Recent Buy

buyWow. How about that election? Obama gets re-elected and the market has a three-day performance that has me grinning ear to ear. The Dow Jones Industrial Average is down some 430 points (or 3.25%) over the last three trading days. That sounds like opportunity to me. It just so happens that I received my monthly commission check from my day job this past Thursday, which was great timing! I promptly transferred this fresh capital over to my brokerage account in the morning to get shopping.

Although a 430 point drop isn’t a major stock market correction, as always I like to look at equities on an individual basis. As such, for my recent purchases I tried to target dividend growth stocks that have experienced particular weakness lately. I found a few quality companies whose shares have been beaten down lately due to macroeconomic events, rather than company-specific issues and so I decided to get busy buying.

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 purchased shares with two separate companies on Thursday, and finalized a third buy on Friday. I’ll be discussing Thursday’s transactions below. I’ll publish Friday’s buy early this coming week.

For my first buy, I purchased 20 shares of McDonald’s Corporation (MCD) on 11/8/12 for $86.08 per share. This purchase gave me a 3.58% yield on my price. What can I say about Mickey D’s that you don’t already know? It’s a global juggernaut, and a dominant player in the restaurant industry. MCD suffered the first same store sales decline in 9 years during the month of October. This news caused a small sell-off in shares of MCD, and seeing as how I’m investing in MCD for many decades to come I decided to scoop shares up at an attractive long-term price. This purchase adds to my existing position, and I now own 60 shares of this high quality company.

Adding these 20 shares of MCD will provide my portfolio with $61.60 in annual dividend income, based on the current quarterly payout of $0.77 per share. MCD shares are currently trading for a P/E ratio of 15.96, which is very attractive for long-term investors in my opinion. Shares dropped in price after my purchase, but again when you’re looking at investing in a company for possibly forever share price fluctuations don’t really matter other than to serve as an opportunity to buy more when said fluctuations are to the significant downside. MCD’s payout ratio is currently sitting at 58%, which is well in line for dividend growth going forward. Although I anticipate MCD will not be able to continue their 10-year dividend growth rate of 27.4%, I do believe MCD will be able to raise dividends in the high single-digits to low double-digits going forward. Their debt is manageable, the brand name is just as strong as ever and there is still plenty of growth ahead for this company in emerging markets.

I also purchased 20 shares of Norfolk Southern Corp. (NSC) on 11/8/12 for $59.95 per share. This buy provided me with a 3.33% yield on cost. This is a good example of averaging down, as my last purchase of NSC shares was completed back in September for $65.86 per share. Obviously you only want to average down like this after a large share price drop if you still believe in the company long-term. I took some time to review the financial position of NSC, as well as its business model and historical performance. Looking at the fundamentals, I still believe NSC is a strong long-term investment after factoring in recent weakness amid reduced coal shipment volumes. Railroads provide a fuel efficient method of travel for clients, and the barrier to entry is extremely high.

These new NSC shares boost my overall stake in this company to a full 70 shares, which is a position I feel very comfortable with right now. Factoring out another significant drop in share prices, I’ll hold pat with this position size for a while. This purchase provided me with an additional $40.00 in annual dividend income to my portfolio based on the current quarterly dividend of $0.50 per share. NSC is trading for a cheap P/E ratio of 10.56. I find NSC shares very attractively priced for the long-term investor. NSC has 11 years of dividend growth behind them, with a 10-year dividend growth rate of 21.3%. If they can keep this rate at 10% over the long haul, I’d be a very happy shareholder.

With these recent purchases I still have 29 positions in my portfolio, as I added to two companies I was already invested in.

Some analyst opinions on my recent purchases:

*Morningstar currently rates MCD as a 4/5 star valuation.
*S&P currently rates MCD as a 4/5 star Buy.

*Morningstar currently rates NSC as a 5/5 star valuation.
*S&P currently rates NSC as a 4/5 star Buy.

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

Full Disclosure: Long MCD, NSC

Thanks for reading.

Edit: Corrected dates of purchase.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

Comments

  1. Anonymous says

    Great buys. I also picked up MCD on Friday. Did you mean other date for your purchases? 11/14/2012 seems like a typo.

    • says

      Anonymous,

      Thanks for catching that! My bad. I guess that’s what I get for writing an article at 1 in the morning. :)

      I corrected the dates to 11/8/12. I’m not sure where I got 14 from.

      Glad you picked up MCD on Friday. I wish I would have waited one more day to add to my position, but the difference won’t matter when I’m still holding MCD shares 20 years from now.

      Thanks again!

      Best wishes.

    • Anonymous says

      Exactly! The difference won’t matter 20 years from now. It is more important to keep picking up quality stock as we build our portfolios. No worries about the typo. You are doing an excellent work over here.

      Thanks!

  2. Anonymous says

    I just bought NSC. For my next purchase, I am considering DD, MCD, and MDLZ. I am leaning toward MDLZ, the Kraft spin-off. The Oreo, Cadbury, and Nabisco brands appear very strong.

    • says

      Anonymous,

      Nice move on NSC. It’s taken quite a tumble, and I felt compelled to average down since it’s still a high quality company.

      I’ve looked at MDLZ. Looks very promising. The entry yield is a little low, but the growth could more than make up for that. They definitely have a strong stable of brands. I like it.

      Best regards!

    • Anonymous says

      Hi DM,

      Don’t know why MCD earning were down, all three in my town are always busy. Just picked up MAIN this past week. I like that they pay dividends every month. What do you think of MAIN?

      Bill from Wmsport

    • says

      Bill,

      MCD, like all other companies, have bad quarters once in a while. But I’m investing for decades, not three-month intervals.

      I don’t personally follow MAIN, so I can’t give an opinion on it. I’ll have to take a look and get back with you. Sorry I couldn’t be of more help on that one.

      Best wishes!

  3. says

    DM,

    Nice purchases, as usual! Like you, I noticed the drop in MCD and picked up some share last week. I got in a little early, before the bad news broke out, so I’m hoping the stock will drop a little more to allow me the chance to average down. I want to make MCD a core holding, so have no problems with adding more shares at a reduced cost basis.

    I like NSC as well, but this time around I went with KMI. NSC is my largest holding at present, so I have to resist the urge to add more (even though the declining price keeps encouraging me to do so). I’ll let this out settle out for a bit longer, though it looks like you got in at a great price.

    Too many deals, too little capital. I guess that’s a better problem to have than no deals and too much capital.

    Happy hunting!

    • says

      FI Fighter,

      So many high quality dividend growth stocks, and yet so little capital. I definitely agree with you. It’s a good problem to have!

      KMI was also on my list. I would love to average down on that one and buy more. Another name made my round of purchases this time around, but KMI is high on the list, as I’d like to make that a big name for me.

      It’s a good time to be a dividend growth investor!

      Best regards.

  4. says

    Nice purchases, DM. I see we both increased our positions in NSC at good prices. I would have joined you in buying MCD were it not for a lack of cash. I hope some of these deals are still around in December, when I’ll have new capital to invest. Best wishes!

    • says

      DGM,

      Yeah, it was nice to average down that much. I think we both had a similar cost basis on NSC, so I’m sure you enjoyed the price drop as much as I did.

      I think we’ll still see very attractive prices on quality names until the fiscal cliff dilemma is solved. If the cliff does come to fruition then I believe we’ll see even better prices. We’ll see how it goes!

      Take care!

  5. Chad says

    Two great purchases. Once I have enough to make my November purchase later this month, I’ll pick up one of those two or KMI. With the upcoming fiscal cliff and potential increase in the dividend tax rate, I don’t see the market going up much. There should be lots of good deals to be had before the calender hits 2013.

    • says

      Chad,

      I agree. I think we’ll continue to see attractive prices through the end of the month and into the end of the year. I’ll continue to buy up as I always do.

      You have a great list there. I really like KMI at these prices, and if it continues to drop I’ll have to free up capital and purchase more.

      Enjoy shopping!

      Best wishes.

  6. says

    Friday, I finally pulled the trigger on NSC. I’ve been waiting to add a railroad to my portfolio for a few years. I learned about the company reading your blog a while back, so thanks. If this week is anything like last week, my eyes will be glued to the market. There may be more good deals to be had.

    • says

      ADY,

      Nice! Glad to see you are now a part-owner of a railroad. Feels good, doesn’t it? Nice to have you as a fellow shareholder.

      Yeah, I anticipate further volatility, and the continuing gridlock in Washington will almost assure that. That spells opportunity.

      Take care!

  7. Anonymous says

    Dividend Mantra, are you putting these purchases in an IRA or a taxable account? I had my Roth IRA in mutual funds for years, and when I discovered dividend investing, I sold and transferred my mutual fund to an ira brokerage account, and just had a field day buying dividend stocks. MCD is my largest holding, so unfortunately I cant buy it right now. I dont have NSC, and I would like to add a new holding the first of the year. Its on my list.

    • says

      Anonymous,

      Thanks for stopping by.

      All of my holdings are in a taxable account. Although I personally find a ROTH IRA a great investment vehicle, I’ll be accessing my wealth at a young age as I plan to retire by 40.

      I wouldn’t mind having MCD as my largest holding, nice move. PM is currently my largest holding, but I haven’t added to it in a while now.

      Good luck finishing the year strong!

      Best wishes.

    • says

      You easily invest more than the $5k year max that a Roth would take. You should invest the $5k in Roth then rest in taxable. There is really no down side, as if you live past 59.5 which I am sure you are planning, you can get the earning out tax free. If you fall on hard times and have to take money out early, you can always take out contributions without penalty.

  8. says

    Nice buy! I also bought some more MCD and initiated a new position in RGA. I think RGA is ridiculously cheap, trading at around 60% of book value. They were spun-off from MET in 2008 and have grown their dividend since then. It’s a company you might be interested in so I thought I’d share. Cheers!

    • Anonymous says

      Any idea how much RGA was affected by Hurricane Sandy?? I understand they are a reinsurance company but not sure how they’re impacted out what they’ll have to pay out.

    • says

      RGA is a life reinsurance company so they’re mostly mortality exposure-based, not property or casualty based. The stock is lower because they missed guidance during their last earning due to higher claims in the United States and Australia. I don’t think Hurricane Sandy effected RGA much, we won’t know until their next earnings. Anyways, the stock is acting similar to what happen to AFL last year. People overacted and AFL’s stock declined to bargain levels. Good insurance companies are able to manage risk well and RGA does it really well so that’s why I think RGA is a really great long-term holding even if they have higher claims here and there.

    • says

      Took2Summit,

      I never buy on margin. Although I’m almost 100% invested in equities, I’m pretty conservative about it. I really view equities as one of the safest asset classes available today if you’re investing in large, defensive companies.

      Margin can certainly amplify gains, but it can also amplify losses. It’s that uncertainty that keeps me away. My portfolio is 100% mine.

      Hope that helps!

      Best wishes.

  9. says

    I bought some MCD last week and am thinking hard about NSC sub 60. The more I think about it the more I believe some of the coal revenue is gone for good. Cheap natural gas will be available for a while and is a cleaner fuel anyways. Perhaps they can find something else to fill the void? NSC stock is very attractively priced, yet I’m happy with my current position. It’s a tough call!

    I might end up going with KO or O, not sure yet.

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