Man has it been a busy couple of weeks purchasing stock and I couldn’t think of a better reason to be busy. Lanny purchased shares of Johnson and Johnson recently, and I am pretty jealous of him. JNJ is a great company and is a foundation stock that should belong in every dividend investors portfolio at some point. Nice pickup Lanny! But I couldn’t let him purchase stock without a response, right? So I also decided to purchase stock this week, and it is a company that fills a void in my portfolio. Let’s see which company was added this week!
The Purchase
Last weekend, Lanny performed a stock analysis of NSC and it was a major influence in my decision to purchase the stock. I won’t go into too much detail about the fundamentals since his stock analysis was so recent, so if you want detail about how well NSC performed in our stock screener please read his article linked above. Why did I like NSC? His analysis showed that the company met all three metrics of the screener (lower PE than market, payout ratio <60%, and dividend yield greater than the market) and has a dividend growth rate of ~10%. In addition, for NSC paid close attention to the dividend growth rate and this metric carried a lot of my weight in my final decision since NSC’s current yield of ~2.2% is lower than my current portfolio’s yield. When I reviewed my portfolio at the end of 2014, I committed myself to investing in companies that will either (or ideally, both) increase my portfolio’s average dividend yield or the weighted average dividend growth rate (To see why I focus on the dividend growth rate, read this piece Lanny published last year about the importance of your portfolio’s dividend growth rate. It has had a major impact on my investing strategy). Since the current yield was below my portfolio’s average of 3.6%, it was imperative that NSC’s dividend growth rate exceeded my current weighted average dividend growth rate of 6.9%. The average Lanny calculated, ~10%, definitely exceeds this mark.
After reviewing Lanny’s stock analysis, researching NSC further, and determining that it would be a great fit in portfolio, I made up my mind that I was going to purchase shares in the railroad giant in the near future. So the question was, when was I going to make the purchase? And this is the fun part of the story. NSC started the week out at $104/share and didn’t really move on Monday. At the beginning of Tuesday, NSC began to decline slightly and I only had enough capital to purchase 7.9 shares of NSC. Since you cannot purchase fractional shares on Sharebuilder unless you enter into an automatic investing trade, which must be entered into by 5PM Monday and I missed that deadline, I was forced to either purchase 7 or 8 shares. This is where I faced a dilemma, do I purchase 7 shares now or do I hope that the price falls further and I can pick up 8 shares with the current cash I had in my account? Since I was not in a rush to purchase NSC, I decided to gamble and select the latter option, which would have required NSC to fall an additional 2.4% during the day. So I calculated the exact price needed to trigger a transaction, $100.40/share, hoped for the best, and headed into a two-hour meeting. Much to my surprise, when I returned to my computer and checked my e-mail, I was the proud owner of 8 shares of NSC, adding $18.88 to my forward dividend income. I could not believe the price dropped like that out of nowhere, especially because I reviewed the headlines and there were not any specific events that triggered the decrease. Sometimes, it is lucky to be better than good I guess!
Summary
I am very happy with my recent purchase of NSC and it was very similar to my other recent purchase, ADM, which I added twice a few weeks ago. Both are low yielding, high growth rate dividend stocks that added a new industry to my portfolio. With this last purchase, I am making some nice progress towards knocking out my 2015 goals. After this purchase, I have now invested $4,275 of new capital in my portfolio (not included DRIP and 401(k) contributions), which represents 29% of my goal of investing $15,000 of new capital in 2015. Secondly, with the addition of $18.88 in dividend income from this purchase, my total forward dividend income is now $2,022, or 73% of my goal of $2,750. While I still have some work to do, I am working my tail off make sure I am staying on pace to accomplish my goals by the end of the year. Having extra capital from my recent job switch has been a catalyst of this recent activity, and hopefully the increased salary that resulted from the switch will continue to drive me towards success during this year.
What are your thoughts on the purchase? Do you like NSC at its current valuation levels, or would you have invest in JNJ like Lanny? If not, is NSC on your watch list?
-Bert