Tuesday, February 26, 2013
The market hasn't been as cooperative as I would have liked over the past month. I would have enjoyed a 500 or 1,000 point drop in the Dow Jones Industrial Average to bring some of the share prices in companies that I'm interested in down to earthly levels. But, alas, such was not to be. That's fine. I continue to make my monthly purchases in high quality dividend growth stocks, as I become a part-owner in these fantastic companies for the long-term. Meanwhile, as a benefit of being a part-owner I collect rising dividends which I combine with fresh capital from my day job and make further investments as opportunities present themselves. Sounds like a winning strategy to me!
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'm actually going to list two purchases as I completed both transactions in close sequence.
First, I purchased 25 shares of The Bank of Nova Scotia (BNS) on 2/26/13 for $58.75 per share. I just completed a lengthy article on why I was interested in BNS, among other major Canadian dividend stocks. You can read that article here.
To summarize, BNS is a truly international bank trading at an attractive valuation with a high yield. BNS is committed to growing the dividend going forward and has a very well managed balance sheet. Currently, BNS is trading for a P/E ratio of 11.59 with a debt/equity ratio of 0.3. The entry yield on my purchase is 3.81% factoring in exchange rates.
This purchase adds $55.86 to my annual dividend total based on the current quarterly dividend payout of $0.57 CAD, and also factoring in current exchange rates.
For my second purchase, I bought 18 shares of Toronto-Dominion Bank (TD) on 2/26/13 for $82.08 per share. Again, the article linked above highlights the reasons I'm interested in TD.
TD is currently trading for a P/E ratio of 12.43 and has a debt/equity ratio of 0.3. Very similar numbers to BNS, overall. The yield is also very similar as I received an entry yield on my purchase of 3.77%.
The addition of TD to my portfolio adds $54.33 to my annual dividend total based on the current quarterly dividend payout of $0.77 CAD, and also factors in current exchange rates.
Overall, I'm very excited with these additions to my portfolio. Both are new positions for me and I'm now a part-owner in Canadian based businesses for the first time! Awesome. I've been focused on bolstering my exposure to the financial sector recently. I'm probably a little late to the game in that regard as a lot of financial stocks, most notably bank stocks, have had quite a big run over the last few years. Of course, the same can be said for most stocks in general as the stock market has doubled from its financial crisis lows.
I discussed a lot of the characteristics in these banks that I really like in the article linked above. However, I didn't talk a lot about valuation, so I'll do that now.
I used a Dividend Discount Model to value shares for both banks and used the same inputs as far as growth rates and the discount rate since they are similar businesses operating out of the same home market. Using a 7% long-term dividend growth rate and a 10% discount rate I get a Fair Value of $107.71 on TD shares and I get a Fair Value of $79.54 on BNS shares. I think I used fairly conservative numbers, and both banks are expected to raise the dividend this year. This model is sensitive however, as changing the discount rate up to 11% brings both stock's Fair Value to right about what they're currently trading for.
With these purchases I now have 31 positions in my portfolio, as both are new positions.
Some current analyst opinions on my recent purchases:
*Morningstar rates BNS as a 3/5 star valuation with a FV estimate of $60.00.
*S&P rates BNS as a 4/5 star Buy with a FV calculation of $62.30.
*Morningstar rates TD as a 3/5 star valuation with a FV estimate of $89.00.
*S&P rates TD as a 4/5 star Buy with a FV calculation of $86.60.
I'll update my Freedom Fund in early March to reflect my recent additions.
Full Disclosure: Long BNS, TD
What are you buying?
Thanks for reading.