Thursday, December 29, 2016

Some Recent Buys (Part 2)

Yesterday I posted Part 1 of several December buys that have gone unreported so far. The buys are all additions to existing positions rather than new positions.

For several months now, I've consolidated my DivGro portfolio with the goal of preparing for options trading. To do so, I closed several positions and used the cash to round out remaining positions to 100 shares (or multiples of 100 shares) for covered call trading.

I'm also moving much of my portfolio to Interactive Brokers because of the company's competitive commissions, especially for options trading. This process will take some time to complete and I'll probably have a short period in which no trading would be possible.

Anticipating a short trading hiatus, I've completed several buys and sells (not yet reported) this month. Following are summaries of three buys I executed on December 7th and 9th:

The Procter & Gamble Company


Headquartered in Cincinnati, Ohio, The Procter & Gamble Company  (PG) is focused on providing branded consumer packaged goods in more than 180 countries. The company was incorporated in Ohio in 1905, having been built from a business founded in 1837 by William Procter and James Gamble. PG currently competes in 37 product categories and has five reportable segments: Beauty, Grooming, Health Care, Fabric Care and Home Care, and Baby Care and Family Care.

PG is a Dividend Champion with a track record of 60 consecutive years of dividend increases. The company pays quarterly dividends of 66.95¢ per share in the months of February, May, August, and November. Given a per share price of $84.35, the stock yields 3.17%.

On 7 December I bought 68 shares of PG at $82.75 a share, rounding out my position to 100 shares ready for a covered call trade. The yield on cost (YoC) of my PG position now averages 3.28% and I'm adding $182.10 to DivGro's projected annual dividend income (PADI).

My average cost basis is $81.77, illustrated in the following price chart along with my entry points:


My fair value estimate of PG is $76.90, which means I paid a premium price to round out my position for options trading. I'm fine with that, as I'll be earning options income on this position soon.

Morningstar's fair value estimate of PG is $92.00, whereas S&P Capital IQ calculates a fair value of $70.50. According to Tipranks, based on 10 ranked analysts offering 12-month price targets for PG the average price target is $92.00. Finbox.io has a fair value estimate of $77.58.

Finbox.io presents a complete breakdown of its fair value estimate as well as range visualizers, not only for its own range of estimates but also for Wall Street analysts' targets and the stock's 52-week trading range (see below, left). I also like Simply Wall St's snowflake graphic, which presents a visual summary of a stock's fundamentals and investment profile.

     
















Here is a table with updated ratings of PG from various sources:

DARS Rating: 
 Recommended (3.5 to 3.7) 
Rating for Stocks: 
 ★★★
STARS and Quality Ranking: 
 
   Quality Ranking:  A 
Quant Rating: 
 
Analyst Consensus: 
 
(10 Analysts) 
Rating and Rank: 
  Financial Strength:     Safety: 
 
Rank and Style Scores: 
  4-Sell    †VGM: 
    
†VGM Style:  Value   Growth   Momentum  and  combined VGM  score

While PG is up over 7% in 2016, the company has been struggling to boost sales. Slowing market growth and the impact of a strong US dollar have depressed sales. Additionally, divestitures of underperforming segments are also impacting sales. However, divestiture will help the company in the long run as it concentrates more on core businesses with greater potential for growth. Recent articles on PG disagree on the companies prospects. Dmitry Shvetsov sees PG as a short-selling opportunity, while Willow Street Investments and Simply Safe Dividends advocate buying shares for the 3%+ yield.

The Coca-Cola Company


The Coca-Cola Company (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.

KO is a Dividend Champion with a 54-year streak of dividend increases. The company pays quarterly dividends of 35¢ per share in the months of January, April, July, and October. At the current share price of $41.61, the stock yields 3.36%.

On 9 December, I bought 100 shares of KO at $41.96 per share. The buy doubles my KO position to 200 shares with an average cost basis of $41.31. My YoC averages 3.39% and I'm adding $140 to DivGro's PADI.

Here is a price chart depicting my entry points relative to the average cost basis:

My fair value estimate of KO is $31.94, which means I paid a premium price for these shares. I'll be able to make up by selling covered calls on my KO shares.

Morningstar's fair value estimate is $44.50, whereas S&P Capital IQ calculates a fair value of $26.90. According to Tipranks, based on 6 ranked analysts offering 12-month price targets for KO the average price target is $44.00. Finbox.io has a fair value estimate of $29.11, as illustrated below:

 Source: Simply Wall St














Here is a table with updated ratings of KO from various sources:

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

KO is a popular stock among dividend growth investors. In the 2015 edition of the Blogger's Portfolio, the stock was included in 33 of 60 portfolios, the third most of any stock after Johnson & Johnson (JNJ) and AT&T (T). Soon I will post the 2016 edition, and it will be interesting to see if KO remains in the top ten. Not only is KO a Dividend Champion, it is also a member of the S&P 500 Dividend Aristocrats and the elite Dividend Kings. With its iconic brand and worldwide distribution network, KO has a wide economic moat.

Cisco Systems, Inc


Cisco Systems, Inc (CSCO) designs, manufactures, and sells internet protocol-based products and services and delivers integrated solutions to develop and connect networks around the world. The company serves businesses of various sizes, public institutions, governments, and communications service providers. CSCO sells its products directly, as well as through channel partners, such as systems integrators, service providers, other resellers, and distributors. The company was founded in 1984 and is headquartered in San Jose, California.

The stock is a Dividend Challenger with a track record of 6 consecutive years of dividend increases and a 3-year dividend growth rate of 32%. CSCO pays quarterly dividends of 26¢ per share in the months of January, April, July, and October. At a share price of $30.68, the stock yields 3.39%

On 9 December, I bought 100 shares of CSCO for $30.04 per share.

With this buy, I'm increasing my CSCO position to 300 shares with an average cost basis of $30.30. I'm adding $104 to DivGro's PADI, while the average YoC of my CSCO shares is 3.43%.

Here is a price chart depicting my entry points relative to the average cost basis:


My fair value estimate of CSCO is $33.24.

In comparison, Morningstar's fair value estimate is $27.00, while S&P Capital IQ calculates a fair value of $33.90. Based on 22 ranked analysts offering 12-month price targets for CSCO, Tipranks estimates an average price target of $33.03. Finbox.io has a fair value estimate of $34.10, as illustrated below:

         

   Source: Simply Wall St
















Here is a table with updated ratings of CSCO from various sources:

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

In August, I posted a stock analysis of CSCO after a $31 CSCO put I had sold got assigned. While CSCO does not have a long history of paying and raising dividends, I like the dividend yield of 3.41% and the stock's dividend growth prospects. CSCO has a very strong balance sheet and a low debt-to-capital ratio. The company returns value to customers through dividend payments and regular share repurchases.


Conclusion


These three buys increase DivGro's projected annual dividend income by a total of $426. DivGro's projected annual dividend income is above $12,000, which was one of my goals for 2016.

Thanks for reading! What do you think of these buys? Do you own any of these stocks or are you interested in buying any of them? Please let me know in the comments below.

3 comments :

  1. Interesting you mentioned IB. I just started my free trial last week (fake money account) and I sort of like it so far. After reading some reviews that it could be a complicated and there was little support, I was nervous so glad they had a free trial. I don't do options just buy long so I find it fairly easy to use for that. It would be great if you could do a review on IB. I think that would be great.

    Of all the buys, the most perplexing to me is the KO buy. Your own FV is $32, yet you bought at $41? I understand you say you will make that up with options so perhaps I just don't understand that part. Been looking at CSCO myself. I have a buy price of $29 so I am waiting a bit there. Good luck FerdiS.

    ReplyDelete
    Replies
    1. I've had an IB account for a while (for options trading outside of DivGro). In using IB's trading system in the past, I can confirm that it is not as straightforward as, say, Scottrade's system. But I got used to it quickly. One thing I missed in the past is support for electronic filing at tax time. Someone mentioned they used Gainskeeper for that reason. I'll investigate and report back.

      As for KO, notice the wide variation of FV estimates (S&P Capital IQ: $26.90 to Morningstar $44.50). My own FV is based on a multistage DDM analysis and the Gordon growth model analysis, with adjustments based on 3rd party estimates. With such a wide variation, I would classify my FV estimate "uncertain", in which case, I lean to the lower end.

      Apart from FV uncertainty, KO is one of those dividend growth stocks that never seem to available at a discount. Perhaps it is the stock's Dividend King status, which probably entices many buyers to buy "no matter what the valuation says". Looking at a long term price chart of KO (say 25 years), this is the kind of stock you want to own... it is up more than 600% not counting dividends.

      As far as options go, we'll see how much I'll make up. Time will tell.

      Take care and happy new year!

      Delete
    2. Yep, definitely KO is a premium stock. I am an owner. Have a Happy New Year as well.

      Delete

Contact Form

Name

Email *

Message *

Follow by Email