Thursday, October 30, 2014

A Giant Home Run with General Dynamics Corporation

Last night, the San Francisco Giants beat the Kansas City Royals 3-2 in game 7 of the World Series, giving the Giants their third World Series championship in five seasons. Apart from Madison Bumgarner's stunning performance, I enjoyed the fact that two of the Wild Card teams ended up playing in the World Series. The Giants scored a total of 30 runs (versus the Royals' 27) in the series, of which only two were home runs.

So what does this have to do with dividend growth investing? Well, on Tuesday, I scored my first home run with DivGro when General Dynamics Corporation (GD) crossed the 100% profit mark!

I bought 35 shares of GD on March 1, 2013 at $67.61 per share, securing an opening yield on cost (YoC) of 3.02%. Since this purchase, GD has paid $121.80 in dividends, paying back 5.15% of my initial investment. The company has increased its dividend from 51¢ per share to 62¢ per share, an increase of nearly 22%. YoC is now 3.67%.


With GD reaching a new lifetime high of $139, the stock now yields only 1.79%. So I'm quite fortunate to be earning 3.67% on my shares...

  Source: dividend.com

My fair value estimate of GD is $125, so the stock is trading at a premium of about 10%. The following table provides some key statistics for GD:


I'm not interested in buying more shares of GD at this time. Shares are expensive now and the dividend yield is well below the 2.75% that I'm looking for in DivGro. Nevertheless, using my 7-star rating system, GD would score 4 stars:  (****---)

Here are some additional ratings for GD:

 Zacks Rank 2-Buy
 S&P Capital IQ's Stock Report (***--) Hold
 Thomson Reuters StockReport+  (10/10) Positive 
 MorningStar Rating (**---)
 The Motley Fool's CAPS Rating (***--)

Recently, GD reported better-than-expected Q3-2014 results and raised its earnings forecast for the full year. Net earnings were $694 million ($2.05 per share) on revenues of $7.75 billion. This compares to Q3-2013 net earnings of $652 million) ($1.84 per share) on revenues of $7.74 billion.
GD now expects fiscal year 2014 earnings of $7.60-$7.70 per share, compared with its earlier forecast of $7.40-$7.45 per share.

As a dividend growth investor, I'm not really looking for an excessive increase in the stock price of my holdings. If that sounds counterintuitive, look again at the impact of GD's rising stock price on its dividend yield. A rising stock price pushes dividend yield down!

On the other hand, I expect earnings per share and dividend yield to grow over time. It seems like GD is moving in the right direction and the market is recognizing that by pushing the stock price to higher highs.

Of course, I'm not unhappy that GD is performing so well... in fact, I'm very glad that I can celebrate the Giants winning the World Series championship with a home run of my own!

Do you have home run stocks in your portfolio (i.e. stocks that have doubled in price since you bought them)?

16 comments :

  1. Ughh.....I keep missing getting in on GD and every passing day, that stock keeps getting away farther and farther. Even two weeks ago, I was very close to buying it at $118 and now its close to $140 :(
    Congrats on buying in 2013..you got in a great time. This stock will be on the top of my list during the next recession.

    cheers
    R2R

    ReplyDelete
    Replies
    1. Thanks, I was fortunate to get in when I did! I wouldn't buy more shares at this point now... If it dropped below $119, though, I'll be interested again...

      I know how you feel. There are several stocks that I look up to longingly, but that's the problem... I'm looking up at them! :-) They need to come down first before I can buy them...

      Take care!

      Delete
  2. We all learn to be patience, isn't it? I faced with similar situation too......I always remine myself "don't chase it"!

    ReplyDelete
    Replies
    1. You're right... if you always buy stocks of great companies when they experience a temporary down turn, you should do really good over time...

      Delete
  3. Congratulations. Its a great feeling getting your first 1 bagger. The longer you invest in markets, the more of these type of wins you will have. I invested in Lockheed Martin around the same time as your GD investment. It just recently hit the 100% mark also.

    ReplyDelete
    Replies
    1. Thanks, Integrator! And congratulations on Lockheed Martin -- that's a great stock to own!

      Delete
  4. Crossing the 100% profit mark in any investment is always exciting. As dividend growth investors we are primarily concerned with the ever growing income stream our investments can provide with capital appreciation as the added gravy to our investment mix. Thanks for sharing this exciting news. Keep on marching higher.

    ReplyDelete
    Replies
    1. Yes, 100% profit is exciting, but that also means the particular stock is probably overvalued and continuing to invest in it may not be a good idea. Fortunately there are many other candidates worthy of new capital, so I don't need to continue investing in GD...

      Thanks for stopping by!

      Delete
    2. I am fairly new to this. Would you sell this and take a profit and re-buy it when it dips down again?

      Delete
    3. That's OK, Anonymous -- engaging is a great way to learn!

      The idea with dividend growth investing (DGI) is to buy stock in great dividend growth companies and hold on as long as dividends keep growing. If I sell my shares, I have to pay taxes on the profit. The cool thing about DGI is you get dividend income whether the stock price goes up or down. Dividends are paid on a per share basis, independent of the stock price...

      Delete
  5. Congratulations on the growth. Have you considered, though, that although your yield on cost is high, the current dividend rate is low, and you feel the stock to be over valued. It would seem to me that that this means that a more efficient allocation of your resources would be to sell some (or all) of this, and find another dividend value.

    ReplyDelete
    Replies
    1. Thanks for commenting, Anonymous. Why do you think selling would be a more efficient allocation? I'm earning 3.67% on my shares, which is quite good. The fact that GD is overvalued now and only yielding 1.79% is only relevant when buying more shares. As long as GD continues to raise their dividend at a decent rate (and my yield on cost continues to grow), I'm happy holding on to my shares.

      Take care!

      Delete
  6. Pretty spectacular, even as dividend growth investors it is something to appreciate! While I won't hit the 100% mark on anything soon I don't think, my closest is Lorillard approaching 60%. I actually am planning on selling LO to capture the gains from the RAI deal since I don't have any desire to own RAI.

    Also, as an Orioles fan, I wasn't sad to see the Royals lose... and holy cow, Pence and Baumgarner were monsters during the World Series. Great series to watch.

    ReplyDelete
    Replies
    1. The Royals were a worthy opponent -- they had amazing relief pitchers, all capable of pitching fast balls near (and even over) 100 mph. In the end, Baumgarner, Pence, and Sandoval and the Giants' defense were the difference.

      My next best in DivGro is INTC at 62% (yes, I'm still clinging on to INTC!).

      Good luck with the LO sale and reinvestment -- it would be interesting to see what you do replacement -wise...

      Delete
  7. I just saw this post. Congrats on getting a double-bagger. My first was WAG and my position in LMT has increased a lot with all of the defense contractors.

    Cheers!

    ReplyDelete
    Replies
    1. Thanks! Congratulations on WAG and LMT! Yes, LMT has really gone up remarkably in the last 2 years -- amazing performance!

      Take care!

      Delete

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