Recent Stock Purchase II – July 2014

For those that have been following DivHut the past couple of months, you already know my affinity for stocks in the financial sector. Quite simply, I find the financial sector to be loaded with the greatest number of relative bargains in the high priced market of the day. Sure, there are some hidden gems in the consumer space, Kellogg Company (K) comes to mind or perhaps a well known industrial like Deere & Company (DE) but with my continual scanning of the market as a whole I seem to find the greatest number of relative bargains in the financial sector. That being said, it was no surprised that I have been adding to my AFLAC Inc. (AFL) position in May, June and July along with other financial sector purchases in The Chubb Corporation (CB), Wells Fargo & Company (WFC) and quasi-financial General Electric Company (GE).

 

Then, last week I wrote about Canadian stocks that have paid dividends for over 100 years and had my eyes opened to a whole new financial sector, the Canadian banking stocks. I found it interesting that all the “century club” dividend stocks in Canada are banks. Coincidence? Or perhaps more validation that the financial sector, through all its woes is still very robust and presents the best value overall in the market today. With a little more research I plan on adding some of those Canadian banks to my ROTH account.

 

With all this talk and praise of the financial sector my second tranche of July purchases may surprise some as I happened to add to two consumer sector stocks to my portfolio instead of stocks from the financial sector. I figured it was time to purchase some stock outside the financial space.

 

I have added 5.1538 shares at $96.25 for a total investment of $500.00 in McDonald’s Corp. (MCD). MCD, a long time holding of mine currently yields a very reasonable 3.20% with a moderate payout ratio of 56.3%. The real mojo for MCD comes with its stellar dividend history and growth. The stock has been paying rising dividends for over 37 years and has a ten year annualized dividend growth rate of 22.8%. No matter how you look at it, MCD has delivered tremendous value to long time shareholders via its dividend. The final selling point for me with MCD was its low current PE of only 17.73 which is in line with its five year history and well below its peers. The forward PE for MCD looks even better at 15.7 suggesting that this stock might be a great value in the current market. Of course, it doesn’t hurt when Morningstar rates a stock you purchase fours stars either.

 

Finally, I have added 5.7859 shares at $85.74 for a total investment of $500.00 in Philip Morris International, Inc. (PM). PM, another long time holding of mine currently yields a very generous 4.10% with a relatively high, but sustainable, payout ratio of 72.7%. A relatively recent spin off of Altria Group Inc. (MO), PM has managed a very impressive five year annualized dividend growth rate of 18.38%. Like MCD, I found PM to be selling at a reasonable price compared to the S&P with a current PE of 16.59. Forward PE looks even better at a slightly lower 15.3. To be candid, another major factor for adding to my PM position has been the current high yield offered. Again, Morningstar rates PM four stars which doesn’t hurt either.

 

What do you think about my recent stock purchases in the consumer space? I’d love to hear more insight about these stocks as well as the Canadian banking stocks I have mentioned in another post.

 

Disclosure: Long MCD, PM

49 thoughts on “Recent Stock Purchase II – July 2014

  1. DivHut,

    Those are two outstanding acquistions. MCD’s recent weakness is a good entry point in my opinion. I like the yield on both of these companies. Also don’t forget get big MO for future purchases, it has actually been outperforming PM during the past couple of years.

    MDP

    • Hi MDP,

      Thanks for stopping by and commenting. As soon as MCD went below $100 my senses perked up on it. Great yield, pretty decent PE, current and forward were the main reasons for my recent buy.

      Regarding MO, I’ve been watching it for years and never bought any. True it has an amazing yield and has done better in recent times relative to PM but I’m not a trader and don’t like jumping in and out of stocks too often.

      • DV,

        MO in my opinion is a a long term stock. It’s not one of those short sell but sit back and watch the world kind of stock. MO spun off PM which later made Kraft. I would like to own the next company MO spins off.

        Both PM and MO scares the hell out of me due to increasing cigarette regulations. E-cigs are running wild right now but sooner or later some regulation will strike it down. The first will probably be no advertisement. I just hope MO moves to the Marijuana field once we finally legally weed. i expect MO to make 1) low cost marijuana cigarettes and 2) high class/cigar style cigarettes.

        • Hi BDI,

          Thanks for stopping by and commenting. While your concern for any cigarette company in operation these days is certainly valid, I am still willing to invest in them and watch their resilience among the onslaught of legal issues and regulations that have been plaguing them for the last three or four decades. One of the reasons I chose to invest in PM over MO was the international exposure PM offered. We’ll see how the E-cig trend plays out and the potential for marijuana sales. Though, I remember reading somewhere that many of the big tobacco companies will not get into that space. We’ll see.

    • Hi DD,

      The recent drop in MCD certainly brought it to my attention as well. YUM also had a really big drop the past few days but I can’t justify adding to that position even after the recent price decline. Thanks for commenting.

    • Hi DW,

      From the recent blog comments it seems like people are staring to love MCD again after falling a bit from the sky. Glad to be a fellow shareholder with you. Appreciate your comment.

    • Hi DGJ,

      I think anything below a $100 is a good buy in the market today. Don’t beat yourself up over a dollar or two price difference. Long term it won’t matter at all. Let’s keep earning over 3% on this one and be happy with the 37+ years of dividend raises. Thanks for commenting.

    • Hello MSF,

      MCD seems to be a relative bargain in the market today and yielding over 3% doesn’t hurt either. As I mentioned in the post, I agree PM isn’t as cheap as I’d like, but the forward PE looked enticing enough and what finally sold me was that juicy yield. Thanks for stopping by.

  2. Hi DivHut,

    Those appear to be some solid dividend producing investments if you ask me. Good work building the portfolio! I did like your article on the century stocks too, but for now I am sticking with my foreign allocation in the 401(k) under a mutual fund.
    Kipp recently posted…Life Insurance – A Penalty of DebtMy Profile

    • Hi Kipp,

      Thank you for the compliment regarding my portfolio, article and recent buys. Regarding foreign stocks, I will be looking into the Canadian banking sector for my ROTH and may start new positions next month if prices go down a bit. Thanks for stopping by.

  3. DivHut,

    Very solid purchases this week. I have a close eye on MCD. While the earnings this quarter were tough and the news surrounding the company isn’t positive at the moment, I think the stock is declining to the point that it is becoming attractive to myself and other Dividend Growth investors. The company has a great dividend track record and is still one of the most well-know brands around the world. I am thinking of initiating a position soon if the stock continues to slide.

    Great investments today. Keep up the great work!

    Bert, one of the Dividend Diplomats
    Dividend Diplomats recently posted…Latest Stock Purchase 7/21/14My Profile

  4. DivHut,

    Congrats on the great buys here. Also loving the comments, clearly MCD has caught all of our eyes. It’s a company with amazing history and the dividend increases have been reliable for so long. I’m going to let it ride for a few days with the recent headlines and see if I can get in a little lower. If not I’ll probably snatch up some more AFL like you’ve been doing. Excellent work adding to your pool, keep it rising.

    Have a great rest of your week,
    Ryan

    • Hi MDG,

      Thanks for the encouraging words about my recent buys. Ever since MCD fell below $100 it has moved into the forefront of my mind. A nice yield and decent PE makes it a definite candidate for any dividend investor these days. Keep an eye out for it and if it doesn’t make your buy list you have another favorite of mine, AFL. Appreciate your comment.

    • Hi LAH,

      If you know where to look you can find a lot of relative bargains, even in this market. Yes, I know every stock is priced sky high but in the financial sector there seems to be most bargains to be found. Much more than in the consumer or industrial space for sure. Thanks for commenting.

    • Hi Kalen,

      It’s been a long time since I added to my MCD position and after buying a lot of financial stocks in May, June and July, I wanted to look elsewhere for some yield and relative value. Thanks for stopping by.

    • Kalen, same here. I am a long term GE holder. I hope they offer us shareholders a discount on their spinoff company.

  5. DivHut,

    Like the PM purchase. The yield is solid, and I expect high single digit or low double digit dividend growth for the foreseeable future. Combine that with a 4% yield and we should see solid returns from PM.

    I like MCD the stock, but I do think the business has to make some changes. They constantly rate low on almost every survey I’ve seen. The value in their food is there, but I’m not sure the quality is anymore (or perhaps it’s just the perception). I’d love to see them adopt a more friendly customer service policy like a, say, Chik-Fil-A. And perhaps change the marketing strategy to show the quality of their products.

    Best wishes!
    Dividend Mantra recently posted…Building A SnowballMy Profile

    • Hi DM,

      Glad you like my PM purchase. It’s been a while since I added to that position, and though I would like the price to be a bit lower, I felt the current value/price was justified because, as you mentioned, the dividend growth is still there and that yield at around 4% is just too juicy to pass up. Regarding MCD, I do agree that they have seemed to stumble a bit as of late and when the price dropped below $100 I became interested again. Thanks for commenting.

  6. Hey DivHut,
    I love MCD, have been holding it for a long time. Can’t beat the current price. Tobacco stocks, however, I wouldn’t touch. The recent $23.6B verdict against RJR in FL would make me very nervous. I can’t imagine that the lawsuits will decrease, but once the legal system sees blood in the water, they will send in the sharks. Sorry to rain on your parade.
    KeithX

    • Hi KeithX,

      I have been eyeing MCD for a while. Been wanting to add to my position for a long, long time but PE and price got too out of hand. Now, with recent slowing and other MCD troubles we find ourselves in a sub $100 price for the stock with reasonable PE and nice yield. Regarding PM, I’m not too worried about domestic lawsuits as growth still looks decent on the international front. Like MO, PM has been able to increase prices for its products to make up for a decline in “customers.” Thanks for commenting.

    • Hi AFFJ,

      MCD seems to be turning some heads ever since they went below $100. I know a lot of the dividend bloggers have been waiting to see where this one will head. For the short term I expect more downside for MCD which only means more purchases for us. Thanks for commenting.

    • Hi DD,

      Thanks for sharing your stock ownership of KO and your Canadian bank exposure. I am very interested in investing in some or all of the Canadian banks I mentioned in my post as they seem very strong and well regulated compared to their American counterparts. Thanks for commenting.

  7. It’s been a while since I’ve looked at MCD but that was due to the price and that I was quite overweight the position. Even without adding to the position since late 2012 it’s still over 6% of my portfolio with lots of capital being added. I would love to see MCD change their strategy although I think there’s probably too much bias built in for it to work in given their history. Still a great company with great DG going forward.

    I wish I’d have bought more PM when it dipped into the $70’s early this year. Love their long-term prospects.

    Nice buys!
    JC @ Passive-Income-Pursuit.com recently posted…2014 Goals – 1st Half UpdateMy Profile

    • Hi PIP,

      Thank you for the encouraging words regarding my recent purchases. I have not added to my MCD position in a long time but when the price started falling well below $100 a share I felt compelled to pull the trigger and add a little bit more. Granted, MCD is stumbling a bit as of late, but long term and that juicy yield was too much to pass up. Regarding PM, I still like their international growth and yield and think there’s still a future for them. Thanks for commenting.

  8. DivHut,

    Those are some nice buys. I own both PM and MCD and wouldn’t hesitate buying more at these prices. I’m probably due to add a little to MCD but I’m still happy with my overweight position in PM at the current time.

    I also really like the Canadian banks and have bought TD for my portfolio. I don’t think you can go wrong with the top 3 or 4 big Canadian banks.

    Cheers!

    • Hi AAI,

      PM and MCD have both been with me for many, many years. I just haven’t been able to add more to my positions in recent times because of the great run up both stocks had. With the recent stumbling of MCD and juicy yield of PM I just felt like I couldn’t pass up a buy.

      Regarding the Canadian banks, I can see that many of the dividend bloggers own at least a couple of them if not five of the major banks. I’m looking to initiate a position in TD and RY to start with my eyes on BMO, BNS and CM too. Thanks for stopping by.

    • Hi HHaWG,

      Happy to be a fellow shareholder of MCD with you. I think MCD has been on a lot of the dividend bloggers’ minds because of the recent troubles the company is facing.

      Thank you for the Liebster nomination. I got a nomination from Kipp and to be honest I’m not sure what I need to do about it. I’m still very new to blogging and still figuring out all the different apps, WordPress, twitter, etc. features.

      Thank you for your nomination of DivHut. I appreciate the vote of confidence.

  9. I’ve always liked MCD, but never made the move to buy into it. But I will consider adding a small position with the recent drop in share prices. Canadian banks have performed quite well over the last few years. The top five banks are Royal Bank, TD Bank, Bank of Nova Scotia, BMO and CIBC.
    PC recently posted…Buy/Sell UpdateMy Profile

    • Hi PC,

      MCD has been a very solid stock and dividend payer for several decades. Best bet is to nibble on a few shares just to start a position and build over time. If share prices continue to drop I will consider adding more to my position as well. Thanks for commenting and suggesting the Canadian banks as well. Though all are near 52 week highs they still present a decent value in the market today. Thanks for commenting.

  10. Great buys. I don’t own PM but own MCD. I think the recent weakness in MCD means a great chance to add to my MCD position. The company has been around for years and it making more and more money.

    I love Canadian banks that’s why I own 4 of the big 5 Canadian banks.
    Tawcan recently posted…Weekend ReadingMy Profile

    • Hi Tawcan,

      The recent weakness in MCD got the attention of a lot of the dividend bloggers out there. I guess we’ll wait and see if we get other better buying opportunities in the future. Out of curiosity, I wonder which major Canadian bank you do not own. Thanks for stopping by.

    • Hi Allan,

      Looks like Déjà vu. It’s always reassuring when your purchases matches others. Thanks for sharing your recent buys with us.

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