Last week, with a volatile stock market, I decided to jump right back into the action. All of us have been watching this market closely and getting excited about the opportunities that have started to present themselves. I had some extra cash on hand and wanted to add to several positions in my portfolio. After some research, my investment decisions were made and I found the two stocks I wanted to purchase. Here is why I purchased shares of Procter and Gamble (PG) and Starbucks (SBUX) last week.
Purchase #1 – Procter & Gamble (PG)
This one shouldn’t come as much of a surprise, particularly because I LOVE purchasing consumer staple stocks. Lanny recently laid the case/argument out for purchase shares in PG in his “Battle of Consumer Staple” article that was recently released. With the recent pullback in the market, consumer staples have been getting hit pretty hard. On the date I decided to make the purchase, Monday, the company’s stock price was trading around $78 per share. I quickly updated the results of our Stock Screener assuming an average share price of $4.20/share:
- P/E Ratio – 18.5X (approximately)
- Payout Ratio – 65%
- Dividend Growth History – The company is a Dividend Aristocrat for goodness sake
Sure, their recent dividend increases have not been that strong, but I have a good feeling about their upcoming increase based on the results of other companies. Further, I own a healthy portion of the company and became very excited about lowering my cost basis in a company that I own that checks all of my investment boxes. To me, this was a pretty easy decision to make and I quickly jumped on the opportunity that presented itself.
I added 9.6389 shares of PG ($3.95 automated Tuesday trade from Capital One Investing). This purchase added $26.59 in forward dividend income to our annual total. Now, I own 63.2008 shares of the consumer staple giant and receive $174.33 annually.
Purchase #2 – Starbucks Corporation (SBUX)
Now this stock is probably a surprise to many of you and it developed quickly for me based on a pretty negative day in the market. A long time ago, I had purchased about $1,500 shares of Starbucks in my wife’s Roth IRA. It was an entry-level position that produced between $8-$9 of dividends on a quarterly basis. I have always been looking forward to adding to the stake; however, the right opportunity never presented itself. Well, things changed this last week as the market had one of its crazy swings. In fact, the day I decided to make the purchase SBUX was down over 3%. So I quickly ran this through our stock screener assuming a share price of $57.30 and the results were as follows:
- P/E Ratio – At the time of my purchase, the P/E ratio was about 22.8X. Sure, our stock screener looks for P/E ratios below the current market values. The P/E of 22X was slightly lower than the broader market and this iis lower than the multiple has been for SBUX in a while. There are cheaper options for sure, but I was happy with the multiple at the time of the purchase.
- Payout Ratio – ~48% using estimated 2018 earnings.
- Dividend Growth HIstory – The company has increased their dividend for seven consecutive years and has posted very strong dividend growth rates over hte last few years. SBUX’s 3-year average DGR is over 23%!
After assessing the results and realizing that I was ready to add to my position in SBUX, I transferred $750 into my wife’s Roth IRA and made the purchase. We added 13.0701 shares (another automated trade on Capital One Investing) of SBUX, adding $15.68 in forward dividend income to our portfolio. In total, we now own 41.0322 shares that produces $49.24 in annual dividend income.
I couldn’t be happier to add to these two positions and take advantage of the current market opportunities. Our last purchase was a new position, Dominion Energy, and we were able to add a very solid position with our available capital. With less cash on hand, it was nice to add to current positions we own, fortify our current holdings, and set ourselves up for larger dividend payments in May. One other thing that I like is that both of these companies pay their dividend in the second month of the quarter. We receive such large amounts of dividend during the final month of the quarter, it is always nice when I get the opportunity to add to the other two months and spread out my dividend income. To me, this will be something to consider focusing on as I move closer and closer to financial freedom. But that is an article for a different day. So for now, I am going to kick back, relax, and enjoy the new stock purchases (possibly while sipping on a cup of coffee from Starbucks).
What do you think of my stock purchases? Did you purchase either PG or SBUX over the last few weeks? Or are you focusing your attention elsewhere? What stocks are on your watchlist?