In the past week, share prices started going down for the first time in a few months. As a buyer of quality businesses, this is always something that I look for with excitement. This is because when prices for good businesses decrease, this means that I am able to purchase them at lower valuations and I am also able to get more dividend income for every dollar I put to work.
I screened my list of dividend ideas, and came up with the following group of companies that I purchased. I am mostly looking for value these days, and cheap dividend growth at a low price multiple. I was lucky that last week prices of many companies started falling. If I am more lucky, prices will finally start a correction, and I will be able to put my future contributions to work at lower prices. I was able to allocate the funds for the next 2 months, which is why I won’t be able to make another purchase until sometime in September.
The companies I purchased include:
Aflac Incorporated (AFL), through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products in Japan and in the United States of America. I really like this insurer, particularly given the low valuation and dedication to dividend growth. Unfortunately, this is one of my top ten positions, which is why further additions are less likely. The company is a dividend champion, which has been able to increase dividends for 31 years in a row. Over the past decade, the company has been able to boost dividends by 16.80%/year. The stock is selling for 9.50 times forward earnings and yields 2.30%. Check my analysis of Aflac.
Baxter International Inc. (BAX) develops, manufactures, and markets products for people with hemophilia, immune disorders, infectious diseases, kidney diseases, trauma, and other chronic and acute medical conditions. The company has been able to increase dividends for 8 years in a row. Over the past decade, the company has been able to boost dividends by 12.40%/year. The stock is selling for 14.60 times forward earnings and yields 2.80%. I like the low valuation on Baxter, and the opportunities for further growth in earnings and distributions. The company was a dividend champion until a spin-off 1998, but then froze it for 8 years. Currently, it is in the process of splitting in two parts some time in 2015, which could unlock some value for shareholders. Check my analysis of Baxter.
The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. The company is a dividend champion, which has been able to increase dividends for 32 years in a row. Over the past decade, the company has been able to boost dividends by 9.20%/year. The stock is selling for 12.30 times forward earnings and yields 2.10%. I like the valuation for Chubb, and I believe that management is of great quality and integrity. Therefore, I believe they have the discipline to keep earning more over time and allocate company resources intelligently. Company’s management has been on a mission to repurchase a large amount of shares each year since 2006. My position is small, but I would welcome even lower prices in order to build it higher, and provide me more exposure to financials with dividend growth streaks. Check my analysis of Chubb.
Deere & Company (DE), together with its subsidiaries, manufactures and distributes agriculture and turf, and construction and forestry equipment worldwide. The company is a dividend achiever, which has been able to increase dividends for 11 years in a row. Over the past decade, the company has been able to boost dividends by 16.30%/year. The stock is selling for 10.10 times forward earnings and yields 2.60%. As I discussed in my analysis of Deere, the company is cyclical which means that earnings rise and fall with the economic cycle. However, I believe that in the future there will be a higher need for equipment that Deere sells, due to increased world population and demand for food, and the rise of disposable incomes for that population.
Diageo plc (DEO) produces, distills, brews, bottles, packages, and distributes spirits, beer, wine, and ready to drink beverages. The company is a dividend achiever, which has been able to increase dividends for 15 years in a row. Over the past decade, the company has been able to boost dividends by 5.80%/year. The stock is selling for 18.10 times forward earnings and yields 2.60%. In fact, Diageo is the cheapest spirits maker that pays dividends out there. My position there is small, which is why I would welcome further declines in order to build my exposure further. Check my analysis of Diageo.
General Electric Company (GE) operates as an infrastructure and financial services company worldwide. The company has been able to increase dividends for five years in a row. The stock is selling for 15.10 times forward earnings and yields 3.30%. This is the first purchase of General Electric I have made since 2008. I am starting out slow, and plan to ultimately build this position into a sizeable one. I also sold a few puts, and actually used the premiums to purchase that first initiation position in GE. Check my analysis of GE.
General Mills, Inc. (GIS) manufactures and markets branded consumer foods in the United States and internationally. The company is a dividend achiever, which has been able to increase dividends for 11 years in a row. Over the past decade, the company has been able to boost dividends by 9.90%/year. The stock is selling for 16.90 times forward earnings and yields 3%. I want to build my position in this quality company, which is why I keep nibbling here and there. This is another opportunity where I sold puts, and then used the premium to purchase shares in the underlying company. Check my analysis of General Mills.
International Business Machines Corporation (IBM) provides information technology products and services worldwide. The company is a dividend achiever, which has been able to increase dividends for 19 years in a row. Over the past decade, the company has been able to boost dividends by 19.40%/year. The stock is selling for 10.60 times forward earnings and yields 2.40%. I am slowly building my exposure to IBM, where I like the consistency of share repurchases and dividend increases. When you consistently repurchase 4%-5% of outstanding shares at low prices and you pay an almost 2.50% annual dividend yield, you can generate total returns even without growing revenues by much. Any gain in organic earnings per share will further turbocharge investor returns. Check my analysis of IBM.
McDonald’s Corporation (MCD) franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. The company is a dividend champion, which has been able to increase dividends for 38 years in a row. Over the past 5 years, the company has been able to boost dividends by 13.90%/year. The stock is selling for 16.70 times forward earnings and yields 3.20%. As I build out my portfolio, and don’t add to my legacy positions for a while, their relative weight tends to shrink. I have a good exposure to the Golden Arches, but need to add more to my allocation there. Check my analysis of McDonald’s.
United Technologies Corporation (UTX) provides technology products and services to the building systems and aerospace industries worldwide. The company is a dividend achiever, which has been able to increase dividends for 20 years in a row. Over the past decade, the company has been able to boost dividends by 14.50%/year. The stock is selling for 15.30 times forward earnings and yields 2%. I like the company, and believe that it offers a compelling value for the growth potential here, plus it also provides exposure to industrials for my dividend portfolio. Check my analysis of United Technologies.
Wells Fargo & Company (WFC) provides retail, commercial, and corporate banking services to individuals, businesses, and institutions. The company has been able to increase dividends for 4 years in a row. The stock is selling for 12.20 times forward earnings and yields 2.60%. I initiated a small position in 2013, and now I am adding to it. Wells Fargo is one of the best run banks in the US, which also has pretty good returns on capital, sells at an attractive price to book and has managed to grow book value pretty consistently in the past. Check my analysis of Wells Fargo.
Wal-Mart Stores Inc. (WMT) operates retail stores in various formats worldwide. The company is a dividend champion, which has been able to increase dividends for 42 years in a row. Over the past decade, the company has been able to boost dividends by 18%/year. The stock is selling for 14.20 times forward earnings and yields 2.50%. While sales and dividend growth appear to be slowing down, and size is a drag on future growth, I like the scale and moat for this retailer. While everyone claims that Amazon will disrupt retail sales, I believe Wal-Mart to be one of the few retailers who can and will compete successfully on the web. Check my analysis of Wal-Mart.
McCormick & Company (MKC) manufactures, markets, and distributes spices, seasoning mixes, condiments, and other flavorful products to retail outlets, food manufacturers, and foodservice businesses. The company is a dividend champion, which has been able to increase dividends for 28 years in a row. Over the past decade, the company has been able to boost dividends by 11.40%/year. The stock is not cheap as it is selling for 20 times forward earnings and yields 2%. Check my analysis of McCormick.
Eaton Corporation plc (ETN) operates as a power management company worldwide The company has been able to increase dividends for five years in a row. Over the past decade, the company has been able to boost dividends by 13.80%/year. The stock is selling for 14.60 times forward earnings and yields 2.50%. I have been monitoring Eaton for several months now, and finally initiated a decent size position in the company last week. While the company froze dividends during the financial crisis, and it doesn’t raise them every year, it has not cut them ever, and it tends to grow earnings and dividends over time. This is good enough for me. I am also increasing my exposure outside consumer staples with this investment, and am also buying future dividend growth at a compelling valuation. I will do a more detailed analysis of Eaton shortly.
I am hopeful that stock prices decrease further from here, and that that 20% correction everyone has been waiting for over the past two years actually does finally materialize. I am hopeful for a further correction, because I was only able to allocate two months or so worth of investment savings at those prices. The problem is that I am planning on saving and investing for several years. Therefore, I need lower prices, in order to get more stock for my buck and further speed up my goals.
Another thing that is helping me is the fact that my investment costs are now about $1/trade, thanks to my switch to Interactive Brokers early last month. This means that if I put $1000 in a dividend paying stock, I will end up paying 0.10% in a one-time commission. If I hold this stock for more than one year, the investment costs will be cheaper than even the cheapest mutual fund out there. Over time, investment savings add up, and could result in more capital working for me.
This list is not a recommendation to buy or sell any stocks. Just because I managed to buy so many companies, doesn’t mean that you should do that too. I am able to monitor a lot of companies pretty regularly, which is probably not the case for the majority of investors out there. Many of those purchases were bolt-on additions to existing positions, with only a few being newly initiated positions for me.
Full Disclosure: Long all stocks mentioned above
Relevant Articles:
- Why do I use a P/E below 20 for valuation purposes?
- Dividend Investors Should Focus on Valuation, not Just Dividend Yield
- The importance of pricing and valuation in dividend investing
- Price is what you pay, value is what you get
- Dividend Investing Over the Past Seven Years Was Never Easy