Recent Buy

I’ve been particularly active in the market as we’ve continued to see drops in all the major indexes on a daily basis. I’ve injected quite a bit of fresh capital into my portfolio over the last week or so, and perhaps I made those moves a little early. But that assumption really depends on your perspective. I look at every share I purchase in a publicly traded company as an additional piece of ownership, because that’s essentially what stocks are – pieces of ownership in a business. So, I’m simply buying a percentage of future profits with today’s money, and by doing so I’m delaying gratification in exchange for a return on my money. Obviously, the cheaper each share is the better off I am as I can then purchase a larger percentage of a business for the same amount of money.

However, what I really tend to look at is future expectations. If you buy shares in McDonald’s for $86.08 a piece, as I did recently, or if you buy them for today’s closing price of 84.05 will it really matter all that much 20 years from now when MCD shares are available on the market for $700 each? Probably not. That’s not to say that I don’t believe that purchasing stocks on a strong value basis isn’t important. Quite the contrary, as I believe valuation is paramount to a dividend growth investor’s long-term success and total returns. I just don’t think an individual investor should hang their head low because a stock they purchased dips multiple percentage points soon afterward. I advocate purchasing quality companies at attractive long-term prices, not trying to time the market. Time, not timing, will always be your best friend as a long-term value-based 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.

I purchased 50 shares of Vodafone Group PLC (VOD) on 11/9/12 for $26.25 per share. This adds to my current position, that was at 100 shares before this addition.

I decided to invest further capital into Vodafone for a number of reasons. They are the second biggest wireless telecommunications company in the world, and they operate on a global scale with majority or joint control in 22 countries. The lack of any significant landline business is attractive, as I believe the shift to wireless communications is permanent. The timing of my purchase was a bit ill, as VOD has slid further since my purchase. I decided to buy shares when I did because I believe VOD was being punished due to the uncertainty over a Verizon Wireless dividend, as VOD only owns 45% of this joint-venture. I anticipated another dividend to be paid out to parents Verizon Communications (VZ) and Vodafone (VOD), which I was correct about. Vodafone will receive $3.83 billion from Verizon Wireless, in the form of a special dividend.

What I didn’t anticipate, however, was particularly weak operations in southern Europe, particularly Italy and Spain. VOD reported a loss for the first half of 2012, reflecting revenue loss and large impairments. The strength of Verizon Wireless operations, and the special dividend, certainly helps, but does not quell all.

VOD is targeting a 7% growth rate in the dividend on an annual basis, which is particularly attractive considering what is already a high yield. They have already raised their interim dividend from 3.05 pence to 3.27 pence per ordinary share (1 ADR is 10 ordinary shares), which is a 7.2% raise. The final dividend will likely be announced in the summer of 2013. Taking the new interim dividend, and the last known final dividend and using current exchange rates, VOD yields 6% right now. That is not factoring in any special dividend from the Verizon Wireless venture, which was a nice surprise last year. That yield is also not factoring a raise on the final dividend, which will likely come to fruition. As of now, VOD has only announced a 1.5 billion pounds share buyback program with the monies received from Verizon Wireless.

These new VOD shares will add $75.46 to my annual dividend total based on today’s exchange rates. Overall, I’m quite happy with this purchase. VOD provides a service that is becoming increasingly ubiquitous in everyday life. People are starting to consider their smart phones and tablets a necessity, and no longer a luxury. VOD has a fairly strong balance sheet, and has a management team that is very shareholder friendly. Shares are on the rocks right now, after revenue loss and weak European operations, so this is a great time to scoop up shares for the long-term. I think this is a fundamentally sound business that is just having a tough year in a rocky macroeconomic environment. I’ll continue to monitor this holding and see how new services, like its new Red plans, add to revenue. If shares continue to slide I’d be interested in adding to my position further.

With this addition, I still have 29 positions in my portfolio as I was already long VOD.

Some analyst opinions on my recent purchase:

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

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

Full Disclosure: Long VOD

What are you buying?

Thanks for reading.

Comments

  1. Steve says

    Looks like a great long term buy. I’m currently adding to Reits and utilities. I see real estate continuing to improve. Utilities are not very exciting but I use them as core holdings.

    I do have a question. When multiple companies within your portfolio are going down in price, how do you decide which one to add to? I am only able to add a couple hundred bucks at a time so I can’t add to every company that is dropping. So, do you add to the position that has dropped the most or do you add to the largest yield? Do you choose the company that has the largest percentage of dividend growth?

    Do you have an objective method for doing this? I’m not referring to adding a new position. There are many companies I would like to add to my portfolio so in a down market, I just look for the biggest bargain in the companies I’ve been watching.

    Thanks!

    Steve

    • says

      Steve,

      Great question there.

      I don’t really have a “system” per se. I look at many criteria. I look at yield, DGR, relative performance to a major index and allocation in my portfolio.

      For instance, I’m well under-allocated to KO right now. I’m looking for every excuse in the book to add to it, but I just can’t find a good reason with the valuation being as high as it is right now.

      PM is starting to become very attractive. I’ve held off on adding more because it’s such a large portion of my portfolio, and I didn’t want to over-allocate myself to one company. If it continues to fall, I’ll be compelled to buy more.

      MCD is an extremely high quality company, the yield is solid, the DGR is high, the balance sheet is relatively strong, and my allocation wasn’t as large as I wanted..so that one had all the ingredients.

      Same with NSC. It was underperforming the indexes by a large margin, had a great entry yield, high DGR, solid business operations, good fundamentals, great valuation and I wasn’t over-allocated to it. So, I added.

      VOD is another that checked off a lot of the things I look for when I want to add to a position. It’s now about as large as I’d like it, in terms of allocation as a % of my portfolio, so it would have to fall significantly for me to add now.

      INTC is another solid value play that I’ve been resistant to add to because I already own 170 shares.

      So, I look at valuation, yield, underperformance and all the fundamentals. But I also look to see where companies “fit” in my portfolio and whether adding to a position makes sense.

      Hope that helps?

      Best wishes!

    • says

      Anonymous,

      I consider VZ a significantly weaker pick to VOD, overall.

      It has a lower yield, lower dividend growth rate, weaker balance sheet, more exposure to fixed line business and lack of geographical diversification.

      Just my take on it.

      Best wishes!

  2. says

    Nice buy! If I had capital right now, VOD would also be my choice. I picked up MCD a few weeks back as well.

    Outside of the usual suspects, I also like the dips the utilities have been seeing. In particular, DUK and SO. What are you thoughts on these?

    I know AAPL isn’t really considered a dividend growth stock atm, but it’s so cheap right now, it’s getting a bit difficult to ignore. Before the recent decline, most people/analysts were assured they would blow out Q4 earnings.

    Happy hunting!

    • says

      FI Fighter,

      I don’t really follow Apple. I’m a little concerned that as soon as margins are hit and the growth rate slows down, they’ll come crashing to Earth. We’ll see what happens with that one.

      I’ve been looking at utilities a little bit lately. They have come down from their highs at the end of last year/beginning of this year. 2011 was really strong for that sector, and utilities as a group have been weak lately. SO is definitely one of the leaders there, so I’ll have to take another look at that one. The only thing I might be concerned about with SO is their heavy reliance on coal-fired plants. There is obviously a fundamental shift away from that, which will be expensive in the short-term.

      I currently only own UNS and AVA in this space. I might be interested in adding to those two or initiating a position with a third utility. WM, in my opinion, would also fit in this category. I do like the high yield with these names!

      Best regards.

    • says

      ADY,

      Thanks for adding that! I didn’t mention the fact that the raise was that high when factoring in the exchange rate. I try not to consider the exchange rate too much, as that can swing for or against you depending on the day, policy and market sentiment.

      I think VOD will be a strong play in the long-term. We’ll see how the short-term plays out, however.

      Best wishes!

  3. Anonymous says

    I bought VOD on November 10th for 26.55/sh. I have since read that they will not do a special dividend this time around. I like the prospects for this company, and I think it is a better move than VZ. I also own T and FTE. T has done me well, but FTE has suffered.

    Good luck with your portfolio!

    • says

      Anonymous,

      Thanks for the well wishes! Much appreciated. I wish the same for you.

      Yes, it appears the VZW dividend will be used to initiate a share buyback and the rest will be absorbed into the business. VOD could certainly use that cash after the impairments and losses from their European operations. I actually like this move, personally. Times like these, with a rough H1, demands prudence and a long-term perspective. I’m okay with management not paying out that cash if it keeps the company strong and allows them to continue paying, and raising, the regular dividend…which is quite hefty in its own regard.

      Take care!

    • says

      Accumulating Assets,

      I like your list there. I find all those names attractive right now. PM and MO have had quite a drop lately, and I find both quite attractive. MO has a monster yield, but the secular decline in their only market is a bit concerning. If CVX breaks below $100, I’ll be very interested in adding. KMI is very nice, and of course MCD is quite attractive right now.

      I’d be buying INTC in large blocks if I didn’t already own 170 shares. That doesn’t necessarily preclude me from buying more, but I don’t want that position to be too large. I’m really not that big of a fan of tech.

      I’ve looked at LNCO. I actually ran through the entire shareholder presentation recently. I like the yield, and it certainly makes owning an MLP (LINE) extremely easy now that they have a normal corporate structure in LNCO. I’m not sure what to think of it. They aren’t a dividend growth story, but the fact that they held the dividend static during the massive NG drop is saying a lot for their strength. I don’t totally feel comfortable with it, so right now I’m out. That may change.

      Best wishes!

  4. says

    Good one man! The yield on VOD is spectacular and I really like its geographical diversification. I don’t follow the day to day news on this company, but I do come across it once in a while when reading about AT&T and Verizon. T and VZ don’t offer the same level of dividend growth. 7% DGR on something with a 6% yield is really good.

    The dividend machine keeps rolling. You’re going to set all kinds of personal records next year! It’s exciting to follow what you’re doing.

    • says

      Compounding Income,

      Thanks for following along. It’s exciting to post the updates!

      VOD does have a very nice yield, and the strong growth rate makes this holding very attractive. The revenue troubles due to southern Europe weakness provides some potentially significant short-term headwinds, but I still think this is a winner long-term.

      Best wishes!

  5. says

    Nice buy here. I’ve been waiting to get a chance to pick up VOD at the current prices and of course it finally dips back down and I have all of $50 currently that I can use to buy something and that’s no going to happen.

    • says

      PIP,

      I think you’ll have time to pick up VOD at current prices. I don’t see a rebound happening quickly, and think the mid-$25 level will be around for a while after the rough H1.

      Best regards.

  6. says

    VOD is definitely in an interesting position these days. I’m sure it will turn out ok, but I’m pretty concerned with European valuations right now. I attended a presentation by Fitch Ratings earlier this week and they said the implications of further austerity measures and/or a Eurozone breakup will have massive negative credit rating impacts. Companies that can relocate and aren’t exposed to government subsidies/regulation will be best off. They said their view of US ratings is stable, especially for companies without European exposure.

    • says

      Headed Home,

      Europe, European companies and companies with significant European exposure are all troubling right now. The problem is that many of the big multinationals (PM, KO, PEP, etc.) all have a pretty decent exposure to Europe, so many will suffer while Europe writhes.

      However, this will eventually play out. How long it will take, nobody knows. Maybe the euro goes away, maybe it’s saved. Who knows. What I do know is that people living in Europe will still need to live their everyday lives and will continue to work, live and consume as they always have. 20 years from now they’ll be doing even more of it, due to the fact that there will simply be more people on the planet.

      VOD, among other companies, may struggle in the short-term. As long as I’m paid to wait with that hefty dividend I’m okay.

      Take care!

  7. says

    i realise that there aren’t much discussion amongst dividend investors in america regarding how safe is the dividend cover.

    VOD have a free cash flow of 2.2 bil pounds this half year. if its projected to be weaker next half that tops out to be 4.4 bil.

    to pay that 6% yield they need at least around 5.1 bil pounds. now that doesn’t look very sustainable to me.

    it have always been the case that the free cash flow sans verizon wireless can pay for the dividends, now they have to eat into at least 0.7 bil, and that means verizon wireless have to pay out if not no special dividends.

    if you think my off hand figures are far off think about this. verizon wireless will pay 2.4 bil pounds to vod. they will use 1.5 bil to buy back shares, that leaves about 0.9 bil. which looks close to the 0.7 bil that i stated previously.

    having a competitive model is good, but at the end of the day we look at cold hard facts.

    if you want to know the future of telco, they are projected to shrink. what used to be a great business have become a commodity and compeition for vod is strife.

    the best report is probably from telco2.0, which deals with… telcos!

    http://www.telco2research.com/articles/EB_Euro-future-brutal-vodafone-telefonica_Summary

    • says

      Drizzt,

      VOD has had weak numbers in 2012, no doubt about that. H1 was horrible, mostly due to weaker-than-expected demand for their services and products in Europe, specifically Spain and Italy. People have cut back on their wireless usage during the recession, and perhaps more so than VOD or analysts predicted.

      The VZW dividend helps, and the share buyback will reduce share count, which will reduce the number of shares receiving that hefty dividend.

      I think VOD is fine long-term, and FCF will go back to covering the dividend. I think that VZW dividend definitely calmed some fears inside this company.

      VOD seems to have a pretty strong management team, and I think they recognize the short-term weakness and I do hope their moves, including less costly plans that have been rolled out, will help keep this a short-term problem and not a long-term problem.

      Best wishes!

    • says

      i want to believe that and in crisis u start seeing risks surfacing. it takes smart and well learned people to see if those risks are long term. the trend points to lower than expected FCF sadly.

  8. says

    I agree with your sentiments regarding market timing and investing for the long term. I’ve found myself also trying to add my portfolio right now, given the market over the last week or two. I keep thinking that it won’t stay down like this for too much longer and I’d really like to buy a few portfolio pieces while they are on sale.

    • says

      Rising Returns,

      Thanks for stopping by.

      I definitely do not advocate market timing. Purchasing quality on sale, however, is always most welcome. I do believe the market will continue to show weakness as uncertainty regarding the Fiscal Cliff, and investors sell off positions due to questions about tax policy, will continue to keep the bears alive.

      However, whether or not that all actually happens or not is impossible to predict and I don’t even try. I just continue to do what I do, as I have since I started this journey back in early 2010.

      I hope you have fun shopping for stocks! People talk about stocking stuffers around the holidays. I’m talking about stuffing stocks…in my portfolio, that is! I may write an article with that title. That’s pretty good!

      Best wishes.

  9. says

    i have a couple questions. is big dividend the biggest concern of yours? for instance I have a portfolio of about 15-20 companies, my average yield is only 2.78% but these are companies that are still growing, and growing their dividend fast, these are also well established companies and the average market cap of the 15-20 companies i believe is $97B

    One example id like to give is you seem to really like NSC. I think NSC is a good company, but i think on a total return basis (which btw allows them to grow the dividend faster) UNP is a much better choice. they are more diversified (dont rely as much on coal), have a higher growth expectation, and are growing their dividend at a wonderful rate. im basically just curious why you have chosen NSC over UNP, is it strictly because NSC has a better dividend?

    basically my portfolio of 15-20 companies looks a lot like yours, but has the UNPs of the world instead of NSCs and was wondering if dividend is your biggest qualifier

    • says

      Took2Summit,

      Great questions there. I think I can answer them all pretty efficiently.

      So, first thing is that UNP is a high quality company. I wouldn’t mind owning UNP.

      But, I chose NSC for a number of reasons.

      First is valuation. NSC is trading for a much lower valuation just about any way you slice it. Price to earnings, book, sales and almost every other way to value NSC…it’s simply significantly cheaper than UNP. Now, you can say that’s because of NSC’s reliance on coal, but UNP isn’t exactly completely shielded from coal either. They ship a fair share of it as well.

      Next is the dividend. Current yield is certainly not the end all be all when I’m considering an investment. I have many investments in my portfolio currently yielding less than 3% (KO, MDT). However, there is a LARGE discrepancy between UNP and NSC. Currently NSC is sporting a 3.55% yield. That’s pretty hefty if you ask me…especially from a railroad. UNP is currently yielding 2.35%. That’s a very, very significant difference in current yield. So, that does factor in and NSC has a large advantage there.

      You mention the growth rate. Actually, NSC has the higher 10-year DGR. NSC has a 10-year DGR of 21.3%, and UNP has a 10-year DGR of 17%. UNP is accelerating those payouts, so it may soon overtake NSC in this department…but for now NSC wins this round as well.

      I also look at length of dividend increases in terms of years. The longer the streak, the better. NSC wins here again with a 11-year streak of increasing dividends. UNP is second with 6 years.

      So…looking at many factors I chose NSC. As NSC continues to trend lower it gets more and more attractive.

      Again, I like UNP and wouldn’t mind owning it along with CSX. All are great businesses. But, I like a lower valuation which usually corresponds with a higher yield when choosing between similar businesses. Right now, UNP is just simply more expensive. Again, that is likely because NSC is heavily reliant on coal and UNP could grow faster from here.

      That brings me to my final point. I’m a value investor, not a growth investor. I like safety of the dividend of course, and I avoid value traps. But, when a company that I’m confident will be around 50 years from now is suffering from short-term headwinds and getting knocked down in the market….I’ll chose value over growth every day.

      Hope that helps.

      Best wishes!

  10. says

    Nice purchase, DM. I also noticed the recent drop in VOD. On the one hand, the company is having some difficulties in Southern Europe that may persist for a while, but on the other hand, they are getting a nice influx of cash from Verizon Wireless. I think the company will probably continue to face some short-term headwinds, but as we both know, it’s important to maintain a long-term outlook. The announced dividend increase suggests that management has a positive long-term outlook.

    • says

      DGM,

      I agree completely. Short-term headwinds will likely continue to harm VOD’s operations, but looking out over the long-term this is still a fantastic company with a fantastic geographical footprint.

      The cash from Verizon Wireless doesn’t hurt either. I tend to think this dividend will be annual, albeit unpredictable in its amount. Verizon needs it just as much as Vodafone.

      We’ll see how this investment treats us. I’m perfectly okay with waiting a while for any share price appreciation. I’ll continue to collect that juicy dividend and build my position at a cheap price.

      Best wishes!

  11. Anonymous says

    Hey DM,

    With President Obama’s re-election, how are you going to structure your dividend portfolio if and when the dividends get taxed at 39%?

    Thanks in advance

    • says

      Anonymous,

      The 39% you speak of is assuming dividends are taxed at normal income rates, and that would be the top level. If that happens, which it very well may, then I’ll be nowhere near that level as I don’t make that much money. All said, the tax rate change will have little effect on me. Besides, when I’m living off my dividends we’re talking about less than $20k of income.

      I plan on making no changes. If the market takes a significant dip due to the tax rate changes, then I’ll be buying even more if possible.

      Best wishes!

  12. says

    I would have serious reservations when it comes to market timing. One method would be to generally increase your cash position when the age of a bull market become really long. Its rare for the market to not have a big correction once every four years or so. I am not a fan of the get all in or get all out crowd. Nobody is so very smart that they can get in at the bottom and out at the top. But market timing does not have to mean that at all.

    • says

      Penny Stock Blog,

      I’m not quite sure I understand your comment. I do not advocate market timing, as I buy dividend growth stocks every single month whether the market is up or down.

      Best regards.

  13. says

    Good choices. I own both stocks and I think they will provide great return.

    With respect to NSC, the market seems to be nervous about the drop in coal shipment. However, NSC raised its dividend twice in 2012. I doubt that the management would do that if they knew they would not be able to support the new payout. NSC is a diamond in the rough.

    Cheers!

    • says

      The Dividend Engineer,

      Thanks for stopping by.

      I agree with you. The reduction in coal shipments is a headwind, no doubt about it. But, railroads are still railroads and NSC is one of the best around. They are still an efficient method of moving goods across long distances and I anticipate that NSC management will pick up some of the coal slack with intermodal shipments.

      NSC has had quite a dividend growth history over the last 10 years, and I don’t anticipate that growth level (over 20%) to continue. But, even if it were to remain around the 8-10% level I would be a very happy investor.

      MCD is a global juggernaut. Small blips here and there are nothing but buying opportunities, in my opinion.

      Best wishes!

    • says

      Drizzt,

      I’ll have to check out your analysis. I do think VOD can keep paying out that generous dividend for some time to come, even with weakness in southern Europe and other markets. If VZ keeps paying out the dividend, that will make the chances much higher. But, they can’t keep paying out forever if things continue this way, so I do hope that Europe rights the ship at some point in the near future.

      Take care!

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