Happy Thanksgiving everyone! This is my favorite holiday of the year. We relax, spend time with our loved ones, share stories of the last year, eat a ton of food, and watch football. What’s not to love?? Anyways, I started Black Friday a little early this week. To make Lanny proud, I was shopping frugally as I added a new position in a new industry to my portfolio using a free trade from Sharebuilder! I may have joined a bandwagon, but I purchased several shares of IBM this week! Why? Let’s find out!
In our November Watch List, I mentioned that I had $500 to invest. Even though I included three companies in the watch list, my decision really came down to two companies: IBM or Chevron (CVX). Both companies passed their ex-dividend date, so I was not in a rush to purchase shares in either company. As my money transferred to my savings account, I had more time to deliberate investment options. During this time, IBM pulled ahead of CVX as the leading candidate for an investment. Here were the main reasons why:
- IBM represented a new industry in my portfolio while CVX would have added to my already crowded oil sector. Ask Lanny, I have historically hated technology companies. With how fast technology evolves, it is hard for a company to maintain success for an extended period of time (In my opinion). About once a month I get jokes thrown my way from the other Diplomat about how I do not have any tech in my portfolio. So why did I add IBM? Owning IBM is probably one of the safest ways to take part in the industry. As Lanny mentioned during his stock analysis a few weeks ago, “IBM is in the information technology services, not necessarily the IT hardware like Intel provides or the software that Microsoft provides. They are more geared towards being the consultants and an overall business solutions service to the largest companies in the world.” IBM is less exposed to the aspects of the technology industry that I dislike (evolving technology) than other companies and has instead position itself to act as the liaison for companies to help promote, install, and embrace the evolving technology. The company has positioned itself to maintain long-term success as a trusted business advisor to help companies with their technology needs.
- While CVX also met all metrics of the Dividend Diplomats Stock Screener and has recently ramped up its share buyback program (As Lanny wrote last week, share buyback programs are a major positive for dividend investors), what else did I really know about the company? I did not perform a stock analysis on the company (yet…foreshadowing) and I haven’t read any financial statements/earnings call transcripts/press releases. While CVX is a major oil company, I haven’t had the chance to perform the due diligence necessary to understand the company’s operations and why the company is trading at a discount compared to its peers? My investment decision would have been based solely on metrics, which is not sound investing practice. Our stock screener is designed to identify stocks that we should research further because they are potentially under-valued. Without performing the additional research, I was not comfortable investing money in a company that I don’t completely understand. On the other hand, we have performed research over IBM through our stock analysis and have a much better understanding of the company and its current situation.
- This is not the only reason to invest in a company, but IBM has been a popular company to purchase in the dividend investing community. In fact, Lanny has purchased the company twice over the last month and now owns a healthy portion of the company. Since I know the company is undervalued compared to the market, has a low payout ratio, has had strong dividend growth, and has a large buyback program, it was time to join the IBM bandwagon. Again, this isn’t the sole reason to invest in a company, but since we performed our research, I knew I was joining the bandwagon of a strong company.
For all the reasons mentioned above, I finally decided to pull the trigger on IBM and purchased 3.0705 shares of the company, adding $13.51 to my annual projected dividend income. With this purchase, technology now represents 1.06% of my portfolio! This is an entry position to the company and I am planning on re-upping my position as additional funds become available.
What are your thoughts on the purchase? Would you have invested in Chevron if you were in my position? Have you purchased IBM over the last couple of months? Thoughts about my thought process to invest in IBM? I look forward to your feedback.