Tuesday, August 14, 2012
It's been a little while since I published a stock purchase. Even though I haven't been as active in the markets lately, it's great to know that my investments have my back. The stocks I own continue to disperse dividends into my brokerage account as usual and the cash balance just grows and grows. This small break from investing gives me a glimpse into the future. By sparsely checking my investments over the last couple of months and leaving them be, but continuing to collect dividends, I basically gave myself a brief view of what financial independence looks like. I can live my day-to-day life and do whatever I feel like doing, knowing that the companies I own a stake in will continue to generate rising revenue streams, increase profits and pay me rising dividends as a capital supporter of said businesses. It's a wonderful world for a dividend growth investor!
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.
As I recently discussed, I see some opportunities for value in this market. I would concur with other investors who would say that the equities market is currently a little pricey and perhaps on the higher side of fully valued. You could even make an argument that it's a tad overvalued. I try not to look at the market as a whole and instead look at individual securities. After all, I'm not an index investor. I'm a dividend growth investor, and as such I buy individual stocks and have to consider their value on a case-by-case basis. Based on this belief I decided to get my feet wet and make a purchase in the face of the DJIA sitting over 13,000 points.
I purchased 14 shares of McDonald's Corporation (MCD) on 8/13/12 for $87.94 per share. It was a close call for me, as I almost initiated a position with Archer Daniels Midland Company (ADM), but I felt that the value in MCD was strong enough to warrant an increase in my position. It has an extremely wide economic moat with a strong household brand name, global supply chain, pricing power and products that people love. Although the market may be a little expensive right now, MCD is still a wonderful company trading for an attractive price and that's what matters to me.
McDonald's Corporation (MCD) franchises and operates restaurants across the globe.
MCD is a superb company and a great dividend growth stock. It's grown dividends for 35 years and has grown them by an average of 27.4% over the last 10 years. They have a pretty strong balance sheet with a debt/equity ratio of just under 0.9 and the growth potential for this company is fairly large. The entry yield on my purchase is 3.18%. I purchased this wonderful stock with a P/E ratio of 16.55, which is attractive for the level of safety and growth. This purchase will add $39.20 in yearly dividend income to my annual total. The payout ratio is moderate at 52.6%, but I think the strong growth that MCD will experience will allow the dividend to safely continue growing well above inflation levels.
With this recent buy I still have 28 positions in my portfolio. I received a position in Phillips 66 (PSX) after the ConocoPhillips spin-off. Other than that, I have not initiated any new positions since my last update.
Some analyst opinions on my recent purchase:
*Morningstar currently rates MCD as a 4/5 star valuation.
*S&P currently rates MCD as a 5/5 star Strong Buy.
I'll update my Freedom Fund in early September to reflect my recent addition.
Full Disclosure: Long MCD, PSX
What are you buying?
Thanks for reading.
Edit: Corrected 10-year DGR