Friday, December 12, 2014

Six Dividend Investments I Made Last Week

I was able to purchase shares in a few companies last week. As many of you know, I have been building out my dividend portfolio for several years. Building a dividend machine takes time, dedication and consistency in saving money, doing my homework in analyzing companies and investing those savings. This means that every month, I purchase shares in companies which are attractively valued, and offer prospects for future dividend growth. Because I try to build and maintain a diversified portfolio of dividend growth stocks, I tend to stop adding new money to certain companies where I am overweight in. For example, despite the fact that I like Johnson & Johnson (JNJ) and Kinder Morgan (KMI), I am highly unlikely to add more money there, because those are one of the largest positions in my portfolio. The set of guidelines I have built up over the years and the discipline in following them have definitely been helpful during difficult times, and have allowed me to keep plugging in despite the great recession, QE1,2 and 3, double dip recessions in Europe and fluctuations in prices, expectations and inflation. This is why identifying goals, having a plan and sticking to it is important to reach those goals.

The companies I purchased in the past week include three names in which I added to my existing positions as well as two new names I have never owned before. I tend to build my positions slowly over time, since I tend to dollar cost average every month. The companies I purchased include:

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. This dividend challenger has managed to boost dividends for 8 years in a row. The ten year dividend growth rate is 12.40%. Currently, the stock is selling at 15.20 times forward earnings and yields 2.80%. Check my analysis of Baxter for more information.

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. This dividend champion has managed to boost dividends for 32 years in a row. The ten year dividend growth rate is 9.20%. Currently, the stock is selling at 13.90 times forward earnings and yields 1.90%. Check my analysis of Chubb for more information.

The Williams Companies, Inc. (WMB) is the general partner behind Williams Partners (WPZ), which is in the process of combining with Access Midstream (ACMP). Williams Companies is a dividend achiever, which has managed to raise dividends for 11 years in a row. Given the current annual payment of $2.28/share, which translates to a roughly 4.50% current yield, I would be interested in the company even if growth slows down to 5% – 6%/year. But no, Williams Companies expects to grow dividends by 15%/year through 2017. The company has a pretty aggressive plan to increase dividends per share through 2017 and expects to pay $2.46 in 2015, $2.82 in 2016, and $3.25 in 2017. Those projections are one of the reasons I initiated a position in the company a few months ago. I find investments in general partners to be superior to those of the underlying limited partnerships for long-term investors.

Omega Healthcare Investors, Inc. (OHI) is a real estate investment firm which invests in healthcare facilities, primarily in long-term healthcare facilities in order to create its portfolio. This dividend achiever has managed to boost dividends for12 years in a row. The five year annual dividend growth rate is 9.30%. Currently, this REIT is selling at 13.40 times FFO and yields 5.40%. Check my analysis of Omega Healthcare Investors for more information.

The two new positions include HCP, Inc. and W. P. Carey Inc. I analyzed those in the past two weeks, and will be posting those analyses over the next few weeks. I do not think that now is the perfect time to buy Real Estate Investment Trusts (REITs), given the fact that they have gone up this year, and given the fact that interest rates will likely increase in the future. Since interest rates are the cost of capital, this could decrease relative attractiveness of the sector as whole. That being said, for those who hold quality REITs in their portfolios, they should keep receiving those dividends, and those dividends will likely keep up with inflation over time. Therefore, the future returns will be largely dependent on entry price, growth in underlying business and quality of management and business to support growth and sustainability of dividends. As a result, the expected returns for a REIT yielding 5% today, which managed to grow distributions by 4% over the next 20 years will likely be around 9%. The other thing I wanted to mention is that I will be building out positions in HCP Inc, W. P. Carey Inc. and Omega Healthcare Investors slowly over time. For example, I would try to make approximately two purchases per year for each of those securities, for approximately 3- 5 years. Therefore, if prices go down a lot, I would be protected somewhat, since I would not have purchased everything at the high price. If prices do not fall however, but keep increasing, I would likely end up putting the funds elsewhere and not build those positions out.

HCP, Inc.(HCP) engages in acquisition, development, leasing, selling and managing of healthcare real estate and provides mortgage and other financing to healthcare providers. This dividend champion has managed to boost dividends for 29 years in a row. The ten year dividend growth rate is 2.40%. Currently, this REIT is selling at 14.60 times FFO and yields 4.90%.

W. P. Carey Inc. (WPC) is an independent equity real estate investment trust. The firm also provides long-term sale-leaseback and build-to-suit financing for companies. This dividend achiever has managed to boost dividends for 17 years in a row. The ten year dividend growth rate is 6.30%. Currently, this REIT is selling at 14.80 times FFO and yields 5.50%.

Full Disclosure: I own shares in KMI, JNJ, CB,BAX, WMB, OHI, HCP, WPC

Relevant Articles:

Five Things to Look For in a Real Estate Investment Trust
Should Dividend Investors Worry About Rising Interest Rates?
How to stay motivated on your road to financial independence
Why I don’t do discounted cash flow analysis on dividend stocks
Why do I use a P/E below 20 for valuation purposes?

5 comments:

  1. DGI,

    I like the buys!

    I went with OKE recently, but WMB also seems very solid. Love the long-term projections these companies are able to put together because of their fee-based businesses.

    Also really like WPC. That's a REIT I'd also like to own at some point. They're global exposure is really nice, which contrasts with some of the domestic triple net and healthcare plays. They have a very interesting portfolio of properties.

    Best regards!

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  2. DGI,
    I added to positions in BBL and BP today. I have no idea when oil prices will stabilize, but there were a few dollars in my wife and my Roth IRAs that I used to add to these positions. If they are still down in January, I will add to the IRAs.

    I only have shares in two REITS, O and HCN. They went up shortly after I purchased them and I have not added money, but you could argue that was a mistake since I bought ARCP instead. I think REITs are the next best thing to owning land itself. Your methodology is well thought out and should serve you well.
    Best wishes,
    KeithX

    ReplyDelete
  3. Great buys DGI! I am looking at CHUB for my next purchase as well.

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  4. All great stocks..i own OHI..... but all are still priced too high...... waiting for a pullback.

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  5. Glad to see your mention of OHI and past analysis on it. Considering that myself. A high yield plus a high dividend growth rate is so tempting.

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