Friday, September 27, 2013

Recent Buys

I discussed in my post yesterday about half of the changes I made to my portfolio, namely the sells that I made.  Today I want to cover what I did with the proceeds from those sells.  I was a bit hasty in my decision to pick up shares of dividend growth stalwart, Johnson & Johnson, but took advantage of a sell off in Baxter International that saw shares close down around 6%.  When I see moves like that in what should be fairly stable companies I get intrigued and start scouring the internet to see if there is some explanation for the decline like a huge recall or some government regulation that was just enacted.  The only thing I could really find were that analysts at JP Morgan had downgraded Baxter.  For a long term investor, this is just noise and represents a buying opportunity.

With some of the proceeds of the two sells, I purchased 23 shares of Baxter International for $67.27 per share.  After commission, my per share cost basis is $67.62.  Based on the current annual dividend of $1.96 these shares have a yield on cost of 2.90% and will provide $45.08 in annual dividends before future increases or reinvestment.  Late last month I took a closer look at Baxter International and I really liked what I saw.  I determined that my target entry price for Baxter was around $63 with an average valuation price around $84.50.  My purchase price is around 6.7% above my target entry price but around 20% below my average valuation price.  I feel that after the sell off shares of Baxter represent a good value.

I also used some of the proceeds of the sells to purchase 15 shares of Johnson & Johnson for $87.53 per share.  After commission, my per share cost basis for these shares is $88.06 per and based on the current annual dividend of $2.64 per share will have a yield on cost of 3.00%.  I'll receive $39.60 in annual dividends from Johnson & Johnson before future increases or reinvestment.  I don't think that Johnson & Johnson represents nearly the value that Baxter does; however, JNJ is a much larger and stable company with a much wider moat and longer dividend history.  I'm pretty annoyed that I never picked up shares of JNJ prior to now but I'm happy to welcome JNJ into my dividend army.

The best part about these two purchases is that I get some much needed exposure to the healthcare industry.  Prior to these purchases I only had exposure through Medtronic and Walgreens and I feel that these two additions will give me some great exposure to the healthcare industry.  As I mentioned in my Baxter stock analysis, the demographics in both the United States and across most of the developed world is trending towards older populations and the shift has just started.

Unfortunately I won't be receiving any dividends from Baxter this year but I will get to pick up Johnson & Johnson's December payout.  My forward 12-month dividends are now $2,979.34 and my overall portfolio has a YOC of 3.36%.  My forward 12-month dividends are 85.12% of the way towards my goal of $3,500 by the end of 2013, so I have a lot of work to do the rest of the year. Assuming a 3.00% average yield at purchase that's over $17k that I'll need to invest by the end of the year.  A 3.50% average yield would require just under $15k.

I've updated my Portfolio page to reflect these changes.

10 comments:

  1. Great Buy!! I also brought BAX. Just wished i waited a little longer to get it below $67. good luck :)

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    1. I really like BAX and was glad to be able to pick up some shares at less than $70. The problem with waiting for an even lower price when a company's stock takes a big hit like BAX did is that you never know how long it'll stay down there. It can always come back up just as quick. I'm hoping it can get down to less than $65 but I'm very close to picking up some more shares because it's still undervalued as far as I'm concerned.

      Thanks for stopping by!

      Delete
  2. Great buy, solid company, good sector.

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    1. Anon,

      Completely agree. The demographics alone can push all of the big name healthcare companies over the next 1-2 decades. The ACA is the biggest question mark as far as I'm concerned, but I'm still holding out hope that it'll be defunded.

      Thanks for stopping by!

      Delete
  3. Great purchase, close to pulling the trigger on $BAX as well. I'm frozen between $PM and $BAX but one of them will find a home in my portfolio fairly soon...

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    1. BidAsk,

      Both PM and BAX are great companies. If tobacco didn't make up such a large portion of my portfolio I'd add to PM here, but it's not quite at the price that I'd like to add to my position and take the concentration risk. I was seriously underexposed to the healthcare sector so I liked being able to pick up JNJ and BAX. Hoping to add to both of them.

      Thanks for stopping by!

      Delete
  4. Hey PIP!

    I like your recent moves a lot. I also dumped some INTC shares earlier this month and purchased BAX a few days ago. We have a lot in common here. I'm a huge fan of JNJ, and plan to accumulate more shares of that business over time. At current prices I'm inclined to wait, but that's also because it's already a large holding for me.

    Take Care

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    1. CI,

      It felt good to be able to at least trim two of the positions that I feel less confident about and have pretty big issues. I really like BAX although they only have a 7ish year streak, but they're set up to be able to continue growing it. I'm also a huge fan of JNJ and I'm annoyed that I never picked any up. I figured a 3.00% yield is a decent enough starting point and I'm going to be looking for spots to add to that at more attractive prices.

      Thanks for stopping by!

      Delete
  5. Pursuit,

    I guess we made the same moves again:

    http://www.dividendmantra.com/2013/09/recent-buy_29.html

    Too funny. :)

    Best wishes.

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    1. DM,

      I noticed that as well. Guess we're on a bit of the same wavelength.

      Thanks for stopping by!

      Delete