Tuesday, July 15, 2014

Seven Dividend Stocks I purchased for the long-term

In the past week, I acquired stakes in seven dividend growth companies. For three of the companies, I am adding to existing positions. For the rest of the companies, I initiated positions in companies which I believe will be around in 20 years, and stand a chance of earning more over time. The higher estimated level of earnings will hopefully lead to higher dividend payments to me as a shareholder. While the positions are small initially, I find it much better to monitor a company I am interested in by having some skin in the game. That way, if prices drop from here, I will be in a better position to take advantage of the situation, since I have done the prep work already and am monitoring the situation by being invested in the stock.

I am now increasingly favoring tax-deferred accounts, in an effort to minimize tax liabilities today, and enjoy uninterrupted tax-deferred growth of dividends and capital gains for the next 30 – 40 years. The 401 (k), Roth IRA and SEP IRA accounts are here to house the assets that will be generating my buffer dividend income. This is the income I don’t expect to ever need in retirement, but would have it just in case. I am also exploring ways to utilize a Health Savings Account, as another tool to cut down on taxes today, and have uninterrupted tax-deferred growth for decades on those funds. My only regret is that I didn’t max those out prior to 2012. If I had, I would have been much better off. Better late than never of course.

With those moves, my Roth IRA is maxed out for the year 2014. The companies I purchased there include:

Exxon Mobil Corporation (XOM) explores and produces for crude oil and natural gas. This dividend champion has managed to increase dividends for 32 years in a row. In the past decade, the company has managed to increase annual dividends per share by 9.60%/year. Currently, the stock is attractively valued at 13.30 times forward earnings and an yield of 2.70%. Check my analysis of Exxon Mobil.

International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. This dividend achiever has managed to increase dividends for 19 years in a row. In the past decade, the company has managed to increase annual dividends per share by 19.40%/year. Currently, the stock is attractively valued at 10.50 times forward earnings and an yield of 2.40%. Check my analysis of IBM.

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. This dividend champion has managed to increase dividends for 32 years in a row. In the past decade, the company has managed to increase annual dividends per share by 9.20%/year. Currently, the stock is attractively valued at 12.70 times forward earnings and an yield of 2.10%. Check my analysis of Chubb.

The Williams Companies, Inc. (WMB) operates as an energy infrastructure company. The company’s Williams Partners segment owns and operates natural gas pipeline system extending from Texas, Louisiana, Mississippi, and the offshore Gulf of Mexico through Alabama, Georgia, South Carolina, North Carolina, Virginia, Maryland, Delaware, Pennsylvania, and New Jersey to the New York City metropolitan area. The company has managed to boost dividends for 11 years in a row, and has a ten year dividend growth rate of 43.10%/year. I like the fact that the company owns the General Partner rights to Williams Partners, and has plans for further growth in dividend income through 2017. I have been monitoring the stock for 2 years, and just now initiated a position, which might not be at the best price of the moment. Of course, noone knows where prices will go next, which is why the best time to initiate a position is today. The yield is at 2.90%.

With the investment listed below, my SEP IRA is close to being maxed out for the year 2014 as well. I purchased the following investments there:

Baxter International Inc. (BAX) develops, manufactures, and markets products for people with hemophilia, immune disorders, infectious diseases, kidney diseases, trauma, and other chronic and acute medical conditions. The company has managed to increase dividends for 8 years in a row. In the past decade, the company has managed to increase annual dividends per share by 12.40%/year. Currently, the stock is attractively valued at 14.70 times forward earnings and an yield of 2.80%. Check my analysis of Baxter.

Deere & Company (DE), together with its subsidiaries, manufactures and distributes agriculture and turf, and construction and forestry equipment worldwide. The returns from this company are going to be lumpy from year to year, but the possibilities are high if world population increases, and more people in developing countries can afford to eat as much as those in the developed world. Deere is a dividend achiever, which has managed to increase dividends for 11 years in a row, and has a ten year dividend growth rate of 16.30%/year I believe the company will be around in 20 years, and given the low valuation today of 10.50 times forward earnings and yield of 2.60%, it offer a good opportunity for dividend growth and capital appreciation. Check my analysis of Deere.

Republic Services, Inc. (RSG), together with its subsidiaries, provides non-hazardous solid waste collection, transfer, and recycling and disposal services for commercial, industrial, municipal, and residential customers in the United States and Puerto Rico. The company is essentially part of an oligopoly, given the fact that waste storage locations need a lot of money, expertise to open and operate. I also like the recurring annuity like cash flow streams for the company. I believe that waste is going to increase over time in this country, and companies like Republic Services are going to benefit from this. I also like the fact that the company has managed to increase dividends for 11 years in a row, and had a five year dividend growth rate of 6.60%/year. The stock is close to being pricey at 19 times forward earnings and yields 2.80%. Check my analysis of Republic Services.

I consider myself incredibly lucky that I have been able to save money consistently, and put it to work towards my future. I have been very lucky that I kept adding money even throughout the 2008 – 2009 crash, and the subsequent recovery, when everyone was telling me that stocks are about to crash. Even if they do fall by 20%, 30%, 50% from here, as an investor in the accumulation stage, I am going to view this as an opportunity to get more stock for my buck. If you are building out your stock portfolio today, you should be praying for lower stock prices, which means better stock values and better dividend incomes. In addition, to paraphrase Charlie Munger, if you are not willing to sit through a 50% decline in stock prices, then you should not be in stocks.

What purchases have you recently been making to your dividend portfolios?

Full Disclosure: Long all companies listed above

Relevant Articles:

Deere & Co (DE) Dividend Stock Analysis
Can everyone achieve financial independence with Dividend Paying Stocks?
I purchased this dividend machine last week
Multi-Generational Dividend investing
My Retirement Strategy for Tax-Free Income

23 comments:

  1. This past week I started positions in Coca Cola (KO), Philip Morris (PM) and Wal-mart (WMT). I also added to my General Electric position.

    ReplyDelete
    Replies
    1. Hi Mike,

      Those look like nice additions to a portfolio.

      Thanks for reading Dividend Growth Investor

      Delete
  2. Hi DGI -

    I am a LONG time follower/subscriber of yours. I am impressed by the quality content you continue to put out there. Thank you for doing what you do.

    My most recent purchase for my Freedom Fund earlier this month was TGT. I think it is still attractively priced, and in the grand scheme, profits should not be affected by the data breach.

    Keep up the outstanding work!

    -Kevin

    ReplyDelete
    Replies
    1. Hi Kevin,

      I like TGT, I am adding a little bit every month in my taxable account. I just quit writing an article about it, because I didn't feel like repeating myself 12 times over the course of one year, and saying exactly the same thing.

      I am honestly starting to look again at WMT. I know they raised dividends by very little, but I think they have the business model that will ensure they are around and profitable in 2034.

      DGI

      Delete
  3. Hello, I am a follower, from spain, of your same strategy, it took a long tailing time, I love your analysis and I like all the companies that you look at, although I have to admit that some, by the barrier imposed by me, I have, for example, dividends should be higher than 2.5%.

    I purchased, Central plc (cna), GlaxoSmithKline plc (GSK) and IBM.

    regards


    Post data: Sorry for my English

    ReplyDelete
    Replies
    1. Hi Vimasari,

      I have never looked at Central, and am only vaguely familiar with GSK. The whole problem with patent cliffs, difficulties in getting new drugs and massive investments in R&Ds rule most big pharma stocks outside my circle of competence.

      Cheers!

      DGI

      Delete
  4. I've added PEP and SDRL to my Roth IRA within the last month. Through Loyal3, I'm dollar-cost averaging TGT, MCD, MSFT, and BRK-B.

    ReplyDelete
    Replies
    1. Hi James,

      I increasingly am liking Loyal3. If I were just starting out dividend investing, I would have relied very heavily on that service. Too bad their stock selections are limited.

      DGI

      Delete
  5. DGI, do you have any relevant articles (or outside links) on SEP IRAs? Who is eligible, contribution limits, etc? I already have a Roth IRA and 401(k)

    ReplyDelete
    Replies
    1. Hello,

      If you have self-employment income, outside of a day job with a 401K, you can put up to a certain percentage of it in a SEP IRA. You can theoretically put up to $50 something thousand per year in a SEP IRA, but you should be making at least $200K to get to that maximum. Since I already have a 401K, a SEP IRA makes sense for me. If I was completely self employed, I would have opened somethign like a Solo 401K, and defer 17.5K limit + the amount I would have deferred with the SEP IRA.

      You can read a little on Fidelity site: https://www.fidelity.com/retirement-ira/small-business/sep-ira

      Or you can alternatively learn more from the IRS website itself: http://www.irs.gov/Retirement-Plans/Plan-Sponsor/Simplified-Employee-Pension-Plan-(SEP)

      One of the most important things is cutting the tax bill, because it leads to more money to invest now.

      Delete
  6. I am other follower from Spain, this year I buy to my dividend portfolio AFLAC and TESCO PLC.

    Best regards

    ReplyDelete
    Replies
    1. Hola,

      Thanks for reading all the way from Spain. I considered AFL, but then it is already in the top ten of my portfolio holdings, so I decided to buy something else. I have not looked at Tesco in too much detail.

      DGI

      Delete
  7. DGI,

    Nice buys!

    I went back and forth on IBM. I ultimately went with V. I hope I didn't make a big mistake there.

    And I see BAX is starting to take off now. I think we'll be happy shareholders there.

    Best wishes!

    ReplyDelete
    Replies
    1. Hi DM,

      I think you can still buy IBM next month, when you get a fresh inflow of new cash to invest. My BAX is a small position, and I won't add more untill a few months from now. That's the issue when you have a relatively more established portfolio - you need several purchases in a new position before it becomes somewhat meaningful.

      I bought V in 2011, at 20 times earnings ( or $94/share), and have been holding on since. I am not sure about buying here..Surprisingly, most of the dividend sites I follow wrote bullish reviews of Visa over the past week. I would love to buy more at 20 times forward earnings. Just like I don't like chasing yield, I am also not sure about chasing growth either. This is a company with $140 billion dollar cap we are talking about, not some spring chicken. It could deliver great EPS and DPS growth over time however.

      Delete
  8. Hi DGI,
    I made 4 purchases today. Added to positions in IBM and MMM, and started positions in MDLZ and VFC. All 4 are less than 1% of the wife and my portfolio, but much like you, I hope to add to them if prices drop. I think I'll check out RSG since we hold no waste management stocks.
    Thanks,
    KeithX

    ReplyDelete
    Replies
    1. Hi Keith,

      Those are all great companies you listed. VFC is one where I had correctly identified as a buy 4- 5 years ago, but never pulled the trigger on. Sometimes, mistakes of omission are more costly than mistakes of commission.

      I like RSG, I think it has competitive advantages, and I think it will be around in 20 years with low risk of obsolescence. If valuations drop from here, I would not be opposed to buying more. Actually I am hoping all the bears finally get right, and stocks start a steady descend from here. Who wouldn't like a 20% sale?

      Delete
    2. I added to RAI - CAT and LO today - pays out in each quarter so a pay raise each month of the year.

      Tomorrow will add to BAX - ABBV and MCD - pay raise each month of the year.

      Delete
  9. Hi DGI,
    Your additions are great companies, but as a 69 year old retiree I need more than 4% div yield income to relax as this stock market goes up and down. I have just XOM of your list. I bought full positions in TGT, LNCO, SO, BCE, and MAT today to go along with BP, O, WPC, MNR, PGH, MAIN, HCP, T, MO, DGR, PPL, VTR, CBRL, BBL, KRFT, MCD, GE, and AAPL. Also 25% bond funds DBLTX and PONDX. Overall, we're at 4.4% annual div income and growing thanks to your fine ideas... :-)

    ReplyDelete
  10. Got RSG on my radar. Will buy when it pulls back to the $34-$35 range.

    ReplyDelete
  11. Great select companies! I also had XOM and DE stocks in my watch list.

    Keep up the good work,

    Best wishes,

    ReplyDelete
  12. Unaware of RSG but the other stocks listed are top notch! Great grabs!

    ReplyDelete
  13. This comment has been removed by the author.

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  14. Hi, I am a reader of your articles from Ireland. I have again added more IBM to my portfolio. Seems like im doing this every couple of months over the last year but its hard to ignore bargains when the market gives them to you. Also picked up KO over the last year below 38 for the same reasons. I like your article above and have some of the stocks mentioned and others on my watch list which seem to expensive at the moment. But if they dont pull back soon, not to worry ill just continue to add IBM or WMT at these prices or maybe DE or COH.

    ReplyDelete

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