Recent Buy (6)
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. 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 in 2019 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?
After the dip in share price from my first purchase of Archer Daniels Midland (ADM) I just had to add some more to my position. Unfortunately I couldn't add too much as we're hoarding cash until I return to work, but I was able to add some at what I believe is a good value.
On May 22nd I purchased 20 shares of Archer Daniels Midland. The total cost basis, including commissions, came to $797.35 or $39.87 per share.
Archer Daniels Midland is a Dividend Champion with 43 consecutive years of dividend increases. Based on the dividend rate of $0.35 at the time of purchase the YOC for this position was 3.51% and I can expect to receive $28 in dividends over the next year.
Due to this purchase my FI Portfolio's forward 12-month dividends increased to $6,974.89.
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. With a 43 year streak of rising dividends I'd say that Archer Daniels Midland is going a great job on that front.
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. That's especially true of a commodity based business such as Archer Daniels Midland.
The 1-, 3-, 5- and 10-year rolling dividend growth rates can be found in the chart below.
One valuation method that I like to use is dividend yield theory although admittedly it's not likely the best valuation method for Archer Daniels Midland. The idea behind dividend yield theory is that large, stable companies will see their dividend yields revert to their mean over time. So when the yield is higher than "average" shares are undervalued and when it's lower than "average" shares are overvalued.
The reason that I say dividend yield theory might not be the best valuation method is because of the fairly noticeable uptrend in the yield over the last decade. That being said dividend yield theory does appear to show that Archer Daniels Midland is undervalued althoug the degree of undervaluation might not be as significant is the average yield continues to move higher.
We're still several months away from possibly being able to start regular purchases again; however, things are still looking good here. Realistically purchases for my FI Portfolio will be slow over the next few months and likely to only come from cash dividends received in the account as well as dividend reinvestment.
What do you think of my purchase of Archer Daniels Midland? What companies have you been eyeing for purchase?