Friday, April 12, 2013
It takes a lot of conviction and belief in an overarching goal to invest fresh capital in the face of a stock market that is breaking new records seemingly daily. But, I have the kind of conviction necessary to do this. I'm simply trying to buy time via passive income that will exceed my expenses and therefore free me from the need to work a full-time job to sustain myself. And passive income doesn't get built by wishing for a market correction. Instead it's built through the power of perseverance and focusing on what you can control.
As I talked about when I published my last stock purchase, there is little value to really be had. And you could even argue that I would be better served by sitting on my capital rather than deploying it on a regular basis as I do now. But, again, a large, and rising, dividend income producing portfolio of high quality companies doesn't get built out of thin air. It requires rolling up your sleeves, and digging deep for high quality at an attractive long-term price. However, this does not mean buying any stock at any price, or even buying a piece of a high quality company at a high price. It rather means to focus on valuation over the long-term, and ignore the market noise. If you focus on high quality companies, buy at a fair price, or even better with a margin of safety, you'll likely do well regardless of the broader market's valuation.
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 Wells Fargo & Company (WFC) on 4/11/13 for $37.71 per share.
This purchase adds $60.00 to my annual dividend income, based on the current quarterly payout of $0.30 per share. This purchase comes with an entry yield of 3.18%.
I initiated a position with Wells Fargo back in February and have been wanting to add to it ever since. I'm not going to go far in depth with the reasons why I like this bank, as I laid out my case in that last post. I think WFC is a high quality bank, as it focuses on old school banking operations like lending, mortgage origination, deposits, customer service and less on the capital markets. Good stuff.
WFC reported a 22% increase in first-quarter profit, but there are concerns about the mortgage origination side of the business as many Americans have already taken advantage of the low rates and refinanced their higher interest mortgages. Even as much as mortgages dominate the WFC business structure, the bank is more than that as lending and deposits have both been strong. Their wealth management division also recorded a 14% rise in profit. I believe this bank will do well over the long-term, although they may have some difficulties in the near future depending on the direction of interest rates.
When I initiated a position with WFC, I calculated a Fair Value on the shares of $54.00. That was before the recent 20% dividend raise! Needless to say, I'm very happy to increase my ownership stake with this bank. I recently opined about the great opportunity regarding this bank in an interview that was conducted by Matt Alden over at Dividend Monk. Well folks, I like to put my money where my mouth is.
The dividend is well covered with a 35% payout ratio. Although revenues were down due to softness in mortgage origination, I still believe that this bank will continue to perform well over the long haul. And the long haul is what I focus on.
I currently have 31 positions in my portfolio, as this was an addition to an existing position.
Some current analyst opinions on my recent purchase:
*Morningstar rates WFC as a 4/5 star valuation with a FV estimate of $43.00
*S&P rates WFC as a 3/5 star Hold with a FV calculation of $38.00
I'll update my Freedom Fund in early May to reflect my recent addition.
Full Disclosure: Long WFC
What are you buying?
Thanks for reading.