Tuesday, May 27, 2014

Recent Buy

Whenever I make a new purchase for my portfolio I feel it's only fair to get a post written giving all of the juicy details.  I want to be as transparent as possible with my journey to reach financial independence through dividend growth investing.  Being open about the moves I make allows for better discussion with all of you and helps spread ideas around as well as letting me create my own "investing journal" to chronicle why I purchased a company in the first place and that way I can revisit if something changes and make the decision on whether to continue owning the company or not.  I normally try and get these posts up within a day or two of the purchase but like I mentioned in my option transaction post my grandfather was in the hospital and so I needed to be there.  Things are looking much better and he's supposed to get moved to a rehab/PT center today if things still go as planned.

On May 15th I initiated a new position in YUM! Brands, Inc. (YUM).  I really like the company's growth prospects mainly in the emerging/developing markets and they even have a few new store concepts that they're testing out here in the United States.  China and India offer huge potential for companies that can develop a foothold with the consumers in these two massive markets.  YUM Brands' store count is around 60 per million people in the United States and at the end of 2013 sat at 4.  I don't expect to see the ratio get up to 60 but if it even approaches half the domestic number then we're looking at huge growth potential.  I'm very excited to own a piece of YUM! Brands because I think they have a long runway for growth of the company and most importantly of their dividend payment to me.  You can read my full analysis on YUM! Brands, Inc. here.

I purchased 20 shares for $75.16 which gives me a per share cost basis of $75.56 per share after commission.  Based on the current annual dividend of $1.48 these shares will provide $29.60 in annual dividends and carry a 1.96% YOC.  I feel that YUM! isn't exactly a steal at these prices but it was under my fair value calculation by about 2% and it's a company I'd really like to own more of.  If we ever get that pullback that we've all been waiting for I'll gladly pick up a few more shares in order to average down my cost basis.

After some dividend increases throughout the month and with the new purchase my forward 12-month dividends for my FI Portfolio are now at $4,332.52.  That's 86.65% of the way towards my goal of reaching $5,000 by the end of the year so I've still got a lot of work to do.

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

Have you been making any purchases despite the markets' reluctance to provide solid value?  Or are you just building cash and your watchlist?  What companies are you looking to purchase on a pullback?

14 comments:

  1. I'm glad to see you're most of the way toward your goal JC. I recently purchased American State Water (AWR), and thanks for your supportive comments. My wife and I had to put some capital to work. Generally, I'm still building cash and waiting for a correction.....but at $28 AWR looked like a reasonable buy. Everything is so expensive that it's really tough to find anything that interests me. Maybe I'm too picky, but I think we'll get a correction.
    -Bryan

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    1. Bryan,

      I still need to invest ~$20k at a 3.25% average yield so there's still a lot of work to do to reach the $5k mark by the end of the year. This market is definitely frustrating for those looking to acquire assets but like you there comes a point in time where you need to put some capital to work. Sitting on cash is too difficult for me and when I get huge stockpiles I end up making some not quite as ideal purchases, although they're still at values that I like.

      Thanks for stopping by!

      Delete
  2. Dear Passive Income Pursuit

    I bought a huge wedge of Yum brands last July, its moved up about 6%. My reason for buying is because I think it is worth well over $100 at some point. I do study things carefully and never take risks or at least try to.

    In a few years time you will be patting yourself on the back and laughing all the way to the bank. Good article.

    Regards

    Louis Gunn

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    1. Louis,

      I missed the boat on the dip in late Jan/early Feb of this year on the EM scare. YUM wasn't really on my radar so I completely missed the drop into the mid-$60's. I'm hoping to get a chance to add some more in the low $70's soon to build my position up some more.

      Thanks for stopping by!

      Delete
  3. Pursuit,

    Nice buy here. I understand they're doing very well in China, which is obviously a huge area of growth for them. The valuation/yield hasn't offered me the entry point I've been looking for, as MCD always offered a better value/yield mix...but YUM may end up outperforming MCD in terms of dividend growth for the foreseeable future if their success abroad continues.

    Enjoy those YUMmy dividends. :)

    Best regards.

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    1. DM,

      YUM doesn't exactly have the best yield or valuation but the growth potential is there and I expect a long run of dividend increases out of them. MCD starting yield is a lot better but I'm glad to get YUM in my portfolio too. YUM isn't focused on just one brand so there's a bit of diversification within their operations. Like a lot of industries I'll take the two big dogs over trying to select the best one. KO or PEP? I'll take both. XOM or CVX? Both look great.

      Thanks for stopping by!

      Delete
  4. good buy. Growth of yum brands in Asia is on fire and they are crushing MacDonalds on growth out there. Good 10 year dividend growth and good stock growth. You might have convinced me it is worth my dollar !

    Good day and Grind on!

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    1. A-G,

      I missed the boat on this one but I'm fine with paying up a bit for Yum's growth. The China/India markets are huge and I expect to see YUM continue leading the way and growing their brand as well as their dividend. I should have bought some back in late Jan/early Feb with the emerging market scare dropping the price to the mid-$60's but YUM wasn't really on my radar at the time. Ooops. I'll be ready for the next one though.

      Thanks for stopping by!

      Delete
  5. PE over 30 for a fast food stock. Too pricey for me.

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    1. Yet it has a forward p/e of 18. Either YUM is set to grow at the speed of light, or non-recurring items are mucking up trailing earnings making it look worse than it is. Bodes well either way, but I don't follow the company.

      PIP: To answer your question: yes I've been making regular purchases despite the heated market. The reason I even bother investing is to build a passive income stream in order to replace employment income, and that can be achieved in a hot market. Lower prices/corrections would speed up the process, but I can't make stocks go down :(

      Delete
  6. Nice pickup! I have looked into YUM in the past, but I always seemed to catch it when some sort of bad news popped out of it. They all seemed to be relatively short term concerns, but when that happens with a company I am not familiar with it makes me pause. Then my ADD kicks in and I get distracted by something else =)

    Take care!

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  7. YUM is a great choice and has been a long term holding of mine for over 7 years now. As you know their China expansion has been tremendous and while it's only speculation I do foresee a YUM China/Asia stock spin off sometime in the future. At a certain point the China/Asia stores will be so much larger than the parent company they will have to make it into it's own venture. Thanks for sharing!

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  8. "That's 86.65% of the way towards my goal of reaching $5,000 by the end of the year so I've still got a lot of work to do."

    You're doing very well, keep at it!

    Mark

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  9. YUM has been one stock that has been on my radar for a long time... so long that it even slipped my mind then and there. I wanted to get YUM mainly as a growth stock rather than a dividend stock because of their growth prospects in emerging markets and also lower yields and higher P/E compared to MCD.
    I am still looking to enter YUM and MCD in the near future.

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