Recent Buy

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.

Comments

    • says

      DGM,

      I’m hoping for that dip as well. I’m completely with you. There isn’t many attractively priced stocks out there. AFL would be one of the few trading for so far below analyst FV calculations.

      I have a little capital to play with as well, so we’ll see how irrational Mr. Market decides to be over the next few weeks.

      Best wishes!

  1. Steve says

    Good buy! I’ve considered AFL but in my diversification strategy, insurance is a bit down the road. Right now I’m working on a few other categories like energy (CVX) and global consumer (PG).

    I feel your frustration with valuation. I made a nice purchase in January of PG and planned another in February. Unfortunately, PG had a great earnings report and went through the roof. So, I went with COP instead. It was definitely not my first choice, I’d much rather have CVX but it’s a bit out of my price range. Anyway, I’m happy to have another position in energy. Right now I only have KMI and COP. Eventually I’d like to have CVX and XOM as well.

    The valuation issue reminds me of a section in the book “The Single Best Investment.” Using historical data, the author demonstrates that the best environment for the dividend growth investor is a stagnant market where there may be dips but no significant bull market trend. This allows the investor to enjoy dividend growth while continuing to accumulate shares at reasonable prices. During the accumulation phase of DG investing, bull markets are the worst case scenario.

    Well, keep pluggin along!

    Steve

    • says

      Steve,

      Not a bad strategy there. I like CVX and PG. I was considering buying more PG, but moved over to JNJ after PG’s big pop recently.

      That last paragraph is 100% correct. Warren Buffett has also espoused on this many times, noting that net buyers would be best served by extended flat markets as it allows an individual to gain consistently larger ownership stakes in companies at an attractive price. His quote about the Buffett household rejoicing when hamburgers go on sale comes to mind here.

      Hopefully we get some weakness soon, but if not we’ll just keep pluggin’ along! It’s hard to build a rising dividend stream if one isn’t buying equities consistently.

      Best regards!

  2. Anonymous says

    I have been dripping AFL since 1999, now I have 296 shares. My Roth IRA has 100 shares (of which I have been successfully writing covered calls). AFL is a long term winner.

    • says

      Anonymous,

      That’s a nice AFL position there! I wouldn’t mind almost 300 shares of this high quality company. It has three decades of dividend growth behind it and I don’t see that abating anytime soon.

      Take care!

    • says

      AA,

      Thanks! Yeah, it’s one of the stronger values available on the market. It’s been a strong value for quite some time and I was happy as a pig in shit when I purchased it initially at the $33-34 level. I only wish I would have picked up more, but so little capital and so many equities! :)

      Sorry to hear about your EXC dividend cut. That’s been a poor performer for many years now and I guess the cut was telegraphed. Of course, probably not much downside from here…so that’s the upside! :)

      Best wishes.

  3. says

    Nice job, last week I told you they were top on my watch list. I also bought on 2/6 55 shares and then today I actually sold a march 16 put @ 1.34 when shares were trading around 50.10 I will be completely fine if I get put the shares as well, or collect my $134 on march 16th. I did the put on margin, and luckily you don’t have to actually pay margin until (if) you are put the shares. I’m happy we both got very attractive pricing on our afl

    • says

      Took2Summit,

      I’m happy as well! It seems we used this opportunity to scoop up some shares on a very high quality company at an attractive long-term value. That’s what it’s all about!

      Take care!

    • says

      Dividend Yield,

      I hear you there. Not a bad complaint there. They get somewhere around 80% of their business from Japan, while about 20% or so comes from the U.S. The flip-side is that there is plenty of growth opportunities available here in the U.S. and abroad as well. We’ll see how it goes!

      Best regards.

    • says

      My Fi,

      Glad to have you as a fellow AFL shareholder. I think this company takes good care of us and I really love the brand. It’s got one of the strongest brands among insurance companies, especially supplemental insurance companies.

      30 years of dividend growth, a decent entry yield, strong (and improving) balance sheet, growing earnings and it has a pretty large margin of safety at today’s prices. Not much to dislike.

      Best wishes!

    • says

      The Executioner,

      Great point there. I sometimes forget or disregard options, but I’m glad you added that! Definitely a benefit for those who participate in options.

      Hope all is well!

      Best regards.

  4. Chad says

    Great pick up. Hopefully it stays at its current level or drops a little more. Don’t quite have enough to buy any shares right now, but should have enough later in the month. Gotta love the irrational market.

    • says

      Chad,

      Definitely love an irrational market. Net income up 8%, but all the attention lies on currency concerns and guidance that’s slightly below bloated expectations. I’ll take it!

      Best regards!

  5. says

    Nice buy of AFL! I got caught up in the hype about their problems a year or so ago when it was down in the $30′s and never bought. Shame on me. I wouldn’t mind owning some, although I might have missed the chance. Might be a cash secured put opportunity. At the very least I could then tell people the latest duck commercial idea came from me.

    • says

      Pursuit,

      I don’t think you missed the chance. I think it’s trading for an attractive price if you’re planning on owning it for the long haul. Of course, short-term volatility is always a possibility. Any significant dips from the $50 level could present a great opportunity.

      Yeah, that duck is great…and probably up there with the Geico gekko in terms of popularity/brand strength.

      Best wishes!

  6. Bo says

    Good purchase, I noticed the knee-jerk reaction of the market too. Looking to buy AFL next week.

    “What are you buying?”

    I have capital for 5 purchases, I’m considering AFL, ARLP, MSFT, WFC, WMT and DRI to buy in the near future.

    Take care,

    Bo

    • says

      Bo,

      I appreciate you sharing your shopping list!

      I like that list, especially WFC. That’s one I’m strongly considering currently.

      I go back and forth on DRI. I think it’s attractively valued and the yield is very nice…but I’m just not sure where the growth is going to come from. I’d like to see some international expansion beyond just North America (which they’re planning) before I jump in. It’s one I continue to monitor. It just seems like that middle class squeeze will affect this company more than others like MCD who are a low-cost provider.

      Best wishes!

  7. says

    Nice buy ! Having already enough AFLAC and feeling a bit uncomfy for the debt exposure they have in Europe, I bought some VALE and some CHL. I like VALE because they are deeply undervalued, and CHL because they are a very big player in China. I like to be diversified as much as possible internationally. Have a nice weekend !

    • says

      Aspenhawk,

      AFL’s balance sheet is slightly stressed due to exposure to PIIG debt, but they’ve made moves to reduce that exposure. I think they’ll continue to be good stewards to the float and invest wisely and conservatively.

      CHL is interesting. There are many gigantic companies in China that act basically as monopolies, but my problem with investing in them is the lack of transparency for shareholders. It’s just too risky for me right now. This is something I’ll continue to monitor, however.

      Take care!

    • says

      Ninja,

      Thanks for stopping by!

      I’d say KO is pretty fully valued here. S&P has FV at $34 and Morningstar has it at $37. I recently did a DDM on it and came up with $37, but that was using a 7% dividend growth rate, which is slightly below its 10-year and 5-year DGR. You could make a case for all the way up to mid-$40′s if you want to be more aggressive and perhaps lack a margin of safety.

      On the other hand, I think KO is one of those companies worth paying full price for. Especially in this market. I definitely wouldn’t mind buying more KO, and actually would like to increase my relatively small ownership stake. I haven’t purchased any in years.

      Also, the DDM was using current payouts. The dividend is set to rise, so the FV will correspondingly rise.

      Best wishes!

    • says

      writing2reality,

      Thanks!

      I just stopped by your blog. I wish you the best of luck on your journey. You’re starting at the same age as I did (28). The progress is slow at first, but keep at it. I find myself almost three years later with $100k in the bank…starting from almost nothing. It adds up!

      Best of luck selling that house. I’m not totally averse to home ownership, but feel that renting in most cases is cheaper. Home ownership, will likely more expensive, comes with certain emotional and psychological benefits that is either worth it or not…depending on you.

      Best regards!

  8. Anonymous says

    Really appreciate all the input.some great ideas.
    But I don’t hear anybody mention COP which I am considering.they have a great dividend and seem to do the right things.
    Any thoughts?

    • says

      Anonymous,

      I like COP, and it’s one of my core energy holdings. The yield is pretty strong, but one has to remember that a lot of the diversification is gone now that they spun off downstream operations. COP now focuses completely on exploration and production, so that can cause volatility when oil prices are down. Just something to keep in mind. The yield is very enticing and the balance sheet is solid.

      Best wishes!

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