Thursday, October 2, 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.
What can I say, I've been a bit enamored with the industrial sector lately with my last three purchases being 3M (MMM), Deere & Company (DE) and Emerson Electric (EMR). Yesterday I initiated a new position, this time in United Technologies (UTX) by purchasing 14 shares at $104.63. After commission my per share cost basis came to $105.20. Based on the current quarterly dividend of $0.59, these shares will carry a YOC of 2.24% and provide $33.04 in annual dividends.

United Technologies provides products and services to two main industries, building systems and aerospace. They design, manufacture and install elevators, escalators, and moving walkways as well as provide maintenance and repair services. While you're in the building you can thank UTX for the comfortable temperature since they provide solutions for heating, air conditioning, ventilation as well as keeping you safe with a wide array of security products and services. United Technologies also designs engines for commercial, military and private planes as well as the all important maintenance of those services. UTX also provides systems that cover everything from power generation, to flight control, landing, and even fire detection systems for the aerospace industry. United Technology is a bit more focused than Emerson Electric in the segments they provide services to but it's two segments that should continue to grow.

Shares of UTX are trading at a rather cheap valuation compared to a lot of companies in the broader stock market.  The TTM P/E ratio for UTX is 16.45 while the forward P/E ratio is 13.90.  The 5 year PEG ratio is quite appealing too at just 1.34.  Analysts expect solid sales growth of 4.00% in FY 2015 with 11.34% estimated EPS growth over the next 5 years.  The EPS payout ratio has plenty of coverage for possible earnings drops due to a faltering economy.  The payout ratio has averaged 36.6% over the last two years and is at 36.7% over the TTM.  The FCF payout ratio has been slightly higher at 44.5% for the last two years and but is at just 38.9% over the TTM.

Morningstar's fair value estimate is $115.00, Yahoo!Finance's 1 year target estimate is $126.35 and S&P Capital IQ has a fair value price of $118.60. I have no idea where UTX's share price will be a year from now but according to the these three sources it should be significantly higher giving the added bonus of capital gains to go with dividends and dividend growth.

United Technologies is a dividend contender with 20 consecutive years of dividend increases.  They tend to pay the same dividend for 5 quarters rather than the typical 4 before an increase.  But as long as that increase steadily comes that's just fine by me.  The 5 year dividend growth rate is 8.91% with a 12.92% 10 year growth rate.

My forward 12-month dividends are now at $5,175.95 which is 94.1% of the way towards my revised goal of $5,500 by the end of the year.

Make sure you follow me on Twitter@JC_PIP to get quick updates about purchases that I'm making.

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

What companies are on you looking to buy as volatility increases in the stock market?  

22 comments:

  1. A great company and complemetns the other conglomerate well (GE). I am considering adding it to my portfolio as well...will have to swing back and revisit the valuation. Good buy and a great play for the long term.

    Best wishes
    R2R

    ReplyDelete
    Replies
    1. R2R,

      Given the continued weakness in the markets I could have bought it for much cheaper but I'm still happy with the purchase. Not only does it give further diversification in my portfolio but it also gives a good diversification as far as products/industries served from some of the other industrial names that I hold. I wouldn't says it's cheap on a historical measure but it's rather inexpensive compared to the rest of the market.

      Thanks for stopping by!

      Delete
  2. Pretty awesome buy here, and one that is on my watchlist as well. I wouldn't be surprised if I join you sometime this month!

    Thanks for sharing your recent buy.

    ReplyDelete
    Replies
    1. w2r,

      Hope to have you join me soon. You can already get shares for 2% cheaper than I bought at.

      Thanks for stopping by!

      Delete
  3. Nice. Owned it before, a while ago, and sold for reasons I don't recall. It was a slow and steady performer, a definite SWAN stock. Definitely the kind of company you want in your portfolio.

    ReplyDelete
    Replies
    1. DividendDeveloper,

      That's one thing that I really like about keeping up with the blog. I have a record of why I purchased and why I sold if that ends up being the case. I don't expect stellar growth but if the forecast EPS growth is fairly accurate then 10%+ increases could be in the works.

      Thanks for stopping by!

      Delete
  4. Great buy, UTX looks pretty good I've been looking at UTX for a while now. Good company.

    ReplyDelete
    Replies
    1. Tawcan,

      It was a company that always seemed to slip under my radar but finally I got an ownership stake there.

      Thanks for stopping by!

      Delete
  5. UTX has had a rather compelling dip here recently. I've looked at the stock twice now and like what I see compared to other industrials. I really like the diversified industrial space. Nice pickup.
    -RBD

    ReplyDelete
    Replies
    1. RBD,

      There's been a pretty big dip in a lot of the industrials as well as the oils. I know the big drop in oil prices is the cause for the E&P companies' decline but I can't really figure out the industrials unless people are expecting the economy to slow down. Even if it does these companies know how to weather an economic downturn so I'm happy to hold on.

      Thanks for stopping by!

      Delete
  6. Not a bad grab for a stock at year lows. Will be watchin

    ReplyDelete
    Replies
    1. A-G,

      20 year DG streak, near 52 week lows. Relatively low P/E ratios. Lots to like here.

      Thanks for stopping by!

      Delete
  7. UTX is a great long term industrial play. Fair dividend and a pretty decent valuation in recent weeks too. If I wasn't as heavy in the industrial sector with my portfolio I'd definitely be adding UTX. I still have it on my watch list though. You never know how Mr. Market will provide you with an entry point too good to pass up. Thanks for sharing.

    ReplyDelete
    Replies
    1. DivHut,

      Obviously I wish the yield was higher but don't we all? I think UTX is a great name n the industrial space. My industrials are starting to make up a bit more of my portfolio than I'd like but we have to go where the value is. Like you I don't rule out any company due to weighting because Mr. Market is a fickle beast and can give great buying opportunities.

      Thanks for stopping by!

      Delete
  8. Good buy here! UTX has room to grow for sure, as the dividend yield should keep rising with the relatively low payout at the moment. Excellent addition to your portfolio.

    ReplyDelete
    Replies
    1. SAG,

      I think UTX is a great company that should continue to grow their dividend for a couple more decades. The payout is conservative based on both EPS and FCF which will come in handy if the economy falters a bit. Plus I like that they are more about systems for airplanes rather than the planes themselves.

      Thanks for stopping by!

      Delete
  9. JC,

    I took a look at UTX not too long ago. Really liked what I saw. They've operated at a high level for a long time now. I hope to add it to the portfolio at some point. They've got some great brands there, including Carrier.

    Keep up the great work!

    Best wishes.

    ReplyDelete
    Replies
    1. DM,

      Lots of things to like about UTX. I just wish I had started following them a bit earlier. Once I took an in depth look there I realized their a lot different than what I thought.

      Thanks for stopping by!

      Delete
  10. Great minds think alike -- I increased my position in UTX yesterday (15 shares at $103.03, for a total of 40 shares).

    ReplyDelete
  11. DGM,

    Wish I'd have had the patience to pick it up even cheaper but at least I have a starter stake in this company.

    Thanks for stopping by!

    ReplyDelete
  12. That's a nice buy, there! I'll have to take a look at UTX since I need one more holding in Industrials...

    ReplyDelete
  13. JC,

    Great move! You got in at a nice price very close to the 52-week low, no complaints there. I'm hoping it stays near there and I might add more to my position already. Retire Before Dad also got me seriously thinking about PH, I really like companies like this. I'm wondering if i'll ever get around to starting a position in GE :)

    Keep at it!
    ~Ryan

    ReplyDelete