Thank goodness for free trades. Fidelity’s decision to join the free-trade club has allowed me to make a lot of small purchases. These small purchases have allowed me to either slowly build a new position in a stock or use excess cash to add small dollar amounts to positions that were already established. We recently crossed a huge investing milestone, $10,000 in forward dividend income, and the free trades have allowed us to continue our momentum.
In my November Dividend Income summary article, I summarized my November purchases and the dividend income added as a result of the purchase. However, the discussion was brief. So today, I was going to summarize all my November and December stock purchases to date. In conjunction with the release of the article, I have updated my portfolio as well.
Bert’s Stock Purchase Summaries
Company #1: J.M. Smuckers (SJM) – 18 shares; $1,877.53 Cost Basis; $63.36 Dividend Income Added
The largest write-up I had in my dividend income summary was Smuckers. It was the company I always chased over the years, but never made the decision to purchase. For some reason, despite flashing “Buy” signs whenever the company dipped below $100 per share, I ignored them. Only finding myself regretting my passiveness at a later date.
In this timeframe, I have purchased Smuckers 3 times. Each purchase was at a stock price lower than the last. Now, my cost basis is an average of $104.30 per share. SLightly above my internal $100 per share threshold, but I am pretty happy with the new position.
Their latest earnings release prompted the sell-off. The news in the earnings release was mixed. Sales and gross margin decreased compared to last year while both net income and free cash flow increased slightly. The major news was Smuckers revised their 2020 outlook downward. See the chart from their earnings release below:
I get it. Nobody wants to see their 2020 outlook decrease. But the results really didn’t change THAT much. At least, not enough to seriously impact the company’s dividend for the foreseeable future. Let’s briefly run SJM through our Stock Screener using the low end of their EPS range ($8.10 per share) and my average purchase price of $104.20 per share :
- Metric #1: P/E Ratio – 12.86 X
- Metric #2: Dividend Payout Ratio – 43%
- Metric #3: History of Increasing Dividend – 9 years, 5 year average dividend growth rate – 7.24%.
Despite the lowered outlook, Smuckers performed very well in our dividend stock screener. Thus, it made sense to initiate a position. Better yet, I will continue to do so if the price continues to decline.
Company #2: Occidental Petroleum (OXY) – 15 Shares, $582.93 Cost Basis, $47.40 Dividend Income Added
Next up on the list, Occidental Petroleum. This one was also summarized in my dividend income summary. OXY quickly turned from darling to dog pretty fast. All it took was one debt-filled, expensive acquisition. The acquisition is now closed and OXY is focused on integration, debt paydown, and further asset sales to continue paying down their debt. In their earnings release, I thought it was interesting to see that the company repaid $4.9 billion in debt as of 9/30/19, including all of their 2020 maturities. Total long-term debt is over $47 billion, so the company has a long way to go.
Interesting, OXY issued a press release discussing their strategic initiatives after the acquisition. Here was the quote that caused my eyebrow to rise further:
“Deleveraging and strengthening our dividend remain our top priorities. By the middle of 2020 we expect to have closed transactions generating proceeds greater than $15 billion net of taxes, including the value acceleration of non-strategic or non-core upstream and midstream assets along with the deconsolidation of WES. We will continue to apply proceeds from asset sales to debt reduction, along with fully capturing our acquisition synergies to enhance value for shareholders and position our dividend for continued growth.”
In the end, I like the company’s plan to reduce debt after the acquisition. It is encouraging to read and I’m taking a small gamble with my additional purchase that management will be able to execute on their vision. Adding 15 shares and reducing my cost basis didn’t seem like that big of a risk. In the long run, like KMI, I see this ship turning in the right direction. It may take some time (and hopefully not a dividend cut) to get it there.
Now, my position in OXY is 49.648 shares. And I may add a few more if the price hangs in this range and no other opportunities present themselves.
Company #3: Exxon Mobil (XOM) – 5 shares – $344.78 Cost Basis –
Up next was a small addition to my wife’s position in Exxon Mobil. XOM’s price continues to hang in the high $60 – low $70 per share range. In fact, this price is close to the company’s five-year lows. This is a position for my wife that has benefited from free trades. When we have some extra cash, we will slowly add to this Dividend Aristocrat.
In the effort of full disclosure, not every article or analyst write-up about Exxon is positive. The company is in a tough environment with low oil and gas prices. The company’s debt has increased; however, the financial strength of the company is still solid. If the current environment continues, the company may not be able to continue increasing their dividend at a 6% rate (like they did this year). But the company is an Aristocrat and has raised their dividend through crazier economic cycles. So I suspect the company’s growth may be slower over the next few years. Again, like OXY, it was worth a small addition to our portfolio to continue reducing our cost basis in the oil giant. I may not add too much more, as I’m content with how much the two of us own combined.
Company #4: Canadian Imperial (CM) – 5 Shares – $413.13 Cost Basis; $22 Dividend Income Added
This next purchase is yet another beneficiary of free trades. What is hilarious is that my overall cost basis in Canadian Imperial is just over $3,300. However, I have purchased this stock 7 times. That is an insane amount of purchases for the overall size of my position. But I’ll tell you what, I love this Canadian Bank. The Big Canadian Banks all are known for having sound balance sheets, strong dividend yields, and strong dividend growth. A perfect recipe for dividend growth investors.
Compared to its competitors, CM trades at a lower multiple and offers a higher dividend yield. Yielding over 5% and having a P/E Ratio below 10X, it seems like a no brainer in the current market environment. Like the other companies on this list, I will continue to add if the price were to fall.
Company #5: Cisco Systems (CSCO) – 20 shares; $883.90 Cost Basis; $28 Dividend Income Added
It has been a while since I added a technology company to my portfolio. Cisco is not the cheapest value; however, the company’s metrics do pass our stock screener. Thus, I made the decision in this expensive market to add to this undervalued dividend growth stock. Here is how Cisco performed in our stock screener, using our purchase price of $44.195 per share and average analyst EPS of $3.24 per share.
- Metric #1: P/E Ratio – 13.64X
- Metric #2: Dividend Payout Ratio – 43%
- Metric #3: History of Increasing Dividend – 7 years, 5 year average dividend growth rate – 13.35%.
Again, not the cheapest, but I’m loving the metrics. Cisco is a major player in a sector that is going away. Further, as the company continues to evolve and diversify, the company will use its massive cash pile to remain competitive. All in all, I am long the company and would love the opportunity to keep building this position. Especially since the ex-dividend date is at the end of the month and I can receive a dividend in January from the purchase. Unfortunately, the price has risen slightly (but what hasn’t). So I may hold off until it comes back down to my purchase price.
Company #6: Pfizer (PFE) – 1 Share; $36.84 Cost Basis; $1.52 Added Dividend Income Added
There isn’t too much to say here, at least about the WHY for this purchase. Other than the fact that I had just over $40 cash in my Roth IRA and thought I would use a free trade to add to a position and add some dividend income. The dividend income won’t move the need too much, but as we always say, EVERY DOLLAR COUNTS.
Plus, we were able to make this purchase before Pfizer’s big $.02 per share quarterly dividend increase this week. Looks like that small dividend addition just grew another 5.5%.
In total, my wife and I added $4,139.11 Cost Basis and $179.68 in Dividend Income to our portfolios during November and December. That is an average dividend yield of 4.34%. With this round of purchases, we were looking to pack a punch with in terms of dividend income. And I believe we were able to achieve that. In the end, whether we got the best value with the purchases or not, we were very excited for the opportunity to continue adding income producing assets to our portfolio. It is time to keep researching and continue finding new dividend growth stocks to invest in!
What stocks have you purchased over the last few months? Any common names as us? What do you think of the companies we purchased? Am I too optimistic about OXY and XOM’s future outlook?