Monday, October 6, 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.
Last Wednesday I initiated a position in United Technologies (UTX) and one more limit order that I had set went through as well.  I purchased 22 shares of YUM Brands (YUM) for $71.37 per share.  After commission my per share cost basis came to $71.73.  Based on the current quarterly dividend of $0.41, these shares will provide $36.08 in annual dividends and carry a YOC of 2.29%.  These shares were purchased for a 5.05% discount to my first lot that I purchased back in May of this year and lowered my cost basis per share 2.64% to $73.56.  I now own a total of 42.099 shares, I had the automatic reinvestment on when I initiated the position, that make up 1.84% of my portfolio.

While the name YUM Brands might not ring a bell as far as what kind of restaurants they run, I'm pretty sure you've heard of them.  Taco Bell, KFC, Pizza Hut.  Three huge brands in the fast food space.  YUM Brands is focused on international growth, namely China and India.  Earlier this year there was a second food quality issue that effected both McDonald's and KFC restaurants in China which led to a sharp decline in share price for YUM.  I should have bought shares then when they dipped below $69 but I just couldn't pull the trigger for some reason.  However, I expect YUM Brands to get back to their high growth ways the further away from this latest issue that we get.  One really positive sign is that management at YUM felt comfortable increasing the dividend by 10.8% last month just a few months removed from the food quality problem.

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 YUM is 27.16 while the forward P/E ratio is 18.09.  The 5 year PEG ratio is a bit expensive at 2.49.  Analysts expect solid sales growth of 10.40% in FY 2015 with 14.86% estimated EPS growth over the next 5 years.  The payout ratio has averaged 46.7% over the last two years and is at 54.8% over the TTM.  The FCF payout ratio has been slightly higher at 52.8% for the last two years and but is at just 43.9% over the TTM.  YUM Brands is a dividend contender with 10 consecutive years of dividend increases.  The 5 year dividend growth rate is 15.1%.

Morningstar's fair value estimate is $80.00, Yahoo!Finance's 1 year target estimate is $79.58 and S&P Capital IQ has a fair value price of $81.00.  My own fair value calculation for YUM Brands is at $77.08.  I have no idea where YUM'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.

My forward 12-month dividends are now at $5,215.51 which is 94.83% 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?  


  1. JC,
    Nice buy you got there, I am slowly accumulating my position to YUM but on a much smaller scale than yours through my loyal3 account. Also I need to learn how to do puts, I didnt know you can get much discount on them, Ill research some more. Thanks for sharing!

  2. F2FF,

    I wouldn't mind slowly building the position but it felt like the time was right to add some more shares. Either way that you go about adding shares I think will be good because there's a long growth trajectory for YUM.

    I wrote a post discussing put options back in August. I also have some calculators available through Google Spreadsheets.

    If that's not enough then you can check out the posts with the option strategy tag.
    Hope those help out.

    Thanks for stopping by!

  3. I still like the buy of UTX, as I only see the price moving up over the long term. YUM is another great pick, and one I've eyed for a potential position. I went with MCD first to slowly build up, but will explore YUM when I get a decent stake in MCD.

  4. Very timely pick up as you know about my pizza article I just wrote. Good pick up for both UTX and YUM. YUM has been with me a long time and despite its high PE it is a great long term investment. The high PE is totally justified as the company is experiencing amazing growth in Asia. Thanks for sharing this purchase with us.

  5. JC,

    I've looked at YUM a few times, and just haven't come around to it. The more I look at fast food purveyors (MCD included) the more questions I have. The growth has been pretty lackluster for many of them over the last few years, as mediocre/unhealthy food at a cheap price doesn't seem to sell as well as it used to. I'm holding MCD, but I'm not sure where they're all going here. How I WISH MCD would have held on to Chipotle.

    That being said, YUM has some diversification there with three brands. So I think that offers some insulation. Furthermore, their international store count growth remains strong, last I looked. And it's not like fast food is dying anytime soon. People still gotta eat, and the convenience/value proposition remains strong. Plus, there remains ample opportunity to change and adapt (like Taco Bell's breakfast entry).

    However, I do wonder what this industry looks like 10 years from now?

    Best wishes!

  6. JC,
    YUM! is one of my current Loyal3 stocks. I'm adding $50 per month and plan to continue that for a while. I've been tempted recently to buy more in another account, but that money is being invested elsewhere. Funny how that China tainted chicken story came and went quickly. That dip into the 60's was short lived. I think now is a good time to buy for the long-term.

  7. JC, I'm accumulating YUM also. Like RBD, its $50/mth in Yum for me also. I'm long term bullish in Yum and what it can achieve in China.

  8. JC,
    I initiated a position in UTX on Friday. I like the fact that it is fairly valued in an overvalued (still) market, plus the long term prospects are good. Add in the dividend and it appears to be a great pick.
    Good luck,