based on a rough estimate of my savings rate over the past few years. This will be the first year that I keep track of exactly how much I save each month. My goal works out to saving an average of $1000 per month. These savings will be considered new funds for investment because I already have enough money reserved for emergencies.
I am reasonably confident that I can achieve these goals. I am not setting a goal for my portfolio's total return because the market is too unpredictable. Indeed, market unpredictability is one of the reasons why I am a dividend-growth investor: I will receive a steady and rising stream of dividends regardless of whether the market goes up or down. However, I will still monitor my portfolio's value and see how it compares with benchmark indices such as the S&P 500.
I look forward to reporting the progress I make toward my goals throughout the year. I hope everyone has a great investing experience in 2012.
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