Thursday, July 26, 2012

Chevron Stock Analysis

As mentioned in my previous post, I'm going to try and have 1 stock analysis report for some popular dividend growth stocks come out prior to their latest earnings release this week. Today we'll look at Chevron Corporation (CVX). Chevron closed on Wednesday 7/25/12 at $106.06.

Company Background:

Chevron Corporation, through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and processing, transportation, storage, and marketing of natural gas, as well as holds an interest in a gas-to-liquids project. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products primarily under the Chevron, Texaco, and Caltex names; transporting crude oil and refined products by pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing commodity petrochemicals, plastics for industrial uses, and additives for fuel and lubricant additives. The company is also involved in coal and molybdenum mining operations; cash management and debt financing activities; insurance operations; real estate activities; and energy services, and alternative fuels and technology businesses, as well as manages interests in 13 power assets with a total operating capacity of approximately 3,100 megawatts.

DCF Valuation:

Analysts expect Chevron to grow earnings 1.17% per year for the next five years and I've assumed they can continue to grow at 3.50% per year thereafter. Running these numbers through a DCF analysis with a 10% discount rate yields a fair value price of $166.27. This means that at $106.06 the shares are undervalued by 36.2%.

Wednesday, July 25, 2012

ExxonMobil Stock Analysis

As mentioned in my previous post, I'm going to try and have 1 stock analysis report for some popular dividend growth stocks come out prior to their latest earnings release this week. I was originally going to post about International Paper (IP) since it isn't as well known as the likes of ExxonMobil, however after beginning to compile my data I quickly decided against it because much more research into their recent acquisition of Temple-Inland would be required before I would feel comfortable investing. Today we'll look at Exxon Mobil Corporation (XOM). Exxon closed on Monday 7/23/12 at $85.21.

Company Background:

Exxon Mobil Corporation engages in the exploration and production of crude oil and natural gas, and manufacture of petroleum products, as well as transportation and sale of crude oil, natural gas, and petroleum products. The company manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and other specialty products. It also has interests in electric power generation facilities. As of December 31, 2011, the company operated 37,692 gross and 31,683 net operated wells. Exxon Mobil Corporation has a strategic agreement with the Rosneft Oil Company for investment into oil and gas fields in the Russia Federation. The company has operations in the United States, Canada/South America, Europe, Africa, Asia, and Australia/Oceania.

DCF Valuation:

Analysts expect Exxon to grow earnings 8.95% per year for the next five years and I've assumed they can continue to grow at 3.50% per year thereafter. Running these numbers through a DCF analysis with a 10% discount rate yields a fair value price of $142.21. This means that at $85.21 the shares are undervalued by 40.1%.

Tuesday, July 24, 2012

Caterpillar Stock Analysis

As mentioned in my previous post, I'm going to try and have 1 stock analysis report for some popular dividend growth stocks come out prior to their latest earnings release this week. Today we'll look at Caterpillar Inc. (CAT). Caterpillar was trading on Monday 7/23/12 at $81.84.

Company Background:

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. It offers backhoe, skid steer, multi-terrain, track-type, and wheel loaders; track, wheel, and mini excavators; select work tools; track-type tractors; motor graders; pipelayers; and related parts for the heavy construction, general construction, mining and quarry, and aggregates markets. The company also provides electric rope and hydraulic shovels, mining trucks, wheel dozers, draglines, electric drive mining trucks, compactors, tunnel boring and underground mining equipment, drills, forestry products, highwall miners, off-highway and articulated trucks, paving products, wheel tractor scrapers, electronics and control systems, and machinery components for mine, quarry, forestry, paving, and tunneling applications. In addition, it offers reciprocating engine powered generator sets; integrated systems for the electric power generation industry; reciprocating engines and integrated systems and solutions for the marine and petroleum industries, and industrial applications; turbines and turbine-related services; and diesel-electric locomotives and components, and other rail-related products and services. Further, the company provides retail financing for its equipment, machinery, and engines, as well as for vehicles, power generation facilities, and marine vessels that incorporate its products; wholesale financing to its dealers and customers; and insurance services. Additionally, it offers component manufacturing, remanufacturing, and logistics services, as well as distributes other companies’ products. Caterpillar Inc. markets its products through its sales force, distribution centers, dealers, and distributors.

DCF Valuation:

Analysts expect Caterpillar to grow earnings 17.50% per year for the next five years and I've assumed they can continue to grow at 3.50% per year thereafter. Running these numbers through a DCF analysis with a 10% discount rate yields a fair value price of $249.63. This means that at $81.84 the shares are undervalued by 67.2%.

Monday, July 23, 2012

Recent Buy

With the early morning market selloff today, I pulled the trigger and added to my position in McDonald's. I picked up 25 more shares for $88.35. At the current dividend payout of $2.80 per share annually, my YOC for this purchase is 3.16%. This purchase will add an extra $70 of income per year before dividend increases.

My YOC on my McDonald's position was 3.02% and my cost basis was $92.83 per share. After this purchase, my YOC is 3.13% and my cost basis is down to $89.60.

I probably jumped the gun a little bit on this purchase because if the markets continue to pullback there could be better buying opportunities. But I figured for a company as well run as McDonald's it was time to at least add to my position.

Air Products & Chemicals Stock Analysis

As mentioned in my previous post, I'm going to try and have 1 stock analysis report for some popular dividend growth stocks come out prior to their latest earnings release this week. Today we'll look at Air Products & Chemicals (APD). Air Products & Chemicals closed on Friday 7/20/12 at $80.43.

Company Background:

Air Products and Chemicals, Inc. provides atmospheric gases, process and specialty gases, performance materials, equipment, and services worldwide. The company’s Merchant Gases segment sells atmospheric gases, such as oxygen, nitrogen, and argon; process gases, including hydrogen and helium; and medical and specialty gases for the metal, glass, chemical processing, food processing, healthcare, steel, general manufacturing, and petroleum and natural gas industries. Its Tonnage Gases segment provides hydrogen, carbon monoxide, nitrogen, oxygen, and synthesis to the energy production and refining, chemical, and metallurgical industries; and produces dinitrotoluene which is converted to toluene diamine. The company’s Electronics and Performance Materials segment offers nitrogen trifluoride, silane, arsine, phosphine, white ammonia, silicon tetrafluoride, carbon tetrafluoride, hexafluoromethane, critical etch gases, and tungsten hexafluoride; and tonnage gases, specialty chemicals, and services and equipment for the manufacture of silicon and compound semiconductors, thin film transistor liquid crystal displays, and photovoltaic devices. This segment also provides performance materials for a range of products, including coatings, inks, adhesives, civil engineering, personal care, institutional and industrial cleaning, mining, oil refining, and polyurethanes. Its Equipment and Energy segment designs and manufactures cryogenic equipment for air separation, hydrocarbon recovery and purification, natural gas liquefaction, and helium distribution; and offers plant design, engineering, procurement, and construction management services for the chemical and petrochemical manufacturing, oil and gas recovery and processing, and steel and primary metals processing industries.

DCF Valuation:

Analysts expect APD to grow earnings 7.13% per year for the next five years and I've assumed they can continue to grow at 3.50% per year thereafter. Running these numbers through a DCF analysis with a 10% discount rate yields a fair value price of $104.43. This means that at $80.43 the shares are undervalued by 23.0%.

Sunday, July 22, 2012

RPM International Stock Analysis

As mentioned in my previous post, I'm going to try and have 1 stock analysis report for some popular dividend growth stocks come out prior to their latest earnings release this week. Today we'll look at RPM International (RPM). RPM International closed on Friday 7/20/12 at $27.24.

Company Background:

RPM International Inc., together with its subsidiaries, manufactures, markets, and sells various specialty chemical products to industrial and consumer markets worldwide. The company’s Industrial segment offers waterproofing and institutional roofing systems used in building protection, maintenance, and weatherproofing applications; sealants, tapes, and foams; residential basement waterproofing systems; specialized roofing and building maintenance and related services; specialty industrial adhesives and sealants; and concrete and masonry additives, and related construction chemicals. It also offers polymer flooring systems, and offshore and marine structures; industrial and commercial tile systems; fiberglass reinforced plastic gratings and shapes; heavy-duty corrosion-control coatings, fireproofing products, and containment linings; specialty construction products, including bridge expansion joints, bridge deck and parking deck membranes, curb and channel drains, highway markings, protective coatings, and concrete repairs; and fluorescent colorants and pigments, waterproofing and flooring products, exterior insulating finishing systems, and shellac-based-specialty coatings for industrial and pharmaceutical uses, edible glazes, and food coatings. The company’s Consumer segment provides professional use and do-it-yourself products for a range of consumer applications, including home improvement and personal leisure activities. Its products include coating products; specialty products; deck and fence restoration products; metallic and faux finish coatings; hobby paints and cements; and caulks, sealants, adhesives, insulating foam, spackling, glazing, and other general patch and repair products. The company offers its products under the Carboline, DAP, EUCO, Fibergrate, Flecto, Flowcrete, Hummervoll, Universal Sealants, illbruck, Rust-Oleum, Stonhard, Tremco, Watco, and Zinsser brand names.

DCF Valuation:

Analysts expect RPM to grow earnings 9.20% per year for the next five years and I've assumed they can continue to grow at 3.50% per year thereafter. Running these numbers through a DCF analysis with a 10% discount rate yields a fair value price of $31.91. This means that at $27.24 the shares are undervalued by 14.64%.

Saturday, July 21, 2012

Stock Analysis Reports

I recently read this article on Seeking Alpha discussing the upcoming earnings announcements from some popular dividend growth investor stocks. I'm going to try and get out a stock analysis report on 1 stock for each day of this week.

The following are my plans for the stock analysis reports.

Sunday - RPM International (RPM)

Monday - Air Products and Chemicals (APD) or Hershey (HSY)

Tuesday - Caterpiller (CAT), Bristol-Myers (BMY) or Pepsi (PEP)

Wednesday - Exxon (XOM), International Paper (IP), Waste Management (WM)

Thursday - Chevron (CVX)

All companies will be reporting the day after my post date. If you have a preference on the days with multiple listings or any from the rest of the list post in the comments at least a day in advance and I will do my best to get one out.

Recent Transaction

Yesterday I sold another put option on Intel. I sold the $25 17 Aug 2012 put for $0.46. Less commission I received a total of $38.01 in premium for a total return of 1.52% which is annualized to 21.75%. I figured that since I want to add to my Intel position but just not quite at today's prices that this would be the best way to go about it. I get paid to wait for the stock price to come down to where I feel comfortable purchasing. Should the put option be exercised my cost basis, after subtracting out the premium received less commission, would be $24.70. With the current $0.90 annual dividend payout that's a yield of 3.64%. As you can see from my stock analysis post on Intel, that is a fair price and sits at a 18.75% discount to my calculated fair value.

Either way this option works out will be fine by me. Of course there's always the chance that the market could take a big dive from here which is honestly one reason I almost didn't sell the option. But the return if it expires and the entry if exercised was a good combination for me to go ahead and sell the put. Should the market take a big dive I just hope that it's enough of a move to get the Intel stock put to me and then low enough to go possibly add another group to my position.

Friday, July 20, 2012

Intel Put Option

With Intel currently trading at $25.60 it looks like my put option that I sold on Intel is going to expire today. It's a good and bad thing because I wouldn't have minded getting Intel at the $25 strike less the premium. But I got a pretty good return on the option. I sold the $25 July 20 2012 put for $0.53 less commission on June 11. Since it is expiring today I received a total of $45.01 in premium on the $2,500 over 39 days. That works out to a 1.80% return which when annualized is a 18.19% return. Not too bad. Even after taxes this will work out to a 1.30% return annualized to 12.82%.

As I said earlier it's a little bittersweet. I did get a good return but honestly I would have preferred that Intel be trading at $24.99 today and the option be exercised allowing me to a get a entry price of around $24.63. This would have increased my stake in Intel at a price that is at a discount to it's fair value, as a I calculated it, by about 19%.

Now I have to figure out what to do with the extra $2,500 in cash that is freed up. I might be looking at other put options to sell on Intel because I would like to add to my position but if the price isn't right then that'll be a no go.

Wednesday, July 18, 2012

Patience

In the investing world of today, waiting for the right price doesn't take too terribly long. This is something that I need to remember as I'm currently sitting on a 25% and 21% cash position in my brokerage account and my Roth IRA respectively. That's a much bigger cash position than I would normally like to be at. When I have this much powder it's very tempting to go on and make some purchases to add to my dividend growth investments but overall the positions I want to get into just aren't at the right price right now. I was thinking of adding more to my recent Emerson purchase but that's out of the question with the recent 5% increase since my purchase.

It'll pay much more in the long run for me to wait, sometimes it's just hard to sit on the sidelines, but you never know when Angela Merkel might sneeze leading to a 5+% pullback in our markets creating much better buying opportunities. As Buffett said "Price is what you pay. Value is what you get."

Monday, July 16, 2012

Recent Buy

Today I purchased 35 shares of Emerson Electric Company (EMR) at a price of $44.63 per share. According to my Stock Analysis, Emerson's fair value is around $53.28. At $44.63 I was able to get the shares for just over 16% of a discount. My YOC for the shares works out to be 3.57% based on the current dividend payout. These shares will provide another $56 per year in payouts and an extra $28 +/- this year. It feels good to finally make a purchase after a long hiatus.

Friday, July 13, 2012

Position Decision

I'm a little torn on what to do with my small position in Walmart (WMT). I originally purchased the shares back in late April after the Mexico bribery scandal became news. At the time Walmart had dropped a lot over a few short days and I was able to pick some up for a cost basis of $58.59. Since then it has gone on a remarkable run and is currently up to $73.03 which is 24.55% higher than my purchase. I figured I'd start a little pro/con list to think through whether I should sell.

Pros:
(1) Got a YOC of 2.71% which is on the high end of their typical range.
(2) Still undervalued according to my DCF, Avg High Div & Avg Low PE price calculations.
(3) Payout ratio is still a very manageable ~35%.
(4) Still on track for a 10 yr YOC > 10%. 12.60% using a weighting of the 1,3,5 & 10 year dividend growth rates.

Cons:
(1) Didn't love the entry price more than for a quick turn-around in price. Made 24.55% in ~ 2.5 months, good for a 181.33% CAGR.
(2) Entry yield is below what I would like to maintain my portfolio at.
(3) Overvalued by about 16% versus the average of all my valuations ($62.98)
(4) Walmart historically has a ~25% trading range in a given year between low and high points.
(5) Position is very small, consisting of 9.054 shares.

I think for now I'm going to hold off on selling but if it reaches the $76 mark it might just be time to sell and take the gains.

Picking entry points is easy enough but picking your exit point is much harder and more difficult to follow through on.

Phillips 66 (PSX) Dividend Announced

Phillips 66 (PSX), the spinoff from ConocoPhillips, announced it would be paying it's first ever dividend on September 4 to shareholders of record on July 23. The quarterly dividend will be $0.20 per share which is right where they had said it would be during talks of the spinoff. The dividend yield is 2.3% after the early runup and was 2.4% prior to the announcement. The yield is a little low for where I would like to get in but the company has announced a targeted 5% annual increase in it's dividend. I have a 2.68% YOC for my shares received during the spinoff. It's good to finally get confirmation on the dividend.

Portfolio Update - July 2012

Today I've updated my portfolio for everyone to see the changes.

Check out My Portfolio here.

Thursday, July 12, 2012

2012 Goals - 2nd Quarter Update

The first half of the year has seen great strides in some areas and left plenty to be desired in others. That's the reason I've started to keep track of my annual goals and am providing updates, it forces me to be accountable and stay on target. Hopefully I can just stay a little more focused on the areas that are lacking.




























2012 Budeting Goals - 2nd Quarter Results
Goal Actual through 2nd Quarter Status
70% take-home pay savings rate 74.71% average savings (Jan 74.51%, Feb 73.09%, Mar 75.10%, Apr 71.42%, May 66.93%, Jun 87.23%) Exceeded Goal
Less than $1,600 required expenses $1,551.82 average (Jan $1,694.02, Feb $1,682.70, Mar $1,590.72, Apr $1,541.32, May $1,549.48, Jun $1,252.68) Exceeded Goal
Reduce Misc. Expenses by 20% (Exp. < $131.62 per mo) $125.94 Exceeded Goal
Reduce Restaurant Expenses by 20% (Exp. < $128.12 per mo) $153.96 Needs Improvement
Reduce Grocery Spending by 10% (Exp. < $214.07 per mo) $190.88 Exceeded Goal

Saturday, July 7, 2012

Net Worth Update - June 2012

June was a surprisingly good month for my net worth. After the big expenses of paying for the wedding and my trip to Vegas and the honeymoon I was still able to increase my net worth. A lot of that is because the markets ended up cooperating for me by the end of the month and the fact that I didn't get to spend money that wasn't saved up for almost half the month. Overall we came in under budget on our wedding so that was good. It wasn't by much but every little bit helps. For the month I contributed around $2,300 to my 401k including the company match and another $1,200 to my ESPP. The biggest help in turning June to a positive net worth changed was the fact that my income was way up and my expenses were down. From my take home pay I saved just over $8,400. Overall my net worth was up $5,500 for June.

Friday, July 6, 2012

Financial Independence Milestone

After getting back home and getting to run through my expense numbers from June 18th through the end of the month, I'm pleased to announce that my net worth has crossed into the $100k territory. Barring any major market setbacks it should stay above the $100k mark.

If you stay focused you can make great strides toward anything you want to accomplish.

Thursday, July 5, 2012

Income Update - June 2012

June was a good month for my spending. My income was way up and due to being on vacation for 2 weeks using savings earmarked for it my expenses were down as well. My minimum expenses for the month totaled only $1,252.68 and my total expenses were only $1,329.99. I know these will rebound in July to be closer to my averages for each but as long as I can get them in the same ballpark and possibly still falling that will be great. My potential retirement income for the month totaled $92.87 and my financial independence number is up to $118.07. These covered 7.41% and 9.43% of my minimum expenses in June. The expense coverage amounts have slowly been increasing which is good news.


Wednesday, July 4, 2012

Dividend Update - June 2012

Now that I'm back in the states it's time for some updates and a Happy 4th of July to everyone.

June was a great month for dividends and hopefully every month from now on will just get better and better now that I have capital ready to start investing. Now if the market can just get a little scared again to give me some better entry points. Two weeks off from checking things out has got me a little out of sorts and now I need to get back in the routine. I had 8 stocks pay out across taxable accounts and 2 stocks in my Roth IRA.

Tuesday, July 3, 2012

Blog Milestone

Well one of my scheduled posts during my honeymoon put me over the 100 post mark. At times it's been hard to set time to write out posts but it's getting easier and easier for now. Thanks for everyone that's followed along and you can expect to see more regular updates now that I'm back.

Vegas was great with my boys for the bachelor party and the wedding and honeymoon were fantastic.