Recent Buy

So, the market have finally cooled down. The weakness we’ve experienced over the last week or so has been most welcome by many of us value seekers and dividend investors. I don’t know if we’re on the cusp of a major sell-off or if this weakness is just a quick cooling off period. The market did get a bit ahead of itself, in my opinion, so the drop across all sectors is not surprising. I was holding on to some capital waiting for a pullback and I got what I was waiting for. I may have jumped the gun, or I may have timed things perfectly. I don’t know. What I do know is that I buy when I see attractive long-term opportunities, and I found a couple over the last couple of days. I’ll share them below.

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 first purchased 60 shares of Southside Bancshares, Inc. (SBSI) on 4/9/12 for $21.63 per share. I first heard of this company by reading a Compound Income’s recent report on the dividend increase by SBSI. I became intrigued after reading the short report and decided to take a deeper look and I liked what I saw. This is a risky play, that I’ll admit. Not only is it a bank, but it’s a very small bank. But, this purchase fulfilled a couple of criteria for my portfolio. First, I wanted small cap stock and I wanted a bank. I had neither. I now have both. I love diversification, and I think SBSI gives me some exposure in the financial sector through a small, but growing, bank. The P/E ratio is currently at 8.57, the P/B ratio is 1/3 and P/CF ratio is 4.7. The balance sheet is moderately weak, one of the few blemishes on this otherwise stellar stock. The yield on my purchase price is 3.70%, based on a $0.20 payout quarterly per share. This purchase will add $48.00 in yearly dividend income to my annual total.

SBSI is a holding company that owns 100% of Southside Bank. The bank has $3.3 billion in assets and operates 48 banking centers throughout Texas. This company has been very shareholder friendly with a 18-year track record of raising the dividend, with a 5-year dividend growth rate of 15.5%. It also has a track record of doing annual stock dividends and special dividends. This stock has already come down from where I purchased it at and if it goes down another 5% or so I would consider adding to my position. It’s down 2.45%, compared to the +8% S&P 500 performance YTD. The payout ratio currently stands at 32.4%.

My second buy was purchasing 25 shares of Raytheon Company (RTN) on 4/10/12 for $51.16 per share. I’ve discussed my affinity for RTN a number of times on this blog, and I think it’s a solid company and attractive at the current prices. I recently mentioned it was a company high on my immediate watch list and a company I was interested in, and I made good on that. It’s currently trading for a P/E ratio of 9.65 and a P/B ratio of 2.1. The entry yield on my purchase is 3.90%, which is extremely attractive in the low-interest rate environment we currently find ourselves in. Although the anticipated slowdown in military spending has a number of defense companies trading at a discount, I feel some of these concerns are overblown. Global conflict is (unfortunately) a never-ending saga. The complex systems that Raytheon produces are as needed as ever. It’s been a fairly strong performer on the year, up over 5.5%, but I still think it’s attractive at its current price. Based on the $0.50 quarterly dividend per share, this stock will add $50.00 in yearly dividend income to my annual total.

RTN has a strong balance sheet with a history of rising earnings and revenues. The 5-year DGR is 12.1%, with an 8-year streak of rising dividends. The payout ratio is a lowly 37.8%, so even with a slowdown in earnings there is still room for the dividend to be raised.

With the recent purchases, I now have 27 positions in my portfolio.

Some analyst opinions on my purchases:

*Morningstar does not follow SBSI.
*S&P does not follow SBSI.

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

I’ll update my Freedom Fund in early May to reflect my recent purchases.
What are you buying?

Thanks for reading.

Comments

  1. says

    That’s a nice pair of purchases. I am leery of bank stocks but SBSI looks like a good alternative to the large-cap financials. I have mentioned before that I also like RTN.

    I have not yet bought anything this month but I might make a purchase before the end of this week, especially if the market decline continues. I haven’t quite decided what to buy, though — so many possibilities are suddenly appearing! :)

    • says

      Deedubs,

      Thanks! I think that these offer my portfolio a fair amount of diversification while also achieving a high yield-on-cost. I’m also leery of banks, but I think the worst (in that area) is behind us. We’ll see, as I’m no expert.

      There are plenty of compelling opportunities. AFL has taken a beating lately, and if the position wasn’t already fairly large for me I’d buy more. NSC looks good. The international oil stocks (TOT and BP) are very cheap, but not without risks. There is a lot of opportunities out there.

      BTW, congrats on the article over at SA!

      Take care!

  2. says

    Nice buy DM. I never heard of SSBI before but it seems like a great company. I bought UTX, AFL, and WMT yesterday, kinda wished I delay the purchase, but it is what it is. So many quality discounts are showing up. I can’t wait until my next paycheck to buy some more! Cheers, happy investing. =)

    • says

      Henry,

      Thanks for stopping by!

      SBSI seems like a strong pick with the great entry yield, stock dividends and special dividends. They seem intent on being shareholder friendly, which is a great attribute.

      Excellent purchases with UTX, AFL and WMT. I really like AFL at these levels and I seriously considered adding to AFL yesterday when it was down 3%+, but I just feel that it’s a large enough position right now. That was a tough decision.

      I, like you, am anxiously awaiting more capital to make additional purchases.

      Best wishes!

  3. says

    DM, I like both purchases. As you saw/commented over on my site, I, too, initiated a position in SBSI last month. The two really nice things with SBSI are the 18 consecutive years of dividend increases and the yearly 21:20 split.

    I am also thinking about RTN to pair up with my LMT holding. Any reason you opted for one over the other?

    Keep up the great work!

    • says

      Dividend Fool,

      I should have included you in the article as one of the people that swayed me towards buying SBSI. I’m a little leery about the balance sheet, but it’s really the only blemish. This company is extremely shareholder friendly from my perspective.

      As far as LMT goes, I remember reading a couple articles a while back about some unfunded pension issues that were quite negative. I agree that they are the elephant of the industry with a huge backlog of projects and contracts but their large-scale operations could be, in my opinion, scaled down if the budget is seriously trimmed. I think RTN, GD, HRS are all better positioned if massive cuts were to come, based on their products and/or customer base. LMT does have the juicy yield, and I may eventually initiate a position to complete my defense holdings.

      Keep in touch.

      Take care!

  4. Chad says

    Increased my position in AFL yesterday. Wished I would have waited till today, but over the long haul I’m sure I’ll be happy that I bought it at yesterday’s price. Like you, I need to add a position in a bank to my portfolio. I’ll have to take a look at SBSI. Thanks for bringing this one to my attention.

    • says

      Chad,

      Nice move on AFL. I’m bullish on AFL at current prices and I was extremely close to buying additional AFL shares instead of initiating a position in RTN. It really came down to the wire for me. EMR was also in the mix.

      Don’t worry too much about small fluctuations in the share price, or a dip after you buy it. We’re in it for the long haul.

      Please take a look at SBSI and let me know what you think.

      Best wishes.

  5. pacified says

    hey DM,

    have you ever thought of SBUX as dividend growth?

    they have just started paying divs and have increased it significantly in the 2 years.

    They also seem to be a “maturing” company, and I don’t see them going anywhere anytime soon. They’ve grown to capacity in a sense, and now will use profits to boost divs instead of expand. Not that they won’t expand and grow…

    onward to financial independence!

    • says

      pacified,

      I’ve looked at SBUX in the past, and it currently fails to meet a number of specific criteria I look for. The valuation is too high for what I’m comfortable with, the yield too low and the history of dividend growth too short.

      If I was to veer away from my usual criteria and buy a stock with a higher P/E ratio and lower yield than I’m comfortable with, the one company I can think of that I’d be willing to do that for would be Visa (V).

      Onward to FI! I hope to see you there.

      Best wishes!

  6. says

    I first noticed SBSI on dynamicdividend.com under the 10-19 year class-E list. With a 17 year dividend history, it’s well on its way. When you take into account the 5% stock split, this stock has an effective yield almost 9%. This one looks interesting.

    Given the payout ratio and yield, a 100% payout would be almost 15%, so the 9% payout is covered. (I didn’t check whether or not this stock split is a dilution or essentially a reinvestment of retained earnings – need to look at the reports).

    I am watching NJR, it hasn’t yet reached my initial buy price of $40.

    • says

      SFI,

      SBSI also has the special dividend they give out usually late in the year, so if you factor that in, this one actually yields close to 10%. Pretty amazing stuff.

      NJR looks interesting. I’ll have to take a look at that one sometime. Low debt for a utility.

      Best wishes!

    • says

      You guys are looking at the stock split wrong. It effectively does nothing. It gives you 5% more shares(not cash), but reduces the quarterly dividend and share price by 5%. It’s a one way ticket to nowheresville.

      The annualized dividend yield would be somewhere around 4-5% including the special dividend which varies. SBSI does offer nice dividend growth and has a long history of increases, but will not yield anywhere near 9% at current prices.

    • says

      Compounding Income,

      “but reduces the quarterly dividend and share price by 5%. It’s a one way ticket to nowheresville”

      I wasn’t aware of that. The stock dividend reduces the cash dividend by 5%? I was under the assumption that the cash dividend would remain the same, thus actually raising the overall yield on the investment instead of lowering it.

      For instance, I purchased 60 shares paying me $0.20 quarterly. After the split, I’ll have 63 shares paying me $0.20 quarterly, correct? You’re saying the quarterly cash dividend is reduced by 5% above, so the new quarterly dividend would be: $0.19. If that’s correct, I’m totally unaware of that and apologize for the false information earlier.

      Best wishes!

    • says

      Southside used to pay $.18 per quarter. When the shares split they will pay $.171 per quarter (this will be reflected in the PAST dividend history instead of $.18). However SBSI also announced its intentions to raise the dividend to $.20. SBSI will split first and then pay dividends after the split (on the extra shares too).

      Essentially you are seeing 2 dividend increases. The first takes it from 18 to 20 cents per quarter (right now before the split). The stock splits by 5%, but reduces the dividend to 19 cents in the process. However SBSI announced we will be getting 20 cents so that’s what we’ll get (2nd increase). Investors who owned the shares before the announcements will realize both increases, investors who bought after the announcements but before the split still get the 5% (.19 to .20) increase (this is you). Note that the actual stock split did nothing, it was the stated $.20 per quarter dividend rate which raised our income.

      In my blog I listed only the first dividend increase in my March Recap post. After the split I will list the second increase in the monthly recap, but it hasn’t happened yet.

      Ok this is sounding way too complicated now. In the end you will have 63 shares paying 20 cents per quarter since that is what the company said.

      I kind of wish SBSI would have announced the split and dividend increases at different times to avoid this confusion.

      Sorry I’m tired right now, long day at work.

      CI

  7. Anonymous says

    Yo DM, I have never heard of either of those two stocks, guess I have some others to add to the old watch list.

    I bought 50 shares of AFL yesterday, and just purchased 62 shares of SNH today.

  8. says

    Excellent time to buy on the dips. That is of course if we are not on the edge of a major sell-off.

    I have missed a few big sell-offs in the past precisely because of pulling the trigger when stocks went down by 3-5%. Missing a further 15-25% drop and not having the cash to buy at lower level was a painful experience!

    Since we don’t know what will happen I held off on long-term purchases hoping to see a bigger discount. However a recent decline in ArcelorMittal was too tempting to miss. I own it from prior days and averaged down today in hopes for a modest rebound which will allow me to exit MT to free-up cash for other acquisitions.

    • says

      AverageCFA,

      Thanks for stopping by!

      You make some great points there. We could very well be on the cusp of a major sell-off. That’s something I pointed out above, but due to my natural lack of abilities to predict the future I buy whenever attractive equities trade at opportunistic prices.

      If the market continues to dip (which I hope it does), I’ll just use that as an opportunity to continue averaging down on positions I already own or initiate positions with new-to-me DG stocks.

      If, on the other hand, the market runs up for the rest of the year I’ll be glad I purchased on the dips and continue to scan for attractive opportunities on dips.

      Keep in touch!

  9. says

    DM,

    Both those stocks have outstanding combinations of highish yield, high dividend growth, and low payout ratio. Good timing with SBSI, the ex date for the stock dividend (aka split) is very soon. I would also add that Southside typically pays a special dividend in Q4, it’s like getting 5 dividends a year. Long RTN & SBSI.

    • says

      Compounding Income,

      I agree. Both have pretty strong yields north of 3.5%, pretty strong dividend growth and low payout ratios. I think both are poised to do well in the long-term with SBSI being perhaps a bit riskier.

      I forgot to mention the special dividend that usually comes late in the year. That’s simply icing on what is already a very sweet cake.

      Best wishes!

  10. says

    Nice job buying on the dips this week.

    I don’t know much about SSBI and already have 1 bank so I’m not looking at any more bank exposure right now. However, I was close to pulling the trigger on RTN yesterday myself. LMT also looks pretty good at these prices. I do want to add a defense company to my portfolio. I think I’ll wait until next week to make my next purchase though.

    • says

      austinbroker,

      I don’t blame you on only wanting to own one bank. It’s funny as banks used to comprise large portions of dividend growth investors’ portfolios and now they are few and far between after the recent crisis.

      Let me know if you decide to go with RTN or LMT as your defense holding. Always interesting to hear other investor’s ideas and thought processes.

      Take care.

  11. says

    Hey Mantra,

    I’m going to take the opposite stand on this one my friend. ;) I don’t think I would have pulled the trigger on SBSI. This bank is mired in enourmous debt, and at only 345M it’s either at high risk of folding, or maybe even being a takeover target. Small Cap is OK, and Banks can be OK too, but combined I believe its a dangerous combination.

    I don’t know much about U.S. banks, but I remember when the junk-bond crisis hit, the small U.S. Banks were the first to get hit (the canaries of the economy), and again in the financial crisis.

    Did you look at the Canadian Banks? All of them trade on the NYSE and still pay you the same yield as the Canadian listings. Much safer and higher yield IMO.

    Having said that I just bought shares in one of our banks on Tuesday – Bank of Montreal – BMO. ;)

    Cheers
    The Dividend Ninja

    • says

      Ninja,

      Hey, thanks for stopping by!

      I agree that SBSI carries some added risk to it simply for being such a small bank. But, there are lots and lots of small banks across this very large country that are doing fairly well. SBSI actually carries a 5-star Bauer rating, which is a huge sign of confidence. In addition, I don’t think I’d quite classify the debt as enormous, but I do consider the balance sheet a weakness as I pointed out. The debt, compared to many other banks large and small, is pretty well in line actually. Banks tend to have convoluted balance sheets with heavier amounts of leverage.

      Now, I’m comparing SBSI to American banks. Your banks in Canada have cleaner balance sheets. I looked at RY recently and the long-term debt is very small for such a large bank. It’s amazing. I like Canadian banks and wouldn’t mind positions in a couple of them, but the recent dividend freezes keeps me from initiating positions. SBSI continued to raise the dividend as it continued to earn more money throughout the recession. That’s more than can be said for a lot of other banks large and small.

      As the dividends start to grow again with some of the Canadian banks I’ll likely initiate positions as the market up there operates a bit differently from our market, where you have just a few dominant players which creates a moat around the big 5. The juicy yield with those banks is also very, very nice.

      Best wishes!

    • Anonymous says

      DM, i’m a huge fan of the site but just a little fyi – the Canadian banks have been raising their dividends. Most banks raised there dividends at least twice in that last year other than BMO.

    • says

      Anonymous,

      Thanks for stopping by!

      I responded to Ninja below and you’re more than welcome to read that. I was not unaware of the Canadian banks reinstating the dividend growth, but the freezes from just a few years ago is still fresh in my memory. There are many companies that were able to still raise the dividend while some of the big Canadian banks were not able to.

      Best wishes!

  12. says

    Hey Mantra, the reader above just beat me to it! Yes the Canadian Banks are definitely “dividend growers”, almost all of them raised their dividends since 2009, and most of them are part of the TSX Dividend Aristocrats (Not that it means much since its been scaled back from 10 years to 5).

    And you are absolutely right,these Canadian Banks have economic moats, both in terms of market cap, and with govrnment legislation.

    Canadian Banks report their balance sheets with debt as assets – so while it appears they have little debt they actually own tons of consumer and business debt. ;)

    All the best Mantra, can hardly wait to see you start buying some Canadian stocks – hint hint (many trade on the NYSE, so are not foreign income).

    Cheers

    • says

      Ninja,

      Thanks for the information on the Canadian banks reporting debt as assets. I wasn’t aware of that. I haven’t researched some of the Big 5 very in-depth yet.

      As far as rising dividends go, I typically do not consider investments if they haven’t been raising the dividend for at least 5 years, while most of my investments have streaks going much longer than that. The dividend “freezes” by some of these companies troubles me as I’m looking for a rising income stream even in economic downturns and throughout all economic cycles. Of course, Canadian banks aren’t alone in this as many, many U.S. companies froze dividends or in the case of our large banks…cut them down to almost nothing. So, while I do view a freeze better than a cut or elimination, it still skews my bias toward other investments (like SBSI) that were able to continue raising the dividend throughout the recession.

      While the big Canadian banks are now able to raise the dividend again, they did go through a period very recently where they were unable to. With so many investment possibilities and opportunities (literally hundreds of companies continued to raise dividends throughout the recession), I would view these investments as less favorable.

      Just my take on it. I do view the big Canadian banks as attractive investments, just less attractive than companies that were able to keep chugging as if nothing happened.

      Best wishes!

Join The Discussion!