Thursday, February 7, 2013
I haven't seen too many attractive opportunities available lately. Many of the dividend growth stocks I follow (somewhere around 100) have had quite a run-up with the general market over the last six months, and as such it's priced me a bit out of equities right now. I continue to keep an eye on my own holdings, as well as those companies I'd like to own a piece of for any significant dips which would create an opportunity to purchase shares at an attractive price relative to intrinsic value. As with my Johnson & Johnson (JNJ) purchase, I'm willing to pay all the way up to full fair price right now seeing as how there are few, if any, significantly undervalued stocks available on the market right now.
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 26 shares of Aflac Incorporated (AFL) on 2/6/13 for $51.08 per share. I really like Aflac. It was one of my larger holdings before this addition, and it's an even larger position now. It dipped almost 5% on Wednesday and I took advantage of that and added to my equity ownership stake in a quality company. Aflac is a supplemental life and health insurance company and operates in the U.S. and Japan.
Aflac has excellent fundamentals. It has a low debt/equity ratio at 0.4. The 10-year dividend growth rate stands at 19.3%, and the 5-year DGR stands at 10.9%. EPS stood at $3.35 for the year ended 2007, and over the trailing twelve month period it stands at $6.11. Not bad! They are making moves to reduce exposure to risky European debt and they recently posted an 8% rise in net income for Q4. Shares were down 5% on Wednesday and another 1.95% today due to forecasting EPS numbers slightly below analyst expectations. I do love overhyped analyst expectations and the volatility it can cause in some of my favorite dividend stocks. Profit goes up 8%, shares fall 5%. Mr. Market can be quite irrational, no?
This purchase added $36.40 to my annual dividend income total based on the current payout of $0.35 quarterly per share. My shares came with an entry yield of 2.74%, which is pretty exceptional if you look at the strong dividend growth history. Overall, I'm very happy to add to my AFL position at these levels. I made my first two purchases of AFL shares below $35, so this addition represents a level well above my cost basis. That's okay, however, as I still think AFL represents some solid value in today's market. As an added bonus I picked these shares up in time for the next dividend payout, as AFL usually goes ex-dividend in the middle of February.
Using a Dividend Discount Model and a 8% long-term dividend growth rate with a 10% discount rate, I get a fair value of $75.60 per share. That gives me a margin of safety over 45%, and that's using very conservative dividend growth numbers which are well below AFL's averages. Analysts seem to agree with me, as you'll see below. I think AFL represents one of the stronger values in the market today, especially considering the high quality nature of the company. It has one of the strongest brand names in the world and is very shareholder friendly.
This purchase brings my AFL position up to 100 shares. This is now the 6th position in my portfolio that I own at least 100 shares of. This means nothing really, but is psychologically beneficial. I can see the portfolio growing month after month. I now have at least 100 shares in AFL, JNJ, KMI, INTC, VOD and PM. Looking at those 6 stocks, they would actually make a nice portfolio just in themselves as they represent financial, healthcare, consumer, energy, telecommunications and technology sectors.
I still have a little capital to work with, but will remain patient. I'll look to buy on dips and as attractive opportunities come my way. I'm not chasing anything, but am more than willing to catch a share or two!
With this purchase I still have 28 positions in my portfolio.
Some current analyst opinions on my recent purchase:
*Morningstar rates AFL as a 4/5 star valuation with a FV estimate of $65.00.
*S&P rates AFL as a 5/5 star Strong Buy with a FV calculation of $77.80.
I'll update my Freedom Fund in early March to reflect my recent addition.
Full Disclosure: Long AFL, JNJ, KMI, INTC, VOD, PM
What are you buying?
Thanks for reading.