Recent Stock Purchase – June 2014

Being a dividend growth investor I try to always focus on stocks that have a history of rising dividends and make my stock purchases accordingly while at the same time make consistent investments on a monthly basis. Of course, this is easier said than done in today’s market environment where PE’s and other traditional metrics used to value stocks are at or near all time highs. Sometimes, a month or two may pass without any new investments. Over time, this may limit your yearly dividend income as you forfeit compounding time that would naturally raise your dividend income on an annual basis. That being said let’s review my recent trades made in my taxable brokerage account. As you can see I have added to my positions in my account and have focused on the financial sector for the month of June. Of the five purchases made only one was in the consumer staple space, KRFT. I consider GE a quasi-financial stock because of its large financial division which will spin off later this year as Synchrony Financial (SYF).

 

The reason for my focus on the financial sector for the month of June was twofold. First, I found relative value in the names I have purchased as PE’s in many stocks of the financial sector remain well below the S&P and low relative to historical PE pricing. The second reason for investing in the financial space was simply to increase my exposure to the sector. As it stands now my investment in the financial sector stands at 8.90% which is way below my two largest sector holdings consumer staples at 20.28% and industrial at 18.44%.

 

DateActionSymbolQuantityPriceAmount
06/24/2014BUYAFL8.6778$62.93-$550.00
06/24/2014BUYCB1.0693$93.52-$100.00
06/24/2014BUYGE23.158$26.82-$625.00
06/24/2014BUYKRFT5.4453$59.69-$325.00
06/24/2014BUYWFC7.4804$52.95-$400.00

 

First up is a stock I also purchased in May, AFLAC Inc. (AFL). AFL currently yields a decent 2.30% with a low payout ratio of only 23.7%. AFL has a long history of raising dividends going back 31 years and has a ten year annualized dividend growth rate of 19.97%. AFL also sports a low current PE relative to the S&P at only 9.67 which is also less than its five year average PE of 11.0. I think AFL is a great buy in this sky high expensive market.

 

Continuing in the insurance sector I added to my position of The Chubb Corporation (CB). CB currently yields 2.10% with a low payout ratio of 27.3% making its dividend very safe. Like AFL, CB has a very long history of raising dividends going back 48 years! Another impressive stat for CB is its ten year annualized dividend growth which is very respectable at 9.35%. Another factor that drew me to CB was its low PE relative to the S&P at only 11.1 which is a little higher than its five year PE average but still below industry peers. CB is another good value in the market today.

 

Next, I invested in General Electric Company (GE). I guess you could say the central reason for investing in GE was its current juicy yield of 3.30%. GE has a moderate payout ratio of 52.4% which means there is more than enough cash to cover this current yield. In terms of dividend history, GE has been paying shareholders for decades and only recently had to cut its dividend payment as a result of the financial crisis in 2009. The resulting cut in dividends gives GE a ten year annualized dividend growth rate of only 0.26%. Nevertheless, GE has been raising dividends aggressively for the last four years and I’m sure will continue for many more years to come. In terms of valuation GE is the highest among my new purchases at 21.86 but its forward valuation is only 14.6 finally convincing me to pull the trigger.

 

Finally, in the financial space I have added to my position of Wells Fargo & Company (WFC). WFC currently yields 2.60% with a relatively low payout ratio of 33.9%. Like GE, WFC had to cut its dividend to save cash during the financial crisis but has since been raising its payout for the last two years. This decrease in dividend has resulted in a low ten year annualized dividend growth rate of only 4.37%. With its current dividend policy in place I would look for the dividend growth rate to continue to climb going forward. On a valuation basis WFC has a low PE of 13.06 which is well below the S&P and industry peers and is in line with its own five year PE average.

 

Stepping away from the financial sector I added some Kraft Foods Group, Inc. (KRFT) to my holdings. Like GE, the juicy 3.50% yield of KRFT drew me in. KRFT currently sports a moderate payout ratio of 65.6% which is sufficient to cover its current dividend. I realize that KRFT is not a high growth stock nor offer a high growth dividend but does have enough cash and stability to maintain its current relative high yield which is something every dividend investor seeks. Because of the low growth prospects for KRFT you can imagine it having a low valuation as well. KRFT currently has a PE of 12.96 putting it well below its peers making it a relative bargain compared to others in the space giving me reason to buy some more in June.

 

As you can see from my June purchases there is a lot of relative value still to be found in the market today. AFL, CB, WFC and KRFT all sport low PE’s relative to the S&P and are in line or below historical PE’s as well. GE has the highest current PE of the stocks purchased, however the current yield, future dividend increases, forward PE of only 14.6 and stock spin off of Synchrony Financial (SYF) later this year piqued my interest.

 

What do you think about me recent purchases for the month? Let me know below.

 

Disclosure: Long AFL, CB, GE, WFC, KRFT

31 thoughts on “Recent Stock Purchase – June 2014

  1. Interesting buys. I’m looking at making some purchases this week too even though it’s all relative values not overall values. But that’s what we just have to deal with at times. WFC is a great company and I could probably go for a bit more exposure there. What broker do you use because those seem like some small lot sizes?
    JC @ Passive-Income-Pursuit.com recently posted…Short Term Price Movements Are Not Indicative of ValueMy Profile

    • Hi PIP,

      As you said it’s all about relative values these days and the market is really giving us few opportunities to add fresh capital. But, I try to invest every single month because I feel that not adding any money for a long period of time also dilutes what we are trying to achieve with increasing annual dividends. Time is a commodity that we are all losing and I don’t want to lose time for compounding my dividends. Regarding the fees I use Sharebuilder. I’ll copy my reply I wrote to Living At Home.

      “My shares are purchased via Sharebuilder automatic investments which is $4 a trade. I like to keep my commissions at 1% or less which means I need to put $400 as a minimum into each company. This month I had 3 free trades courtesy of Sharebuilder which means I only paid $8 total to buy $2000 worth of stock making my commission for these trades only 0.4%. When I won’t have the luxury of free trades you will see my dollar amounts increase per stock purchase.”

  2. Hey DivHut,

    Found your site and am adding it to my reading list. Most of the buy opportunities I see from my screen also are in the Financial sector. I wonder if I follow that guidance if I will be putting to much into that area. There is not much else of value in other areas. My number of companies is low right now so my weight would be way off. All good buys though oh your part!

    DFG

    • Hi DFG,

      I appreciate you adding DivHut to your reading list. Thank you. I don’t like having a month go by without making a purchase so I really try to find where the relative values are hiding. Like you, the financial sector really showed its head this month and I decided to pull the trigger on mostly the financial stocks. I wouldn’t worry too much about your portfolio not having so many companies. Dividend investing is a marathon and over time you will find other values and add positions to your portfolio. I started my dividend investing back in 2007 and have built up my current portfolio over the years. Don’t be too tempted to buy stocks just for the sake of buying to balance your weight. These days, with so few good buying opportunities, our patience is definitely being tested.

    • Hi LAH,

      Good question. The short answer is your are correct but this month was an exception. My shares are purchased via Sharebuilder automatic investments which is $4 a trade. I like to keep my commissions at 1% or less which means I need to put $400 as a minimum into each company. This month I had 3 free trades courtesy of Sharebuilder which means I only paid $8 total to buy $2000 worth of stock making my commission for these trades only 0.4%. When I won’t have the luxury of free trades you will see my dollar amounts increase per stock purchase. Thanks for question.

  3. DivHut,

    All good buys imo. AFL is actually high on my watchlist. My target buy price is at 59 $ so I’m hoping for s light decrease in price before I add to my position 🙂 Yesterday I ended up selling INTC and bought more IBM. Have you thought of adding IBM to your portfolio?

    Best of luck!
    Leveraged DGI recently posted…Recent sell and buyMy Profile

    • Hi LDGI,

      There is no doubt that AFL below $60 is a preferred entry point but it has been many, many months since AFL was down there and, as you know, trying to find bargains these days is tough. So even at a point or two above $60 I’m still OK picking some shares up and increasing my annual dividend income. Regarding IBM, I never really thought of adding any tech to my portfolio. I know IBM is a big exception since it has such a long dividend history and has become more of a services company rather than hardware, but I still feel it is a stock that requires more watching as the tech space changes very rapidly and products or services a tech company delivers can quickly become obsolete. I don’t see that dynamic with say a PEP, KO, CAT, KMB, MMM, etc. Thanks for your comment.

    • Hi DD,

      Glad you liked the recent buy list. I like KRFT for the relative high yield and stability it brings. I don’t expect as much growth as my other holdings and almost see KRFT as a “utility” stock.

  4. Hi Divhut,

    I was wondering if you would buy stocks this month… I got my answer! 😉

    On my side I bought 18 shares of Wal Mart yesterday.

    I’m still hoping for a pull-back pretty soon!
    Allan recently posted…Stuff to read!My Profile

    • Hi Allan,

      As long as I’m able, I plan to buy something every month. I don’t like missing months of adding new capital to my dividend portfolio. I feel it’s time lost for dividend compounding to occur.

      Thinking a little outside the box with WMT? It seems that June was all about TGT as almost every dividend blog I read added TGT shares this month. I’m still not sold on either retailer these days. Thanks for sharing your recent purchase.

      • Hi Divhut,

        Good question.

        Yep… I’m fully aware of that. Everybodies talking about TGT… But I just don’t like TGT. It is important to me to like the business. WMT’s parking lots are always full… TGT’s, at least in Canada… Are empty… I think that this business is in more problems than it seems… At least here in Canada. But hey… Who knows?!

        We already had a discussion recently on that subject. I simply believe that Wal Mart is a stronger business and has more potential than TGT to win the brick and mortar retailer’s battle against internet giants like Amazon and to face disintermediation. WMT also has a plan to fight against dollar stores and get more market shares there, they also have a plan to fight against Amazon to preserve ans increase internet business market’s share… A lot of battles are coming and WMT might suffer a little in the coming years… But I think they will win the battle. I think that many retailers will diseappear in coming years… I don’t think Wal Mart will. People will always need proximity stores. Internet is not the solution to everything… Wal Mart has positioned itself as THE general store for the wide public.

        Also, Wal Mart’s margin are higher than those of TGT, their price are usually better for consummers… I don’t see how TGT differentiate from Wal Mart except by selling the same thing at more expensive prices…

        Wal Mart’s share weren’t on sale… Especially compared to TGT. But I think they were fairly valued and given the circumstances and my investing horizon (forever) I decided to jump in for 1500$.

        I’m still at the beginning phase of constructing my portfolio and I clearly want to buy mostly wide moat stocks or Aristocrats for now. I want to jump in with JNJ, PG, CLX and classic stocks like these… They are seldom on sale unfortunately and like you said… If I wait until they are, I lose dividend compounding.

        Also… And I think it’s Jason from dividend mantra who mentionned it in a recent post… 20 years from now, I won’t care if I paid 69$ or 76$ bucks for my shares…

        WMT’s current yield is at 2,5% and its 5 years average is at 2,3% based on Morningstar’s data. Morningstar also rates it 4 stars with a fair value of 80$. Its dividend growth record is pretty incredible. Payout ratio reasonnable. Margins high…

        I think it’s a good addition to my portfolio.

        Thanks
        Allan recently posted…Stuff to read!My Profile

        • Hi Allan,

          Well said regarding WMT. I agree with many of points you mention comparing WMT to TGT. True the TGT roll out in Canada can be described as less than desirable and that they essentially sell the same WMT items at slightly higher prices. I guess I never was fond of retailers in general even when I started my dividend investing back in 2007. The only retailer I own, if you want to call it a retailer, is GWW. While the herd mentality definitely went to TGT in June, I hope the longer term headwinds don’t come back to bite people who have bought in, even at these depressed prices.

          I fully agree with you and Mantra as well about share price. Too often it seems that we focus on waiting for that dollar decrease in stock price and never pull the trigger on any stocks. It is 100% true that in 10, 20 or 30 years it will not matter whether you bought a stock at $78.78 or $81.82. I know many of the aristocrats you mention are expensive these days and I might suggest you simply nibble on some instead of going all in. This way you can always average down on some good high quality stocks should the price drop from your starting point.

          • I totally agree. That’s why I only bought 18 shares of WMT. I still kept several thousands dollars aside to seize opportunities…

            I’d like to buy less shares at a time sometimes but my brokerage fees were at 30$ per transaction until recently. Fortunately enough, my broker dropped its fees to 10$ per transaction which is still too high to buy only for 500$ worth of stock at the time…

            I also recently discovered several aspects of fiscality that I didn’t know before… Since I’m Canadian IRS is withholding 30% of my dividend income (not refundable) if I hold my stocks in a Tax Free Saving Account so I have to hold them in another account type. I lost some of my dividend income due to that…

            Also, I recently realized that my broker was automatically transfering my US dividend payments in canadian money, charging me fees in the rate at which they transfer it. And then, I have to pay again the transfer rate and fees to buy other stocks with my dividend income… I called them to ask them to open an RRSP account in US money only to realize that they don’t offer that service…

            I guess I’m gonna have to shop around to find more flexibility. It should help me in cost-averaging my purchases. Sharebuilder seems interesting. I wonder if there is something alike in Canada?

            Thanks

            I guess I’ll have to shop around to find better
            Allan recently posted…Stuff to read!My Profile

  5. DivHut,

    Like the buys. Tough to find anything real cheap out there, but the insurers appear pretty solid here. I also like TRV and HCC in this space.

    I’m not sold on KRFT, though. I like companies with international exposure when I can find it. I believe KRFT is targeting 5% dividend growth, which when combined with the 3.5% yield means you’re looking at 8.5% total returns, assuming a static valuation. Not bad, but I wonder if there aren’t companies with better prospects in this space. Of course, I do like many of their brands. They lost some of them in the MDLZ spin-off, but the stable is still pretty full.

    Best wishes!
    Dividend Mantra recently posted…Two Stocks On My Watch List For A July PurchaseMy Profile

    • Hi DM,

      Thanks for stopping by. The insurance sector is one that definitely has some value in this high priced market. I never looked at HCC but have looked into ORI as a new insurer possibility. Regarding KRFT, I know it has the classic question everyone asks post spin off… do I want high growth, international (MDLZ), or do I want stable low growth, higher yielding, grocery business (KRFT)? For this month I chose the latter as the dividend yield just influenced my recent purchase. Thanks for your input.

  6. Hi dude!

    Nice that someone has money to buy something.
    I’m drowning in bills here. Everything has to come same month, insurance, car, rent, phone, internet and so on.
    Well maybe next month got some cash to go shopping.
    Btw how can you buy that kind of quantities like 8.6778 sounds fishy, something to do with the 401k or ?
    have no idea.
    Enlighten me!

    cheers!
    Investingidiot recently posted…Recent Buy & China Ming Yang ResultsMy Profile

    • Hi II,

      Sorry to hear you are drowning in bills recently. Believe me I know the feeling when car registration, rent, refill contact lens prescription, oil change, passport renewal (of all things), etc. etc. all seem to come at the same month. One thing I would suggest is to take your dividends as cash and accumulate over time this way you’ll always have some money to invest in any stock you choose rather than simply automatically reinvest dividends.

      For my stock purchases I use an account I have with Sharebuilder. They allow you to buy fractional shares so you can invest very small dollar amounts and they will buy the appropriate numbers of shares even if it is not a whole share.

    • Hi AG,

      Thanks for the comment. I agree that the financial sector (banks, insurance, etc.) still have room to grow and offer some of the best values in today’s record setting market environment. I look forward to see how the GE spin off will affect the remaining industrial GE and how its financial division will fair as well.

  7. Hi DivHut, a nice selection there! I like CB and AFL too.

    I hadn’t thought much about Kraft until earlier this week when I came across an article talking about the value of their brands – so that’s something to watch out for. I don’t know much about GE but it’ll be interesting how their acquisition of Alstrom works out.

    I think I’ll be looking at stocks in the Basic Materials sector for my purchase next week although that sector seems pretty highly priced from my first check yesterday so we’ll see.

    Keep compounding! 🙂
    Dividend Life recently posted…Financial dividend stocks – my next purchase in JuneMy Profile

    • Hi DL,

      The financial sector in general seems to offer the best relative values these days with few exceptions. KRFT is a solid relative high yielding stock with low to moderate growth. I like it for its stability and have MDLZ for growth. regarding GE I am looking forward to the spin off later this year and see what kind of value can be unlocked with the two new companies. In the materials space my main holding is APD. A great long term stock of mine but I do agree that the valuations are pretty high for that sector. Thanks for stopping by.

    • Hi IRF,

      WFC has been one of my longtime holdings and I intend to keep it for many, many more years. Another banking stock I like but never bought was USB, another solid banking play. It seems the financial sector has lots of undervalued plays from banking to insurance. Thanks for the comment!

  8. I like the buys DivHut. My favorites of the group are AFL and GE. In fact, our family recently purchased AFL just weeks ago and am highly considered initiating positions in GE. We feel both are stable dividend paying stocks with still some room to grow, especially AFL at their current dividend ratio. Anyhow, thanks for sharing your buys.

    Wishing you continued success in your journey! AFFJ
    A Frugal Family’s Journey recently posted…2-YEAR Collection of Stock Analyses!My Profile

    • Hi AFFJ,

      Thank you for your recent comment. AFL and GE are both good picks in the current market. I know everyone is waiting for some pullback to pick up shares at better valuations but sometimes you just have to go with the best of what the market is currently offering you. For me, I found it in the financial sector for the month of June. Look forward to your updates as well.

    • Hi DGJ,

      All three stocks you mention have been with me for many years and I plan to keep them very long term as well. i think adding some financial sector exposure is good measure, especially these days when so few stocks are offering attractive buying opportunities. Thanks for stopping by.

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