Monday, April 14, 2014

Recent Buy

Whenever I buy or sell a position in my portfolio I try to get a post up shortly thereafter discussing the reasons for the purchase and all of the juicy details.  I'll usually tweet about the purchase within an hour of the purchase but I'm not always free to get a post written.  If you want to find out about my purchases as quick as possible, make sure to follow me on Twitter @JC_PIP.

I'm in a great place right now as I routinely get to save a large portion of my income each and every month.  The negative to that is that after the huge increase in share prices through 2013 a lot of the value has been sucked out of the market.  It's a delicate balance between building up cash for better valuations in the hopes they come relatively soon and investing my savings to try and reach financial independence as quickly as possible.  The solution I've settled on is to do a little of both by building my cash and simultaneously investing in some of the highest quality companies at reasonable valuations.  The solution is largely predicated upon my high income/savings rate and a problem I'm glad to have to deal with.  If I had less capital to invest on a regular basis I'd lean more towards building cash right now and doing as much research as possible on the best companies I can find.  This past Thursday I went ahead and put some capital to work by adding to my position in Johnson & Johnson (JNJ).

I purchased 17 shares of Johnson & Johnson for $97.71 per share.  Of course if I knew that later in the trading day the shares could have been bought for $1.00 less per share I'd have gladly waited until the afternoon.  My per share cost basis for this lot of shares came to $98.18 after commission.  Based on the current quarterly dividend of $0.66 per share these shares will provide $44.88 in annual dividends and carry a YOC of 2.69%.  However, based Johnson & Johnson's history I find it highly likely they'll be announcing another dividend increase later this month to mark their 52nd consecutive year of increasing the dividend payout.  Most likely to between $0.70 and $0.73 per share per quarter.  This would increase the YOC to between 2.85% and 2.97% and increase my expected dividends to between $47.60 and $49.64.

This was the second purchase of Johnson & Johnson that I have made, the first coming towards the end of September 2013.  I normally look to average down my cost basis but that just wasn't an option here unless I wanted to continue to wait and not increase my position in such a great company.  My cost basis increased by 6% to $93.43 and subsequently lowered my YOC for the position down to 2.83%.

I mentioned above how my focus right now, in what I feel is a frothy market, is on some of the highest quality companies available and purchasing as reasonable valuations.  The quality of Johnson & Johnson isn't in question but rather the reasonable valuation.  Johnson & Johnson is trading at a decent 20.14 TTM P/E ratio but a solid 15.43 Forward P/E ratio.  The current yield isn't great at around 2.70% but given the increase that will be coming later this month I decided to front-run the announcement a bit.  Analysts expect revenue growth of 4.10% during FY 2014 and 4.60% during FY 2015 which will continue to provide the fuel for higher earnings and most importantly continued dividend growth.

Thanks to some dividend reinvestment and dividend increase announcements my forward 12-month dividends are now at $4,146.83.  This puts my forward dividends 82.94% of the way towards my goal of $5,000 by the end of 2014.

I've updated my Portfolio page to reflect this purchase.

If you'd like to receive posts via email you can sign up to be part of my mailing list. I'm also working on putting together a monthly newsletter as well with the first installment coming out later this month. As a post/newsletter subscriber, you'll be the first to know about ideas that I have for the blog that are running around in my head.

Are you trying to build up cash in hopes of better prices?  Or still investing like clockwork?  What companies are you interested in?


18 comments:

  1. Thanks for your post JC. I am building up cash, looking for better options. Emerging market stocks are the only ones I've bought in the last few months, and that was on their sell off a couple months back. History suggests we'll get a shot at better prices and valuations in the near future. I hope the current sell off persists for a while.
    -Bryan

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    1. Bryan,

      There's two reasons why I keep trying to make reasonable buys each month. One, thanks to my high income/savings rate cash would build up way too quickly. I don't want to be sitting on $40-50k in a savings account. Two, almost everyone was calling for a pullback all throughout 2013, myself included, that would give us better prices/valuations. Except for a minor ~5% retreat I think in May you missed out by not investing. I have no idea if the markets will actually pull back or not, although I think they are at least due for some more volatility with earnings season kicking off again.

      If we get a good correction I have access to between $25-30k between my savings accounts and what cash is in my brokerage account. Plus the $4-6k each month from savings. So I can do a lot of damage if we get some really good opportunities. I'm at the point where I don't see value in building up a huge cash position because my cash levels are already much higher than normal. Of course everyone's situation is different. If I had smaller amounts to invest from savings then I'd be looking to build a bit more cash and hope to get some downside movement.

      Thanks for stopping by!

      Delete
  2. Solid forward dividend income JC, that is great. I agree that it is tough to build new positions right now but I'm sure you won't regret this purchase of JNJ in 10 years.

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    1. Zach,

      I'm not looking to at any new positions just yet, well actually there's 2-3 companies I'd really like to add if their price continues to decline. I'm mainly focused on adding to existing positions but even with a lot of them I'm not excited about doing so. Like I mentioned above I don't want to build up a huge cash position, as it's already larger than I normally like, so I figured it's best to focus on the really high quality companies and look to buy at reasonable valuations. 20 TTM P/E for JNJ seems to fit that mold.

      Thanks for stopping by1

      Delete
  3. I want to buy more JNJ but hoping a broader market selloff will give me a better entry point to add to my position in JNJ.

    best wishes

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    1. Roadmap,

      I'd also like a broad market selloff of another 5-10% and if that comes I'll be looking to add to my JNJ position. I've got a few companies on my watchlist that are companies I really want to initiate positions in but JNJ is one of those high quality companies that I definitely want to add to my current position.

      Thanks for stopping by!

      Delete
  4. Your blog has just been added to my my RSS feed list and to let you know that I like your output.

    The markets are toppy I think, so I have decided to take some lolly off the table towards paying off some of my mortgage. I would feel a bit of a plum if markets collapsed, whilst holding to much debt.

    I have an eye on 3M which you have recently reviewed.

    Regards

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    Replies
    1. Louis,

      Thanks so much for adding me to your feed. I'm glad you like what I'm putting out there and if there's anything you'd like me to focus more on or a company you'd like me to analyze feel free to ask.

      I also feel the markets are a bit toppy but I felt that way through most of 2013 and we all know how that ended up. I have no clue what's to come so I feel fine investing in a high quality company like JNJ at a reasonable valuation.

      I can't blame you for wanting to take a bit off the table to try and reduce your debt load. The main thing to remember is that it doesn't matter what everyone else is doing. You need to do whatever is comfortable for you and your finances because you're the one that has to live with your decisions.

      Thanks for stopping by!

      Delete
  5. Good purchase JC. Maybe not as close to the price you wanted, but under the current circumstances I think this is a good choice. I myself am having a hard time deploying capital and want to make another purchase by the end of April.

    Great progress towards 5k! I share that goal with you! I am a little further behind, but feel like I will make it!

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    1. ILG,

      Not the best price but it's a really high quality company trading at a decent valuation in a fairly heated market. It seemed like a good enough time to add to my position. I'm still kicking myself for not buying some a few years back because I wanted to wait for another $0.50-$1 off per share, well that was $30 per share ago.

      Best of luck in getting to $5k. I'm hoping to come in over that but we'll see what happens. There's still a lot of year left.

      Thanks for stopping by!

      Delete
  6. I've been making some buys when the market drops for a few days straight. Visa is a stock I love & dropped uner $200 last week so I used that as an opportunity to add a few more shares to my portfolio.

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    1. First Million,

      I wouldn't mind adding to my V position if it gets to somewhere between $190-195. I really like their prospects moving forward as the swap to more credit/debit cards is coming on a global scale. There's a huge tailwind and a long runway so V should be great over the long haul.

      Thanks for stopping by!

      Delete
  7. Good analysis, as always. Is there a specific YOC at which you hold back, and wait for future purchases?

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    1. Done by Forty,

      It's all on a company by company basis. I'm not as worried about yield if the valuation is strong and the growth potential is there over the long run. Kind of like Visa in my response to First Million's comment above. I don't have a hard and fast rule because there's a few companies that I like that I want to own even though the initial yield isn't anything great, V for one. Although typically a 2.5% starting yield is about as low as I like to be unless I can safely and realistically expect a higher DG over the intermediate term.

      Thanks for stopping by!

      Delete
  8. PIP,
    JNJ is another must own dividend growth stock (that I don't own). I was a little tempted on Friday last week, but bought some ABBV when things were looking bad. I'm now considering JNJ for my Roth, but its hard to buy at a deep discount. Good timing with the increase coming up.
    -RBD

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    Replies
    1. RBD,

      I'm still annoyed with myself for not buying a few years ago with all the recall issues. I knew it was a great company but let the short-term issues blind me a bit. Oh well lesson learned. I think JNJ is a great fit for just about everyone's portfolio. And the double beat on earnings this morning was nice. Now it's time to wait for that dividend increase and hopefully add a few more shares if the price dips some more.

      Thanks for stopping by!

      Delete
  9. Pursuit,

    Great buy here. Hard to find a company that exudes as much quality as JNJ does. It's my biggest position, and for good reason.

    I don't anticipate buying more anytime soon because I have to catch some other investments up, but it's just a fantastic company.

    Best wishes!

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    1. DM,

      JNJ should be one of my largest holdings but a few years back I kept thinking "oh, it'll come back down another $1 per share and then I'll buy". Obviously that never happened. It's one of those situation where I out-thought myself.

      Absolutely wonderful company and I hope to add some more in the near future. I'm looking forward to the first of many dividend increases from this great company.

      Thanks for stopping by!

      Delete