Friday, August 19, 2016

More Round Out Buys

Last month I closed several positions so I could round out the number of shares of some DivGro positions to 100 (or multiples of 100). The reason for doing so is to prepare DivGro for options trading. Each option controls 100 shares, so I would need to own at least 100 shares of a stock before entering into an options trade.

Today I'm reporting 3 additional round out trades. I'm increasing the number of shares of 3 DivGro holdings to 100 shares, making them eligible for options trading.

With the markets trading at record highs, most of the stocks in my portfolio are trading at a premium. Its not a great time to buy, but I'm biting the bullet and buying shares even at a premium to fair value.

Round Out Buy #1


9 August 2016: Bought 35 shares of KO at $43.68 per share.

The Coca Cola Company (NYSE:KO) is the world's largest beverage company and the leading producer and marketer of soft drinks. Along with Coca-Cola, recognized as the world's best-known brand, KO markets four of the world's top five soft drink brands, including diet Coke, Fanta and Sprite. KO was founded in 1886 and is headquartered in Atlanta, Georgia.

I already own 65 shares of KO, so with this buy I'm rounding out to a total of 100 shares. Average yield on cost (YoC) is 3.45% and my cost basis per share is now $40.60. With this buy, DivGro's projected annual dividend income increases by $49.00.

Here is a chart showing my buys:

Following is a table containing updated ratings of KO from various sources:

 DARS Rating: 
 Neutral (2.5 to 3.4) 
 Rating for Stocks: 
 ★★★☆☆   Credit Rating:  A+ 
 STARS and Quality Ranking: 
    Quality Ranking:  A 
 Quant Rating: 
 
 Analyst Consensus: 
 (11 Analysts) 
 Rating and Rank: 
  Financial Strength:     Safety:  
 Rank and Style Scores: 
  4-Sell    †VGM:     
 †VGM:  Value   Growth   Momentum  and  combined VGM  score

Valuation

Morningstar's fair value estimate is $44.00 while S&P Capital IQ has a fair value calculation of $27.80. According to Tipranks, based on 11 ranked analysts offering 12-month price targets in the last 3 months, the average price target for KO is $49.13.

I use the fundamental analysis tools available at finbox.io. The site provides several stock valuation models and a very convenient summary of the average fair value estimate of several models with default settings. For KO, finbox.io's fair value is $36.98 (see below).

Looking at the earnings- and price-correlated F.A.S.T. Graphs chart for KO for an 8-year period, we can estimate a fair value of $38.48 for the normal P/E Ratio of 19.2 (see below).

Ignoring the lowest and highest of these estimates, the average fair value is $39.82. My buy price of $43.48 means I paid a premium of about 10% to fair value.
 
 

Round Out Buy #2



9 August 2016: Bought 64 shares of D at $74.86 per share.

Founded in 1909 and headquartered in Richmond, Virginia, Dominion Resources, Inc. (NYSE:D) produces and distributes energy, natural gas and related services to customers primarily in the easter region of the United States. Operations are conducted through various subsidiaries, including Virginia Electric and Power Company.

I already own 36 shares of D, so with this buy I'm rounding out to a total of 100 shares. Average yield on cost (YoC) is 3.84% and my cost basis per share is now $72.90. DivGro's projected annual dividend income increases by $179.20. 

Here is a chart showing my buys:

Following is a table containing updated ratings of D from various sources:

 DARS Rating: 
 Recommended (3.5 to 3.7) 
 Rating for Stocks: 
 ★★★☆☆   Credit Rating:  NA 
 STARS and Quality Ranking: 
    Quality Ranking:  B 
 Quant Rating: 
 
 Analyst Consensus: 
 (8 Analysts) 
 Rating and Rank: 
  Financial Strength:     Safety:  
 Rank and Style Scores: 
  3-Hold    †VGM:     
 †VGM:  Value   Growth   Momentum  and  combined VGM  score

Valuation

According to Tipranks, based on 8 ranked analysts offering 12-month price targets in the last 3 months, the average price target for D is $79.57. Morningstar's fair value estimate is $76.00 while S&P Capital IQ has a fair value calculation of $61.30. The average fair value estimate of D, according to finbox.io, is $58.69 (see below).

Looking at the earnings- and price-correlated F.A.S.T. Graphs chart for D for an 8-year period, we can estimate a fair value of $66.78 for the normal P/E Ratio of 17.3 (see below).

Ignoring the lowest and highest of these estimates, the average fair value is $68.03. My buy price of $74.86 means I paid a premium of about 10% to fair value.


Round Out Buy #3



9 August 2016: Bought 72 shares of KMB at $129.90 per share.

Kimberly-Clark Corporation (NYSE:KMBis engaged in the manufacturing and marketing of a range of products made from natural and synthetic fibers using advanced technologies in fibers, non-wovens and absorbency. Key brands include Huggies, Kleenex, Scott, Cottonelle, WypAll, Kimberly-Clark and On-Q. The company was founded in 1872 and is headquartered in Dallas, Texas.

I already own 28 shares of KBM, so with this buy I'm rounding out to a total of 100 shares. Average yield on cost (YoC) is 3.10% and my cost basis per share is now $118.88. DivGro's projected annual dividend income increases by $264.96. 

Here is a chart showing my buys:

Following is a table containing updated ratings of KBM from various sources:

 DARS Rating: 
 Neutral (2.5 to 3.4)
 Rating for Stocks: 
 ★★☆☆   Credit Rating:  A 
 STARS and Quality Ranking: 
    Quality Ranking:  NA 
 Quant Rating: 
 
 Analyst Consensus: 
 (4 Analysts) 
 Rating and Rank: 
  Financial Strength:     Safety:  
 Rank and Style Scores: 
  3-Hold    †VGM:     
 †VGM:  Value   Growth   Momentum  and  combined VGM  score

Valuation

Morningstar's fair value estimate for KBM is $111. According to Tipranks, based on 4 ranked analysts offering 12-month price targets in the last 3 months, the average price target for RAI is $133.
The stock valuation models at finbox.io with default settings indicate a fair value estimate of $116 (see below).

Looking at the earnings- and price-correlated F.A.S.T. Graphs chart for RAI for an 8-year period, we can estimate a fair value of $109.64 for the normal P/E Ratio of 16.8 (see below).

Ignoring the lowest and highest of these estimates, the average fair value is $113.5. Since I paid a $129.90 per share, I paid a premium of about 14% to fair value.

 



Summary


I bought shares of KO, D, and KMB to round out my share counts to 100 shares (or multiples of 100 shares) so I can write covered calls on these stocks. 

Together, these buys add $493.16 to DivGro's projected annual dividend income, which now totals $11,556.06.

Thanks for reading! What do you think of these buys? Do you trade options? Please let me know in the comments section below.

10 comments :

  1. Some big purchases there to round out your sharecount. Will be looking forward to see how you will be juicing up your returns via options.

    Best wishes
    R2R

    ReplyDelete
    Replies
    1. Thanks for visiting and commenting, R2R -- particularly the KMB buy is an abnormally big one for me. Anyway, I'm hoping to make up for the fact that I've overpaid for these stocks by collecting fat option premium checks! We'll see how it goes.

      Delete
  2. I need to learn about options but it seems like some DGI investors are now looking to options. Hope to follow you guys and learn what its all about!

    -TDM

    ReplyDelete
    Replies
    1. Based on my own experience, options are good if you understand the intricacies -- and if you sell rather than buy options. One big difference between options and stocks is that there's a timer involved (the expiration date). You can use that to your benefit if you know how, or it can nail you if you're not careful.

      Delete
  3. Those are some big buys Ferdi and the added dividends and option premium should be a nice juice to your investment income.

    ReplyDelete
    Replies
    1. HI PIP -- yeah, big buys indeed. Getting to 100 shares on some stocks takes some doing! I'm looking forward to collecting some added dividends and especially the options premiums!

      Delete
  4. Nice job Ferdi. I'm looking forward to see your options trades.

    ReplyDelete
    Replies
    1. Thanks -- I'm looking forward to getting more into options. Yesterday, a couple expired and I can write additional calls again!

      Delete
  5. Replies
    1. Me too :-) Can't wait to boost my dividend income!

      Delete

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