Recent Buy

buyAs 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.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

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9 Comments

  1. Great post! I’ve owned COP for over two years now and have been incredibly happy with not only the amazing capital appreciation but also the dividend increases and low payout ratio. When comparing COP to XOM with a side-by-side comparison, I’d have to conclude COP appears to have more value at the moment; however, XOM’s share repurchase program certainly helps out with their EPS. As you mentioned, though, it’s tough to find a bad pick in blue chip oil sector these days.

    On Friday, I opened up a new position in Waste Management (WM). It’s been on my watch list for quite some time and with the incredible drop over the past week, I couldn’t stand on the side lines any longer. I purchased 30 shares but am looking to add another 30 if it drops below $30 a share.

    Thanks for the update, DM. Looking forward to receiving those COP dividends with you for the foreseeable future!

  2. Great purchase DM! I own both COP and CVX and they’ve been good to me thus far. With COP spinning of it’s refining business later next year it’s going to unlock a lot of value for investors. Basically, buying COP now it like buying 2 companies for the price of one. That’s how I see it with the spin off looming.

  3. Pey,

    I would definitely purchase COP (and CVX) over XOM at current prices. I think Exxon’s entry yield leaves a lot to be desired. I got into XOM last summer when energy was cheap, and I think it was a great buy. I only wish they’d slow some of the share repurchases and increase the dividend growth.

    What can you tell me about WM? I haven’t researched this particular company a lot, but a few people I had spoken with were concerned about the debt load and the negative revenue/earnings growth. Of course, trash is a great business and one that isn’t going anywhere!!

    Keep in touch.

  4. Henry,

    I’m anxious to see how much shareholder value will be unlocked when they split operations. I think it’s a fantastic company as it stands, but if the split unlocks value (as we all hope it does), then this will be an even better pickup. Fingers crossed.

    Take care!

  5. DM,
    Nice. Are you using COP to ride the oil values? Is there a direct corelation between crude oil and COP?
    Thanks
    Inq

  6. Excellent buy. Long-term, 10+ years or more I don’t think any investor can go wrong with COP, XOM, or CVX. Oil is not going anywhere, anytime soon.

  7. Inq,

    Well, all oil majors are directly correlated to oil prices. It has a major impact on their revenues. I simply believe that oil prices will go up based on supply/demand. Supply is decreasing and demand is ever-increasing.

  8. MOA,

    Yep. Oil is definitely not going anywhere anytime soon. I think those three supermajors will be good investments long term. The decreasing resource base is something to keep an eye on. When does Peak Oil occur? The other concern is national oil companies/governments wanting to restrict access to supply.

    Keep in touch!

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