The 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.
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.