Sunday, October 9, 2011
What Are You Buying?
I've always been pretty open with my investment moves, for better or worse. I always let you know what I've recently purchased, usually within just a few days of buying. Doing so is part of my overall mission with Dividend Mantra, and that is to provide a live journal on the road to early financial independence.
This will be my second time asking my readers about what their near-term purchases might be. In return for that information, I'm going to provide you information on what I'm currently looking at. I'm always looking at quality companies that provide products that people need, growing EPS and revenues, growing dividends with a pretty strong entry yield.
This list will include a few stocks I'm strongly considering for addition to the Freedom Fund. I like to provide this list as there may be some solid values I haven't considered before, or perhaps it will provide my readers value in ideas.
Here's my short watch list:
AT&T Inc. (T)
AT&T is the dominant local phone company in 22 states, serving about 41 million local phone lines, 16 million Internet users, and 3 million television customers. The firm also provides phone and data services, such as Web hosting and data transport, to businesses nationwide, notably large corporations. AT&T is also the second-largest U.S. wireless carrier, serving 88 million traditional customers and 11 million "connected devices" such as e-readers.
I've written about AT&T ad nausem lately, but it still has my attention. I'm a fairly young investor, and due to such I like to invest in companies that I feel have many years of solid growth ahead of them. At the same time, I like to also invest in companies that provide me a solid dividend with which I can reinvest and grow my portfolio. T will provide the the latter of these two, as it will serve my portfolio a high entry yield and a large amount of current income to provide fuel for future growth into opportunities that arise. It's trading at a 8.61 P/E ratio, has a solid entry yield of 6.05%, a low payout ratio of 52% and a fairly solid balance sheet. It's debt/equity ratio is 0.5. It has 27 years of dividend growth behind it, but the dividend growth for the past few years has been fairly low and the future dividend growth will likely be limited to around 2%. With this investment I'd be chasing yield a bit, but I feel the risk is somewhat limited with AT&T. The major cloud around T right now is the lawsuit by the Department of Justice blocking the merger with T-Mobil. I believe that this merger will still go through, but T will have to make concessions to make it work. Additional market share from the acquisition will be nice, but it remains to be seen how well the synergies will work out.
*Morningstar values T at a 4/5 star valuation.
*S&P rates T as a 5-star Strong Buy.
Harris Corporation (HRS)
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 one is new to my watch list, thanks to one of my readers. Thanks Joe! It's a small company, with a market capitalization of just over $4 billion. With the small cap size, there is additional risk. But, on the flip side there is also additional room for growth when you invest with a small company. This company is a quasi-tech company, operating in the defense space. The budget slashing that has been so popular as of late could affect a company like Harris, but their balance sheet looks pretty decent and management has been producing strong results for this company. They should be able to navigate the near-term waters effectively. HRS is trading at a 7.52 P/E ratio, offers a 3.24% entry yield, has a low payout ratio of 24%, and a debt/equity ratio of 0.8. The debt is something to keep an eye on, but is low in comparison to their industry. They have 10 years of dividend growth behind them, with a 5-year dividend growth rate of 27.4%.
*Morningstar values HRS at a 4/5 star valuation
*S&P rates HRS as a 5-star Strong Buy.
Raytheon Company (RTN)
Raytheon is a major United States defense contractor with nearly $25 billion in annual sales that operates through six segments: integrated defense systems, intelligence and information, missile systems, network-centric systems, space and airborne systems, and technical services. Sales to the U.S. government account for more than 88% of the company's total sales. Waltham, Mass., based Raytheon employs 72,000 people.
Raytheon has been on my watch list for some time now, but just haven't pulled the trigger yet. This is another company that operates in the tepid waters of the defense industry. Reduced spending by the U.S. government will have a major impact on Raytheon's bottom line. This is something to be very watchful of. I think it's a solid buys at current prices, however. It trades at a favorable 7.65 P/E ratio, has a strong entry yield of 4.2%, a low payout ratio of 32% with a debt/equity ratio of 0.4. This company has obvious risks operating in the space it does, but I feel the valuation makes up for a lot of those risks. The strong entry yield is backed by 7 years of dividend growth with a 5-year dividend growth rate of 10.8%. Another interesting play in the defense space is LMT with a high entry yield of 5.41%, but I feel the debt is a little high, and it's trading at a high price relative to its book value.
*Morningstar values RTN at a 4/5 star valuation.
*S&P rates RTN as a 3-star Hold.
PepsiCo, Inc. (PEP)
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.
PEP also made my last article asking my readers what they were buying. It's making this list again, because the price hasn't really moved in the last month. I think it's a fairly strong buy when it's hovering the $60 range and I continue to monitor it. It does have a fairly high amount of debt with a debt/equity ratio of 0.9, but comes with a good entry yield of 3.38%, trades at a decent P/E ratio of 15.53 and has a covered dividend with a payout rato of 51%. It has a solid business behind it, and I like the dominance this company has in the snack food industry. It has 39 years of dividend growth behind it with a 5-year DGR of 13.7%. This one, arguably, is the most expensive of the four listed.
*Morningstar values PEP at a 4/5 star valuation.
*S&P rates PEP as a 4-star Buy.
So, the question becomes: what are you buying? I'm highly interested in what my readers are looking at, and what you think of my watch list. I have enough capital to make two buys, so this list will likely include two of my purchases. This list is in order of what I'm most likely to buy at the top.
Full Disclosure: I'm long PEP.
Thanks for reading.