A few weeks ago, I mentioned that I am done purchasing dividend paying stocks for my portfolio until sometime in September. Well, I looked a closer look at the dip in prices we had, read a few articles that said that the bear market is beginning, and then decided to put more funds to work for me. This now means that I won’t be able to add funds to my dividend portfolio until October. If stock prices dip from here, but rebound by October, I would likely miss out on this opportunity. The only "savior" will be dividends in my tax-deferred accounts, which are automatically reinvested.
I added to my positions in the following companies:
Diageo plc (DEO) manufactures and distributes premium drinks. The company has managed to raise dividends for 15 years in a row. Over the past decade, the company has been able to increase dividends at a rate of 5.80%/year. Currently, this dividend achiever sells for 17.60 times forward earnings and yields 2.60%. I am trying to increase my position in this company, and would welcome further declines in this cheap spirits company. Check my analysis of Diageo.
International Business Machines Corporation (IBM) provides information technology products and services worldwide. The company has managed to raise dividends for 19 years in a row. Over the past decade, the company has been able to increase dividends at a rate of 19.40%/year. Currently, this dividend achiever sells for 10.60 times forward earnings and yields 2.30%. Buffett is one of the largest shareholders in the company, which consistently repurchases stock, boosts dividends, and focuses on repositioning to higher margin businesses. Check my analysis of IBM.
Exxon Mobil Corporation (XOM) explores and produces for crude oil and natural gas. The company has managed to raise dividends for 32 years in a row. Over the past decade, the company has been able to increase dividends at a rate of 9.60%/year. Currently, this dividend champion sells for 12.70 times forward earnings and yields 2.80%. This is another Buffett investment, that regularly buys back shares, raises dividends, and has a good strategy for strategically allocating cash and focusing only on projects with high expected return on investment. Check my analysis of Exxon Mobil.
United Technologies Corporation (UTX) provides technology products and services to the building systems and aerospace industries worldwide. The company has managed to raise dividends for 20 years in a row. Over the past decade, the company has been able to increase dividends at a rate of 14.50%/year. Currently, this dividend achiever sells for 15.90 times forward earnings and yields 2.20%. Check my analysis of United Technologies.
Visa Inc. (V), a payments technology company, operates as a retail electronic payments network worldwide. The company has managed to raise dividends for 6 years in a row. Visa has managed to almost quadruple its quarterly dividend from 10.50 cents/share in 2008 to 40 cents/share in 2014. Currently, this company sells for 20.80 times forward earnings for 2015 and yields 0.80%. I initiated a small position in Visa back in 2011. With the most recent investment from last week, I essentially doubled my position there, although it will likely be a small portion of my portfolio due to high valuation. Check my analysis of Visa.
I also looked at my portfolio, and I identified quite a few companies where I want to keep adding funds, in order to reach a certain dollar size. I have quite a lot of work ahead of me, and quite a lot of money to save, and invest. Given that a large portion of funds is going into tax-deferred accounts that mostly offer index funds, that would require me to re-think my savings, cut expenses, and try to increase income. As I mentioned in my April Fool’s day post a year ago, I have a shopping addiction. Luckily, this is the type of addiction that pays dividends, and does not leave me with a bunch of useless stuff that is sitting in my closet, my garage or in a storage box.
I have also been selling puts on companies I want to own, but I believe them to be overpriced today. Those include Disney (DIS), a wonderful company, which I believe to be a great long-term holding. Another includes Starbucks (SBUX), another wonderful business with great growth prospects, but very high valuation. I like the aspect of getting paid money upfront, in order to purchase shares in a company at a pre-determined price in the future. The price I am willing to pay is usually lower than today’s price. If you subtract the premium received from the options, that further reduces the cost of the shares. The nice part is that I get to use that premium today, and invest it accordingly.
Full Disclosure: Long DEO, UTX, XOM, IBM, V
Relevant Articles:
- Warren Buffett Investing Resource Page
- 14 Dividend Growth Stocks I Bought On the Dip Last Week
- How to Invest Like Warren Buffett
- Why Warren Buffett purchased Exxon Mobil stock?
- I bought this quality dividend paying stock last week
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DGI,
ReplyDeleteI hold shares of V, DIS, and SBUX. I reduced my shares of several stocks in the last 2 weeks because they had become too big a percentage of my portfolio, or I had concerns about long term prospects versus current valuation. SBUX is one of the companies that I reduced my position, by 50%, due to valuation. I will buy that stock back if the price falls under $65.
I respect the buy-and-hold philosophy that many people have, but I use a modified version of that. I keep a significant cash position, which varies from 10 to 30%. This allows me to work around a core holding in all of my stocks. For example, I hold shares in AAPL. Last year, I doubled my position when the company announced a 7:1 stock split. That was short term, and I sold for almost a $2000 profit in less than 2 weeks. I am still bearish on AAPL, but it is a tech stock, and I like to keep tech stocks at 2.5% of the portfolio. I sold more shares last week at $100 (note that my cost basis is around $50) since it was over weighted and had become my largest holding.
I am considering adding XOM to my portfolio. I have worked in the automotive industry for 35 years and my pension will be drawn from there. Oil stocks (including KMI, NOV, and SDRL) make up a "hedge fund" of sorts since they do well when oil prices increase, while the auto stocks usually get hammered. This would be my third pure oil stock, along with CVX and BP. Energy is currently at 9.4% of the portfolio, so the position won't be much more that about 1% to start, but would be where new "oil" monies would go in the future. Your analysis, along with Tim McAleenan Jr.'s, are a great help. To be honest, I love your methodical way of looking at companies. You have taught an old dog a new trick. ;)
Thanks!
KeithX
DGI,
ReplyDeleteDo spinoff companies pay dividends like their parent companies? I have heard IPO's do not have a dividends but this is a spinoff. Also why do I not get any of your emails anymore? Suzanne
I also sold puts on DIS a while ago, the Oct $77.50, which are now (obviously) show nice gains with DIS at $90+. I'm still learning about put selling -- so far, its been an interesting journey. I think the secret is to only sell puts on stocks you really would want to own at the strike price.
ReplyDeleteI own shares of XOM and IBM in DivGro, and shares of DEO and V in a separate income portfolio. So, UTX would be worth a look...
Thanks for the post!
I feel like we are in a forever up market and all stocks are going to go to $200 or higher and need to split so that people can afford them.
ReplyDeleteLaw of gravity (and stocks)...what goes up must come down.
DeleteDGI,
ReplyDeleteWonderful list of companies.
I was just taking a look at UTX recently and saw a lot I liked. They've been well-run for a long time now. Great business.
Best wishes!
Hi DGI, nice line up of buys! I bought XOM in August and I've been buying lots of IBM at low 180's.
ReplyDeleteDGI,
ReplyDeleteGret investments. You allocated your investment in a slew of strong dividend paying companies. I also recently initiated a positino in DEO for many of the same reasons as you. The company's strong brand portfolio made it a no brainer in my eyes once it stumbled a few weeks ago. It has been all in the green for me ince the purchase! Interesting selection in V. I am shying away from the credit cartd industry for now because of the high valuations. I used my available funds to address industries of needs that were valued cheaper than V (AFL, DEO, SMG). But overall it is a greata company.
Keep up the great work.
Bert, One of the Dividend Diplomats