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):

2015_JULY_FG_ETN2

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.

2015_JULY_FG_WMTI’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?

My Dividend Growth

http://www.mydividendgrowth.com

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19 thoughts on “Recent Buys: End of July 2015
  1. Dividend Mantra

    Ryan,

    Nice moves there. Love the quick move on averaging down. I typically do the same. When I see a stock I recently bought drop quickly, I’m usually on it. I did the same thing recently with CAT.

    That’s a crazy chart on WMT there. I think it’s a lot closer to fair value than the FAST Graph would indicate, but that does make me feel pretty good about my recent purchase of WMT stock. I’m not counting WMT out. 🙂

    Keep up the great work!

    Cheers.

     
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    1. My Dividend Growth

      Thanks a ton there, Jason! I am quick to average down thanks to your teachings and action 🙂 Glad to hear you’re taking advantage of CAT’s recent weakness, that’s a great business and I see their machinery all the time.

      You probably saw this, but that fast graph of WMT is based on free cash flow which is probably why fair value seems low and skewed a bit. I believe the data is correct though, but it could be wrong. The P/E fast graph places the current price directly on the fair value line of a reasonable P/E of 15 like you mentioned. Either way I’m super glad to be a shareholder alongside you my friend. You’re seriously killing it and picking up unbelievable momentum these days. Cheers to the future!

       
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  2. JC

    Solid purchases Ryan. ETN is looking really good. Wish I’d have bought before the ex-div date but its looking awesome and I might just add some to my own portfolio. WMT is looking great in that fast graph and I might just have to look at them again. Thanks for the update.

     
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    1. My Dividend Growth

      I appreciate the comment, JC. ETN only traded at this level briefly during the October dip of last year so I think it’s super attractive right now. I managed to barely sneak in before that ex dividend date, but I’d still be buying at these levels even after it. The current price may not linger here for long and I’d be getting much more capital return than dividends if that ends up being the case. It’ll be an interesting stock to follow for sure.

      Both graphs were interesting from the free cash flow perspective, and I was especially surprised Wal-Mart had that healthy of a cash position. WMT seems about fairly valued on the normal P/E chart.

      Hope all is well these days and take it easy!

       
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  3. Dividend for Starters

    Hey Ryan,

    Great buys!
    WMT has been on my watchlist for a long time.
    Last time I bought a stock in that sector, PG won the ‘fight’, but WMT still looks very attractive.

    Thanks for sharing!

    Best wishes, DfS

     
    Reply
    1. My Dividend Growth

      Hi DfS,

      Thanks for checking in! It’s always a tough choice between the business that services the goods or the one that manufactures those goods. Everything I’ve read suggests the one that makes the goods is the better choice because retail businesses come and go with no warning when consumer trends and choices change rapidly. However PG seems troubled at the moment, and I’d like to see a better valuation to represent some of those headwinds before I add more shares. I think WMT is better valued at the moment, but it’s really a tough choice because in the long term PG is likely the better company. Good luck with whichever you go with and I’ll be eager to read about it 🙂

       
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  4. Vivianne

    The recent pullback post very attractive values non financial sectors. I’m preserving cash for an upper fixer. Arggghhhh. 🙂 great buys though.

     
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    1. My Dividend Growth

      It’s nice having the market hovering at the same level on the year so far. That hasn’t happened much since I began investing, it’s usually hard to hunt for bargains. I’m swinging while I can! Glad to hear you’re still in the market for another fixer, that’s very cool and I’m sending good vibes your way! Great to hear from you and take it easy!

       
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    1. My Dividend Growth

      Nice Gremlin! WMT is huge and might be a little slower growing from here, but I’m a fan of the online infrastructure they’re developing…they gotta catch up to the times! I’ll be watching to see if you pull the trigger, have a good one my friend!

       
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  5. Brazo264

    Congrats on the purchases! How do you feel about the 20% withholding tax for your Ireland based Eaton? Not a big deal?

     
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    1. My Dividend Growth

      Hi there Brazo264, great to hear from you again. In my understanding I will not be charged the withholding tax based on the current tax treaty between the US and Ireland. Here is a link to Eaton explaining it if you care for more info: http://www.eaton.com/Eaton/OurCompany/NewsEvents/Cooper/DividendWithholdingTaxInformation/index.htm

      “Beginning with the dividend payable on March 22, 2013, payments will be subject to an Irish withholding tax of 20% of the amount of each dividend unless the shareholder that is beneficially entitled to the dividend is a resident of the United States or a resident of a country listed as a “relevant territory”, and has ensured that the required information is on file with their broker, bank, qualifying intermediary or transfer agent (see below for more detail). With these rules, the vast majority of Eaton’s shareholders and beneficial owners are entitled to an exemption from DWT. ”

      I’ll know for sure when I get my first payment, but I’d be surprised to be taxed. Hope that helps!

      Best Wishes,
      Ryan

       
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      1. Brazo264

        I did not know that we had a tax treaty with Ireland. Thanks for that information and link. That makes ETN even more attractive!

         
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  6. DivHut

    Always nice to average down on a quality company when you can. Though WMT has been down a lot in recent weeks and I know it’s a DGI favorite I still am not a fan of retailers like WMT and TGT and the like. Still, a nice buy on your part and an extra $50+ coming your way in the next year. Thanks for sharing.

     
    Reply
    1. My Dividend Growth

      Thanks DivHut! I hear you about retailers and their constant challenges and changes, that was one of the bigger things I took away from reading ‘The Snowball’ Warren Buffett biography. I don’t intend for these risky retailers to make up a big portion of my portfolio in the long run, but it’s hard to ignore good valuations when they come. Ideally I’d love to load up on all the stalwart consumer goods stocks that supply products to these stores, but as you know it’s been real tough finding good valuations there so I’m being very patient. Thanks for dropping by and sharing your thoughts! Happy investing my friend!

       
      Reply
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