Recent Buy (4)

Purchases for my FI Portfolio have been few and far between the last few years.  That's not for lack of opportunities or desire rather it had to do with our lives being on a roller coaster.  However, there's a light at the end of the tunnel as our main goal for this year is to get rid of all non-mortgage debt and then refocus our energy towards building up the portfolio.  

We aren't contributing fresh capital to our investments just yet as we're focused on getting rid of our non-mortgage debt.  *Should be gone before the end of the year!*  However, that doesn't mean that we're not able to make new purchases thanks to the dividends that keep rolling in from our other positions.

One of my goals for my FI Portfolio is to build up the positions rather than build out the number of positions.  Essentially I want to get more exposure to the companies that I own instead of many small positions that make it hard to be motivated to monitor the company.  With the dividend growth strategy I still think it's fine since the bulk of the work should be done upfront; however, why invest more capital into your 20th or 30th best idea if one of the top 10 is attractively valued?

Well best laid plans of mice and men am I right?  I decided to add a new position to my portfolio this time initiating a position in a Dividend Champion.

On February 1st I purchased 25 shares of Archer Daniels Midland (ADM).  The total cost basis, including commissions, came to $1,127.45 or $45.10 per share.  

Archer Daniels Midland is a Dividend Champion with 43 consecutive years of dividend increases.  Based on the dividend rate of $0.335 at the time of purchase the YOC for this position was 2.97%.  Archer Daniels Midland has since increased the dividend to $0.35 per share per quarter raising the YOC to 3.10% and I can expect to receive $35 in dividends over the next year.

Due to this purchase my FI Portfolio's forward 12-month dividends increased to $6,775.59.

Dividends

As a dividend growth investor any potential investment must Jerry Maguire me, i.e. "SHOW ME THE MONEEEEEEYYYY!!!!".  I judge that based on a company's history of both paying and growing dividends to shareholders.  As I mentioned earlier, Archer Daniels Midland has increased dividend payments for 43 consecutive years.
 

*A full screen version can be found here.

I like to examine the dividend growth rates over varying time periods.  Since many businesses see their operations ebb and flow this smooths out the dividend growth and can give an idea of how things could look in the future across the entirety of a business cycle.

The 1-, 3-, 5- and 10-year rolling dividend growth rates can be found in the chart below.  

*A full screen version can be found here.

Valuation

I'm not going to go into too much detail with the valuation of Archer Daniels Midland because I recently did a full analysis that you can check out over on Seeking Alpha.  

At the current valuation I believe the worst case scenario is that investors will capture the full earnings growth as well as the dividend over the intermediate term.  The upside scenario is for investors to see returns that mimic the growth of the business, the dividend plus anywhere from 3%-9% annualized return from valuation expansion over the next 10 years.  To me that's very attractive.

After Arched Daniels Midland's share price sold off after releasing earnings last week I believe the value proposition looks even better.  The share price is currently sitting around $41.50 and my next purchase target to add to this position is somewhere right around the $40 level.

Conclusion

The end of January and beginning of February has seen a flurry of activity for my FI Portfolio.  After making some sales at the end of 2018 I was sitting on a decent chunk of cash that I was ready to deploy back into productive assets.  I've since added more shares of Altria (MO), AT&T (T), started a new position in Honeywell (HON) and now initiated a new position in Archer Daniels Midland (ADM).  Those 4 purchases have boosted my forward dividends by $226.12.  

What do you think of my purchase of Archer Daniels Midland?  Do you own shares of this Dividend Champion?  Do you think shares are fairly valued currently?