Wednesday, December 26, 2018

New Additions to My Portfolio (Part 1)

The stock market dropped to a 20-month low on the worst Christmas Eve trading day ever! Continued turmoil in Washington is rattling financial markets, and the S&P 500 is on the brink of a bear market.

Given this context, it is weird to be reporting new buys for my portfolio. But I've been positioning DivGro for increased volatility and in anticipation of this long-running bull market coming to an end. I have to confess that I've been operating under the assumption that the bulls would keep the bears at bay for another year or so. We'll see how it goes...

This article reports on six recent buys, all new positions in my portfolio. Part 1 covers additions in the Materials and Energy sectors, while Part 2 will cover additions in the Financials and Information Technology sectors.

Addition #1: APD (16 shares @ $157.90)


I've been looking to add Materials sector stocks for a while, and now I can report two additions!

The first is Air Products and Chemicals (APD), one of the top 10 Material sector stocks I covered in last month's edition of my 10 Dividend Growth Stocks article series. On 6 December 2018, I bought 16 shares of APD at $157.90 per share, for an initial yield on cost (YoC) of 2.79%.

The stock is down about 5% since my purchase, and with 5 days to go until APD trades ex-dividend, perhaps I should consider adding to my position.

About APD

Founded in 1940 and headquartered in Allentown, Pennsylvania, APD produces atmospheric gases (such as oxygen and nitrogen), process gases (such as hydrogen and helium), and specialty gases, as well as the equipment for the production and processing of gases. APD also provides semiconductor materials, refinery hydrogen, natural gas liquefaction, and advanced coatings and adhesives.

APD is a Dividend Champion with 36 consecutive years of dividend increases. The stock yields 2.94% at $149.88 per share and has an annualized dividend growth rate of 9% over the last five years. According to Simply Safe Dividends, APD's dividend is considered Very Safe with a dividend safety score of 95.
Source: Simply Safe Dividends

Valuation

Here are several fair value estimates and price targets for APD:

Finbox.io Fair Value: $124 (uncertainty: low) 
Morningstar Fair Value Estimate: $187 (uncertainty: medium)
Simply Safe Dividends Derived Fair Value: $180 (yield is 20% above 5-year average yield)
Simply Wall St Future Cash Flow Value: $89 (2-stage discounted cash flow analysis)
TipRanks Analyst Price Target: $191 (5 Analysts • target range: $181–$210)
Value Line Target Price: $205 (target range: $185–$255)
Yahoo! Finance Analyst Price Target: $188 (20 analysts • target range: $163–$210)

Ignoring the lowest and highest ($89 and $205), and averaging the mean and median of the remaining estimates and price targets, I arrive at a reasonable fair value estimate of $179.

My buy price of $157.90 is about 12% below fair value, and at the current stock price of $149.88, APD is discounted by about 16%.

Ratings

Following is a table containing ratings and rankings of APD from various sources:
 DARS Rating: 
 
Highly Recommended (4.6 to 5.0) 
 Rating for Stocks: 
 ★★(5-Star Price < $130.90)
 Analyst Consensus: 
 
(5 Analysts) 
 Rating and Rank: 
  Financial Strength:     Safety: 
 
 Rank and Style Scores: 
  Hold    †VGM: 
    
†VGM Style:  Value   Growth   Momentum  and  combined VGM  score

And here is APD's dividend score card:
Source: essentialα (Seeking Alpha Essential)

This buy adds $70.40 to DivGro's projected annual dividend income.

Addition #2: IP (100 shares @ $42.50)


The second Materials sector stock I added to DivGro recently is International Paper (IP), the result of an options assignment one day before options expiration day. On 20 December 2018, I bought 100  shares of IP at $42.50 per share, for an initial yield on cost (YoC) of 4.71%.

On Christmas Eve, the stock closed at $37.56 per share, down about 12% from the strike price of $42.50.

About IP


Founded in 1898 and based in Memphis, Tennessee, IP is a packaging and paper company with primary markets and manufacturing operations in North America, Europe, Latin America, Russia, Asia, North Africa, and the Middle East. IP’s businesses include industrial and consumer packaging along with uncoated papers and pulp.

IP is a Dividend Challenger with 8 consecutive years of dividend increases. The stock yields 5.32% at $37.56 per share and has an annualized dividend growth rate of 11% over the last five years. According to Simply Safe Dividends, IP's dividend is considered Safe with a dividend safety score of 68.
Source: Simply Safe Dividends

Valuation

Here are several fair value estimates and price targets for IP:

Finbox.io Fair Value: $52 (uncertainty: low) 
Morningstar Fair Value Estimate: $49 (uncertainty: high)
Simply Safe Dividends Derived Fair Value: $37 (yield is 54% above 5-year average yield)
Simply Wall St Future Cash Flow Value: $44 (2-stage discounted cash flow analysis)
TipRanks Analyst Price Target: $51 (9 Analysts • target range: $44–$55)
Value Line Target Price: $105 (target range: $85–$125)
Yahoo! Finance Analyst Price Target: $55 (12 analysts • target range: $44–$77)

Ignoring the lowest and highest ($37 and $105), and averaging the mean and median of the remaining estimates and price targets, I arrive at a reasonable fair value estimate of $50.

My buy price of $42.50 is about 12% below fair value, and at the current stock price of $37.56, IP is discounted by about 16%.

Ratings

Following is a table containing ratings and rankings of IP from various sources:
 DARS Rating: 
 
Neutral (2.6 to 3.5) 
 Rating for Stocks: 
 ★★(5-Star Price < $29.40)
 Analyst Consensus: 
 
(9 Analysts) 
 Rating and Rank: 
  Financial Strength:     Safety: 
 
 Rank and Style Scores: 
  Buy    †VGM: 
     
†VGM Style:  Value   Growth   Momentum  and  combined VGM  score

And here is IP's dividend score card:
Source: essentialα (Seeking Alpha Essential)

My new IP position adds $200 to DivGro's projected annual dividend income.

Addition #3: CVX (24 shares @ $104.40)


I'm revisiting Chevron (CVX), which was the first stock I ever purchased for DivGro. I closed my position in July 2016 for a small gain of 10%. At the time, I was preparing DivGro for options trading and needed to sell some positions in order to increase other positions to at least 100 shares (the options multiplier).

On 21 December 2018, I bought 24  shares of CVX at $104.40 per share, for an initial yield on cost (YoC) of 4.29%. The stock now trades just below $104 per share, slightly below my entry price.

About CVX


Founded in 1984 and based in San Ramon, California, CVX is a multinational energy corporation involved in all aspects of the oil and gas industries, including exploration and production; refining, marketing and transport; chemicals manufacturing and sales; and power generation. CVX is the fifth largest integrated energy company with operations in about 180 countries.


CVX is a Dividend Champion with 32 consecutive years of dividend increases. The stock yields 4.48% at $103.92 per share and has an annualized dividend growth rate of 3% over the last five years. According to Simply Safe Dividends, CVX's dividend is considered Very Safe with a dividend safety score of 86.
Source: Simply Safe Dividends

Valuation

Here are several fair value estimates and price targets for CVX:

Finbox.io Fair Value: $115 (uncertainty: medium) 
Morningstar Fair Value Estimate: $136 (uncertainty: medium)
Simply Safe Dividends Derived Fair Value: $118 (yield is 13% above 5-year average yield)
Simply Wall St Future Cash Flow Value: $88 (2-stage discounted cash flow analysis)
TipRanks Analyst Price Target: $136 (8 Analysts • target range: $128–$148)
Value Line Target Price: $145 (target range: $130–$160)
Yahoo! Finance Analyst Price Target: $150 (23 analysts • target range: $128–$187)

Ignoring the lowest and highest ($88 and $150), and averaging the mean and median of the remaining estimates and price targets, I arrive at a reasonable fair value estimate of $132.

My buy price of $104.40 is about 21% below fair value.

Ratings

Following is a table containing ratings and rankings of CVX from various sources:
 DARS Rating: 
 
Recommended (3.6 to 4.5) 
 Rating for Stocks: 
 ★★(5-Star Price < $95.20)
 Analyst Consensus: 
 
(8 Analysts) 
 Rating and Rank: 
  Financial Strength:     Safety: 
 
 Rank and Style Scores: 
  Hold    †VGM: 
     
†VGM Style:  Value   Growth   Momentum  and  combined VGM  score

And here is CVX's dividend score card:
Source: essentialα (Seeking Alpha Essential)

My new CVX position adds $107.52 to DivGro's projected annual dividend income.

Concluding Remarks


I added six new positions to DivGro in December. Part 1 of this article covered three of these additions, APD, IP, and CVX.  These stock will add $377.92 to DivGro's projected annual dividend income.

See the upcoming Part 2 for three more additions!

The stock market is quite volatile, but, so far, I've been operating under the assumption that the bulls would keep the bears at bay for another year or so. We'll see if my assumption will hold!

Thanks for reading and take care, everybody! 
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4 comments :

  1. All 3 are solid companies. I've owned APD since 2013 and have been very happy with that investment and I still have their spin off VSM too which has done nicely as well. Sadly I didn't invest more than I did.

    The recent market turmoil sure has opened up a lot more opportunities for value investors. I don't own more than a negligible amount of AAPL but man is it tempting in the $150s. Visa is another one that still looks solid even after the bounce today. CL is approaching a 3% yield which should be a solid entry point for them although I think they're still dealing with the issues in Venezuela.

    ReplyDelete
    Replies
    1. Hi, PIP -- thanks for commenting.

      APD's performance has been solid, especially if you take the spin-off into account!

      You're right about the opportunities out there... though I think it is a tricky market right now. Some analysts think we're already in a bear market and we won't go back to a bull market until there is "blood in the streets". This makes it even more important to mind one's stock selection criteria.

      Perhaps I should revisit my stock selection criteria...

      Take care and happy investing!

      Delete
  2. Very informative blog! Thank you for your efforts.

    ReplyDelete

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