Friday, June 26, 2015

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.

In my last post I mentioned that I was close to purchasing more shares of ExxonMobil, T. Rowe Price, and Johnson & Johnson.  Well, Mr. Market took JNJ a bit higher than I'd like to pay for shares; however, the price of XOM shares has drifted lower.  Yesterday I purchased 12 more shares of ExxonMobil for $84.43 per share.  After commission my per share cost basis came to $84.84 per share.  Based on the current quarterly dividend of $0.73 this lot of shares will provide $35.04 in annual dividends and carry a YOC of 3.44%.

I've been doing my best to hold off on adding to the oil and gas sector due to my employment also being tied to the industry; however, this kind of valuation on a best of breed just doesn't come around very often.  For starters you don't get an initial yield approaching 3.50% for shares of XOM very often.  The following chart shows the historical dividend yields.



Using a Gordon Growth Model calculation we can estimate the fair value of a company's stock price using our required rate of return, initial dividend, and the estimated dividend growth rate.  Assuming a dividend growth rate of 7% per year with the current annual dividend of $2.92 and a discount rate of 10%, the fair value price of XOM works out to $104.15.  You can also rearrange the formula to solve for the required growth rate given a target price.  Using the same discount rate and dividend from above with my cost basis of $84.84, XOM would need to grow the dividend 6.34% per year to be fairly valued.  Considering the growth rates are below what XOM has historically been able to provide and the likelihood of higher profitability for XOM in the future I feel confident that the current share price represents solid value.

Unfortunately the energy sector isn't quite as smooth sailing as the consumer staples.  However, we must keep in mind that that means there's more opportunities for truly undervalued situations due to overblown fear of the current state of affairs continuing on indefinitely into the future.  Just like $120+ for a barrel of oil was unreasonable so was $40.  I have no idea where oil prices will go from here but I'm very confident in the supermajors being able to weather the storm and come out stronger once prices rebound.

Back in April I wrote about how both Chevron and ExxonMobil shares fared during and after the last crashes and neither one of them have disappointed.  I don't see the world's consumption of oil and other petroleum products decreasing anytime soon, in fact they're forecast to continue rising, which should ensure that oil and gas producers and refiners will continue to be in demand.

My FI Portfolio's forward 12-month dividends increased to $5,943.57.  Including the $55.98 from my Loyal3 portfolio brings my total taxable accounts forward dividends to $5,999.55.  Just about at $6,000 in forward dividends.  That works out to $500 per month!

Other companies that I'm looking at potentially adding to are T. Rowe Price, Union Pacific, Phillip Morris, and potentially Chevron.  I'd also like to add another financial company or two to my portfolio with insurance companies and a Canadian bank being in the mix as well.

What companies have you been buying?  What companies are on your watch list for purchase?  What do you think about the long term investment prospects of ExxonMobil?

Image courtesy of Stuart Milest on FreeDigitalPhotos.net.

17 comments:

  1. PIP,
    Good job on your purchases which should improve your dividend income.
    Earlier this month, I averaged down on WMT, XOM, PM, DEO and KO. For next month (or even next week), I will (try to) average down on UNP, TROW, EMR and maybe more WMT if they stay at the current prices.
    D4S

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    Replies
    1. D4S,

      There's a lot more value opportunities in the stock markets right now. I'd love to average down on UNP, VTR, OHI, TROW, CVX, VZ, WMT, and WPC but unfortunately there's nowhere near enough capital to do all of that. Fortunately, being in the position to have to choose between those excellent companies is definitely a first world problem that I'm glad to have.

      Thanks for stopping by!

      Delete
  2. Lots of energy plays are getting down to silly valuations. I just bought more KMI today, as it's nearing a 5% yield again. Atwood is my favorite in the oil space, specifically, given the age of their fleet and concentration on deepwater, I believe they are well relatively positioned for a protracted downturn. Thanks for the update.

    Eric

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    Replies
    1. Retire29,

      Yeah the O&G sector is beaten down to some pretty ridiculous levels. I've been a bit wary of adding much capital to the sector since it's also my income source but I still needed to add some.

      Thanks for stopping by!

      Delete
  3. PIP,

    Nice purchase. One of the best, if not the best oil company around and they still increased their dividend this year. Nice job with this one and look forward to you officially crossing that $6K mark!

    -Lanny

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    Replies
    1. Lanny,

      Loved seeing the pretty solid increase from XOM despite the big headwinds for the sector. If you are going to invest in any commodity based company then you just have to get ready for huge swings in your investment value from time to time. There's just no real differentiation in raw product so the biggest thing you want to look for is scale and efficiency if you're going to invest during the downturns.

      Just about to the $6k mark. That's awesome to me because that's $500 per month that I receive for doing nothing. Got to love that. Still a long ways to go before FI but it's a solid footing.

      Thanks for stopping by!

      Delete
  4. Nice purchase, JC. Cant go wrong with the investments in energy stocks at these levels. I am thinking about averaging down on my CVX.

    R2R

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    Replies
    1. R2R,

      I'm looking at averaging down with CVX as well because I'm down quite a bit on the position right now and I think it's been unfairly beat down. Energy is definitely an unloved sector right now but eventually that will swing back the other way.

      Thanks for stopping by!

      Delete
  5. Great Buy here PIP. You're doing awesome closing in at the 6k mark in Forward Divies. Slowly but surely. I'm happy for you. You keep at it and enjoy the ride. Best wishes for you and your love ones. Cheers to us. Thanks for sharing.

    ReplyDelete
    Replies
    1. Hustler,

      Just about to $6k which is pretty cool. $500 per month for not having to work? Yes please!

      Thanks for stopping by!

      Delete
  6. Thanks for sharing your recent XOM buy. I still do not have an energy play in my portfolio though DOV might be a proxy for the sector as a lot of their revenue comes from the oil and gas services they provide. Energy has been beaten down for a while now and while I have XOM, CVX, TOT, BP and other names on my watch list I'm still hesitant to initiate a position in the space. Enjoy that extra dividend income.

    ReplyDelete
    Replies
    1. DivHut,

      There's still no clear short term direction for the price of oil which makes things very uncertain. I haven't done much adding to the sector because of that and also because they make up too much of my portfolio as it is. The big players should weather the storm fine so I'm not too concerned but it's not as cut and dry as adding to a JNJ/GIS/HSY.

      Thanks for stopping by!

      Delete
  7. Great write up!

    I too added to my XOM position last week. With my relatively small portfolio I am dollar cost averaging my way into my positions in this sector as well as averaging down. Either way, value is value and we've for sure found it here.

    I also initiated a position in WMT recently, it is very hard to argue with +40 years of dividend increases!

    DK

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    Replies
    1. Div Kid,

      The DCA route is pretty good. I'm still tempted to go and start another portfolio, maybe with Motif, where I select the best companies across several sectors and just add $50-100 to them every month. It won't be the best value investing but it'll be consistent investing into some of the best companies around the world.

      Thanks for stopping by!

      Delete
  8. I'm also thinking about adding to my XOM holdings... thanks to your timely post, I have some food for thought!

    Cheers
    FerdiS

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    Replies
    1. Ferdi,

      I might add a bit more to my CVX position but that'll probably be it for a while. The O&G sector is overweight and there's too much risk since my income comes from there too. But the big players in the space will do fine over the long haul.

      Thanks for stopping by!

      Delete