Wednesday, April 30, 2014

Does The Procter & Gamble Company Belong In Your Portfolio?

It's time to update my valuations on some of the dividend growth favorite consumer staples companies.  Consumer staples companies are great for dividend growth investors because people need to wash their clothes and clean their house whether the economy is booming or busting, which provides for more stable operations.  Today I'm going to look at the consumer staple giant Procter & Gamble (PG).  Shares of Procter & Gamble closed trading on Friday, April 25th at $81.41, giving a current yield of 3.16%.

Discounted Earnings:

Analysts followed by Yahoo!Finance expect Procter & Gamble to grow earnings 8.38% per year over the next five years, and I've assumed they can grow at 5.59% (2/3 of 8.38%) for the next three years and 3.50% in perpetuity.  Running these numbers through a discounted earnings analysis with a 9% discount rate and summing over 30 years yields a fair value price of $82.80.  This means the shares are trading at a 1.68% discount to the discounted earnings analysis.

Click here to read the rest of the analysis on Seeking Alpha.

I've updated my Stock Analysis page to include this update.

If you'd like to receive posts via email you can do so here or on the Subscribe page at the top of this blog.  As a post subscriber you'll be the first to know about ideas that are running around in my head for the blog.  Also make sure to follow me on Twitter to get real time updates of purchases that I make.

Monday, April 28, 2014

Did I Really Buy a Company For 470 Times Earnings?

This morning I initiated a new position in Starbucks (SBUX) by purchasing 28 shares for $70.51 each.  Based on the TTM earnings per share of $0.15, that's a whopping 470 P/E ratio.  While I think Starbucks still has a lot of room left to grow, I don't think a 470 P/E ratio is all that cheap.  Of course if you go back to their quarter ending September 2013 you'll notice a loss of $1.64 per share that was related to an arbitration between Starbucks and Kraft Foods.  Backing out that one time charge due to the arbitration closing and earnings per share for FY 2013 change from $0.01 to $2.26.  Starbucks announced Q2 results last week and the growth continued to come with a Q2 record $0.56 per share in earnings, which was a 17% improvement from Q2 2013.  Global comp store revenue growth of 6% helped lead to record Q2 revenue of $3.9B.

Sunday, April 27, 2014

Weekly Roundup - April 26, 2014

Spring is in full swing here and the weather has been absolutely great.  I went home Easter morning and got to spend the day seeing family, which was great because I hadn't seen some of them in a very long time.  After a very long and exhausting day on Sunday, I went and crashed that night.  But Monday brought a new day and it was quite a busy day.  I cleaned out a bed in our backyard and got about 8 tomato plants planted.  And then on Tuesday I got 6 bell pepper plants and 2 squash plants in.  We'll see how things go with them because the tomato and bell peppers need tons of sun but I didn't get things sorted out with planting location early enough so I had to make do with what was available.  There's a tree blocking some of the sun light so some of the branches might be getting cut back or off completely.  I'm excited to get a few things planted and hopefully in about two months I'll be showing all of you some pictures of our small harvest.  The next time I'm home I'm going to see what I can do about getting a small herb garden in as well but I'll have to prepare a lot more for next year and hopefully be able to expand our garden a bit more as well.

Tuesday, April 22, 2014

2014 Goals - 1st Quarter Update

Time keeps on slippin', slippin', slippin' into the future.  The first quarter of the year is already in the books and the second quarter is now well under way.  I think it's important to set specific, measurable goals at the beginning of each year to keep you focused and motivated towards hitting your goals.  It's important for them to be measurable so you can see exactly how you're progressing.  Back in January I set several goals covering budgeting, savings, investing, blogging, and personal goals, so it's high time I take a look and see how I'm doing.

2014 Budgeting Goals - 1st Quarter Results
Goal 2014 Amounts Status
Grocery spending < $200 per month $228.78 Needs Improvement
Restaurant spending < $110 per month $98.68 On Target
Average monthly expenses < $2,350 per month $2,672.43 Needs Improvement

Saturday, April 19, 2014

Weekly Roundup - April 19, 2014

One of my favorite parts about spring here in Texas is getting to see all of the wildflowers blooming.  Our state flower is the Texas Bluebonnet and for good reason too, those things pop up everywhere.  We even have some in our backyard at our new house.  It's so cool to see fields that are normally covered in green grass transform almost over night into a sea of blue.

Friday, April 18, 2014

Reinvest or Pool?

As a dividend growth investor one of the first things you must decide is whether you want to automatically reinvest your dividends or collect them until and add them to new investment capital.  There's advantages and disadvantages to both.  The thing I like most about automatic reinvestment is that you're able to consistently add to your position and increase the number of shares you own.  Once I identify a high quality company that continues to increase their dividend year after year, I want to own as much of that company as I can.  Automatic reinvestment allows me to do so easily and without thought quarter after quarter and continues to build up my position, portfolio, and most importantly my dividends.  

Wednesday, April 16, 2014

Is Family Dollar Stores, Inc. A Bargain?

I'm always on the lookout for new to me dividend growth companies and recently received a request to do a full analysis on Family Dollar Stores, Inc. (FDO). What was really surprising is that Family Dollar Stores has a 38 year history of increasing the dividend to shareholders. Family Dollar Stores is a major player in the discount retail space operating over 8,000 stores throughout the United States. Shares of Family Dollar Stores closed trading on Friday, April 11th at $56.10 giving a current yield of 2.21%. 

Discounted Earnings: 

 Analysts followed by Yahoo!Finance expect Family Dollar Stores to grow earnings 3.15% per year over the next 5 years and I've assumed they can grow at 2.75% in perpetuity. Running these numbers through a discounted earnings analysis with a 10% discount rate and summing over 30 years yields a fair value price of $44.62. This means the shares are trading at a 25.7% premium to the discounted earnings analysis.

Click here to read the rest of the analysis over on Seeking Alpha.

I've updated my Stock Analysis page to include this analysis.

If you'd like to receive posts via email and sign up for my newsletter you can do so here or on the Subscribe page at the top of this blog.  As a post/newsletter subscriber, you'll be the first to know about ideas that are running around in my head for the blog.

Monday, April 14, 2014

Recent Buy

Whenever I buy or sell a position in my portfolio I try to get a post up shortly thereafter discussing the reasons for the purchase and all of the juicy details.  I'll usually tweet about the purchase within an hour of the purchase but I'm not always free to get a post written.  If you want to find out about my purchases as quick as possible, make sure to follow me on Twitter @JC_PIP.

I'm in a great place right now as I routinely get to save a large portion of my income each and every month.  The negative to that is that after the huge increase in share prices through 2013 a lot of the value has been sucked out of the market.  It's a delicate balance between building up cash for better valuations in the hopes they come relatively soon and investing my savings to try and reach financial independence as quickly as possible.  The solution I've settled on is to do a little of both by building my cash and simultaneously investing in some of the highest quality companies at reasonable valuations.  The solution is largely predicated upon my high income/savings rate and a problem I'm glad to have to deal with.  If I had less capital to invest on a regular basis I'd lean more towards building cash right now and doing as much research as possible on the best companies I can find.  This past Thursday I went ahead and put some capital to work by adding to my position in Johnson & Johnson (JNJ).

Saturday, April 12, 2014

Weekly Roundup - April 12, 2014

Image sourced from

Well Mr. Market decided to show up this past week and he broke down some walls like the "Kool-Aid Man", especially so for the biotech stocks and Nasdaq.  The S&P 500 shed 2.09% on Thursday and another 0.95% on Friday.  I've been hoping the markets would finally cool off some and start to retreat to give us all some better entry prices.  As a dividend growth investor in the accumulation phase, lower prices now lets me buy more shares with the same amount of capital which just boosts my dividends even faster.  I welcome these opportunities and you should too.

What's always funny to me is whenever we get large negative moves in the stock market the front page of Yahoo!Finance, and just about any other financial outlet, is littered with articles touting the upcoming doom and how this is just barely the beginning of the pain that's about to come.  One article I read through on Friday talked about how there will be a much larger decline to come.  On the order of 5-7%. these guys not study the markets at all?  Inter-year pullbacks of 5% are fairly normal and regular and actually healthy for the markets.  It's years like 2013 that are the anomaly where we get no really pronounced declines.  What's even funnier is that in that same article they talked to another market prognosticator that had a different view.  His take was that the markets would decline 6-8%.  Is there really a big difference between 5-7% and 6-8%?  Personally I'm hoping for 8-10% but who knows what's in store.

Friday, April 11, 2014

Net Worth Update - March 2014

While cash flow is more important when it comes to financial independence, it's still good to look at the balance sheet too, which is why I provide these net worth updates.  The S&P 500 was essentially flat for the month with just a 0.6% increase.  Since more and more of my net worth is tied to the markets, there's a larger between my net worth and the markets.  As a dividend growth investor I'm not overly concerned with the short-term gyrations as long as the dividend stream remains in tact, but the markets' effect is noticeable.  I had just over $7,000 in after-tax savings from my paycheck (although only $5k is directly earmarked for savings), around $1,100 in ESPP contributions, and just over $800 in 401k contributions counting the employer match.  The rest of the changes were due to dividends received and changes in the stock market.  All in all March saw a $9,537.14 increase in my net worth.

Wednesday, April 9, 2014

Income Update - March 2014

I'm a big proponent of tracking every single penny that comes into your hands if you're really wanting to make a change to your finances.  Mental accounting is too difficult to keep track of and the mundane everyday expenses get forgotten.  Once you keep a detailed history you can see that you're really spending $400 per month on restaurants or $100 on coffee or whatever little expenses that are fine by themselves but add up quickly to destroy a budget.  This is why I like to keep track of all of my expenses to help keep myself accountable and looking to see what areas I'm just plain doing poor in.  If you want to improve your finances, then please track everything for a 3 month span and then take action to make positive changes.

Friday, April 4, 2014

The Roots of a Wallet Engineer

Dividend growth investing really resonated with me.  But I wasn't always a dividend growth investor.  Luckily I never went through the early phase of just being an "investor" - buying a hot stock tip from a friend sort of experiment phase.

While still studying at University I bought my first shares as a cash-strapped 4th year.  The lucky pick was $100 worth of KO - Coca-Cola.  Truly an excellent pick if you follow along with dividend growth investing or you're just starting.  Coca-Cola wasn't a calculated purchase, though - I wasn't born a stock investing star - my first pick was a lucky pick.  Maybe it was a foreshadow of the kind of investor I would become.

Thursday, April 3, 2014

How Yummy is Yum Brands' Valuation?

Last week I updated my valuation of McDonald's Corporation (MCD) and the price appears to offer a decent value.  You can read the full analysis here.  As more of a growth play I wanted to take a look at its largest competitor YUM! Brands, Inc. (YUM).  YUM! Brands is heavily focused on international expansion which could lead to a long growth curve.  Shares of YUM! Brands closed trading on Friday, March 28th at $74.20 giving a current yield of 1.99%.

Discounted Earnings:

Analysts followed by Yahoo!Finance expect YUM! Brands, Inc. to grow earnings 12.32% per year over the next 5 years and I've assumed they can grow at 9.24% (75% of 12.32%) for the next three years and 4.50% in perpetuity.  Running these numbers through a discounted earnings analysis with a 10% discount rate and summing over 30 years yields a fair value price of $84.41.  This means the shares are trading at a 12.1% discount to the discounted earnings analysis.

Graham Number:

The Graham Number valuation method was conceived of by Benjamin Graham, the father of value investing, and calculates the maximum price one should pay for a company given the earnings and book value. YUM! Brands earned $2.36 per share in fiscal year 2013 and ended with a book value per share of $4.89. The Graham Number is calculated to be $16.11, suggesting that it's overvalued by 360.5%. Since we invest for the future, let's replace the earnings per share with forward looking earnings of $3.63 for FY 2014.

Click here to read the rest of the analysis.

If you want to receive posts via email and sign up for my newsletter you can do so here or on the Subscribe page at the top of this blog.

Wednesday, April 2, 2014

Position Closed - Intel Corporation (INTC)

Yep, Intel announced yet another quarterly dividend payment of $0.225 per share.  That would be 8 straight payments of $0.225.  For a position that had the promise of being a solid dividend growth investment, I’m very disappointed in this.  I’ve been rather disappointed that Intel couldn’t even give a token increase of $0.01 at least once since the September 2012 payout.  As a dividend growth investor that’s trying to reach financial independence through dividends, a dividends safety is priority 1A and its growth is priority 1B.  Towards the end of 2013 I wasn’t completely fed up but I was getting there and wouldn’t have minded closing out my position.  So I let Mr. Market make the decision for me and decided to sell call options on Intel until the shares were called away from me.  I mentioned in my March dividend update post yesterday about a call option for Intel executing so let's go over the details.

Tuesday, April 1, 2014

Dividend Update - March 2014

March certainly was a great month for dividends in my portfolio and everyone else's as well I'm sure.  The majority of the dividend growth stocks that investors love pay out on the March, June, September, December schedule so the end of each quarter usually comes with a bang.  These dividend updates reflect all dividends that I receive through my investing pursuits and I hope can help inspire you to take control of your own finances and invest to build a passive income stream.  What you use that stream for is up to you, whether it's to fund early retirement, just provide some FI/FU money, or even to provide for an annual vacation; the key is that it can provide options and opens up all sorts of possibilities.  You can check my dividend income or progress page to see what dedication to an investment plan can give you.  I was able to set a personal best in dividends received during March which is great motivation and helps to keep me on track.