Ahhh...you know what that sound is? It's me enjoying making a purchase for my FI portfolio after about 1.5 months. It's a shame too because there's several positions that I'd like to be adding to right now but capital is pretty light due to the pending house purchase. All will be well though once September rolls around and I can build my emergency fund to the level I feel comfortable and start investing the rest. I initiated a new position on Friday by purchasing 10 shares of International Business Machines (IBM).
I picked up the shares for $184.97 each which gives me a cost basis of $185.77 after commission. Ouch. It wasn't a steal of a price as my cost basis is around 6.5% higher than my target entry price but it was at least 7.8% lower than the average valuation price of $201.64. These shares will provide $38.00 in annual dividends based on the current annual dividend rate of $3.80 and carry a yield on cost of 2.05%. I'll typically aim for a higher current yield but I wanted to add a higher dividend growth company so I made an exception to the yield in order to buy some IBM.
My main concern about this purchase is that IBM won't be able to continue to innovate, but they've been around forever and have gone through tough times where products and revenue were flat and eventually came out ahead. With their server capabilities I think they'll do just fine as more and more data is consumed by society requiring the hardware behind the scenes. For a technology company they have a quite impressive streak of 18 years of dividend growth and I expect to see the dividend growth continue at over 10% annual increases for the next few years even if revenue continues to be flat. Over the last 5 years their FCF after paying out dividends has average over $11.9 billion, so there's clearly room to still increase the dividends without affecting the cash flow of the company.
You can check out my recent stock analysis on IBM here and the rest of the companies I've looked at here.
My forward 12-month dividends now sit at $2,889.17 which is 82.6% of the way towards my goal of $3,500 by the end of 2013. My FI Portfolio's YOC is now at 3.37%.
I've updated Portfolio page to reflect this purchase.