Recent Buy

buyWell, by the title of this post you can probably tell what I’m going to talk (write) about today. The markets continue to sway back and forth and the volatility is just as high as ever. That still matters little to me, as my long-term plan is to continue to buy dividend growth stocks month in and out as part of a dollar cost average strategy. There are a lot of short-term headwinds, as the debt crisis in the Eurozone still has not been repaired and there are still concerns about a double-dip recession. My ability to forecast the future is still non-existent, however.

I recently added to one existing position and I opened a position with another equity. I’m pretty excited about both of these purchases, as I hand picked both of them and feel I got a good value on my price. Both of these equities were featured in an article when I recently asked my readers what they were buying.


First Purchase

First, I purchased 40 shares of Harris Corporation (HRS) on 10/10/11 for $35.59 per share.

Per Morningstar:

Harris sells communications products and services to government and commercial customers in more than 150 countries. With recent acquisitions in new end markets, Harris will report results in RF communications (39% of fiscal 2010 sales), government communications (33%), and integrated network solutions (28%). The U.S. government represented 76% of sales in 2010. Based in Melbourne, Fla., Harris has operations worldwide and employs more than 15,800 people. 

This is a relatively small company. It’s currently valued at $4.4 billion as a company. I actually like that. I’m a young investor, and as such I feel that some of my holdings should be smaller companies. With smaller size usually comes larger growth potential. We’ll see if that potential comes to fruition with Harris, as with potential also comes risk. They do face headwinds with U.S. Department of Defense facing budget cuts. I do like the fact that Harris has diversified into the commercial sector and they appear to be making some good moves.

This is a new position for me. I like the entry yield of 3.14%, backed by 10 years of dividend growth. It’s experienced very strong dividend growth with a 5-year dividend growth rate of 27.4%. While I don’t expect that growth rate to last long, it has solid fundamentals. The debt/equity ratio is 0.8.

Second Purchase

My second purchase was 25 shares of PepsiCo, Inc. (PEP) on 10/14/11 for $62.09 per share. While this was slightly higher than I was looking to pay for PEP, I still feel it’s a solid long-term value. I wanted to see what the earnings looked like before adding to my position, and I payed a slightly higher price per share for that information. I could have waited to see if it would come back down to the $60 level, but again..I feel this is a solid long-term play. I’m not looking to trade out of this one anytime soon. This was an addition to an existing position.

Per Morningstar:

PepsiCo manufactures, markets, and sells a variety of salty, convenient, sweet, and grain-based snacks, as well as carbonated and noncarbonated beverages. The company’s broad portfolio of brands includes Pepsi, Gatorade, Tropicana, Lay’s, Doritos, and Quaker. Pepsi owns most of its bottling infrastructure in North America but distributes direct to stores through independent bottlers in international markets. 

Great company, in my opinion. I’m receiving a nice entry yield on my purchase of 3.28%. They have 39 years of dividend growth with a 5-year dividend growth rate of 13.7%.  There isn’t a lot to say about PEP that you don’t already know. A dominant snack food business with a solid beverage business as well. Morningstar has given PEP a wide economic moat due to its economies of scale, distribution network and snack food dominance. I think people are still going to be drinking Pepsi and eating Doritos 20 years from now. They do face risks in rising input costs due to commodity price fluctuations, but it seems that they have been effective in reducing production costs and raising prices to offset input costs. The debt/equity ratio is 0.9.

Some analyst opinions on my buys:

* Morningstar currently rates HRS as a 4/5 star valuation.
* S&P currently rates HRS as a 5-star Strong Buy with a 12-month target price of $47.00

* Morningstar currently rates PEP as a 4/5 star valuation.
* S&P currently rates PEP as a 4-star Buy with a 12-month target price of $70.00.

This has been an abnormally busy month for me in terms of purchases. I had a large amount of capital to invest this month after selling my entire HGIC stake and also having a fairly large commission check from my employer. Combined, this produced a flurry of buys that I’ll likely not see again for a while.

I’ll update my Freedom Fund at the beginning of November to reflect the recent buys.

What are you buying?

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

Comments

  1. says

    DM,

    Nice buys with Harris and Pepsi. I’m still working at knocking out some margin debt. I made a deposit into my brokerage account on the 15th that lowered my margin debt by about 20%…80% to go.

    I just updated my blog with a post on a recent purchase of BIP. I also have a really cool plugin installed at my site (Comment Luv). Now when you comment at my site, it grabs your most recent post and creates a backlink back to your site. Another great article Mantra!

    Income Pirate

  2. says

    Good work, Mantra!

    I had never heard of HRS before. Though my planned retirement date projection is much further out than yours, I also like looking into companies with market caps less than 10B which pay consistent and strong dividend yields. CHD comes to mind when writing this though I would prefer it to have a higher yield.

    Looking forward to hearing about your next purchase.

  3. says

    Pirate,

    Great pickup on BIP. It’s one of the MLP’s on my watch list. I’m curious, as I haven’t purchased any MLP’s yet…how much extra labor is involved at tax time? I don’t have an accountant or anything. I’m fairly frugal as you know and do my own taxes. Is the K-1 pretty easy?

    Very cool on the Comment Luv plugin. I’ll have to see if I can get that too!

    Best wishes!

  4. says

    Long Run,

    I’m very low on cash and will not be making any more purchases until the beginning of November, which is when I’ll receive my next large commission. Hopefully the market dips a bit in the meantime.

    It sounds like we’re in the same spot. It’s difficult to just sit by and watch the market go by…but I like to be just about fully invested when possible.

    You also made some great buys this month. It sounds like we were both very busy!

    I know you mentioned MO on your site, and I talked about the high FCF payout. Any ideas why that doesn’t get more press? It seems that it’s getting dangerously close to being an uncovered dividend.

    Take care.

  5. says

    Partisan,

    Hey buddy.

    Thanks. I was a bit wishy-washy on PEP, which is unusual for me. I’m usually pretty decisive. The debt load concerns me, but I like the fact that management has been focused and has turned down all notions of splitting its beverage brand off into a separate company.

    On ABT, what do you think? It seems that spin-offs are all the rage right now, as I was just mentioning with PEP. Now ABT is going that way. The litigation had a bigger impact on earnings than I had figured. A bit surprising, but the market is reacting positively to the spin-off news.

    I’m all about shareholder value, of course.

  6. says

    Pey,

    CHD looks interesting, but the yield definitely leaves a little to be desired. I have, however, looked at TEVA a few times. Even though it has a low entry yield, the dividend growth has been pretty strong. I think their business will be strong as the population grows.

    I agree with you on the mid-caps. It’s nice to have some in the portfolio that will (hopefully) fuel some future returns.

    Take care.

  7. says

    Mantra, K-1 can be handled by tax packages. One of my MLPs provides a handy visual guide on how to read and use the K-1. You can do this.

    Though, I recommend that you commit to long term investing in these before you buy. When you sell the tax bill is all due at once.

  8. says

    SFI,

    Thanks so much for stopping by. I checked out your blog just now. I could only imagine how great earning six-figures from investments would be! Ahh, to dream.

    Thanks for the help. I’m a fairly intelligent guy, but I do like to simplify my life when I can. K-1’s seem to go against that, but quite a few MLP’s look pretty attractive. On filing the K-1, I’m sure tax software offers quite a bit of help with these. I use TurboTax.

    One question. What happens if you never sell and MLP?

  9. says

    Nice positions! It’s not hard to tell your plowing your savings into investments – very smart.

    I bought a position in Pepsico earlier this past summer and it’s a long-term buy and hold. It’s one of those stocks you can tuck away, get lost on an island, come back years later and you’re a happy camper type thing.

    Don’t know too much about Harris but has had some impressive dividend growth over the past decade and offers diversification in an interesting space.

    Good stuff DM…and congrats on your new positions. :)

    TWC

  10. says

    TWC,

    I completely agree with you on PEP. Definitely one of those investments that is about as close to auto-pilot as it gets.

    HRS is interesting. I actually didn’t know much about it until one of my readers recently got me interested. Looks like a compelling investment, which is why I invested money with them.

    Thanks for the congrats and continued support. It means a lot!

    Take care.

  11. Anonymous says

    I’m not familiar w/ HRS but I think u made a good choice on PEP. I hear what ur saying on wishing u could have got it at a lower price. I was lucky to get PEP @ $60 but I waited on INTC. It was about $20 but now is around 23-24. That’s not the first time something like that has happened and I’m sure it won’t be the last.

    But it makes me think of something u once said before that how much will it matter years down the line if u pay $60 or $62 for PG or any other good dividend stock. Although we should always buy positions at reasonable valuations, I think as dividend investors we should not be overly obsessed w/ the optimal timing of the market.

    By the way I think D. Ninja’s right about u being a writing machine. U can probably write articles faster and better than I can comment on them.

    Cheers D. Mantra

    -Rock the Casbah

  12. says

    Rock,

    HRS was not a company I was familiar with before. But that is truly the joy of sharing ideas with each other. It was the sharing of ideas that led me to invest my own money with that company. I hope it works out to be a great long-term investment.

    PEP was priced a little higher than I would have liked, and I missed a small opening at the $60 level. I kept going back and forth between it and RTN. I’m a little concerned about the debt load with PEP, but ultimately I feel that they are a great long-term play. INTC has popped quite a bit lately, but it’s also been range bound for the last 4-5 years. I’m not sure if it’s finally breaking out or not, but it has been getting a lot of press lately. That may not bode well for it dropping back down to ~$20.

    I agree on timing and valuation. Valuation is extremely important to me, but I’m a long-term investor of course. 10-20 years down the road likely won’t make a huge difference on whether I paid $60 or $62 for Pepsi. At least, I hope it won’t. I don’t try to time the market. I find a business I like, try to create a valuation based on earnings, debt, return on equity, historical valuations, revenue, etc…and then I try to buy it at that price or below. I try to buy PEP at or below $64. It was below, so I bought it.

    Thanks for your continued support. I appreciate you stopping by and sharing ideas. Take care!

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