One Piece At A Time | Week Ended 12/27/19
My investment strategy has changed a bit now my that my brokerage firm, as well as most others out there, have moved to ZERO commissions. I had typically tried to purchase in dollar amounts that put commissions at 1.0% or less. I've always wanted to implement, at least partially, the dollar cost average method but commissions prohibited me from pursing that. However, now it's very feasible and reasonable to do so.
My focus has always been on quality businesses, but the problem was typically buying shares at good valuations, often I had to settle for good enough. The longer that I've been investing, the more that I've come to realize just how powerful hitching your investment wagon to great companies can be. That's why I've shifted my focus to dollar cost averaging to build up my positions; because the larger your purchases the more attention that needs to be paid to valuation and vise versa.
I'd still prefer to do larger scale purchases, but the problem is that quality businesses don't often trade at good valuations. In general valuations aren't exactly cheap; so I'll just keep building up my stakes in great businesses.
These purchases actually cover the last 3 weeks as I was able to be home more often and we're also shifting our plans once again.
In total I invested $447.20 and boosted my forward dividends by $16.48. That's an average yield of 3.69% across all of the purchases. All purchases were made in my FI Portfolio for the last 3 weeks.
As expected the pace of my purchases slowed down. I still have some capital ready and waiting for me to dollar cost average into some more great companies, but for now I'll probably hold off a bit making just a handful of purchases each week.
All 4 purchases were in what I call the "sweet spot" for dividend growth investing which is a starting yield somewhere around 3-4% and a dividend growth rate in the 5-10% area. The reason I like those so much is that they are a good combination of current income as well as future growth potential.
J.M. Smucker was the much better value purchase of the 2 companies I added shares of. The EV/EBITDA is just 10.9x and looking at more traditional valuation metrics such as P/E shares look quite cheap at just 12.6x and 12.5x estimates.
The fair price based on dividend yield theory is also significantly higher than my purchase price at and represents ~36% upside potential.
I continued to add shares of Digital Realty Trust as I believe the valuation and longer term trends should work out well for DLR and its shareholders. Based on 2019's FFO estimate of $6.60 my purchases were made at an average of 17.4x. Dividend yield theory suggests a fair price right around $114 so my purchases were made right around fair value give or take a little.
My FI Portfolio's forward 12-month dividends increased to $7,822.29 with my FolioFirst dividends at $101.24. My Roth IRA's forward dividends remain at $643.02 while my Rollover IRA's dividends are $2,354.07. My taxable accounts can expect to produce $7,923.53 over the next year with all accounts providing $10,920.62.
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 the last few weeks?