Recent Buy

Well, I’ve made two recent purchases and I’d like to share those purchases and the reasons behind them. The market has been a little choppy lately. Commodities have been pulled back and forth, mostly on the volatility of oil. Every time oil gets expensive you have non-stop news on the subject and political backlash. It is inevitable. While I think that oil is naturally only going to head higher due to shrinking resources, the volatility in the short-term needs to be navigated carefully. I don’t believe in timing the market. I’ve stated many times that my main desire with dividend growth investing is to purchase shares in 1 or 2 companies that are undervalued or fairly valued every month. However, with that said, paying attention to the market and where things are likely going is always important. Because of that, I did not purchase or make any other moves with oil holdings. I was thinking of initiating a position in Conoco Phillips or extending my holdings with Chevron, but I am not savvy enough to know where oil is going in the short term. I am savvy enough to know that it’s ok to say that I am not savvy enough. Sometimes knowing your limitations is your greatest advantage.

I made two recent moves. My first move involved purchasing 18 shares of WMT at $55.22 a share on 5/9/2011. This almost doubles my position in Wal-Mart. I believe in Wal-Mart as a retail brand going forward. I think they have an enviable economy of scale with their breadth and size. The expansion potential into emerging markets is almost unlimited. I am probably going to write about Wal-Mart in an upcoming article. The non-believers would quickly point to the fact that Wal-Mart has basically been dead money for the past 10 years. While that is true, a lot of that could be due to the fact that they were vastly overvalued back in 2000. Although dividend growth investing can be a fantastic and disciplined approach to investing and passive income, it still requires that a person invest in quality companies at an attractive price. You can’t blindly invest in a brand name at any price. Valuations are always important, even with a giant and powerful brand like Wal-Mart. At a P/E ratio of 13.14, I think this is an undervalued company with a lot of growth potential in international markets.The entry yield on my investment is 2.68%

My second move involved purchasing 40 shares of TEF at $24.21 a share on 5/11/11. This doubled my position with Telefonica. This will probably be my last investment with TEF for a while, as I don’t believe this should be a core holding for me. This telecommunications giant is based in Madrid, Spain and the shares are ADR’s (American Depository Receipts). Because of that, they are subject to Spanish withholding taxes, but I receive the tax credit from our government. The yield is absolutely huge with Telefonica, at over 9% at current levels. The strength of the Euro and weakness of the dollar will obviously help my yield, and I like the international exposure and currency exposure. Telefonica has increased dividends for nine years now, and I think this company is undervalued with a P/E ratio of 7.61 at time of investment. Obviously, I wish I would have waited a little longer, as it has dipped since my investment. But, I feel I paid a fair price and received a good value on my money. So if it dips, so be it. The only thing that concerns me with Telefonica is the debt load with a 2.4 debt/equity ratio. Based on the proposed dividend distribution of 1.60 Euro per share, this is an effective dividend of $2.25 dollars per share based on current exchange rates. That’s an entry yield of 9.29% on my investment.

Overall, I’m excited about my purchases. Nobody knows where the market is going to go tomorrow or the next day. Some fellow investors expect a market pullback this summer, possibly coinciding with the ending of QE2. We’ll see. I’m not that concerned about the loss of market value on my investments. As long as the companies I invest in keep paying and raising dividends, that is all I care about. A pullback this summer will only give me better entry prices for further investments. I will update my portfolio at the beginning of June to reflect these new purchases. I will probably not make any more moves until June.

What do you think about my recent purchases?

Thanks for reading.

Comments

  1. Dienekes says

    I like the site’s new interface.

    I recently took a position in WMT as well at a very similar price. WMT has a huge moat that I really like and it has growth potential here in the U.S. with Sam’s Club and abroad with expansion. Management is ruthless with cost cuts and seems determined to turnaround existing store sales. Ultimately, I see WMT, like MCD, as inflation hedges.

  2. says

    Dienekes,

    Thanks for stopping by. I agree with you on the economic moat, which is rare in retail space. The declining same-store growth is troubling, but I believe they are back on track with the price-matching and expansion. The growth is almost unlimited and I think the future looks bright for Wal-Mart. I think it’s trading at a very favorable valuation. Thanks, take care!

  3. says

    Mantra,

    I am sitting on some cash right now in my RRSP, which is ideal for purchasing US Stocks ;) I’ve gone through most of the US Stocks, US Aristocrats, and things are looking very expensive right now! And same in the Canadian markets as well. I woould love to buy, but like yourself its hard to say is this the top before a Summer pull-back or just the start of another bull-run?

    Cheers!

  4. says

    Ninja,

    I was going to sit on some cash, but as I alluded to in my post..I’m simply not savvy enough to know where things are going, so I like my cash working for me. I’m anxious of course…as the ending of QE2 may have a dramatic effect on the market..or it may not? It’s hard to say, as you mention. Thanks for stopping by :)

  5. says

    i find that people appreciating the value in telefonica due to the europe crisis is not alot so am happy to see a buddy here.

    our question is whether they will reduce their yields in the future. if they pay out 1.75 euro for 2012 wouldnt that be a 11% yield currently?

    Drizzt
    Investment Moats.com

  6. says

    Drizzt,

    I’m averaging down on Telefonica. I think it’s been unfairly knocked down due to the Euro zone crisis.

    Yield is impacted by payout and share price. I don’t think the payout is going to be reduced, but I do think eventually the share price is going to bounce back, which will reduce the yield. I’m more concerned about them reducing debt than I am about a reduction in payout. Only time will tell, however.

    Take care!

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