Tuesday, October 18, 2011
Well, 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, I purchased 40 shares of Harris Corporation (HRS) on 10/10/11 for $35.59 per share.
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.
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.
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.