Sunday, July 31, 2011
As I write this article, there is still no debt ceiling resolution. If indeed our government does not pass a resolution to raise the debt ceiling, and throws us into default on our obligations, the markets will fall into the basement. I honestly cannot believe that our government will let that happen, but detractors point to the fact that nobody thought Washington would let Lehman fail. I simply cannot believe that political warfare would let us default on obligations that we can pay. It simply wouldn't make sense.
Even with all this looming, I am still dollar cost averaging my way into positions. I have stated many times that I try to buy shares in the most attractively valued business on my watchlist, based on allocation, every month. This is the only thing that makes sense to me as I try to slowly build my passive income stream to a point where I can live off it one day.
I purchased 17 shares of ConocoPhillips (COP) at $72.90 a share on 7/28/11. This makes for my second purchase in July. I was only planning on making one purchase this month, but I made a smaller purchase than usual with Telefonica, and I had capital left over. I used this excess capital to initiate a position with COP.
I haven't yet published an analysis on ConocoPhillips, but I have looked at this company pretty thoroughly and feel it fits my investment thesis. It's offering a healthy 3.62% entry yield, based on my price. It has raised dividends for a consecutive 11 years and running. I am bullish on energy, and oil specifically, going forward. I don't believe the global thirst for oil is going to abate anytime soon, and in fact will only rise with emerging markets growing and having greater and cheaper access to energy.
I was interested in boosting my energy holdings with my second purchase of July. I automatically ruled out adding to my Exxon Mobil position with the low yield, and Total is not a dividend growth stock. It came down to adding to my Chevron holdings or open up a position with ConocoPhillips. I decided on COP due to the higher entry yield, and the further diversification it offers me. The dividend growth over the past three years has also been pretty substantial with COP. The valuations were very close with CVX and COP and an argument could have been made to go either way. I like both companies going forward, and look forward to increasing my holdings in the future.
Morningstar currently has a 4-star value on COP. S&P currently assigns it a 4-star BUY rating with a 12-month target price of: $93.00.
The payout ratio is an extremely low 33%, which leaves a lot of room for growth in the dividend. I'm pretty optimistic about this opportunity going forward, but I would have been better rewarded by staying patient and buying at current levels. I'm not a market timer, and I'm no prolific trader. I buy quality companies at what I feel are favorable valuations. I don't buy on trends and I don't trace charts. With that said, I feel I got a good value on the price I paid.
What are you buying?
Thanks for reading.