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. On Wednesday of last week I initiated a new position in Deere & Company (DE) (Full Analysis Here as of 12/2013).
I purchased 18 shares of Deere for $91.46 per share which gives me a per share cost basis of $91.90 after commission. Based on the current annual dividend of $2.40 these shares will provide $43.20 in annual dividends and carry a YOC of 2.61%.
I've been looking at Deere & Company for a while now and I'm glad to welcome the shares to my portfolio. I was very close to buying earlier, and for much better prices, but then management came out and said there would not be a dividend increase. Not even a token one. I should have taken another look at Deere because this has happened before with Deere where they kept the dividend the same for 6 quarters before increasing it 3 times in less than 2 years. It would have been a bit of a riskier move to purchase more with a frozen dividend; however, I really liked the openness of management. Too often you won't hear management talk about the issues really facing the company and rarely are they straightforward in their reasoning if there's bad news to report. Well in late May Deere raised the dividend after just one payment at the frozen level. And what a raise it was. The latest increase was from $0.51 quarterly to $0.60 or 17.6%. This gave me the confidence to go on and purchase some shares.
As usual, shares of Deere have sold off a bit since I made the purchase but that's fine because it's not up to a full position size yet so I'll be looking for a chance to average down my cost basis. Just some quick stats based on Friday's closing price from Yahoo!Finance.
TTM P/E 9.89
Foward P/E 11.76
PEG (5 years) 1.33
Cash per share $9.05
TTM ROE 36.61%
Dividend Yield 2.70%
The first thing you'll notice is the forward P/E ratio being higher than the TTM P/E. Analysts are expecting a decline in earnings per share due to headwinds in the industry agriculture industry. Like most businesses tied to commodities this is something shareholders have to deal with as commodity prices tend to be more volatile and in the case of agriculture is very dependent on issues out of their control. The good news is that the new increased dividend only represents a 31% payout ratio based off the consensus analyst estimate of $7.69 EPS for FY 2015. Analysts are still calling for 5 year compounded growth of earnings of 8.00% per year. If DE continues to repurchase 2-3% of their outstanding shares that would allow for 10% dividend increases and keeping a constant payout ratio. That's fine by me.
I couldn't tell you if a Deere tractor runs better than any other tractor you can buy, but I can tell you that everyone knows a Deere when they see it. Even the "city" folk. The name John Deere has become ubiquitous with farming equipment and everyone wants one. If you ever drive through the country and past farms you'll see plenty of John Deere tractors which bodes well for the future of Deere and its' shareholders.
My FI Portfolio's forward 12-month dividends are now at $4,417.20 which is 88.34% of the way towards my goal of reaching $5,000 by the end of the year.
I've updated my Portfolio page to reflect this addition.
Have you been making any purchases in this rather heated market?