Recent Buy

I’ve been a bit greedy and aggressive lately. I don’t know what’s gotten into me. I dipped into my cash reserves this month to go a little heavy on the equity purchases. This is actually quite unusual for me, as I usually only do that when the markets experience precipitous drops. But, when I see an opportunity I strike fast. I seen a few things I liked and I decided to roll the dice and go a little strong this month. We’ll see where that decision takes me in the future. What can I say? I’m addicted to dividends!

As part of my Recent Buy series, I try to let my readers know of any equities I purchase soon after the transaction is completed. This is just one way I try to document my progress toward early retirement and financial independence.

I alluded to a purchase in my last Weekend Reading article, taking advantage of a large drop in the market on Wednesday,  November 9. I was holding a little capital in my brokerage account, waiting for a drop. The market opened significantly lower on last Wednesday and I made a move.

I purchased 20 shares of General Dynamics Corporation (GD) on 11/9/11 at $63.22 a share. I think this is a solid entry price on this quality company. The entry yield on this purchase was 2.97%. Based on current payouts, this will provide me with $37.60 in dividends for the next year. I discussed some of the reasons I was interested in GD in my recent post where I asked my readers what they were buying. This company has low debt, and solid dividend growth behind it. It’s trading at an attractive valuation and I’m happy with initiating a position with this company as a long-term holding.

The GD purchase was planned for the month of November. I planned for two purchases in November, and the first purchase was Medtronic, Inc. (MDT). The third purchase was not planned, but I like to take chances every once in a while. I purchased 50 shares of Vodafone Group PLC (VOD) (ADR) on 11/15/11 at $28.85 per share. VOD goes ex-dividend tomorrow, so I needed to purchase this stock today to become a shareholder of record in time to receive the next dividend payout. This stock is yielding 7.2% on  my purchase price, which includes a special dividend payout from their Verizon Wireless stake. I think VOD is a solid complement to my small telecom holdings, as currently my only telecom is Telefonica S.A. (TEF) (ADR), which has vastly underperformed the market due to its exposure to Spain.

I wasn’t planning on purchasing VOD, but it’s been on and off my radar for a little while, and the dividend payout next year is going to be pretty significant. They are trading at a discount to AT&T (T), which was the other telecom I had been considering. They have a lower debt/equity ratio than T as well, and they have great exposure to emerging markets on a global scale. They also have exposure to the American market through their 45% ownership stake in Verizon Wireless. They have committed to a very shareholder friendly policy and have announced plans to increase their dividend by 7% annually going forward. That’s more than the ~2% dividend growth that T is showing. One nice detail with VOD is that since it’s a stock based in England, American shareholders don’t have to pay a withholding tax on the dividend. I expect this holding to pay me $104.45 in dividends in 2012 based on the current payout. This will depend on currency fluctuations, which is one of the risks with VOD. Vodafone has grown their dividend in their native currency (Pound Sterling) since 2000. I look forward to this holding being a strong income stock to fuel growth in my portfolio.

Some analyst opinions on my purchases:

*Morningstar currently rates GD as a 4/5 star valuation.
*S&P currently rates GD as a 3-star Hold.

*Morningstar currently rates VOD as a 3/5 star valuation.
*S&P currently rates VOD as s 4-star Buy.

I’ll update my Freedom Fund in early December to reflect my recent purchases.

What are you buying?

Thanks for reading.

Comments

  1. says

    Mantra,

    Good call on Vodafone, it’s been on my radar for some time, but my portfolio is getting top heavy between Verizon and my employer stock, and pushing anything more over what I already have in that sector would make me a bit nervous. I’m even considering selling some of my company stock next year to diversify a bit. If I could pick a new telecom to enter into though, they would be it.

  2. says

    I dropped Financial Select Sector (XLF) into my Rollover IRA yesterday — 200 shares at $12.85.

    Though it may not currently be a very favored industry for investors, over the next few decades, I see the financial sector getting back on their feet and will be providing some solid gains.

    Since I have no idea which financial stocks to trust these days, I chose to own a ETF with a basket of 82 stocks in there to make sure I don’t potentially pick a loser while still being able to collect the dividend with a yield of 1.5%.

    I’ll update you on how XLF has done in 40 years when I retire.

  3. Anonymous says

    I have CTL but their recent announcement of no dividend increase has me thinking of buying VOD or Rogers communication (RCI). I am laening toward VOD but they pay dividends 2x/year except for the special dividend. I already own AT&t but want to kepp an additional telecom.

    What are your thoughts??

    MoeJoe

  4. says

    Neu Grufti,

    I can certainly understand not wanting any more telecom exposure. I think that a lot of telecom stocks are interesting for current income to fuel growth/other investments, but a lot of the growth in themselves might be limited. At any rate, I like this company!

    Best wishes.

  5. says

    Pey,

    I wouldn’t mind a few financial stocks right now. Some of the well-capitalized big U.S. banks like WFC and maybe USB don’t look too bad. Some big Canadian banks look pretty solid as well. There’s some value overseas as well. But, certainly it’s hard to tell when things will make the move up. Best of luck with your investment!

    Take care.

  6. says

    MoeJoe,

    Thanks for stopping by and commenting.

    I think T is pretty solid here, but since you already own it I’d go VOD. It had a healthy drop today and I think the exposure to the worldwide market is great here. RCI is interesting, but I’m unfamiliar with it. Looking quickly, their debt/equity ratio is fairly high. If you’re ok with debt, I’d rather go TEF here. I’m long TEF for full disclosure, but the stock is ridiculously cheap..but again it is high on debt, on par with RCI’s debt/equity.

    Hope that helps.

    Keep in touch!

  7. says

    Great buys! Glad to see GD and VOD in your portfolio. Let me know how VOD treats you.

    I recently added more shares of ITW and SYK. They’re boring companies, but that’s how I like them to be.

    Cheers!

  8. says

    Henry,

    Thanks for stopping by!

    I’ve had my eye on GD for a while, as you know. Glad to see I finally own a (very) small part of this company. I’m glad to be in great company with yourself.

    Good moves on your investments. ITW is on my watch list. I definitely like the stability that business offers.

    Best wishes!

  9. says

    Mantra,

    If you’re looking at financials, check out Royal Bank of Canada (RY on the TSX). Right now it’s undervalued compared to the other Canadian Banks, largely because they have more capital markets exposure than the others. That said, they’ve been hit more harshly than valuations would dictate, they pay a 4.79% dividend at current prices (it was recently bumped to .55 a quarter). Some disclosure here though, I own shares, may buy more in the next 3 days (depends on what my commission is like), and I used to work for them back when I was briefly in banking.

  10. says

    @Henry – As you know, boring companies are often the best wealth creators. I like ITW too. 48 years of consecutive dividend increases and a 3% yield is a rare thing.

  11. says

    Neu Grufti,

    Thanks for the recommendation!

    I’ve looked at some of the Canadian banks, and RY looks attractive there. My concern with the Canadian banks is the underlying mortgage market. You have to wonder if the Canadian housing market is still in a bubble that hasn’t popped yet? Real estate is still very expensive there and I wonder what if/when that bubble pops and what then happens to the banks. Remains to be seen, and I could be overstating it. We’ll see.

    Best wishes!

  12. Anonymous says

    Mantra
    I think VOD is a good purchase but without the extra special 1 time VZ payment isn’t the yield really about 5.4% ?

  13. says

    Anonymous,

    You are correct there. Although, I would submit that 5.4% is still nothing to sneeze at. The big question is whether the special dividend from the VZW payout will be ongoing or not. I’ve heard it both ways. Last I read, it was not going to be ongoing…however VOD bulls point to the fact that the other VZW parent, Verizon, needs the cash from its VZW operations. It remains to be seen, but even without the special dividend this one is still a winner that’s growing.

    Best wishes!

  14. thomasa510 says

    I own both VOD and VZ (my largest holding). VZ owns 55% while VOD owns 45% of Verizon Wireless- VZ-W (VZ owns a large landline business as well…but with shrinking profitability).

    When the mobile network for VZ-W was formed the arrangement was the aforementioned ownership split and also repayments for loans to VZ from VZ-W. VZ-W has now repaid VZ for the loans (starting last year). Additional dividends from VZ to shareholders have to be generated from 1) profits/strategic spin-off or sales from the landline VZ business, 2) Cash on hand, 3) dividends paid from VZ-W. When dividends are paid from VZ-W to VZ (who decides as they own 55%) a dividend is paid to VOD.

    VOD is a largely discounted stock. It almost seems as if the cash flow from VZ is being discounted to zero, perhaps because of the long period since dividend payments have flowed.

    Having said that, many European Telecom companies (VOD is more international than just European…but so are some others (TEF)) are largely discounted now; TEF, FTE, and DT for starters.

    I haven’t purchased any recently, and only own small bits of non-US telecom – VOD and TLK. However, with the downturn in Europe I’ve been tracking several and may pounce on one on a price drop. Deutsche Telecom is in the lead for me right now.

  15. Anonymous says

    Sorry for being late to the comment postings. It’s hard to keep up w/ u D. Mantra; you’re like a writing machine. Good recent buys. Actually, I also bought VOD the same day you did. (Great minds, think alike, eh?) LOL.

    After recently purchasing TEF, I thought I would NOT purchase any more Telecomm but, like you, I liked VOD’s exposure to both emerging and developed markets, relatively low debt and shareowner friendly policies. But w/ the amount of Telecomm in my portfolio, I’m going to keep VOD (like TEF) to a relatively small precentage (2-3% maybe) of it. I also own T and TU-N.

    @Neu Grufti,

    Like u, I just recently purchased RY-N. I think the Canadian banks are strong buys right now and RY in particular seemed attractively valued. I think TD-N is also a great value but I already have a fairly substantial holding in
    my portfolio.

    D. Mantra,

    I hear your concerns about the Canadian mortgage market but I certainly don’t think the housing bubble there (to the extent there is one-maybe more around Toronto and Vancouver) is nearly what it was here in the States immediately prior to Financial crisis of 08-09. And with the much stricter banking and mortgage rules they have in Canada, their balance sheets don’t have anywhere near the levels of overlevaged debt the big US banks
    had. US Banks operated in a much less regulated “almost anything goes” environment.

    Neu Grufti, any insights from one of our friends North of the Border for us Yanks down here is always appreciated.

    -Rock the Casbah

  16. says

    thomasa510,

    Thanks for adding to the discussion. Great comments there. Good explanation on the dividend policy from VZW to its parent companies: Verizon and Vodafone (55% and 45% ownership respectively). I certainly hope that the special dividend will be ongoing on an annual basis.

    You are right on the low valuations regarding European telecoms. FTE and TEF both look very interesting here. I’m long TEF, and it’s trading well below my cost basis right now and I’m tempted to add to my holdings at these levels to reduce my cost basis. I just don’t want to own too much TEF right now due to volatility. It’s already a larger part of my portfolio than I’d like it to be, but it’s hard to pass up. We’ll see. I’m concerned about the debt load with TEF as well as its ability to keep to its dividend promises-which are to pay out 1.60 Euro per share in 2011, 1.75 Euro per share in 2012 and at least 1.75 Euro per share ongoing. It’s certainly shareholder friendly, and even reducing the dividend to pay off debt would still leave it with a hefty and attractive yield.

    I don’t know anything about Deutsche Telecom. I’ll have to look into that one.

    Thanks again for stopping by! Keep in touch.

  17. says

    Rock the Casbah,

    No problem on keeping up! I actually wish I could write more, but it’s hard to do more with my heavy work schedule and other activities. I do my best.

    You bought VOD the same day? That’s great news. Great minds do think alike. Although it’s dropped a bit since then, the large dividend coming early next year will make up for that. I know that we purchased it at the end of a price resurgence, but it’s still undervalued and that’s all that matters for the long-term investor.

    I agree with your portfolio allocation regarding telecoms. They serve as quasi-utilities for me, and although the growth is somewhat limited the high yield makes up for it and serves to fuel reinvestment or other investments. I really would like to add to my TEF holdings at these levels as I just stated in my previous comment, but the weighting in my individual portfolio gives me pause right now. I’m going to continue to evaluate my feelings on this. I think it’s attractive and the ridiculous yield is interesting.

    You may very well be correct on the Canadian mortgage/real estate market and its valuation. I’m far from any kind of expert on that subject. I’m an outsider looking in. I agree that Canadian banks and the Canadian real estate market are both better positioned for any kind of dips in home values due to capitalization and underwriting standards than the U.S. was, but I still think homes (especially in the two areas you mentioned) are very expensive and I almost can’t imagine they’re not in some kind of bubble right now. We’ll see on that. Again, I’m just thinking aloud on that and not really trying to fully analyze that market as I’m no expert.

    As far as banks go, the big Canadian banks you mentioned look attractive and the yields support share prices. There are some decent picks in the U.S., especially in the regional and super-regional space. USB probably wouldn’t be a bad pick here, but I’d wait until the dividend is raised a couple more times.

    Thanks for your thoughts on these matters. Best wishes with your investments!

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