Monday, August 24, 2015

Dividend Companies I purchased in August

The stock market is finally having the correction everyone has been waiting for since 2012. In the past month, the S&P 500 is down by 7 – 8% from its all-time-highs. I am not sure if people are scared yet or not. I have a feeling that stock prices can go down even further from here, though it will be a slow process that could take several months. Either way, this is not the time to panic. This is the time to stay the course, and keep following a sound strategy for achieving long-term investment goals and objectives. It is important to remember that time in the market trumps timing the market for the long-term dividend investor.

As many of you know, I am in the accumulation phase of the game. Therefore, I have money to deploy each month. That money comes from regular job income and dividends. It is very interesting that the most important asset I have is my ability to earn income. As long as I have that asset, I have the ability to deploy excess cash into investments that will pay rising dividends for me.

As a dividend investor, I view each stock I buy as an asset that will provide me with growing cashflow for decades to come. The only difference is that I do not have to spend 50 - 60 hours/week in the office, filing TPS reports, and sitting in long status update meetings which take more work than the work itself, in order to earn that passive dividend income.  I gladly accept lower prices for shares, because this means I am effectively purchasing my future retirement income at a discount. Since I am not a market timer, I cannot tell you whether stock prices are going to be up or down. My hunch is that things will go lower over the next few months, though not in a straight line down, given the fact that the broad market is only recently starting to sell off. No matter what happens, I do know that by investing my savings each month, without emotion, I should do fine over time.


I purchased the following companies in August:

United Technologies Corporation (UTX) provides technology products and services to building systems and aerospace industries worldwide. The company has raised dividends for 22 years in a row, has a ten year dividend growth of 12.90%/year. The stock sells for times earnings and yields %. While I do not like the fact that they are selling a division for $9 billion, and losing almost $2 billion in taxes in the process, I believe that the stock is cheap at 15 times forward earnings and an yield of 2.75%, and has potential for growth. This is why I invest in quality companies - they can withstand management errors and still do well. Check my analysis of United Technologies.

Eaton Corporation plc (ETN) operates as a power management company worldwide. The company has raised dividends for 6 years in a row, has a ten year dividend growth of 13.80%/year. The stock sells for 12.70 times earnings and yields 3.90%. Check my analysis of Eaton Corporation.

Exxon Mobil Corporation (XOM) explores for and produces crude oil and natural gas in the United States, Canada/South America, Europe, Africa, Asia, and Australia/Oceania. As I mentioned before, I am willing to keep averaging down there below $75, $70, $65, $55 etc. The company has raised dividends for 33 years in a row, has a ten year dividend growth of 9.80%/year. The stock sells for 17.50 times forward earnings and yields 4%. Check my analysis of Exxon Mobil.

Diageo plc (DEO) produces, markets, and sells alcoholic beverages worldwide.The company has raised dividends for 15 years in a row, has a ten year dividend growth of 5.80%/year. The stock sells for 18.30 times forward earnings and yields 3.30%. Check my analysis of Diageo.

The Walt Disney Company (DIS), together with its subsidiaries, operates as an entertainment company worldwide. The company operates in five segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products, and Interactive. The company has raised its dividend in every year since 2009. Disney is selling for 19.50 times forward earnings and yields 1.30%. Since the stock is a low yielder that is also right at fair value, this was a smaller purchase. Check my analysis of Disney.

The Kraft Heinz Company (KHC), through its subsidiaries, operates as a food and beverage company in North America and internationally. I reinvested the special dividend I had received last month into more shares of Kraft Heinz. This is an interesting company to watch, as it has two accomplished investors with extensive long-term track records being in an ownership position there.

I have also started doing tax-loss harvesting on several positions I own. Those are companies I plan on holding for the long-term. It is an added benefit to get the opportunity to reduce taxes today, along with the benefit of holding those companies for the long-term as well.

I am also in the process of maxing out my 401 (k) for the year. It is incredible that since I decided to max out my 401 (k) a little over 2 years ago, I managed to soak up something like $62,000 without much effort on my own part. The automation and ease at which savings grow is pretty sweet. The nice thing to consider is that I also saved over $18,000 in taxes in the process. This means that if I had not used a tax deferred vehicle, I would have had only $44,000 to invest. And even better, I can let that money compound tax free for the next 30 – 40 years. Ever since I had my "eureka" moment about taxes in the first half of 2013, I have been on a quest to max out tax-deferred accounts.

It is incredible to me that so many otherwise bright people do not get the benefits of tax deferred accounts. For example, if someone had started maxing out their 401 (k) and Roth IRA five years ago in a simple S&P 500 mutual fund, this simple step would have resulted in almost $179,000 in assets, and something like $30,000 in tax savings. The total contribution amount would have been $103,000 for the 401 (k) between early 2010 and middle of August 2015. The total contribution for the Roth IRA's would have been $31,500 over the same time period for a total contribution of $134,500. Without the up-front tax breaks, the account value using the same investments would have been much lower - below $149,000. This is a loss of $30,000 to the tax person, which will never compound for you. The opportunity cost of that $30,000 over several decades is in the hundreds of thousands of dollars in lost wealth and dividend income.

Full Disclosure: Long all companies mentioned above

Relevant Articles:

Taxable versus Tax-Deferred Accounts for Dividend Investors
Health Savings Account (HSA) for Dividend Investors
Tax Loss Harvesting for Dividend Investors
My Retirement Strategy for Tax-Free Income
How to buy when there is blood on the streets

9 comments:

  1. Looks like we have several purchases in common :-)

    I also enjoyed your piece on tax loss harvesting - something I am newer to but very interested in exploring further. Thanks again for the post!

    - Brian

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  2. DGI,
    My August buys are CVX, DIS, TROW, UNP, plus I sold half of our COST shares and added to our shares of WMT. If the correction continues, UTX is definitely on the short list of stocks to buy now.
    Thanks,
    Keith

    ReplyDelete
  3. I also managed to add to Exxon below $70 this morning and Diageo too. Let's see if we will get XOM at $65. I am also nibbling some more Disney..

    ReplyDelete
    Replies
    1. I think XOM will get to $65 and I will establish a position at that point. I believe oil will reach the low $30's which in turn should puch oild stocks even lower. Sold my cvx in the mid $80's, which was painful(glad I did) but I believe XOM is a the better company. BTW, I am a retiree so simple dollar cost averaging is not as easy with no pay check coming in every month. I will dollar cost average the proceeds from cvx.

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  4. My text alerts for price drops keeps going off today. Good for us DGI's!
    DFG

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  5. Lots purchases for sure, great buys.

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  6. Seeking some advice on taxable vs 401k. I've been putting up to the company match in my 401k and maxing out the Roth. Now, I have some extra income per month that I would like to invest. Better to increase 401k contributions investing in low cost Index funds, or open a taxable account and invest in attractively valued individual dividend growth stocks? I would prefer to invest in individual stocks, but the guaranteed tax savings up front seems to be the way to go...

    ReplyDelete
    Replies
    1. @James

      Do you not qualify for a traditional IRA?

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    2. I max out my Roth IRA, so no, I can't put any money into a traditional IRA. Priorities are 1) up to 401k company match 2) Max the Roth 3) Either open a taxable account and invest in individual dividend growing stocks, or contribute more to the 401k and save on taxes up front but be limited to index funds.

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