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.
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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?