So last week I had liquidated my holdings in two different mutual funds, the Fidelity Contrafund and Equity Income Funds freed enough cash that I decided to invest in 4 different companies. Previously, I already owned positions in Ford (F), International Business Machines (IBM), and Exxon Mobile (XOM). These previous purchases were more in regards to gut feelings than any in depth research. I think that the gut-check will still play a part in purchases, but probably only after passing some financial checks in the future. The current amount in these holding is:
- 33 Shares of Ford (F) provides $16.50 in annual dividend income
- 7 Shares of IBM provides $30.80 in annual dividend income
- 12 Shares of Exxon Mobile (XOM) provides $33.12 in annual dividend income
So my beginning annual dividends totaled to a whopping $80.42!
With that said, here are my four recent stock purchases:
Sturm Ruger (RGR)
I purchased 25 shares of RGR for $58.47 a share after fees. Based on the most recent dividend this purchase boosts dividend income by a healthy $49.00 a year. Now speaking of the dividend, this has actually been shrinking the last 4 quarters and in the past it seems to fluctuate a bit. That being said I don’t think this is necessarily a bad stock because it is overall trending upwards and have been for 5 years to be considered a dividend Challenger. The payout ratio is also at a low 37.9% which should allow the company to grow dividends in the future. Additionally the debt-to-equity ratio is just above .35 so the debt levels shouldn’t be constricting the company in the near future.
The stock is also far off of it’s 52-week high of $85.93, providing a solid entry. Also, the stock is trading at a P/E Ratio of 10.5 which solidifies my thoughts that it is a good value entry point. Income Growth has averaged 57.9% over the past three years while revenue growth has average 39.2%.
Overall, the dividends are a bit more fluid than the typical dividend stocks, but growth has been solid for the past 5 years and the debt to equity seems to be staying in line as well. The market is placing a very low current P/E ratio and if the dividend levels stay the same, the stock can potentially provide some good grow with a decent yield to boot. The company is a well-known gun manufacturer and people in America are loyal to their guns it seems. I feel that this provides a nice economic moat.
Risks include an increase in gun regulation. A recession will probably drop this stock’s revenue and income much greater than your typical consumer staple stock would experience. Also, the dividend’s recent trend downward suggests that this years sales haven’t been as robust as prior years.
Kellog (K)
I purchased 21 shares of K for $66.17 a share after fees. Based on the most recent dividend this purchase boosts dividend income by $38.64, however this stock is also due for a dividend raise. They have been raising their dividend for 10 years straight and the current payout ratio is at 34.8% and leaves room for growth of future dividends. Debt to equity isn’t very pretty… They have very high debt levels and being that they are highly leveraged and this could cause problems in the future for dividends.
The stock’s 52-week high is $69.50, so this is may not be the best entry point in the market, but it is hard to find value in this market. Speaking of value, the Stock’s P/E ratio is currently at 12.6. Income Growth has averaged 12% over the past three years while revenue growth has averaged a mere 6.1%.
Overall I believe this is a good stock purchase at the price point, the one concern is the debt levels hindering the growth of future debt levels and may be a reason why the payout ratio is lower than other stocks. But if Kellog and grow and the debt remains at the same level (or decreases!) this can provide an opportunity in the future for some hearty dividends. For another take on Kellog, dear dividend made a case for this stock recently.
Aflac (AFL)
I purchased 23 shares of AFL for $62.59 a share after fees. At 37 cents a share quarterly dividends this stock will raise my ROTH’s dividends by another $34.04 each year. The fact that Aflac has been raising their dividend for 31 straight years makes this possibly the best purchase out of the cluster I purchased on the 11th of this month (at least historically). As with all I have been looking at in the insurance industry they also have a high level of debt, but with a low payout ratio of just under 23% I believe they have the ability to continue to raise dividends in the future.
The 52 week range is much tighter than most stocks in the market being that it is between 57.36 and 67.62, suggesting that I have purchased the stock not at a bargain, but also not when the market had it’s highest expectations of AFL either. Speaking of a stocks with value, I love that the P/E ratio was below 10 for this great dividend stock. Income grow has been just over 10% for the past 3 years while revenue growth is at 4.9%.
When looking at my first expansion into individual stocks it did seem that insurance (or financial) stocks are trading at much lower P/E’s than the broader market. It may be that this area just doesn’t grow as fast during an economic recovery, but I also think that it is more stable as well. There is value to be had and I think this stock provides good longer term stability and the 31 years of dividends increasing reaffirms this.
[John] Deere & Company (DE)
I purchased 16 shares of DE for $88.07 per share after fees. They have recently increased their quarterly dividend to 60 cents a share so this share will boost dividends by $38.40 a year. With only 11 years of history for raising dividends this is another stock that I hope turns into a future champion. DE also carries a decent amount of debt, but they also provide in house financing activities which can skew this level. With a payout ratio of 26.26% I feel that this stock has the ability to provide me growing dividends over the long haul, which is what I am looking for in my mid-late twenties.
This stock purchase is a bit above the mid-level in the past year with a 52 week high of $94.89 a share. The P/E ratio sits at an attractive 9.76 and by attractive I don’t mean I want a date with it, I’m married, get your mind out of the gutter. Moving forward they have had strong net income growth of 23.8% over the past three years with revenue growth of 13.3% over that same time period
Overall I think that this is another solid prospect for future dividends. As a young investor I want the stocks that will turn into the champions and aristocrats of the future and DE may have the ability to do this. Dividend Mantra actually posted a recent buy before I finished this post and has a very good analysis on why he purchased DE.
Summary
The dividends from these purchases bring my total annual dividend income to $240.50, not a bad start!
As you may notice I have a theme of purchasing stocks with low P/E ratios in my July Purchase. As I previously owned only 3 dividend stocks I felt that I could be fairly picky towards which stocks I initially purchased, and a low P/E ratio was just a single factor.
I hope to expand my philosophy for purchasing stocks in the future, but for this initial purchase I looked at a few main things.
- Current P/E Ratio at or below 15?
- Low payout ratio (below 40%) to provide future dividend growth?
- Are debt levels shrinking or at least staying level in proportion to equity levels?
- Is Net Income Rising?
- Do I or someone I know purchase their products?
So after all of this and if I felt comfortable (gut-check) about the stock then I decided to make the purchase. As I continue to buy the shares priced at discounts I will be moving onto shares with higher P/E ratios, higher payout ratios, and onto stocks that I do not necessarily know the product (which is important for diversification, there are a lot of companies that just sell to other companies, and I am not a big user of health care, but there is good potential in that industry). Many of these stocks that were purchased in this batch do not have extremely long dividend histories with the exception of AFL and that is more than likely because of my desire for lower pay-out ratio stocks to start with. I want a company that 20-30 years down the road can continue to grow dividends, so I need the future stars as well as the current ones. I think the one stock that bodes the most risk out of this group is RGR with their current dividend decreases, but I feel that they can provide growth over the long term as I do not currently need these dividends to live off of. If the dividends continue to fluctuate when I am nearing retirement in the future then it may be wise the sell the stock, but in the near term this does not pose a risk for me.
Disclosure: Long XOM, F, IBM, RGR, K, AFL, DE
Thanks for linking to my Kellogg (K) blog post. The P/E is attractive and if I wasn’t trying to add other positions to my portfolio, I’d probably through some more $$$ at K. I’d like to see the price drop in order to bump of the dividend yield a little.
Regards,
Dear Dividend
You are welcome Dear Dividend.
I was looking through my blog roll at the dividend guys because I know there were some recent posts on some of these stocks. I think I need to update my blog roll because I know I saw some more… I think it is a nice resource for people interested in the stocks to get more than just my perspective.
Thanks for stopping by!
Kipp
Kipp,
Congrats on the purchases, seems like you added a lot of excellent positions to your portfolio!
I’m currently looking to get into the dividend growth business and Aflac is high on my “to buy” list, especially because they have been raising dividend so consistently, like you said.
Have a great weekend,
NMW
PS: thanks for responding that my blog doesn’t work at all. I’m looking into it, although I haven’t found much yet.
No worries, it may not be your site but it could be my provider since I have AT&T at home and work? Does anyone else have an issue going to No More Waffle’s blog?
Not that I’ve heard of! DNS settings and the like seem to work fine.
If every AT&T user has trouble accessing NMW, that’s a whole lot of people…
I did try a different browser as well since I am usually on chrome, but it didn’t load with internet explorer either…
I think these are some solid choices Kipp. Like you said, it’s hard to find value in this market. I think Aflac, XOM, and Deere should all work out well over the long haul, as will Kellog’s. I like the moat that Aflac has. Deere is cyclical, and the fear of another housing/construction bust when all the money dries up is keeping me out of them and CAT (not to mention this drought in the Western US). Plus, I’m a very timid investor, and honestly don’t know too much about the underlying values to intelligently invest in them at this point. And you’re definitely right about the gun regulation in the US, but I think that was a great entry point for Sturm Ruger. I might look into that one more this weekend
Have a good one bossman!
I think the more cyclical stocks are fine for the long haul, but maybe not as much when you need to live off of dividend income. If you have enough dividends in consumer staples it is nice to have stocks like Deere and Sturm Ruger that can add some growth prospects. I don’t need to live off of the dividends right now, so a cut right now won’t kill me, as long as the long term growth is there.
Thanks for stopping by!
Kipp,
Thanks for the mention.
Glad to see you as a fellow shareholder in Deere!
I think DE will serve us well over the long haul. Green dividends are coming our way (in more than one way).
Best wishes.
Hi Jason,
No problem, I enjoyed your article. I need to link up with more of the dividend guys because I know I saw someone else purchasing (or looking at) Deere recently, but couldn’t remember who to give them a shout.
As long as you don’t think my tractor is sexy, we’re all good!
Wow, nice buys! Looks like you’ve been on shopping spree!
Cheers,
Henry
Yea, ~ 1,400 put into each new position. From here it will probably be like every other month when I am adding to the ROTH to keep transactions fees low.
But I guess that depends on if I rollover my wife’s ROTH sooner than later, need to figure out all of the fees involved to make that decision. If it gets rolled over sooner than later there will be another shopping spree lol.
Solid purchases all around. Nice to be a fellow shareholder with you among some of the names listed. AFL has been my go to stock in May, June and July. In the financial sector it seems to have a lot of followers as well. Thanks for sharing.
Yea, I actually owned them on a gut purchase previously and sold and re-bought them now for the long haul. Although trading can be fun, it isn’t the best long-term solution for building wealth imo. Which is why I am focusing my ROTH accounts on stocks that I will just keep and eventually pull the interest out of when I retire. I see you just put out a post mentioning 3 of the stocks I have mentioned as purchases as good values. I think most dividend investors seem to shy away from RGR, we’ll see how it does for me!