Recent Buy

buyThe markets have been very turbulent lately. It seems there is no shortage of bad news. Greece’s possible default, Italy’s trouble and the U.S. debt ceiling are all on investor’s minds. It’s also on mine. But, I believe the world will keep turning today, tomorrow and ten years from now. I may end up slowing my investment rate until this fall, just to see what happens with all the debt talk. We’ll see. I really enjoy buying, but I believe in being prudent.

I made a small purchase this month. I have been increasing my investments as I’ve been pretty successful in budgeting down my expenses. I have a little cash on hand for a possible second purchase this month, but I may wait until August. It seems to be a wait-and-see game in the market.

I purchased 25 45 shares of TEF at $22.16 a share on 7/11/2011. Telefonica has been hammered since I initiated a position, as they are headquartered in hard-hit Spain. Spain is not doing nearly as bad as some of the other Eurozone members, but there is, of course, a lot of negative attention on the entire union. I made this purchase on July 11, when a lot of ADR’s (American Depository Recepits) were being hammered and some were unjustly punished. I have averaged down on this position as I purchased my initial allotment of shares near a trading high and have made two separate purchases at subsequently lower prices. These two additional purchases have lowered my cost basis, but increased my risk through a higher position weighting.

Telefonica is a little unique in my portfolio. It’s my highest yielding position, and I think it’s fair to say it’s also the highest risk. It is headquartered in a shaky Eurozone country and the debt load is far from satisfactory, even for a telecom. I believe their dividend is fully sustainable, or I wouldn’t have increased my position size. There is a little blood in the streets regarding the Eurozone right now, and I decided that TEF is now fully in the undervalued territory, even with the high debt load.

The payout ratio now stands around 70%, which leaves room for increases. Telefonica is very shareholder friendly in regards to dividends, as I have discussed a few times. The majority of revenue comes from Latin America, a growing region far away from troubled Spain. The entry yield on this investment stands at 10.17%.

I liked TEF at $25 a share when I first initiated a position with the company, so I love it at ~$22 a share. I feel it’s currently overweight in my portfolio, or I’d increase my position even further. As it stands, I believe I will hold from any further additions to this position, even if the price drops further. I made my purchase when TEF was down over 4% for the day.

S&P currently has TEF at a 4-star BUY. They have a 12-month price target at $30 a share. I feel that’s probably fair once the Eurozone gets things under control.

I feel comfortable with this purchase. I am a fan of averaging down, if the investment thesis remains static and fundamentals remain unchanged. In my case, TEF has been unfairly beaten down to the Eurozone crisis. Due to this, I feel that it represented an opportunity to increase my holdings.

What are you buying?

Thanks for reading.

Edit: I made an error. I purchased 45 shares of TEF, not the 25 originally published.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

 

Comments

  1. says

    Very interesting move DM! I’ve been watching TEF for ever now! My Spanish move is with STD! (I don’t like domestic financials, but have a few positions outside and STD is one of them).

  2. Anonymous says

    DM, being a buy & hold value investor, you should look at TEF as a buy at a discount.It takes nerves of steel to buy at times like the euro trouble. I would not worry about the position size,you can always slack off on the buying later.A great book for you to read is Handbook of Formula Plans in the stock market, by Robert H. Person, Jr, PH.D. It is a great book, written in 1967, still timely dollar cost averaging in the depression is very good. You will have to hunt to find a copy, I got the last one at amazon several years ago. Good luck DM

  3. says

    MoneyCone,

    Interesting move in your case as well. I looked at STD a while back, and decided to pass for reasons I cannot remember. I guess there was something about earnings/revenue I didn’t like? At any rate, I’ll have to revisit that idea. Best of luck with your investment!

    Take care.

  4. says

    Henry,

    The Spanish withholding on ADR’s based in Spain is 19%. I reclaim that at the end of the year since my investment is not in a tax advantaged account. It’s a net zero loss for me. If you hold foreign investments in ROTH or other tax advantaged accounts you lose that withholding forever.

    Different countries have different withholding rates. Some, that we have tax treaties with, have none. I’ll probably discuss this another time with an article.

    Most ADR’s payout twice a year. Usually once in the summer and once at the end of the year, and most European companies base payout on company performance. There is certainly more due diligence needed with ADR investments. Buyer beware.

    Keep in touch. :)

  5. says

    Anonymous,

    Thanks for the comment and thanks so much for the advice. I will have to look into that book.

    As Warren Buffett says “be fearful when others are greedy and greedy when others are fearful.”

    I would definitely say people are fearful about the Eurozone right now. I’m pretty content with increasing my position. My only source of frustration with TEF is the debt load. We’ll see how that goes.

    Please keep in touch and keep up the great advice!

  6. says

    Love the guts DM (not that I think it’s a bad move, but I think it’s great you’re buying when others are scared)…Personally, I’m not buying anything, for 2 reasons. 1) I have no money (took a new job and my paycheck went into the toilet, but the hours are better! and 2) It may be “timing the market” but I think we will see a dip in the next few months.

    I don’t think the US will default, but with 2 major agencies threatening to downgrade our debt, and with no deal in site, plus eurozone, unemployment, gdp growth, etc., I’m gonna hold out with what I have and see if the market drops.

  7. says

    Pig,

    Thanks for stopping by. I agree it’s a bold move, but I really believe in being bold and steady through rocky waters.

    I understand you on the lack of money and trying to time the market. We may very well see quite a drop in the next few months. It wouldn’t surprise me one bit. I’m ok with that, as I’ll be purchasing through the dip, if we get it. My income suffers through the summer…so I can relate on the lack of funds. Maybe I’m lucky that my income will ramp back up in the fall.

    I wish you the best of luck with the new job. I hope it works out for the best!

    Take care.

  8. says

    Inq,

    Interesting choices. I’d probably go with PEP out of those choices.

    I wish you the best with your decision making and investment!

    Let me know which you choose!

  9. says

    Personally i think it’s a great choice.

    Telefonica has been on my radar screen for a long time, but I’ve got a position in Verizon and I work for a successful Canadian Telecom with a generous share program, so it seems to me that buying another telecom is overexposure to that sector. One of the reasons I went with Banco Santander was because like Telefonica, I think it’s being beaten up a lot more due to perceived associations with Spain and its Eurozone issues than actual issues…like Telefonica, a lot of its exposure is in Latin American emerging powers, where growth and not decline is a more likely outcome. I’ll echo some other comments, it’s also to me a great time to be hunting down stocks like this. When the global economy gets back on track, well positioned companies in critical sectors with lots of emerging market exposure are going to do extremely well.

  10. Oculista says

    I currently rate Telefonica as a hold (I own it in my portfolio) but I wouldn’t be adding no matter the price simply because there are better options for the long term (for example: Philip Morris).

    A spanish investor ;)

  11. says

    Neu Grufti,

    I don’t blame you on not picking up TEF at these levels if it leads to overexposure. I fully agree with you on that.

    I see a lot of support for STD. I’ll have to look into this one a little more. I honestly can’t remember why I passed the first time, but it was priced north of $12.50 last I looked…so I guess I’m glad I passed the first time around.

    Thanks for the support and well wishes. I appreciate it.

    I wish you the best with STD!

  12. says

    Oculista,

    I can appreciate your point of view on better opportunities. I don’t disagree with you. Philip Morris was actually on my buy list this month. The only reason I went with TEF instead was because of how far down below my cost basis it dropped to. PM is actually quite a bit higher than my cost basis. I still believe it’s a fantastic pickup.

    Go PM!

  13. says

    Drizzt,

    You picked up about the same amount as me, as my purchase was right about $1k as well. My total position size is now 125 shares. I feel comfortable at that level, but probably won’t pick up any more…unless it REALLY drops. Had to say it!

    Take it easy.

  14. son of carl says

    Hey Mantra,
    As always, keep up the fantastic blog…..yours is far superior to any I read and your posts constantly intrigue, educate, and entertain me. I like your TEF pick….nothing like a juicy dividend with a little international exposure. My telco play is similar, and I have been investing in Vodafone for a while for similar reasons.
    I would like to pick your brain a bit when you asked “what we were buying”; I am tempted to buy two stocks for varying reasons….I only want to add one holding to my portfolio, so it’s going to be one or the other. My potential picks are Enbridge Energy (ENB) and Intel (INTC). I like both due to their steady, safe yields, but I am lacking in both the energy and tech sectors. What are your thoughts, or do you have better options? I would appreciate your help! Take care my friend!

  15. says

    son of carl,

    Thanks so much for the kind compliments. I really appreciate that. I’m glad you enjoy the blog!

    Vodafone seems like a solid pick. Nice choice!

    I’ve never personally looked into ENB, but just taking a quick look it appears to be overvalued with a high payout ratio. If I was to pick one out of the two, I’d go with Intel, as I purchased my first lot with them last month. Fantastic valuation, low payout ratio and aggressive dividend increases.

    Best of luck, and keep in touch. Let me know what you do.

  16. Shean says

    Hi

    Kudos to Dividend Monk for linking your site. You people got good and mature conversation here.

    TEF give good around 9% percent dividend yeild though PE is bit high around 27. I live in Europe and situation here is not that good but better than 1 year ago. Biggest thing that worries us is Greece or mostly PIIGS countries and the unemployment numbers.

    TEF is spanish company and in Spain the unemployment number goes as high as 20-21%. Im no expert of economics but with high unemployment number in Spain i do believe it may have some impact on TEF.

    Since you live in US have you considered AT&T?. I bought it couple months ago and since it´s blue chip company which increase its dividend annually. Ditched my TeliaSonera for AT&T :)

    Well I´ve been selling some stocks that I have bought in 2008 dips and bought Intel, Barricks Gold and Cameco.Currently waiting to buy Pepsico and Nokia

    PG,MCD,FCX on my watchlist. I´m going to wait with my stock purchases untill Obama declares marshall law and disband the senate at 1.8 :)

    Shean

  17. Shean says

    Oh yeah and about TEF since its european stock have you considered about dividend tax?

    I once bout Annaly Capital Management. US snatched 30% dividend tax even tho according contracts they should have taken only 15% and I should pay rest 4.6% to Finlands tax official. Now since they did take 30% and Finlands tax official want theirs 4.6% the total dividend tax would be 34.6%!!!!!! Though Finlands tax official told me that I could get my 15% back by doing some paperworks and send them to US tax officials. Those papers can get from US tax officials .. LOLZ….

  18. says

    Shean,

    Thanks for all the helpful information and your thoughts.

    As far as the taxes on TEF’s dividend…I get that reclaimed when I do my taxes next year. It’s temporarily lost, so I do lose some compounding time…but I don’t lose the money. So the full published yield is all mine. As far as the valuation goes, the ADR is pretty attractively valued with a P/E ratio just north of 7 and a dividend yield somewhere around 10%. It’s debt is pretty heavy and unattractive, and the Spain unemployment is worrisome as is the Eurozone crisis. I feel the fact that most of their revenue comes from outside Spain helps and I think they are well positioned.

    I have considered AT&T, and I wrote about it last month. I think it’s attractively valued, and it may have itself a duopoly on its hands with Verizon here in the States. It has a healthy dividend and a small growth rate. I think it’s a solid pick-up.

    As far as your watchlist goes, those are some solid picks. MCD is a little strong right now, but PG appears to be attractively valued with a pretty decent entry yield to boot.

    Keep in touch.

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