Monday, July 27, 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.

Quick update because this weekend was crazy.  On Thursday, July 23rd I added more shares of 3M to my portfolio.  One of my goals for the year is to build up positions rather than continue adding new ones to my portfolio and now that 3M is trading at a fair price I felt comfortable doing so.  I purchased 7 shares of 3M Company (MMM) for $149.3599 each.  After commission my per share cost basis comes to $150.07.  Based on the current quarterly dividend of $1.025, this position will provide $28.70 in annual dividends and carry a YOC of 2.73%.

I previously owned 11 shares of 3M so my total position is up to 18 shares.  I normally try to average down my cost basis but I ended up averaging up slightly with this purchase.  I purchased shares for a 5.4% higher price than my original lot of shares.

One valuation technique is to use the Gordon Growth Model.  The Gordon Growth Model uses any three of the current price, current dividend, expected dividend growth rate, and discount rate to calculate the missing item.  Based on the current annual payout of $4.10, my cost basis of $150.07, and a discount rate of 10%, 3M would need to growth the dividend at 7.07% per year to justify the current price.  The required growth rate is lower than the dividend growth rate of the last 5 and 10 years suggesting that shares could be undervalued.  Earnings are forecast to grow 8.63% per year over the next 5 years and the current payout ratio is 49%.

Analysts followed by Yahoo!Finance have a 1 year price target of $165.92.  Morningstar has 3M rated as a 4 star stock.  S&P Capital IQ has a 1 year target price of $155.00 with a 3 star hold.

If you happened to notice this purchase was smaller than my usual purchase size.  That's because I recently started a second brokerage account with TradeKing.  The commissions at TradeKing are only $4.95 (Affiliate link) for stock purchases which means I can invest smaller dollar amounts to keep at my target "expense ratio" of 0.50% or less.  Going forward I will be including all purchases within either of my portfolio's into just one portfolio on my FI Portfolio page.

My FI Portfolio's forward 12-month dividends increased to $6,050.71.  Including the $56.71 from my Loyal3 portfolio brings my total taxable accounts forward dividends to $6,107.42.

The stock markets are becoming quite jumpy recently and rightfully so.  There's still issues in Europe.  The Middle East is always close to becoming unstable disrupting oil markets.  China's economy and stock market are both going crazy.  But there's no telling what will happen.  I still plan to make purchases in excellent companies if the long term valuations make sense.  I don't know if the markets will crash tomorrow.  The bull run is long in the tooth, but it was also long in the tooth before the last 30% gain it's had.  In other words, the future is unknown.

As long term investors you have to ignore the noise and focus on the fundamentals of companies and whether there's a good chance the company will continue to be around selling more products for higher prices.  If they will and the shares are cheap compared to the future cash flows of the company then why not purchase shares?  Some companies I'm looking to purchase are more 3M, Union Pacific, Toronto-Dominion, T. Rowe Price Group, and  Johnson & Johnson.  I know my plan is to not add too many more companies to my portfolio but there's some other intriguing options out available right now with J.M. Smucker, Caterpillar, Eaton, and BlackRock.

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 3M Company?

Image courtesy of Stuart Miles on FreeDigitalPhotos.net.

17 comments:

  1. Excellent purchase, JC. Cant go wrong adding 3M to your portfolio. Love the company and wouldnt mind adding it to my own portfolio.

    Best wishes
    R2R

    ReplyDelete
    Replies
    1. R2R,

      Hope to have you as a fellow shareholder in the not too distant future.

      Thanks for stopping by!

      Delete
  2. nice Buy. I agree with R2R. cant go wrong with 3m.

    ReplyDelete
    Replies
    1. FFDividend,

      3M is an excellent company. Hope to add more to my portfolio.

      Delete
  3. Excellent buy, 3M is one solid company and very well diversified. Definitely on my watch list.

    ReplyDelete
    Replies
    1. Tawcan,

      Well diversified is an understatement. 17K+ products is amazing.

      Thanks for stopping by!

      Delete
  4. Great buy. 3M is the company that I always want to add to my portfolio and one day will call myself a fellow shareholder. Man do I wish I had enough capital to initiate an entry level position in the company. Congrats on taking advantage of the downturn to invest in this awesome company!

    Bert

    ReplyDelete
    Replies
    1. Bert,

      I wish I had more capital available to have picked up more shares in more companies with this last little dip. I almost add a couple more but decided to hold off. Of course, then Mr. Market changed his mood. Oh well, we'll get another chance soon I'm sure.

      Thanks for stopping by!

      Delete
  5. 3M is a great company. I know a few people who work there and they love it. A company has to really have its act together for that.

    ReplyDelete
    Replies
    1. FV,

      3M is wonderful and that's great to hear that you know a lot of people that enjoy working there. That just adds to the good news about 3M.

      Thanks for stopping by!

      Delete
  6. Nice buy and thanks for sharing. I'm not a holder but it looks like a solid company.

    ReplyDelete
    Replies
    1. Ferdi,

      3M is an excellent company. Not the cheapest and I know the high share price sometimes turns people off, but that doesn't mean the company isn't great. I expect good things from them going forward.

      Thanks for stopping by!

      Delete
  7. Nice job swooping in on a discount. I've had MMM on my watch list for some time now. Hope to join you someday. Just a bit low on extra capital to deploy ATM. Cheers,
    Dylan

    ReplyDelete
    Replies
    1. Modern Millenial,

      I don't know if it's too much of a discount, but it's definitely around fair value. It's not the best price possible but it's a solid price for this excellent company. Would love to add some more shares soon. I hear ya on the low capital. I've got enough for 2 purchases, maybe 3 right now but that's because I have lower commissions with my new brokerage account so I can make smaller purchases.

      Thanks for stopping by!

      Delete
  8. JC,

    MMM is a fantastic company. I highly doubt you'll regret buying shares in a blue chip like that. :)

    Best of luck with your new account at TradeKing. My experience went from "okay" to "bad" to "terrible". I'll be transferring assets out of that account shortly.

    Cheers!

    ReplyDelete
    Replies
    1. DM,

      3M is an excellent company and it's hard to argue with 57 years of dividend growth. That's an impressive streak. 17k+ different products is amazing.

      Sorry to hear about TradeKing. I haven't had any issues with them but I'm very curious to hear what happened.

      Thanks for stopping by!

      Delete
  9. Hi JC,

    Great purchase!

    MMM has been on my watchlist for a while now.
    I hope to add it one day.

    Best wishes, DfS

    ReplyDelete