Dividend Diplomats Weekly Purchases – 1/5/15

This week started out with a lot of excitement, at least for any dividend investors looking to initiate a long-term position.  Right out of the gate, the market began to slide and reached its lowest point by mid-day Tuesday. Luckily, for both Lanny and me, we were able to catch the market at its lowest point and purchase some new/additional shares for our portfolio.

Bert’s Purchase

All, while my purchase is exciting in my eyes and I had a very fun story behind it, I must say that Lanny had a much better day stock shopping than I did.  I am excited for you all to read about which stocks he selected in a little bit!  Anyways, I had $329.22 sitting in my Sharebuilder account that I was looking to invest considering the decrease in the stock market.  Since this total was way below my usual minimum purchase price, I wanted to use the capital to re-up a position in a stock that I recently purchased.  Immediately, I identified my three targets:  I purchased 3 shares of IBM a few months ago, 5 shares of Canadian Imperial in December, and I own slightly over $1,000 in PM; and I would have loved to add additional shares in each of these 3 companies.

As the day unfolded, one choice rose above the others because their stock fell the farthest on the exact day that I was itching to buy.  By lunch on Tuesday, I had purchased an additional 4 shares of Canadian Imperial, adding $14 in annual dividend income to my portfolio.   Luckily for me, since I had recently purchased this company,  Lanny performed a stock analysis in December, the stock value had decreased over 5% since my initial purchase, and the stock was down 3.5% at the time of my purchase on Tuesday, this purchase was a no-brainer!  I mentioned there was a story before, so I’ll share it quickly.  As CM’s share price began to slide at the beginning of the day, I realize that the price was not quite low enough to purchase four full shares of the company with commission.  So I took an all or nothing approach; I calculated the exact price CM would need to hit to purchase 4 full shares.  I went to a meeting and when I checked my email at lunch, I had a surprise trade ticket confirmation waiting for me!  I still laugh about it because it had to fall another 1.5% to hit that price, and it just barely crossed it!  I guess I set the perfect floor.

One last quick fact about this purchase.  The $329 I used in the purchase was new capital from my checking account.  Why is this important?  Because one of my 2015 goals is to invest $15,000 in new capital (not including my 401(k) contributions).  So I am inching closer to my goal, as I am 2.2% there!  So enough about my purchase.  I mentioned Lanny has some great news up his sleeve, so let’s see what companies he purchase on Tuesday as well!




Lanny’s Purchase(s)

Thanks Bert and like you said – stocks were looking prime Monday and I wanted to use the Sharebuilder $3.95 automatic market trade on Tuesday to lower the fee on my purchase as I was willing to purchase them on Monday close price, regardless.  I used “them” in my last sentence?  What three stocks was I considering?  Three stocks I currently own or three completely new stocks?  Maybe it was a mix…  Without further a-do it was a mix of stocks I have already owned and new positions.  I had a dash under $1,800 to invest ($1,797 to be exact) and wanted to spread it across three different companies.  One stock I recently purchased on the 2nd to the last day of the year in Rockwell Automation (ROK).  One of the other stocks in DOW Chemical, which Bert owns (thanks Bert) and that recently announced a dividend increase and share buy back program – as Bert wrote about a few months ago (I love how important share buy backs are for dividend investors) – as they hit yield levels I liked to see with great recent dividend growth.  The last, but not least, was Tupperware (TUP) – which had declined significantly over the last year or so and I’ll dive into the metrics on why I liked these 2 picks.

DOW

  1. To Begin, I used the dividend stock screener we have for our metrics.  The Dividend yield at the time of purchase = 3.83% and is better than peers and the S&P 500.  I like this very much and it is close to my overall yield on my portfolio.  What about the payout ratio?
  2. Payout Ratio = On expected earnings of 2015 at $3.31, the dividend currently yields $1.68 = 51% approximately to the payout ratio aka below the 60% threshold I like to see, leaving ample room to grow
  3. Price to Earnings = Forward earning expectation of $3.31 and the stock price at time of purchase = $43.65 = 13.19 P/E ratio = which is less than the industry and far less than the S&P currently.  I favored this value as well.
  4. What about the 5 year dividend growth rate?  Well DOW increased it twice last year, no big deal, right?  Well I’ll assume in 2015 they don’t do one and I still get to this growth rate of 13.51% from 2014 to 2015 and the 5 year growth rate = 21.95% according to dividendinvestor.com.  Like that a little?  I definitely do.  I recently wrote about my epiphany on the impact of the dividend growth rate on your portfolio.  Loving this.
  5. Also – great share buy back program, reducing the # of shares, increasing EPS and increasing value to shareholders.  From looking at their balance sheet at 9/30/14… $25.7M in current assets and $12M in current liabilities.. wow.  A 2.14 current ratio is phenomenal and shows that if debts need to be paid off today, DOW can do this twice over.  Further, their quick ratio is 1.39 when removing inventory = aka the assets still can cover what comes due.  A strong balance sheet means a great deal to me when it comes down to capital and credit crunch time.

TUP

  1. Similar to above, the Dividend yield at the time of purchase = 4.52% and is better than peers and the S&P 500.  Well over my overall portfolio yield and is definitely on the “higher” end of dividend yields.
  2. Payout Ratio = On expected earnings of 2015 at $5.30, the dividend currently yields $2.72 = 51% approximately to the payout ratio aka below the 60% threshold I like to see, leaving ample room to grow – and is right in line with DOW above.. funny how it works that way.
  3. Price to Earnings = Forward earning expectation of $5.30 and the stock price at time of purchase = $59.72 = 11.27 P/E ratio = which is less than the industry and far less than the S&P currently.  You normally do not see P/E ratios this low, especially given what has happened in the market over the course of the last few years.
  4. What about the 5 year dividend growth rate?  Similarly at dividendinvestor.com – the 5 year average rate is 26.31% growth, which is highly attributable to the one year where the dividend went from 36 cents a share to 62 cents.  Therefore, I’ll say the last year was 9.7% and the 2 before the large jump were 20% a piece.  Pretty phenomenal in my eyes, but I can see this slowing down due to the higher payout ratio and potential slower growth trend in earnings.
  5. I looked at their balance sheet as well and saw the current ratio is over 1 at 1.03 and short term borrowings at almost half of their liabilities.  One thing I did note, to which I’ll monitor going forward, is they are holding more inventory and a/r than they have in the past, providing pressure on the quick ratio and the asset turnover ratio.

Conclusion – From reviewing my portfolio and the lessons, I decided to go with my gut and make an actionable purchase.  Total I invested on Tuesday = $1,797 with Fees adding $65.41 to my dividend income portfolio.  This helps me inch towards my real goal of $6,750 in projected income.

Thoughts about Bert & Lanny’s purchases above?  Did you make any this past week?  Do you own any of the 4 above?  We would love to hear, thank you!

-The Diplomats

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11 thoughts on “Dividend Diplomats Weekly Purchases – 1/5/15

    • Thanks ADD! We are going for it and it was a great timed move, and I want to keep at it with common sense investing here, we can do it, let’s go after our goals! Thanks for coming by ADD, talk soon.

      -Lanny

    • Tawcan,

      I wish I had more funds to invest, but you work with the hand you are dealt and hopefully play the best hand in the given game you are in, right? Making moves over there? Busy season for us CPAs has been killing us in our community here, we want to be as active as possible, missing everyone! We are trying hard to continue our postings though and commenting!

      -Lanny

  1. Diplomats,

    Looks like some solid purchases. TUP in particular is interesting. I remember looking at them a while back. Liked the fundamentals. The direct-sale model has been surprisingly successful for them.

    Keep up the great work!

    Best regards.

    • DM,

      Thank you! TUP has been on the radar as well, and had interesting metrics as you’ve said. Even removing the DGR from the one period shows strong promise that should align with forward earnings growth, looking forward to how it performs! Thanks again DM, wish I had slew of capital for the early trading this morning, it’s okay – as you know – we always find an opportunity out there.

      -Lanny

  2. Excellent purchases guys!
    Recently, I have been picking up lots of shares from the major banks including CM (which has taken quite a hit). However, I estimate that the finance sector may be dropping even more and will be ready to pick up more when they do.

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