Recent Buys: End of July 2015
I hope August is treating everyone well so far. I wanted to write a quick update about a few purchases I made at the end of July. I continued to add fresh capital to my portfolio by averaging down on Eaton Corporation (ETN) and Wal-Mart (WMT).
I wrote about Eaton Corporation recently and not long after acquiring that first batch of shares, the stock price dropped over 8% from my initial purchase. That’s a quick move downward, and I took full advantage by adding more shares and more annual dividend income for less money this time around. On July 24th, I bought 24 additional shares for $60.82 each with a $6.95 commission for a total transaction of $1,466.63. The 3.60% yield on my purchase adds $52.80 to my forward 12-month dividends. I love the power of averaging down. This transaction total was only $6 more than my original purchase earlier in the month and with that $6, I got two extra shares and an extra $4.40 in annual dividends. Also, my cost basis is now reduced from $66.34 a share to $63.61.
I find Eaton’s forward P/E of 11.8 very attractive for a growing company with a 3.60% yield. In my original post about the business, I used adjusted operating earnings in fast graphs to determine my fair value price. However, I’m also attracted to ETN’s growing free cash flow which pays those ever rising dividends I’m seeking. I present ETN’s free cash flow fast graph below. (For those unfamiliar with Fast Graphs, when the black current price line moves into the dark green earnings area it indicates the business is undervalued. Here is a basic demo on how to read fast graphs):
Eaton is notorious for using this cash flow on acquisitions over the years, having bought more than 60 businesses from 2000 through 2012. On a recent quarterly conference call, the CEO said the company wouldn’t be returning to that same acquisition based growth strategy and that slower growing economies are eating away at the profit and sales growth potential that typically made these acquisitions appealing. ETN now plans to spend only 38% of available cash on acquisitions beginning in 2016, compared to 67% prior to 2012. ETN stated that all acquisitions will still be considered but not at the expense of buying back its stock and paying dividends to shareholders. That sounds like a solid plan to this small time dividend growth investor.
I also added 4.2247 shares to my Wal-Mart (WMT) position over the last few weeks of July for a total cost of $305 in my commission free Loyal3 account. I believe that when a business of this size and infrastructure has headwinds like WMT does, it’s a perfect time to ease into a position and I’m doing just that. My total position size has really snuck up on me. I’ve been chipping away with $50 purchases here and there for almost a year now, and the position value currently totals $1,063.37 and earns $28.88 each year in annual dividends. Even with slower than usual recent growth, I see a bright future for this massive retail business and their 42 years of dividend raises. Like Eaton Corporation, Wal-Mart has a very attractive cash flow position which helps me conclude that the dividend growth won’t be ending anytime soon.
I’m eager to post detailed updates from July about my overall portfolio and dividend payouts in the next few days so stay tuned. I also averaged down on another business I’ll be posting about soon that continues its downward descent. I post all of my major purchases live on Twitter well before you read about them here, so be sure to follow along. Thanks for reading!
What do you think of ETN and WMT? What stocks are on your radar?