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.
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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?