Recent Buys: September 1st – 11th, 2015

The stock market is still lingering in correction territory led by uncertainties regarding interest rate hikes, oil prices, and growth in China.  It all sounds scary and could get worse, but there’s no way anyone can know for sure.  The market has been spoiled and correction free for so long that we forget historically corrections happen about once a year and tend to last just 70 – 80 days.  To me these wild swings are great opportunities to add long term investments to my portfolio.

I continued adding to several holdings in September investing a total of $3,770.55 so far.  On the 1st of the month, I bought 22 shares of Eaton Corporation (ETN) for $54.71 a share with a $6.95 commission for a total transaction cost of $1,210.57.  ETN is a global power management business in the industrial sector who has raised dividends for 6 years in a row and has rewarded shareholders with constant or increasing dividends for decades.   The 4% yield on my purchase added $48.50 to my annual dividend income.  I initially bought this company in July and have been averaging down since then.  

Aside from fully understanding a business, I try to invest with some sort of total return expectation which helps me understand whether or not the current stock price is currently trading at a fair value.  Using Fast Graphs and Chuck Carnevale’s precise return strategy, I’ve gained confidence in finding fair value by estimating the following (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_SEPTEMBER_FG_ETNAt first glance, ETN appears very attractively valued with a blended P/E ratio of 12.3.  It’s also undervalued compared to its normal 20 year blended P/E ratio of 14.9.

  • Analyst Estimates:  This calculation uses S&P Capital IQ data to help us predict a reasonable return.

2015_SEPTEMBER_FG_ETN2With growth capitalized at a reasonable P/E ratio of 15, we will have witnessed an impressive 18.73% total annual rate of return through 2018.  That’s a $34.42 gain in price per share and $8.13 gain in potential prorated dividend income.  ETN tends to hit or beat analyst expectations about 75% of the time.

  • Most Pessimistic Case: This calculation is based on the lowest normal P/E multiple of 14.4 over the last 9 years:

2015_SEPTEMBER_FG_ETN3It’s great to know this is suppose to be the bad outcome, where the market would still be undervaluing ETN shares through 2018, and we’d witness a 17.40% annualized return.  I’d be very happy with that.

  • Most optimistic Case:  This calculation is based on its highest premium normal 5 year PE ratio of 16.2:

2015_SEPTEMBER_FG_ETN4Here we see a 21.31% total annualized return through 2018.  That kind of return would make for an amazing investment.    

  • Historical Compounded Annual Growth Rate (No Analysts):  Here, I use the lowest annual earnings growth rate from the last decade which is a 7 year annual return to date of 4.7%.

2015_SEPTEMBER_FG_ETN5We see a total annualized return of 16.21% through 2018.  That’s pretty solid as a lowball number considering it was during the last recession, I’m thinking ETN will beat that growth rate going forward.  Who knows where this stock price is heading in the future, but I feel very comfortable with today’s valuations based on the research I’ve done in ETN.large_article_im34_johnson_and_johnsonOn September 4th, I bought 14 shares of Johnson & Johnson (JNJ) for $90.74 a share with a $6.95 commission for a total transaction cost of $1,277.31.  JNJ is a global healthcare business who has raised dividends for 53 years in a row.  The 3.29% yield on my purchase added $42.00 to my annual dividend income.  This is one of the best businesses in the world and is a core holding of my dividend growth portfolio.  I’m not expecting amazing growth in dividends or capital going forward, but instead am aiming for safety.  JNJ has a rare ‘AAA’ credit rating, which indicates it has an extremely-low default risk.  I initially bought this company in July of 2014 and recently made it one of my biggest holdings.  This position now spits out a safe and ever increasing annual dividend of $186.39 for me.2015_SEPTEMBER_FG_JNJAt first glance, JNJ appears exactly fair valued with a blended P/E ratio of 15.2.  Due to extreme overvaluation in the 1990’s through 2005, it also seems undervalued compared to its normal 20 year blended P/E ratio of 20.5.  I view today’s price as a great bargain for a historically epic business such as JNJ.

  • Analyst Estimates:  This calculation uses S&P Capital IQ data to help us predict a reasonable return.

2015_SEPTEMBER_FG_JNJ2With growth capitalized at a reasonable P/E ratio of 15, we will have witnessed a 7.52% total annual rate of return through 2018.  That’s a $14.46 gain in price per share and $10.71 gain in potential prorated dividend income.  JNJ seems even more safe and predictable when we account for the fact that they hit or beat analyst expectations 100% of the time.

  • Most Pessimistic Case: This calculation is based on the lowest normal P/E multiple of 14.1 over the last 6 years:

2015_SEPTEMBER_FG_JNJ3JNJ has rarely traded at a low normal P/E like this, but if it were to stay depressed through 2018, the total annualized return drops to 5.72%.  Considering my savings account earns just 0.75% in annual interest and my bank is less proven and has fewer years of existence than JNJ, I feel safer with my money in JNJ even with this pessimistic estimate.     

Most optimistic Case:  This calculation is based on its highest premium normal 2 year PE ratio of 16:

2015_SEPTEMBER_FG_JNJ4This would help us witness a much better 9.46% total annualized return through 2018.

  • Historical Compounded Annual Growth Rate (No Analysts):  Here, I use the lowest annual earnings growth rate from the last decade which is a 6 year annual return to date of 4.6%.

2015_SEPTEMBER_FG_JNJ5We see a total annualized return of 7.37% through 2018.  This is very consistent with analyst estimates and encouraging for safety.  BP-Gulf-Settlement2On September 14th, I dipped into the beaten up and risky energy sector buying 38 additional shares of BP (BP) for $30.94 a share with a $6.95 commission for a total transaction cost of $1,182.67.  BP is a global energy business who has raised dividends 4 years in a row after cutting them in 2010 after the Gulf of Mexico oil spill.  The massive 7.71% yield on my purchase added $91.20 to my annual dividend income.  BP’s cash position is one of the best of the oil major’s and after selling off several assets for survival they’re still left with a solid portfolio and I’m speculating they’ll be back and strong in just a few short years.  I purchased BP in May of 2013 before I ever discovered dividend growth investing which is why it’s not a typical holding for me.  I see a ton of high risk to reward here and hope I’m right in expecting reward.  BP’s value isn’t overweight in my portfolio, but its risky dividend income is my highest annual earner by far at $272.23 a year.  No other holding even pays me $200 a year at this point.  While I believe BP will cover and at least maintain its dividend, I would be okay with a dividend cut here if it means more long term reward. It depends on how big of a cut they’d present.  I’ll be monitoring this position closely.2015_SEPTEMBER_FG_BPAt first glance, BP appears roughly fair valued with a blended P/E ratio of 12.4.  We’ve had massive price swings in oil lately and if the price heads back up like it has historically, BP should be in a great position.  

  • Analyst Estimates:  This calculation uses S&P Capital IQ data to help us predict a reasonable return.

2015_SEPTEMBER_FG_BP2With growth capitalized at a reasonable P/E ratio of 15, we see a 28.92% total annual rate of return through 2018.  That’s a $32.74 gain in price per share and $8.04 gain in potential prorated dividend income.  It’s hard to predict commodity businesses though and BP hits or beat analyst targets only about half of the time.

  • Most Pessimistic Case: This calculation is based on the lowest normal P/E multiple of 8.1 over the last 6 years:

2015_SEPTEMBER_FG_BP3If BP were to revert back to this low PE, the total annualized return would be 9.98% through 2018.  

  • Most optimistic Case:  This calculation is based on its highest premium normal 10 year PE ratio of 9.7:

2015_SEPTEMBER_FG_BP4v2The total annualized return would jump up to 15.03% through 2018 in this scenario.

  • Historical Compounded Annual Growth Rate (No Analysts):  Here, I use the lowest annual earnings growth rate from the last decade which is a 3 year annual return to date of -19.3%.

2015_SEPTEMBER_FG_BP5We see a total annualized return of -1.56% through 2018.  That seems awful at first glance, but the CAGR used is an outlier and really shows me that BP has survivability and durability in a cyclical industry by being able to take that big of a hit to growth for so long.  

Lastly, on September 2nd I added $3.47 to my annual forward income by purchasing small amounts of the following in my commission free Loyal3 account:

  • Coca Cola (KO) – $34 bought .8774 shares.
  • Unilever (UL) – $33 bought .8344 shares.
  • Wal-Mart (WMT) – $33 bought .5141 shares.

My total annual dividend income is now $2,585.08 or $215.42 each month.  I’m likely out of funds for the remainder of September unless we see a much further correction and I can’t refuse.  Here’s hoping the market’s current correction lingers for a while so we all take advantage.

How is your September?  What are you buying?

My Dividend Growth

http://www.mydividendgrowth.com

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32 thoughts on “Recent Buys: September 1st – 11th, 2015
  1. roadmap2retire

    Great purchases, Ryan. Cant really argue with any of those companies at those prices….You are doing great putting your money to work. Keep up the great work!

    R2R

     
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  2. Karl

    Looking good!

    I have fresh powder ready to deploy, but awaiting this week’s fed decision before putting it to work.

    Upcoming buys look to be CMI, MMM, IBM, ETN, EMR, and BA.

    Keep it up and looking forward to reading next month’s progress.

    Karl

     
    Reply
    1. My Dividend Growth

      Hi there Karl. It’s always a great idea to have some cash ready to deploy, here’s hoping you get the prices you’re after. I really like your choices and am glad you’re seeing value in the industrial sector like I am. If we see any more huge drops I’ll be buying right along with you. Thanks for checking in and happy investing to you!

      Best,
      Ryan

       
      Reply
  3. Dividend Gremlin

    Ryan,
    All are excellent choices and I share a few of your Loyal3 moves on the month already. Fun fact, my dad used to work for JNJ and have their stock – he said he now regrets selling it. That’s a good lesson for us. Oh well for him, but he still gets their pension in retirement!
    – Gremlin
    – from upstate NY this time.

     
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    1. My Dividend Growth

      Hope all is well Gremlin, glad to see you traveling so much. That’s pretty awesome that you grew up knowing JNJ through your father and now you’re making up for his investment shortcomings. Tell him to live vicariously through you now, hehe. Keep up the bullets firing in that L3 account, every little bit helps my friend.

      Best,
      Ryan

       
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    1. My Dividend Growth

      Thanks, Dividend Chimp. It’ll be a tough fight with a month off for the wedding and honeymoon in October and then my show ending mid December. Here’s hoping I land somewhere fast and all the dividend raises and reinvestments start doing more work for me. Thanks for the support!

       
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      1. Dividend Chimp

        That’s the awesome thing …. you’re dividends are working and compounding around the clock all day everyday for you! Are you in the producers guild or another union for priority placement?

         
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        1. My Dividend Growth

          That’s exactly why I love this strategy, I’m so excited to witness the magic of compounding over time. I work mainly in reality tv and I’m not in a guild or union which are rare in the industry. Some established people use an agent to line up work, but the agent gets a cut of the paycheck which doesn’t appeal to me. I’ve seen it work well with or without an agent, so we’ll see what happens at the end of the year.

          Best,
          Ryan

           
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          1. Dividend Chimp

            Gotcha, I’m so used to all the transportation guys, grips, and crew being in unions, I start to think everyone is. No union for the bodyguard work I did either. Stay the course.
            Best,
            Devin

             
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  4. Captain Dividend

    Thanks for the breakdown and the charts. I just bought some JNJ myself and as you say it looks fairly valued here. I actually thought it was a better value than fastgraphs shows. I may have subscribe to that site some day.

     
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    1. My Dividend Growth

      Hi Captain, hope things are well my friend. I agree, it’s a little surprising that JNJ’s growth has slowed so much. Hopefully this market correction linger’s a bit and JNJ can make some acquisitions at reasonable prices finally, but it’s getting tough to move the revenue needle with their massive market cap. I think it’s a great businesses all around and wouldn’t be a fan of splitting the company up like analysts are always suggesting, I’m hopeful they’ll find a way to pick up the speed again.

      Best,
      Ryan

       
      Reply
    1. My Dividend Growth

      Thank you much. Nice move on CMI, I really like the valuation at this level but haven’t done enough research to understand their business yet. I’m a big fan of their financial fundamentals and dividend history so far, good luck with the investment!

       
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  5. DivGuy

    I’m not so much in love with BP, maybe because I think there are better opportunities right now. But it’s always interesting to see how different paths can lead to great results!

    Liking the rest of your list!

    Cheers,

    Mike

     
    Reply
    1. My Dividend Growth

      I completely agree there are better opportunities out there, this was my most negative position down over 30% so it was a great opportunity to average down. Very risky though. Hope all is well and thanks for the comment, Mike!

      Best,
      Ryan

       
      Reply
  6. The Security Whisperer

    Nice…love the Unilever and JnJ adds (you can sleep easy with those :)). I definitely think now is a good time to take advantage of weakness in the energy sector. Volatility is a given in the commodity markets (especially oil) and if i see an E&P company with solid fundamentals (attractive lifting costs, strong CFO, reserve replacement ratios averaging 100% over the long term, and decent debt levels) I would definitely jump in for the long haul 🙂

     
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    1. My Dividend Growth

      Thank you much. I was holding off on energy for a good while and I’m finally buying again. Who knows what’ll happen in the short term, but these are some great (and risky) dividends while I wait. I like your train of thought on finding good values, if only I had unlimited capital to deploy. I could find so many great uses. Appreciate you checking in and have a great week!

       
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  7. JC

    Solid buys all around Ryan. I have too much O&G exposure so I doubt I’ll be adding to any of my positions, although I do have the DRIP turned on for COP, BP, CVX, and XOM to still add some to my positions. I really want to add ETN to my portfolio but I’m waiting on cash flow currently. Had to pay a lot of bills and that sucked away all of my available capital but with me getting back to work cash flow should increase and be steadier which means I’ll hopefully be able to get back to investing on a regular basis. JNJ is always a solid choice and I wouldn’t mind adding a bit more to my own portfolio. Excellent buys and looking forward to seeing where you go next.

     
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    1. My Dividend Growth

      Hi JC, hope all is well! I love how DRIPs can be super powerful all by themselves and your portfolio works for you even if you don’t contribute fresh capital. ETN had another down day today, hopefully it’ll linger here for a good while and you’ll get your chance to buy if you decide to. JNJ seems to be shooting back up, but I’d still gladly pay $95 a share for that safety and yield. Glad to hear you’re almost back to a positive cash flow again for new purchases, it’s always enlightening to follow where you’re investing and I’m looking forward to it!

      Best,
      Ryan

       
      Reply
  8. secondhandmillionaires

    On JNJ “This position now spits out a safe and ever increasing annual dividend of $186.39 for me.” That is probably the safest money you will ever make. I was temped to buy BP, but when the going got tough in 2010 they suspended their dividend for a few quarters and then brought it back and slashed it in half. So I would be weary they could do the same here if oil prices stay depressed for the next few quarters. Just subscribed so I can get these updates sooner!
    Nice work!
    Andrew
    SHM

     
    Reply
    1. My Dividend Growth

      I love that the safe $186.39 a year from JNJ grows with each reinvestment and dividend raise too. I’m excited to see how much it spits out 10 years from now. I’ll be curious to see what happens with BP, management seems set to maintain the dividend by all means possible but we’ve heard that line before. If they do cut it, I’m likely to continue holding depending on the size of the cut. I see lots of value there, but I could be very wrong.

      Thank you very much for subscribing and glad to hear from you!
      ~Ryan

       
      Reply
  9. Jason Fieber

    Ryan,

    Nice buys up there. You’ve been a capital-deploying maniac lately. 🙂

    I also dipped into some of the majors for the first time in a while lately, recently adding Shell and BP (at a similar price to you). Both have lots of cash and room on the balance sheet, so we’ll see how that plays out.

    Also sold out of BBL and reduced NOV for tax-loss harvesting – but will buy back in next month (after the 30 days). Initiated a position in CL and added to UTX and OHI with that. And today initiated a stake in ACE.

    Keep it up, man. You’ll be crossing over $3k in dividend income very soon!

    Best regards.

     
    Reply
    1. My Dividend Growth

      Howdy Jason!

      It’s been real fun, but the capital deploying machine will have to slow way down over the next few months. I have 3 weeks of no pay in October, yikes! Hopefully I was in the right mindset to deploy it when I did because I won’t have that kind of ammo again for a while. I had been looking at BP after that 5% fall but went with JNJ. Then I saw your twitter post about BP and I copied you right away with a purchase. It’s always good to be on the same page as you, it makes me think I’m doing something right.

      I’m so curious to read about your tax-loss harvesting. I’ve considered it for BEN, but I’m still holding for now.

      Congrats on the latest purchases, saw you added HCP as well which is awesome. CL is one of those stocks that always trades at a premium and I can’t get myself to pull the trigger, it’s on my dream list though so it makes complete sense to start a small position with this latest sell off. I’m going to have to look into deeper into ACE now, can’t wait to read your posts about all of these.

      Thank you for all the support, it means the world!
      ~Ryan

       
      Reply
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  11. Vivianne

    A lot of buying opportunity nowadays. The yield is unbelievable!! My 1 year forward dividend has surpass the $4000 mark. It will be a massive 2016 due to higher yield. Buying the dogs of the DOW is probably the best bet in the bear market these days.

     
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    1. My Dividend Growth

      It’s been a wild and fun ride, right? I’m happy to load up here and am glad to see you’re doing the same. You’re killing it at 4K a month, I can’t wait to see you push it even further. Happy investing Vivianne!

       
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  12. DivHut

    Thanks for sharing your recent buys. JNJ well under $100 and BP and ETN are all trading at such great values and current yield. Not much speculation with these names. Just get paid to wait.

     
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    1. My Dividend Growth

      Hi Mar!

      Yes I absolutely analyze debt and many other parts of the businesses before I buy them. These fast graphs are just a starting point to finding attractively valued businesses, then I’ll typically dive in and read as much info as I can about them, usually starting right at the company’s investor relations pages devouring everything I can and then moving toward 3rd party publications as well. I typically research a stock for at least a few months or longer before pulling the trigger. I hope that helps!

      Best,
      Ryan

       
      Reply

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