One Piece At A Time | Week Ended 10/25/19
Well, I just couldn't help myself. Earlier this month just about every brokerage firm announced they were lowering commissions to $0. My broker, Fidelity, followed suit as well in the race to ZERO.
Over the first 2 weeks since Fidelity moved down to $0, I made 8 small purchases allowing me to dollar cost average and build up some positions ever so slightly.
Last week I made 5 more purchases to build up some positions even more. None of the purchases were meaningful in size, so the dividend bar didn't move too much, but it was nice to get the chance to dollar cost average a bit more capital into some excellent companies and keep building up our forward dividends.
In total I invested $986.57 and boosted my forward dividends by $19.56. That's a 1.98% yield starting off. While the yield is pretty meager, I expect Stryker, Microsoft and Ecolab to all generate high single digit to low teen annual dividend growth for the foreseeable future. The two 3.0% yielders should be able to generate 4-8% growth over the long term as well which is plenty.
The valuations range from fair to expensive with these purchases.
The only truly expensive purchase was Ecolab at 32.2x current year estimates and 28.8x next years estimates. A fair price based on dividend yield theory is around $167 or roughly 12% lower than my purchase price.
In my valuation analysis of Ecolab I have a fair value range of $130 - $170.
While Stryker and Microsoft are both more expensive than I'd like to pay, both of them also have very attractive growth prospects. A fair price based on dividend yield theory is ~19% and 29% lower, respectively.
Given the growth trajectory for each I think Stryker and Microsoft are both on the upper end of fair value and compared to some of the much slower dividend growth stalwarts they look attractive since many of the stalwarts are trading at similar valuation levels.
My valuation analysis of Stryker puts the fair value range between $170 - $205.
Johnson & Johnson's share price continues to be hampered by the ongoing opiod issues/lawsuits. While that's a very real risk, it's one that I think is going to be much ado about nothing when it's all said and done.
The valuation looks pretty solid here 14.6x current year estimates and 13.9x next years estimates. The EV/EBITDA looks attractive too, but not a screaming bargain, at 12.7x. Dividend yield theory suggests a fair value of $142 or a yield of 2.67%. That suggests ~12.5% undervaluation.
Cisco was the largest purchase of the week in terms of capital deployed and also came with the best valuation marks. Based on current year estimates my purchase was at a 13.9x P/E and based on next years estimates it's 13.0x. The EV/EBITDA multiple isn't a huge bargain, but it's attractive at 11.9x.
Likewise, dividend yield theory suggests a fair price of $47.78 which corresponds with a 2.93% yield. My purchase at $46.25 has just 3% upside potential.
Based on my valuation analysis from earlier this year, I believe that shares are attractive at this price with a fair value somewhere in the $50s.
My FI Portfolio's forward 12-month dividends increased to $7,638.71 with my FolioFirst dividends at $101.14. My Roth IRA's forward dividends remain at $61619.08 while my Rollover IRA's dividends increased to $2,262.58. My taxable accounts can expect to produce $7,739.85 over the next year with all accounts providing $10,621.51.
Are you doing more dollar cost averaging now that most every brokerage firm is at $0 commissions? What do you think of my purchases from last week?