Thursday, June 18, 2015

Semi 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.

On June 4th I initiated another new position for my FI Portfolio.  I purchased 13 shares of Union Pacific Corporation (UNP) (Full Analysis Here) for $101.20 per share.  After commission my per share cost basis came to $101.81.  Based on the current quarterly dividend rate of $0.55 my position in UNP will provide $28.60 in annual dividends and carry a YOC of 2.16%.

I'm very bullish on the railroads over the long term and what better way than to go with the largest and most expansive rail network?  I only owned Norfolk Southern (NSC) prior to my purchase of Union Pacific.  Union Pacific has a great moat as it be a huge undertaking to try and construct a rail line to compete with what they already have in place.  Of course that means that there's large capital expenditures every year to maintain and upgrade the existing network but it keeps competition at bay.  No one is going to truly compete against them overnight which is not the case with other industries.

There's also very little in the way of competition from other transportation methods.  Shipment of goods via rail is hands down faster and more efficient than the alternative of trucking the same goods.  The only real threats would be a massive upgrade in efficiency of the trucking industry, but they're starting out at a huge disadvantage so the leaps would be years in the making.  Shipment by sea is the most efficient; however, that only works for getting goods to ports.  You still have the issue of getting goods away from the coastline for other consumers.  The other option would be for manufacturers to adopt localized, smaller scale manufacturing to reduce shipping costs which would be prohibitive to their own profitability.  That leaves shipment by rail in an enviable position for the long term.

A quick valuation of Union Pacific using the Gordon Growth Model with a $2.20 annual dividend, 10% discount rate, and $101.81 current price means that UNP would need to grow the dividend at 7.67% per year to earn a 10% annualized return.  Since earnings are forecast to grow at 13.5% per year for the next 5 years, UNP shares appear undervalued here.  The TTM P/E ratio is at 17.25 with a forward P/E ratio, based of FY 2016 estimates, of 14.60.  I performed a full analysis of Union Pacific last month which can be found here.

My FI Portfolio's forward 12-month dividends increased to $5,908.86.  Including the $55.98 from my Loyal3 portfolio brings my total taxable accounts forward dividends to $5,964.84.

I'm also looking at adding more shares of Johnson & Johnson (JNJ), ExxonMobil (XOM), and T. Rowe Price (TROW) as all three of the companies are at attractive valuations and near my buy zones.  And of course if the share price of Union Pacific continues to decrease then I will gladly add more shares to this new position.

What companies have you been buying?  What companies are on your watch list for purchase?  What do you think about Union Pacific for the long term?

Image courtesy of Stuart Miles on FreeDigitalPhotos.net.

4 comments:

  1. Great purchase, JC. I am looking at UNP as well - it looks like at a decent valuation here and cant go wrong with adding a railroad company to the portfolio.

    Best wishes
    R2R

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  2. Awesome purchase JC. Solid. Can't go wrong adding Railroads. Just love collecting quality assets. Keep up the hustle my friend. Cheers

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  3. Congratulations JC! That is an awesome purchase.

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  4. Nice buy, JC! My June buy was RS, so I'll have to wait until next month to see what interests me. I'm slowly moving to favoring adding to holdings rather than adding more stocks, so I'll look at stocks like XOM, WMT, AVA and O.

    Take care!

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