Sunday, December 8, 2013

Recent Buys: Part 2

I mentioned in my weekly roundup yesterday that I had 2 more purchases during the week.  I've been really busy with work and getting other things done with the blog so I wasn't able to get this post up earlier; however, I do try and tweet about my purchases once they happen so if you're not already doing so follow me on Twitter @JC_PIP or you can click the button up in the top right.  This was a much busier week than I had expected as I had already purchased 20 shares of Pepsi on Monday.

On Wednesday, December 4th I initiated a position in The Bank of Nova Scotia (BNS).  I've been looking to add to my financials and international exposure and BNS knocks both out of the park.  Bank of Nova Scotia and it's subsidiaries operate in 4 segment: international banking, Canadian banking, global wealth management, and global banking and markets.  They provide banking services to pretty much every sector of the economy.  The big Canadian banks held up much better through the "Great Recession" as Canada wasn't hit nearly as bad as the rest of the world.  Given their international exposure and wide range of services, they should be able to weather most downturns effectively.  They did freeze dividends in 2007 in light of the financial collapse but started raising them again in 2011.  They've increased their dividends in 42 of the last 45 years, so the dividend culture is in place with management.

I purchased 20 shares of BNS for $59.68 each giving me a per share cost basis of $60.08 after commissions.  BNS currently pays an annual dividend of $2.48 CAD per share; however, there is a 15% withholding tax unless the shares are held in a qualified retirement account.  Even though my portfolio is actually for retirement, early retirement even, it unfortunately doesn't count.  Currently the exchange rate between CAD and USD is 0.94 CAD to 1 USD.  After accounting for the withholding tax and the current exchange rate, I can expect to receive approximately $1.98 per share in dividends.  This gives a YOC of 3.30% and I can expect to receive around $39.61 in annual dividends before reinvestment or future increases.

The third purchase of the week went towards more shares of Kinder Morgan, Inc. (KMI).  Shares took a big hit this week once management announced their projections of growth for 2014.  They expect in the area of 8% dividend growth in 2014 for KMI which apparently severely disappointed some investors.  A lot of the drag on the growth is due to flat revenue and distributions out of EPB for the year.  I'm not worried about this at all, especially given the amount of capital projects that are in the works across the partner companies.  Shares of KMI sold off enough to give over a 5.00% yield for portions during the week.

I purchased 40 more shares of KMI for $32.97 each giving a $33.17 cost basis after commission.  Based on the current annual dividend of $1.64 this lot of shares carries a YOC of 4.94% and will provide $65.60 in annual dividends prior to reinvestment or future increases.  An almost 5% yield that is growing at 8% per year is still a solid investment in my book and you'll be hard pressed to find too many opportunities like that.  Since I previously owned a little over 131 shares, this lot helped to lower my cost basis from $34.67 to $34.32 or -1.02%.  It also increased my YOC for the position from 4.73% to 4.78%.  Using the Gordon Growth Model with a 5.0% growth rate and 10% discount rate gives a fair value of $32.80.  Given that management expects around 8% for 2014 alone, I think shares represent a really good value here.  I would have loved to add even more shares but capital is a bit tight right now as I have 2 open put positions that will most likely get executed in another 2 weeks.

My forward 12-month dividends now sit at $3,490.13 which is 99.72% of the way towards my goal of $3,500 by the end of 2013.  I'm excited to be that close to hitting my goal and for all intents and purposes it's effectively met.  Given that I still have enough capital to make one more smaller purchase and the two put options that will add over $286 to my forward dividends I'll be passing the goal with a good margin by the end of the year.

I've updated my Portfolio page to show these two purchases.

Did you buy anything on weakness in the markets earlier this week or still sitting on the sidelines and building cash?

6 comments:

  1. Good week meeting your dividend goal PIP. I need to do a better job writing down definitive goals for myself. Keep up the good work.
    -Bryan

    ReplyDelete
    Replies
    1. Bryan,

      I think setting tangible goals that you can see is the best way to go. If you just set a goal of "I'm going to save more this year" or "I'm going to lose weight", it's probably not going to happen. But if you have a measurable goal you have a better chance of making the right decisions to push you towards that goal.

      Thanks for stopping by!

      Delete
  2. I noticed the downturn on KMI and will likely add to my position in 1-2 weeks when funds are available.

    ReplyDelete
    Replies
    1. WE,

      I really like KMI for the long term, especially with the push towards energy independence. I'd have liked to add more.

      Thanks for stopping by!

      Delete
  3. Nice purchases! We're in agreement on all of these. I own PEP, KMI and BNS. I would really like to increase my BNS position - it's pretty small comparative to the rest of my portfolio.

    ReplyDelete
    Replies
    1. Dividend Warrior,

      I wouldn't mind adding to my BNS position but I'll hold off for a bit right now to see where prices go from here. KMI should be great long term and I'm not worried at all about the "low growth" of 8%. That'll do just fine by me. I should have picked up PEP a long time ago. Glad to be a fellow shareholder with you. They should all treat us very well over the next 10-20 years.

      Thanks for stopping by!

      Delete