One Piece At A Time | Week Ended 1/17/2020

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.

Last week was a very slow week as far as making some dollar cost average purchases.  I only made one buy with a total amount invested of $207.25.  My forward dividends increased by $2.08 giving a yield of 1.0%.

The lone purchase last week was made in my Rollover IRA.

I'd love to be able to add more shares of businesses in the "sweet spot" for yield/growth prospects, but many of those seem expensive here.  I'm finding more value in businesses that have much better growth prospects although they come with much lower initial yields.

Stryker is a medical device/technology company that seems to be chronically overvalued.  The health care industry is one that I'm keen to increase my exposure to due to the longer term growth potential.

As you can see, Stryker wasn't exactly cheap at 25.2x FY 2019's estimates although it does look better looking out to FY 2020's estimates with just a 23.0x P/E.  Still expensive, but not exorbitantly so.

Using dividend yield theory as a quick valuation guide shares are ~16% overvalued.  Based on the 5-year average yield of 1.20% a fair price for Stryker would be $173.

While the initial yield is low for Stryker, the growth potential is quite high.  Analysts are expecting 7% revenue growth for FY 2020 and for Stryker to see 10.4% annual EPS growth over the next 5 years.  If Stryker hits those marks, which seem reasonable given their industry and history, then shares purchased today would provide ~11.4% annual returns before accounting for valuations changes. 




  

My FI Portfolio's forward 12-month dividends remain at $7,889.90 with my FolioFirst dividends at $101.11  My Roth IRA's forward dividends remain at $650.79 while my Rollover IRA's dividends increased to $2,371.37.  My taxable accounts can expect to produce $7,991.01 over the next year with all accounts providing $11,013.17.

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?