Recent Buy

Although I remain cautious about the broader market’s modest overvaluation right now, I still find it hard to refrain from putting new capital to work in selective opportunities. What can I say? I belong in Dividend Addicts Anonymous! There aren’t a lot of compelling opportunities out there to be sure, but at the same time any cash sitting in my brokerage account isn’t earning dividends which can then be reinvested back into high quality companies to earn even more dividends which get raised organically, funding even more purchases in the future. So, while I’m not overly excited about investing fresh capital right now, I’ve also never been a big fan of holding a lot of cash (a horrible asset guaranteed to lose money over time to the ravages of inflation).

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 28 shares of Altria Group, Inc. (MO) on 8/16/13 for $34.52 per share.

This purchase is an addition to an existing position, as I initiated a position in Altria Group, Inc. back in September, 2010 for $23.88 per share. 

Overall, I’m confident that MO will deliver solid returns over the medium-term, as they continue to dominate the U.S. tobacco industry with #1 brand Marlboro. Altria has a significant market share of a mature U.S. cigarette market, accounting for nearly half of all domestic cigarette shipments. Although this market is in secular decline as shipments slowly decline, this is still a very lucrative business and Altria Group, Inc. throws off a lot of free cash flow, of which they use primarily to fund a very generous dividend.

Altria Group, Inc. operates as a holding company with a number of subsidiaries, including Philip Morris USA Inc., U.S. Smokeless Tobacco Company LLC, John Middleton Co., Ste. Michelle Wine Estates Ltd. and Philip Morris Capital Corporation. They also hold approximately 26.9% of the economic and voting rights of SABMiller plc (SAB).

Although MO is mostly known for the Marlboro brand (and rightly so), they are actually nicely diversified into smokeless tobacco products with Copenhagen and Skoal representing their premium brands here. Black & Mild is their premium brand offering in the machine-made cigars and their wine business has a premium brand in Chateau Ste. Michelle, with wine being their strongest segment for revenue growth YOY. One potential game changer is the offering of their new e-cigarette Mark Ten, which will be manufactured under the Nu Mark subsidiary. Altria is, unfortunately, the last of the major U.S. cigarette manufacturers to enter the e-cig market, but they are aiming to be the best as they believe Mark Ten will mimic a traditional cigarette’s flavor and draw. They’re currently rolling this product out in Indiana. Although e-cigs command just 1% of the market share of U.S. cigarettes, this segment is expected to grow significantly over the coming years, so it’s important that Altria get on board this train right away.

Although I’m not optimistic about the declining U.S. traditional cigarette volumes reversing this trend, I’m confident that management can continue to overcome these headwinds by strength in the other segments, the offset of volume declines via price increases and expense reductions and the introduction of new products like Mark Ten. MO has continued to operate in an extremely challenging environment, and yet net revenue was up 3.4% in 2012 over 2011 and EPS was up 25.6%. They raised the dividend 7.6% last year, and I expect the dividend to be raised by at least 6% within the next couple weeks, perhaps more. The balance sheet remains heavily leveraged, but not uncommonly so among tobacco companies as they tend to pass off most of the cash they generate back to shareholders.

But let’s talk about dividends, shall we? They have a 44-year track record of raising the dividend. That’s one of the longest records around, which is doubly amazing considering the litigation, taxation and regulation this company has had to overcome over the last 20 years. They have a 10-year dividend growth rate of 11.4% and they show no signs of abating their dividend raises. The current entry yield based on my purchase price is 5.1%. Although not Altria’s highest yield offering on a historical basis, it’s still quite an attractive yield based on today’s low interest rate environment.

I valued shares for MO using a Dividend Discount Model. I used more conservative numbers than I usually do to account for uncertainty regarding operations and reduction in traditional cigarette volumes. I used a 10% discount rate and a 5% dividend growth rate (well below historical norms) and I came up with a Fair Value of $37 per share. I think an argument could be made that MO shares are trading pretty close to intrinsic value right now, which isn’t too bad considering the strong yield and lack of compelling value in the broader market, especially among consumer goods companies. The P/E ratio currently stands at 15.75, which while again is not Altria’s lowest P/E ratio over the last 5 years, is very attractive when most companies in this sector are selling for P/E ratios closer to 20 or above.

This purchase adds $49.28 to my annual dividend income based on the current $0.44 quarterly per share dividend. Although, as I pointed out above I do expect this to be raised in the next couple weeks.

I’m currently invested in 37 companies, as this was an addition to a company I already have an ownership stake in.

Some current analyst opinions on my recent purchase:

*Morningstar rates MO as a 2/5 star valuation with a Fair Value estimate of $31.00.
*S&P rates MO as a 4/5 star Buy with a Fair Value calculation of $35.40.

I’ll update my Freedom Fund in early September to reflect my recent addition.

Full Disclosure: Long MO

How about you? A fan of MO money? Good investment? Bad investment?

Thanks for reading.

Edit: Added P/E ratio.

Comments

    • says

      Took2Summit,

      Haha. Something like that. I don’t have to work today (Friday) because I have some family coming into town. I took the day off and you can probably see that my modus operandi if I don’t have a schedule to abide by is to stay up late and wake up late (10 a.m. or so). That’s how I’d do it every day if I could! :)

      I think you made a great choice with Shell. The only supermajor that’s cheaper is BP, and Shell doesn’t have the spill overhang. And Shell isn’t a lot more expensive. Although, BP does have that nice exposure to Russia.

      I’m probably done with tobacco for quite some time now. Tobacco companies as a whole now represent a little over 10% of my portfolio, which is awfully high.

      Best wishes!

    • says

      PM is my biggest holding, with MO being a large one also. I saw a few 20 something year olds hanging out around Starbucks the other day, and I wanted to thank them for smoking. I doubt you can go wrong with MO, and I highly doubt smoking will be outright banned. Of course you never know however..

  1. Scoonie says

    MO is my favorite stock in my portfolio. Extremely steady, beats the S&P 500 almost every year, high yield, great track record. I plan on adding shares in the next 1-2 months as well. Hoping to get it at a lower price, hopefully under $34/share. This is the type of stock you buy when you’re looking at a shaky market over the next few months and the possibility of a correction.

    I have decided to hold off on LO for the foreseeable future due to the concerns over menthol regulation. MO is the only cigarette/tobacco stock I own.

    • says

      Scoonie,

      Under $34/share would be nice. I’ll admit MO wasn’t extremely cheap here on a historical basis, but compared to many other consumer discretionary stocks it is.

      I expect that dividend to be raised to $0.47-$0.48 per share very soon, which would immediately boost my YOC very nicely. MO just keeps surprising people, so I’ll stick with it for the time being. I am concerned about volumes, but at the same time I can’t imagine a day when nobody in the U.S. smokes. As long as there is a customer base there will be some cash to throw off.

      I’m holding off from adding any LO as well. It’s a decent sized holding for me now, but I am concerned about future FDA regulation regarding menthol. Of course, that would harm Altria as well. Something to keep a close eye on.

      Best regards!

  2. says

    Good morning DM,
    I take it you couldn’t sleep? I was just looking at the cig makers the other day. I think I’m leaning toward LO though because it has a larger share of the e-cig market, and I feel confident that e-cigs are the direction the smoking population will go in general.

    Are you making a wish list in the REIT space? As they continue to come down, provided bond yields continue to rise, there could be some excellent prospects. I think my initial nibbling in the space will be something like Vanguard’s index (VNQ). Fears in the REIT space are not without warrant, given Canada’s housing market and the large amount of debt REITs must roll over…..likely at higher interest rates in the near future. Just curious about your thoughts.

    fastweekly.blogspot.com

    • says

      The Fast Weekly,

      Yeah, I love staying up late when I can. I wrote this article at 1 a.m. last night, so I guess I can still operate okay that late at night. I prefer staying up until about 2 or so, and waking up at 10 when possible. Unfortunately, it’s very rare when I get an opportunity like that. I can’t wait to be financially independent so I can throw away the alarm clock and make my own schedule. :)

      I already have a sizable holding in LO, so I’m refraining from purchasing any more right now. I’m concerned about further menthol regulation from the FDA, which is a shame because, otherwise, LO is a fantastic stock. It’s gaining market share against MO (so I win either way), and they already have a 40% market share in the e-cig space with their Blu product. The future looks relatively bright for them if the menthol troubles go away.

      I have been rather active in the REIT space lately. I’ve made three separate purchases in this sector over the last few months, with two purchases of shares in DLR and one in O. I’ll likely try to average down on O if I can. I’m not a huge fan of REITs, but I do like the large dividends they offer and I like having a little exposure directly to real estate. I’m trying to keep a 5% allocation or so to real estate going forward. REITs may have trouble going forward as interest rates rise, so more attractive prices may be available to the patient investor. I’m buying here and there, and if prices go down I’ll add selectively.

      Cheers!

  3. says

    I agree with your calculation of fair value, but the only thing that prevents me from buying is the elevated Price to Book of 19,5 / But if I consider their very high ROE of 139 ??? I am very disoriented. And the payout ratio is around 80% ? I really would prefer to find a business with less debts. And the worst of all to me is that they do not grow their book value, it is shrinking: http://investing.money.msn.com/investments/key-ratios?symbol=mo&page=TenYearSummary // Sincerely I am no buyer. Maybe I am wrong, maybe I am right ?

    • says

      Aspenhawk,

      Most tobacco companies have very high P/B ratios, because tangible book value is typically very low. Some, like PM, have negative book values. These are huge cash machines with very little equity. From what I’ve been able to gather, this is something they do on purpose so that there are very little assets for litigators to go after.

      I would actually argue that PM is the best stock to buy in this space right now. I’m only holding off because it’s already one of my biggest holdings.

      The payout ratio is purposely high with MO. Management has been targeting a 80% payout ratio for as long as I’ve been tracking the company. They state that right on their investor relations site. Again, MO is a company that tries to return as much cash to shareholders as possible, even in the face of an extremely difficult operating environment.

      I hope that helps! :)

      Take care.

    • says

      MFIJ,

      MO was one of my earlier picks as well. I purchased my first lot before this blog was even in existence. It’s treated me very well so far. MO always seems to surprise. When I first purchased I wasn’t sure how long I could hold due to declining volumes. I figured the dividend would have to be cut at some point, but so far so good. Although revenue growth has not been there due to declining volumes, I hope that new products can help with that. In the meantime, they’ve been able to cut expenses and maximize efficiency to keep earnings on the right track.

      Hopefully they continue to treat us both well! :)

      Best wishes!

  4. Anonymous says

    I’m planning to purchase USA based shares. Does anyone know a good website which tells you ex-dividend dates and dividend payment dates in advance for all the shares trading on the S&P 500 ?

    I would like to know in advance when those lovely dividends hit my account.

    Thanks,
    J (London, UK)

  5. says

    Interesting purchase. I’m not sure I’d ever want to own stock in a tobacco company even if it was a good buy. That being said, the dividend yield is really good and it seems like a solid company. I’m just not a fan of the industry.

    • says

      Jake,

      Investing in tobacco isn’t for everyone. No doubt about it. For me, I look at it as simply as I can: investing in a product that’s legal and is a consumable product designed for, and mainly used by, adults. Certainly there are negative aspects of this business, but I find the same could said for almost every major company out there. Look hard enough and you’ll find something you don’t agree with or don’t like. I try to keep perspective, and remember that companies aren’t perfect. Life isn’t perfect. Humans aren’t perfect.

      But I don’t blame you. There are many people out there that refrain from investing in tobacco companies. But that’s what makes it a market, and there’s plenty of other great opportunities out there!

      Take care.

  6. says

    When I saw that you had posted about a recent buy I was thinking it might have been IBM. I probably would have been tempted to buy some with yesterday’s drop. MO is still a great company although obviously not without it’s flaws of being in an industry that is experiencing declining volumes. But the managerial excellence is something to acknowledge. Despite the declining volumes every year, they’ve been able to just keep that dividend increasing. Just imagine what that purchase would have been like if you had gotten in before the KRFT and PM spinoffs.

    Best of luck.

    • says

      Pursuit,

      You know, I was so close to buying IBM. I’ll be honest with you. It came down to IBM, XOM and MO. I could have gone either way with it. Perhaps I let the yield blind me a little, but there were things I didn’t like about all three. I was surprised to see the lack of real growth from IBM going back quite a while, but it seems like things are looking up for them going forward. With XOM, I’m already heavily exposed to Big Oil and any drop in crude could hurt Exxon along with all the other energy companies. I still like XOM and IBM, and they will likely remain at the top of my watch list heading into September.

      I can only wish I would have invested in MO before the spinoffs. There’s a lot of people out there that thing MO will bite the dust here pretty soon, but they constantly surprise to the upside. I don’t think I want any more exposure to this company any time soon, but I’ll take that hefty dividend and reinvest it elsewhere with no problem!

      Cheers!

  7. says

    Enjoyed your previous article on guaranteed millionaire. All it takes is focus and consistency. I actually am amused by some of the responses you’ve received and how they stumbled across your blog I’ll never know. Often wonder who are these people? But after years in the service retail industry not much surprises me anymore. Solid pick up on MO. I was eying up O or DLR but ended up going with the sin stock of MCD. They started breaking ground for the golden arches near my home and I thought why not I could use some exposure in that sector. I got in at $97 and came up with a fair value slightly over $100. But wouldn’t you know it the price came down further. Oh well in the grand scheme of things it won’t matter much because I plan on holding for a long time.

    RK

    • says

      RK,

      I’ve been surprised by some of the responses lately as well, if only because I also am unsure how some of these people are even finding my blog, and then taking time out of their busy days to comment in ways that make little sense. Certainly there is some room for criticism in the way I do things, or aspects of my plan as nobody is perfect and no system is perfect. But to criticize my decision to not have children or to instill fear in me because I’ll end up alone is just silly and ridiculous.

      You’re right. The drop in shares of MCD after your purchase won’t matter at all 20 years from now and shares are worth $400 each. Buying in at prices that vary 1% or so from what you could have gotten them at is really focusing on short-term swings when one should be focusing on long-term rewards. Believe me, if MCD keeps doing the right things you’ll be very glad you bought here.

      Best wishes!

    • says

      DM,
      I too enjoyed your last post. I couldn’t believe some of those comments. One of the commentators was saying you needed to evolve your style to keep your blog interesting, and that you should be open to his advice. I couldn’t disagree more! You have the best blog about investing on the Internet, in my opinion. Keep up the amazing work and ignore those skeptics. It seems that your success and vision is bringing out some skeptics who are probably just jealous. Remember that for every skeptic there are hundreds/thousands of loyal readers like myself who are getting inspiration and education out of your blog every single day. Wishing you an amazing weekend!
      Best,
      Ian

    • says

      Ian,

      Thanks a lot. Very kind of you.

      I just think that any time you put a concept out there in the public that is different from what most people are used to you’re bound to get some detractors and people that push back. I don’t particularly mind it. I find the best way to fight criticism is to be even better! :)

      It’s people like you that make writing this blog worth it. I really appreciate your support and readership. I’m extremely lucky that I have so many like minded readers who stop by and write amazing comments. So if the flip side of that is the occasional criticism, then so be it and I’m really okay with it. I could have a blog that nobody reads and I’d never have to deal with any negative feedback, and that would be a real bummer!

      I’m just excited and happy to be in the position where I have a wide audience and I get to inspire people on a daily basis. It’s been an amazing journey so far, and the criticism will do nothing to change that.

      I hope you’re having a great weekend as well! I have some family down visiting me and it’s wonderful. Reminds me of why I’m doing what I’m doing! :)

      Best wishes!

  8. Anonymous says

    wondering your thoughts on DPS? I compare DPS to KO and PEP and here are some key statistics:

    P/E:
    KO-20.6
    PEP-19
    DPS-15.5

    5yr projected EPS growth:
    KO-7.9
    PEP-8.3
    DPS-7.5

    Dividend:
    KO-2.87
    PEP-2.81
    DPS-3.36

    DPS appears to be much more attractive than it’s two biggest competitors and even appears to be a good buy when compared to the market as a whole. Have you done much research on this company?

    • says

      Anonymous,

      Great question there. At first look, DPS appears to be promising because the business model is similar to the other beverage giants (PEP and KO), and yet shares are much cheaper, with a higher entry yield.

      However, taking a look at the company reveals some negative aspects like the fact that they have extremely limited exposure outside of America because they no longer have their international rights. They carry a fairly high amount of debt and they also rely on their competitors (PEP and KO) to distribute their products. They aren’t fully integrated or international like KO and PEP, and so because of that I’ll continue to keep my bets on Coca-Cola and Pepsi here.

      There are some positives. They could re-acquire their international rights at some point, which would drive a lot of growth. Also, simply based on the business they do, the shares they repurchase and the dividend they pay out, an investor in DPS is likely to get fairly attractive returns over the next 5-10 years (likely high single digits). There is a moat around the business simply based on the brands, as drinkers of their products (especially Snapple it seems) are likely to stay loyal. However, I just think that, overall, there’s a lot more to like in PEP and KO. The premium spread is probably a bit much right now, but if shares fall in either of the beverage giants I would be interested in picking up more shares.

      Best wishes!

    • says

      retireby40,

      I think you’ll do very well with both Altria and Kinder Morgan. I also have some exposure to Kinder Morgan through KMI (the GP of the limited partnership). I think we both have some of our capital invested in very well-run businesses, and stand to do well over the next decade or more.

      Glad to have you as a fellow shareholder! :)

      Best wishes.

  9. says

    Idk, I’m not big on Altria. People point to their growing diversification, but I just think the US cig industry is starting to get ugly. I like PM more, although it’s a little pricey right now.

    At these levels:
    O; loving Realty; already own it; going to double down soon. I think we’ll see a better price as the taper tantrum continues.
    OHI: same deal. Great company. Demographics very much on its side.
    IBM: 2% yield is a little low, but it looks solidly undervalued. Dividend shows high growth, and I think over the next three years we will continue to see great diviend growth, some multiple expansion, and great eps growth.

    Keep up the good work DM. Lovin the progress. Can’t believe you’re already getting paid over 10 bucks a day! congrats

    • says

      cv26,

      I can’t blame you for not being a fan of Altria. There are some things to not like. For me, it comes down to volumes. And they are declining. I expect them to level off at some point, however, and the entry into the e-cig space is appealing. I also like PM more here at current prices, as the growth will likely be much more robust over the next decade. However, PM is already one of my largest positions and I just felt comfortable adding to the domestic side of Philip Morris since I had a much smaller position here.

      I’m with you on your watch list. IBM was almost the purchase here. XOM was also very high on my list. I could be guilty of chasing yield with MO, but I’ll likely pick up some shares in the other two companies very soon anyway.

      I’d love to buy more O if it falls to $40 or below. Averaging down on a high quality business is something I’m a big fan of!

      Thanks for the support! You know, that’s funny. I didn’t even think about the dividends like that – $10/day. That’s pretty cool! That’s basically 1 hour of work at $10/hour that I’ll have coming my way for the rest of my life. I can dig that! :)

      Thanks for stopping by! Have fun shopping. :)

      Cheers!

    • says

      Hey DM,

      Just want you to know it’s deeply appreciated how you always make an effort to respond to each and every post by your fans. I’ve been reading for along time and posting under another name (the med student blogger) and always really appreciated the responses.

      I’m holding out on O for more of the taper tantrum; it would be absurd, but I bet we can buy it around 35-6 some time this year. With the monthly compounding and the incredible management, it’s probably one of the overall best available.

      As for IBM, you know how you hear EVERYONE dumping on them these days? Ineffective management, poor transition to new services, low revenue growth; do you remember ~6 months ago when JNJ kissed 59 for a little bit? Same crap. And now it’s in the 90s and still the beautiful dividend powerhouse it has always been.
      Besides, how often can you get IBM at 2+%.

      As for oil and gas; I’m always concerned with cyclical stocks. I don’t want to get too into market timing, but there is the old adage that at the top of a cycle the PE is low in anticipation of the bottom of the cycle, while at the bottom of the cycle vice versa. I think we’re approaching the top of the cycle here. I think the price you’d be getting on XOM/CVX (which, despite what I said I added to a month ago) would be fair… but I think when we switch to the other side of the cycle in the next year or two… you’d be able to get double the shares.

      Anyway, just my two cents. Sorry about the ranting. I really just signed on to thank you for always responding to your readers.

    • says

      cv26,

      I appreciate the comment. I engage with everyone here because I really value people’s time. If you’re going to take time out of your day to stop by and drop some thoughts, then I really want to thank you by doing the same. Plus, I think the conversations here in the comment section are much more insightful than any of the articles I write. I’m here to learn as much as I am to inspire and teach.

      I hope we can get O down to $35 or so per share. I’ll gladly buy more at those levels. They have a great portfolio of diversified properties.

      IBM shares something else with JNJ: Buffett. I remember when I was buying JNJ around the $60 level and there were articles talking about Buffett doing the same. And of course, you had the naysayers saying he had lost his touch and JNJ was a horrible investment. Look how that turned out. The same could be said for IBM because you have a chance to purchase it at prices not much higher than what Buffett has paid. You don’t get that opportunity too often.

      As far as the cycle within oil stocks, it’s tough because they aren’t cyclical in the same way that some other companies are. Where some companies are cyclical based on the overall economy, oil companies have to contend with that as well as oil prices. Who knows where the price of oil is going? Certainly the price has something to do with supply and demand, but you also have this huge futures market there. It’s all really beyond me. I only know that oil has big demand now and I don’t see that abating in the next 10 years or so. You are right, however, about the P/E being low at the top of a cycle and then high at the low of a cycle. Again, it’s just impossible to know where oil prices are going from here. If you think oil is overpriced and will fall significantly then you would want to wait on buying shares in the supermajors, or any companies heavily tied to oil.

      Thanks for stopping by. And I appreciate your time as much as you appreciate mine.

      Take care!

    • says

      Spoonman,

      The first step is to admit you have a problem. :)

      I don’t think I’ll ever come clean either. But if the meetings have free food and beverages, count me in!

      Keep up the great work.

      Best wishes.

  10. says

    Another solid purchase. I noticed that PM has also come down a bit lately. Like you, I’ve been watching XOM closely.

    I bought more HCP today as the REITs continue to sell off. I saw that O has finally reached fair value territory; if it’s somewhere in the $30′s by the time I have new capital to invest in September, then I might start a position. It seems to me that a lot of folks are short-sighted when it comes to REITs and interest rate risks. Granted, REITs often do issue debt to help fund acquisitions, but they have been doing that for decades at much higher interest rates. HCP and O seemed to do okay pre-2008 when 10-year U.S. treasury rates were consistently above 4% for many years, and I bet they’ll do okay if current rates get back up to that level. Thus, I view this REIT sell-off as a decent opportunity to start some long-term positions. Of course, my judgment might be wrong, but I don’t plan on REITs representing a major portion of my portfolio (probably less than 10% weight in the long run) and I plan to stick with mainly “blue chip” names.

    • says

      DGM,

      Great job averaging down on HCP! That’s great. I’m looking to do the same with O at some point in the near future, as I did with DLR. The REITs have been quite weak lately after simultaneous overvaluations and an increase in interest rates. That will decimate share prices, and bring about celebrations for value investors like us. :)

      I agree with your assessment on REITs. I think the only change now with higher interest rates vs. the higher rates in the past is that they are now on the rise, rather than falling. But, again, in terms of absolute numbers most of these businesses (the blue-chip REITs we track) will continue doing what they do. They’ll continue expanding their footprint while simultaneously collecting rent from stable, investment grade tenants. I also look forward to increasing my stake in some high quality REITs like O and possibly others, but like you will keep my exposure to real estate minimal. I actually think I’d like REIT exposure closer to 5%, as that also gives me some breathing room just in case I ever purchase physical real estate (a house or condo).

      I’ll have to take a good look at HCP. I’ll be honest and admit it’s not one I’ve really tracked before. As far as healthcare REITs, I’ve mainly looked at OHI and SNH. I like OHI.

      Thanks for stopping by. I appreciate your insight!

      Take care.

  11. says

    Nice grab with Altria. You now have more passive income coming in on a regular basis regardless of how the market might value your shares. You earned it, Congratulations! Any particular reason why purchases have been smaller than usual?

    • says

      Compounding Income,

      You’re right. The focus remains on the passive dividend income. If share prices fall on any of these businesses, the dividend income simply buys bigger equity stakes in the companies. I think I’m quite okay with that!

      My purchases have been smaller lately for a couple reasons. There is a bit of a project that I may be involved in late next year that, if I decide to engage in it, will require quite a bit of capital. So, I’ve been building up my cash position a bit in the meantime. Also, with the broader market climbing as much as it has, and leaving little value in it’s wake, I’ve had less inclination to go out and spend a lot of capital. Also, with this particular purchase I didn’t want to go crazy as I don’t want MO to be a huge position for me. I wanted to nibble a little and increase my stake, but I didn’t feel comfortable adding a lot here as shares aren’t particularly cheap and even with the fact that it’s been an amazing holding for many, many years I’m still concerned about volumes.

      Best regards!

    • Anonymous says

      “There is a bit of a project that I may be involved in late next year that, if I decide to engage in it, will require quite a bit of capital.”

      My gut says that you chose each word in that statement very… carefully… ! :)

      Best of luck, and keep up the good work on the blog & finances!

    • says

      Anonymous,

      You’re right. I am normally quite transparent on this blog, but the details regarding what may or may not happen late next year are still very vague. In response, I’ve been forced to be more opaque than I’d like to be. It’s a project that could change some of the things I’m doing, so there’s still a lot to think about.

      Thanks for the support. I really do appreciate it. I can only hope that I give out as much support and inspiration as I get from you readers!

      Take care.

    • says

      RO,

      Thanks! Always appreciate a thumbs up from you. :)

      I’m looking at ARCP. That REIT has been weak like the others, and that yield is pretty tempting. They’ve grown like wildfire. Do you have any concerns about management’s ability to handle the growth and scale? I think that might be the only concern I have about the speed of which they’ve exploded.

      You have a great weekend as well! I have some family in town and I’m enjoying it immensely right now.

      Take care!

    • says

      DM,

      Here’s the guy:
      http://www.youtube.com/watch?v=AKHUzcuY1D0

      He has some serious experience in the REIT world…He’s a serious man, is Nicholas Schorsch. A serious fellow. He’s a heavy.

      I hate to pull the history card, but remember when I was pushing you on buying WAG at 32? This feels like that, a little bit…:)
      I’ve been buying ARCP at 15, 14, and now 13.
      Some pretty impressive insider buying, too:
      http://seekingalpha.com/article/1628582-insiders-are-buying-american-realty-capital-properties

      Just my opinion and perception! For entertainment only, etc:)

      I think the biggest risk, for me, seems like Amazon. E-commerce might take away foot traffic from the big stores. But…That will probably take some time to happen, until we get to Asimov’s future, where people are isolated in fortresses living miles away from each other. What was that book he wrote? Pebble in the sky, Caves of steel, something like that…

      Enjoy the fam, enjoy the weekend!

      RO

    • says

      RO,

      I’ll have to seriously consider ARCP here. I respect your opinion, and definitely do not mind following you into something. I regret not taking your advice on WAG a while back. That was a big mistake. The growth has been impressive and the portfolio is looking more and more solid with every acquisition.

      I hear you on e-commerce. That’s also something that worries me over time. I can’t imagine it will impact real estate investments materially any time soon, but 10-20 years from now who knows? Regular foot traffic doesn’t seem like something that can just disappear, right?

      I’ll have to consider this one. I still have a little capital on the side.

      Thanks for the well wishes! Only the same for you. :)

      Take care!

    • says

      Yeah, right on!:)
      You are doing great and very inspiring to see the progress, anyone who is aware of prudent investing is, I’d wager…I didn’t mean to push you, I am sort of excited about ARCP though…As you can tell. Sorry if a little of that spilled over.

      I’ll leave you with this: Management predicts FFO in 2014 1.14-1.18….Let’s say they do 1.15….A REIT must distribute 90% of earnings…That looks like $1.035….Now the dividend is .91, soon to be raised to .94, probably in September…So you are looking at a 2014 forward yield of 8% if you bought at 13….:)
      Reminds me of when OHI was at 21…

      I own both O and ARCP, but my ARCP is about double my O at this point….And I’ll continue to add, in all likelihood.

      Always great to read your blog!!

    • says

      RO and DM!

      I also own ARCP and believe they are developing into another superior REIT such as Realty Income (O). I got into O at some attractive prices and wish had more shares then too, but the ARCP strategy and the small quarterly raises and paid monthly strategy matches. The huge expansion efforts and internalization of management seems positive also.

      If I am not mistaken Nicholas Scorsch was also at the helm of ARCT until O scooped them up.

    • says

      SWAN,

      You’re right about Scorsch.

      ARCP has definitely expanded in a big way. I have been reading where Schorsch wants to diversify away from retail and into office buildings and healthcare, which could be a great growth story, but I do wonder if they’re getting away from core expertise? They have become the second-largest single-tenant REIT, just behind O now. Pretty amazing growth in such a short period of time. Also, it looks like Schorsch was the orchestrator behind all of this, as he ran one of the nonlisted REITs (ARCT IV) that ARCP has purchased.

      You have got to love the yield at these levels, now at 7%. And it’s going to be raised very soon as Joe was pointing out above. That will put it above 7.2%. And that’s monthly income supported by one of the largest net lease trusts in the nation with rental income coming in from almost 2,600 properties throughout 48 states. Hmm….

      Thanks for stopping by!

      Cheers!

  12. says

    The cigar companies manage to keep finding ways to get around the regulatory risk, which is frankly testament to their extraordinary lobbying power. Altria is a class act, its a cashflow machine. I currently hold Lorilard, and am happy with the position and exposure I have to sector currently.

    I have my eye on KO and MCD again….my finger is getting itchy to pull the trigger once more, which I may do next week

    Nice buy!

    • says

      Integrator,

      You’re right. That lobbying power, as well as the tax revenue their products bring in, is a testament to their power. I like, and own, LO as well. Although I share the concerns over menthol, I think the risk of black market products, as well as possible riots, will keep major regulation at bay.

      You’re right to have your eye on high quality blue-chip companies like KO and MCD. I don’t think you can go wrong with buying quality like that, even if the prices aren’t super cheap right now. I’m going to look to increase the overall quality of my portfolio over the next few months if prices allow. We’ll see how it goes!

      Thanks for stopping by.

      Best wishes!

  13. says

    Ive heard great things about Altria so looks like you mad a good decision. Its also great you are adding to your initial position of the stock. I have been thinking of doing the same with CL and JNJ. It is great that this also adds to your dividend income. Happy investing! Cheers to success!

    • says

      Teach Me To Invest,

      Cheers to your success as well!

      You have some great investments in JNJ and CL there. JNJ is currently my largest position, so I won’t be adding to it right now, but love the fact that I have exposure to that wonderful healthcare conglomerate. CL is a company I’d love to own a piece of one day. I’m just waiting on the right price.

      Happy investing to you. :)

      Best regards.

    • says

      Martin,

      I like LO a lot too, barring any further regulation from the FDA regarding menthol. It doesn’t seem realistic to ban menthol outright, but significant regulation is possible. This would harm MO as well though with some of their menthol products. It’s something to definitely keep an eye on.

      As always, I think it’s simply best to diversify. At this point, I’m comfortable with my tobacco holdings and I don’t plan on adding any for quite a while.

      Best wishes!

    • Anonymous says

      Mantra (and Martin),

      I have always liked LO. Have you noticed how levered-up they have become in the last 4 years? Their balance sheet had $0 debt in 2008 or so, and as of Q2 they are over 100% debt to assets. (and over 3x annual operating cash flow). I know we’re in a record-low interest rate environment, but that concerns me a bit. Nearly 100% of the $3.7 Billion debt has gone to share repurchases. So, basically they are borrowing money to invest in stocks (their stock, but stock nonetheless).

      I don’t know exactly what to make of it. This has to increase their riskiness on some level. At the very least, it is $3.7 Billion of future cash flow that won’t be available to me as a shareholder for dividends or share repurchases.

      I’d be curious to hear your thoughts.

    • says

      $25000,

      I would agree with you that PM is the better buy due to much better geographical diversification and a better growth profile. However, PM is already one of my biggest positions so I felt compelled to add to the domestic side of Philip Morris. The yield will help with any price volatility to the downside.

      Hopefully PM continues to serve both us well.

      Cheers!

  14. gibor says

    PM and MO are both among top 5-7 holdings in my portfolio… so I added PM a couple of days ago, even PM’s yield is lower, I think PM will have better growth…

    • says

      gibor,

      I agree with you on PM. I think the geographical diversification helps significantly in regards to the negative effects of regulation. As it stands, no one country’s regulation policies will have an overwhelming effect on operations. That’s quite the opposite for MO, as they operate in a very challenging U.S. market.

      The only reason I didn’t add to PM right now was due to the fact that I’m already extremely overweight on the name.

      I think both names will serve us well over the foreseeable future. I don’t know what the tobacco industry will look like 20-30 years from now, but I’ll gladly collect the income for now. Who would have thought technology would have such a big effect here? E-cigs. It’s crazy. Maybe we’ll have e-food next? All the taste, none of the calories? :)

      Best wishes.

    • Anonymous says

      When medical marijuana becomes more mainstream I see the tobacco companies being a major player. This would ensure their viability for the forseeable future.

    • says

      Anonymous,

      I’ve heard of rumors about something like that for a while now. We’ll see. I certainly could see this being a catalyst at some point in the future due to the distribution model.

      Cheers!

    • gibor says

      Jason, I completely agree with your view on PM/MO. My allocation to tobacco 60% PM, 40% – MO and geographical diversification is exactly why I have larger exposure to PM. I lived in many countries , in much more was travelling and everywhere Marlboro is number 1 brand.Yes, specific country can introduce harder rules for tobacco companies, but the same time other countries can increase consumption of PM products. In developing countries and even in some developed, smoking Marlboro meaning status, as it’s a brand name (btw, the same applies for PG, PEP, KO, JNJ etc products. More money will earn ppl in developing countries, more PM products they will consume.

    • says

      gibor,

      “More money will earn ppl in developing countries, more PM products they will consume.”

      That’s my thoughts regarding PM as well. They’re going to have this huge tailwind where the middle class consumers in many of the countries they operate in continue to earn more money and buy more products. MO, on the other hand, faces a saturated market. MO is more of an income play, whereas PM is more of a growth play. Again, I think PM will be the better investment over the long haul but I don’t think MO will turn out too bad either.

      Take care!

  15. says

    I happened to be in a Walgreens this weekend and I noticed the cigarette rack behind the register was at least 1/3 Marlboro products, lights, reds, menthols, the new black marlboros. So many different flavors it’s crazy. Back in the day when I smoked there were only a few flavors. On the side of that rack were the ecigs which was considerably smaller but still had quite a selection of brands, most notable was the blu brand.

    • says

      Captain Dividend,

      That’s great info there. I love going into stores and seeing what the displays look like. How prominently displayed are products from KO, PEP, JNJ, MO and the like? It’s always nice to see what things look like “on the ground level”. Sometimes I can be guilty of wrapping myself up in annual reports and earnings statements that I lose sight of what it’s all about – the products and the people buying said products.

      Thanks for stopping by. Glad to hear that Blu is a notable selection. It seems to be doing very, very well for Lorillard so far.

      Best wishes!

  16. Chad says

    Bought 23 shares of PM this morning. While overweighted in PM, I just couldn’t pass it up when it dropped below $85.50. I like MO too at the current valuations, but just thought that PM offered a better value. Though now any additional purchases in tobacco stocks will be with MO since I have too much in PM right now.

    • says

      Chad,

      Great buy on PM. I can’t imagine you’re unhappy with that purchase 10 years from now. Fantastic!

      I think PM is the better buy out of it and MO as well. If I didn’t have more than 5 times as much PM as MO (before this buy) than I would have gone PM as well. I think both will serve us shareholders well over the long haul, and both will be great investments. However, I think an argument could be made that PM will be the better investment. Time will tell.

      May both companies continue to serve us well. :)

      Cheers!

  17. Anonymous says

    When we was young, I buy Malboro stock and stil have so I cant say anything. Good stock but smokin aint good. I used to smoke but quit cause it aint good. When we was young everybody did it. Go have kids if you wont to but dont have them if you dont wont to its up to you. Kids can be good but they can be pain in the ass too so cant blame you for not wanting them. Like I said its up to you. I tell my grandkis about you to do more what you do savin money and buyin stocks. I dont like everything you do but some things your doin good and I say so to my grandkis. Fredy Krumpets

    • says

      Fredy,

      We all can’t agree on everything. Different opinions and viewpoints is just one of the things that makes the world go ’round. Nothing wrong with that.

      Good for you for quitting. We all know that it’s harmful to one’s health. Certainly there are some out there that enjoy smoking and don’t care about the negative health effects, and for some others there is way too much risk for the reward. Again, different viewpoints.

      Thanks for telling your grandchildren about the blog. Hopefully they’ll follow in our footsteps and grow their wealth from a young age. :)

      Take care.

    • says

      gibor,

      I agree with you. Smoking isn’t exactly the healthiest thing one can do, but there are many, many things worse for you. I learned that first hand as I grew up in a house where drugs were plentiful and ultimately killed my mother not long into her 40′s.

      Best wishes!

    • says

      Dtmheat,

      Very, very nice! I wasn’t expecting that. I was anticipating a raise to $0.47. The extra penny is very encouraging. As I mentioned above, Altria just keeps surprising investors to the upside. I’m a very happy shareholder so far. :)

      Cheers!

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