One Piece At A Time | Week Ended 12/6/19
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.
In total I invested $206.15 and boosted my forward dividends by $7.12. That's an average yield of 3.45% across all of the purchases. All purchases were made in my FI Portfolio for the last 2 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.
The 3 purchases from last week were all in what I consider the dividend growth investing "sweet spot". That's companies that are yielding somewhere around 3-4% with annual dividend growth in the 5-10% area. Those are the companies that I like best because they offer a good combination of current income as well as future growth.
Shares of Cisco continue to get beat up and I wouldn't be surprised to find myself picking up a few more shares over the coming weeks. The valuation looks pretty good around 13.5x FY 2020 estimates. The EV/EBITDA looks relatively cheap as well at just 10.9x. Dividend yield theory also suggests that Cisco is trading on the lower end of fair value with the two purchases having 7% and 9% upside, respectively.
Digital Realty Trust wasn't at the same value level; however, I believe that the valuation is in the fair value area. Based on 2019's FFO estimate of $6.60 my purchase was made at a 17.8x valuation. The EV/EBITDA is a bit higher than I'd like, but that's largely due to the typically higher debt levels for REITs. Dividend yield theory suggests a fair value price around $114 so my purchase was roughly 3% higher than a "fair" price.
The pace of purchases clearly slowed with just 3 incremental additions over the previous week. Of course I expected as much and now with some changes possibly coming in our life that could very well lead us to substantially cutting back on our dollar cost average purchases.
My FI Portfolio's forward 12-month dividends increased to $7,780.74 with my FolioFirst dividends at $101.13. My Roth IRA's forward dividends remain at $633.51 while my Rollover IRA's dividends are $2,344.54. My taxable accounts can expect to produce $7,881.87 over the next year with all accounts providing $10,859.92.
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?