Recent Buy

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.

Comments

  1. says

    Nice pick up and I really like Wells. I work in the industry and can tell you that Wells is the 1000lb gorilla in the mortgage origination market. The market share gains they have made in the last 2-3 years are not short of astounding. To give you an idea, 2012 figures have them at about 28% of the market. Chase was #2 at around 10%. US Bank and BAC were #3 and #4 respectively at around 4.5% and 4%.

    cheers,
    AA

    • says

      Accumulating Assets,

      Thanks for the information there!

      Wells definitely dominates the mortgage origination market, which may lead to sub-par performance in the near future due to the possibility of the refinance boom coming to an end. However, how could you not want to own a significant piece of the U.S. mortgage market? We have the strongest economy in the world and home ownership is prized here.

      I would argue that Wells became a much better bank coming out of the crisis, especially with Wachovia under its belt. I think the shares are attractive here, and I would be buying all the way up to the mid-$40′s.

      Best wishes!

  2. says

    I agree that there is very little value out there right now. I just picked up two REITs, STWD and FRT. WFC is a solid position but what do you think about JPM? They also just boosted their dividend after reporting earnings.

    • says

      Dividend Ladder,

      I am not that interested in JPM. They have a significantly higher focus on capital markets, and that scares me a bit. Imagine how much better off they might be today had the ‘London Whale’ incident never occurred?

      Not a lot of value out there unfortunately, but I’ll keep hunting for it! :)

      Best regards.

  3. Onassis says

    Hi Jason,

    Wells Fargo is also on my watchlist!

    A small info from me:
    At the age of 25 I married and we become a son.
    One year later, with 26 I bought a house.
    Now, with 38 I´m debt free and the house is mine.

    The plan was, to pay of the dept as fast as possible!

    Now with 38 I can start to build my Dividend Depot and buy shares.
    The target is, to retire with 50. Ten years later as you, but I have a wife ;-)

    At the moment I have payed in my stock portfolio about 9 TEUR.
    My shares are: Astrazeneca (GB), Daimler (D), Münchner Rück (D) and Deutsche Telekom (D).

    I have 80-90 companys on my watchlist, of course also Wells Fargo and JPMorgan Chase.

    I try to buy shares every month for 1-2 TEUR.
    I will not wait (like you) on deeper share prices.
    I collect shares ;-)

    Target is 33% US, 33% GB and 33% D

    Best regards from Germany!

    Onassis

    • says

      Onassis,

      Thanks for stopping by all the way from Germany!

      Excellent story there. Congrats on the building of your very own Dividend Depot! :)

      I’m with you on collecting shares. Hard to accumulate wealth if you’re waiting. I do wish that the market was cheaper, but I won’t let the market keep me from growing my investments.

      Keep up the great work!! And good luck to you sir.

      Take care.

  4. says

    Good buy DM. As always valuation is the key, which prevent to buy anything at any price (’29 styles).

    I bought a Canadian oil Company, it’s undervalued, battered and for a contrarian investor it’s a sweet treat. I also bought back at lower price an industrial stock I cashed in some time ago for benefits.

    Brick by brick… :)

    Keep it up.

    • says

      JF Baconnet,

      Brick by brick is right! That’s the best way to look at it. Sometimes bricks are harder to come by, but that doesn’t mean you stop building.

      Good for you finding some attractive investments. I’m sure that hard work will pay off over time. Keep it up!

      Best wishes.

    • says

      MFIJ,

      Yeah, not much out there right now. I like WFC, and I like a few of the Canadian banks right now as well. I might pick up more BNS or TD soon. I also like RY.

      The energy sector also has some attractive opportunities.

      Hope you’re having a great weekend!

      Best regards.

    • says

      Nick,

      Thanks for stopping by!

      Absolutely. Sometimes it takes a little extra work to look for the value, but when I find it I’m all smiles. I don’t know what will happen to the market tomorrow or the next day, or for that matter WFC shares, but I do know that the odds are strong that 10 years from now I’ll be happy I purchased a piece of this company. And that’s really all I’m looking for.

      Take care!

  5. quinny says

    Hi Jason, I noticed that you are not looking for dividend aristocrats, since WFC it’s not. Don’t you think that a stable and incresing year-by-year dividend it’s important for your goals?

    • says

      quinny,

      Well, most of the companies I’m invested in have lengthy dividend growth streaks. Some of my bigger holdings include JNJ, CVX, PEP, PM (spin-off from MO) and the like. You can view my portfolio at any time using the ‘portfolio’ tab. I typically like to purchase companies that have at least 10-year streaks of rising dividends.

      WFC was an aristocrat, but was forced to cut the dividend by the government during the recent financial crisis. Now that they have the all-clear to buy back shares and raise the dividend, I think the future is bright for this investment from a dividend growth and total return perspective.

      Best wishes!

  6. Spoonman says

    I think you are doing an excellent job finding value in this difficult market climate. I still have too much of a sour taste in my mouth after the financial crisis to invest in banks. WFC is not quite as evil (it’s the bank and brokerage house I use, after all) as other banks out there, but still. These are mostly irrational feelings on my part =). For the time being I am adding to my AAPL and APD positions.

    • says

      Spoonman,

      I completely hear you on your feelings regarding banks. It took me a good while to warm up to the idea myself. Banks are a relatively new investment for me, as I tried to focus on insurance companies in the financial sector up until recently so I could get exposure to the sector without having to actually own a piece of a bank. But, let’s not forget the world needs banks. It’s a necessary service, and I simply hope to profit from that and own a piece of one of the best.

      I still keep going back and forth on AAPL. I’m just a little concerned about the product pipeline and whether the innovation can keep going. If it can, this could be a fantastic long-term investment, especially after the recent pullback. They certainly have enough cash on that balance sheet to raise the dividend for quite a while even without core growth, but I’ll continue to watch on the sidelines for now.

      Best regards!

    • says

      Anonymous,

      Thanks so much! Glad you concur.

      I can’t imagine WFC not working out well over the long-term at today’s prices. I’d be willing to buy all the way up to the mid-$40′s, and that target will continue moving up as the dividend advances. I hope we’re in store for another large dividend next spring. In the meantime, I’ll collect the solid 3%+ yield while WFC continues to do its thing.

      Take care!

  7. Anonymous says

    Hello Dividend Mantra,

    Like you I am trying to make use of the adage ” It is not a stock market but a market of stocks”. As an extension to ” Quinny’s” questioning as to why the purchase of dividend aristocrats is not currently being favored I can only express my frustration at the site of MMM, GIS, KO and the like glowing greener every day. I can only wait patiently for a better entry point.

    But as you pointed out idle cash does not oil the dividend income engine.

    And so I/we must compromise to a certain extent. The search is arduous and I wish to share some respectable companies that have come up as undervalued at least using Fast Graphs as a tool. (The following companies have a current stock price below the orange earnings per share line.)

    1. Western union (UN)
    2. Nu Skin (NUS)
    3. Cisco (CSCO)
    4. Wiley (John) & Sons (JW.A)**
    5. Tompkins Financials (TMP)
    6. BHP Biliton (BBL)**
    7. Medtronic (MDT)**
    ** have a long history of dividend increase.

    Any thoughts on the above ? Anyone else find other undervalued stock ?

    I also bought AFL, INTC and MSFT a while ago. They are all undervalued currently.

    Cheers !

    • says

      Anonymous,

      Great comment! Couldn’t agree more with the “market of stocks” adage.

      And great addition there on the aristocrats’ valuation concerns. I should have probably mentioned that, but I took the comment as I’m not interested in them at all rather than not interested currently. I should have read that differently.

      Good list there. I personally like CSCO, BBL and MDT to varying degrees. I have to research CSCO a bit more, but from what I see, I like. They should see a lot of growth ahead with the increasing usage of internet across broader applications. MDT is a favorite of mine, but has run-up significantly since I initiated a position with the company. Still, a great company that offers some some value here (albeit with a low yield). BBL is an interesting play. I like the company from a fundamental perspective, and the yield is compelling. They have had solid growth over the last decade, but I’m still a little concerned with the underlying business as its pretty much a straight play on certain commodities. I do try to stay away from commodities for the most part and avoid direct ownership in most of them except oil. We cannot escape commodities as investors or consumers, but can avoid direct ownership in such cyclical plays. I prefer secular stocks when I can get them, but BBL might make an okay smaller position. It’s cheap here.

      I am not sure about Western Union (correct ticker: WU). I can see PayPal taking a larger market share over time, and I’m just not sure what kind of moat WU has? It has compelling fundamentals and yield. I’m unsure what to think about that one. I have to research it a bit more.

      I also agree with you on the last three. All are undervalued, and I go back and forth on MSFT. A real cash cow, but I’m not sure about it going forward. Windows 8 hasn’t been the blockbuster it was hyped up to be, and they haven’t had a lot of traction in the smartphone or tablet arenas. Still, Windows is a cash machine and they still have growth ahead in the cloud. AFL is cheap. INTC is cheap.

      Thanks again for stopping by!

      Best wishes.

    • says

      Anonymous -I share your frustration re entry points, and like you, I’m constantly scouring and rescouring through Fish’s Dividends sheet for opportunities. One I came across on the Contenders list (and have recently purchased) is Canadian National Railways (CNI). Although it’s yield is a low 1.48%, it’s ROR since ’99 is 20.3%, and has just about tripled it’s dividend payout since 2006. It may be a slow and steady, but “steady” is the operative word in my mantra; plus, it’s in the green on FAST Graphs.

    • says

      Michael,

      Nice buy there! I can’t imagine that 10 years from now you’ll be wishing you wouldn’t have bought WFC for under $40 a share. Just can’t see it happening. Enjoy collecting those dividends, and I do anticipate a healthy raise next year.

      Best regards.

  8. Anonymous says

    Good morning Jason,

    Thank you for the prompt reply and insightful comments. I cannot stress how I would much prefer the purchase of aristocrats.

    Like you I am hesitant with the idea if purchasing IT stock. Technology is ever changing making it difficult for any company to always be at the forefront. However the behemoths, INTC, CSCO, MSFT have a lot of cash and I do believe they will be able to lead the industry as long as it is deployd efficiently. I think of the three INTC faces the the greatest headwind as it will have to transition to the mobile world. Regarding Cisco, the 115 B company pays a nice 3.2 % dividend. As per morningstar CSCO has a wide moat partly based on high customer and channel partner switching costs, particularly in mission-critical switching applications. Also, IT managers are risk-averse. I just wish IBM had a higher dividend.

    I did not know of the existance of Western Union’s business model until recently. More than 200 million people live outside their country of origin and when these immigrants flow from poorer to wealthier countries, seeking better opportunities, they wire money back home. WU is the most recognized brand in the industry with more than 500 000 agents worldwide. I do not like however the hefty debt to equity ratio of 3.96 !

    John Wiley and Sons is not a popluar stock, at least on websites. This publishing comapny has raised its dividend for 19 years and the 5 year DGR sits at a respectable 15 %. For a reason I cannot explain the stock price has droped recently and it is well below the earnings per share line. This price drop now gives it a 2.5 % dividend yield. I need to look at thhis one a bit more….

    I read your post on BNS. The fundamentals look strong and are above the other big 5 canadian banks on many fronts. I will add a position this week.

    Yes BBL is cyclical and I like to keep beta low in my portfolio. BBL has dropped a lot in the past weeks currently trading at around 58 with a 52 week low of around 51. The fundamentals are strong for this company as you pointed out in many of your comments. Would you be willing to accept a few companies with higher beta as their intrinsic volatility will be diluted by your portfolio low beta stocks ? I think this is something to factor in now that your portfolio approaches the like of a mutual fund. CAT is another undervalued fundamentally strong…cycling stock I am watching.

    Thank you Blue Deville for the lead on CNI. I am only starting to position myself in canadian stocks and I will look at this railway company a bit more. The dividend is anemic yet with good growth. I think investor age is important here.

    All the best,

    • says

      Anonymous,

      Great comment there.

      Glad you liked the post on BNS. BNS is arguably the best Canadian bank of them all. I also like TD quite a bit, and RY is in the mix for me as well.

      CSCO does have a moat with the high switching costs. And I like the business model going forward in regards to broader applications for the internet.

      I like CNI, and wouldn’t mind it as a compliment to my only railroad holding in NSC. However, I would first probably own a couple other U.S. railways (UNP, CSX). That’s mainly due to the fact that CNI has such a low entry yield. It’s a very high quality company, however, and I don’t see how anyone would regret owning a piece of that railroad.

      Stay in touch!

      Best regards.

  9. Onassis says

    Dear Jason,

    your blog ist very good motivation for me!

    I will answer like Jerry Maguire:
    “Show me the money” :-)

    Keep going!

    Best regards from Germany

    Onassis

    • says

      Onassis,

      Show me the money! I like that. That’s definitely my motto when it comes to investing – show me the dividends! :)

      Glad you have found some motivation here. That’s why I write! Please keep in touch.

      Best wishes!

  10. Anonymous says

    Hi DM,

    I have to admit that I don’t like investing in banks incl. WFC at all.

    I have picked up some JNJ after yesterday’s drop and I would like to grow my holdings in MCD and PG. After all these are businesses I do understand and I am convinced that these will be around and still paying dividends in 20-30 years time.

    Best wishes from Europe!

    • says

      Anonymous,

      Thanks for stopping by from Europe!

      I don’t blame you for being averse to investing in banks. There are many investors that feel that way, and up until recently I was leery myself. But, when weighing the risks and rewards (looking at risk-adjusted returns) I feel the relationship will benefit me long-term. And that’s really all I’m looking for: long-term acceptable risk-adjusted returns.

      I like your ideas there. JNJ is one of my biggest holdings, and I’m also heavily invested in MCD. PG is one I’d like to increase my holdings in. All are easy to understand businesses that have done well for many, many decades.

      Best regards!

Join The Discussion!