Two Stocks On My Watch List For A July Purchase

lookingThe pickings are pretty slim right now.

There’s no shortage of claims out there of an imminent stock market collapse, but we have yet to see one. Rather, the S&P 500 is up more than 3% over the last month as it approaches 2,000 points. Meanwhile, the Dow Jones Industrial Average is nearing 17,000 points.

With that said, I don’t really care about these numbers. They make for an interesting context, but in the end I’m still investing in individual high-quality businesses for the next few decades of my life. As such, I do my due diligence on businesses, not the stock market.

But a big part of me does long for a broader market pullback of some sort so that many individual stocks are pulled into the storm and find themselves battered and cheaper when the skies clear. However, in the meantime, I’ll just continue allocating capital as best as I possibly can. And the two stocks I’m going to discuss below are where I’m looking to allocate fresh capital over the course of the coming weeks.

Two “Stage 3” Stocks

Visa Inc. (V)

Visa Inc. is a global payments technology company, connecting consumers, businesses, banks, and governments in more than 200 countries by enabling them to use digital currency instead of cash and checks.

I recently discussed the three stages of stocks that a dividend growth investor can look at, and I also pointed out that I was missing some exposure to what I called “Stage 3” stocks. Investing in a business like Visa would definitely give me some exposure to a business that has managed explosive growth over the last five years in all aspects, albeit at a slightly high valuation.

They’ve only been publicly traded since 2008, so the data doesn’t go back very far. But the numbers they’ve posted since going public paints a picture of very impressive growth. Earnings per share increased from $3.10 in 2009 to $7.59 in 2013 – a compound annual growth rate of 25.09%. That’s obviously very impressive. Revenue has grown in likewise fashion, up from $6.911 billion to $11.778 billion over this same time frame. That’s a CAGR of 14.26%. And apparently this juggernaut is showing no signs of slowing down. S&P Capital IQ predicts earnings to compound at an 18% rate over the next three years.

The dividend has grown in even more spectacular fashion. The five-year dividend growth rate for this stock is 45.9%. And with a low payout ratio of just 18.9%, there is no reason that massive dividend growth shouldn’t continue for the foreseeable future. Of course, not is all peachy with this stock. That low payout ratio comes at the expense of a low yield, as the stock currently has a yield of just 0.76%. Visa management prefers share buybacks to dividends for rewarding shareholders, although both should be aggressive for the foreseeable future.

I really like Visa here. The balance sheet is flawless, and their competitive advantages are obvious. And for all their size, they still have a ton of opportunity in many emerging markets where cash transactions are still dominant. Of course, there are risks in investing in a company like Visa as technology can change how people access mobile payments. However, I’m highly considering investing in this company in July even though the yield is so low.

The valuation appears a bit rich here with a P/E ratio 24.78, but considering the growth this company has experienced and is likely to continue experiencing I view this ratio as very reasonable. Especially so when many companies with much lower growth rates are trading for ratios near 20 or even slightly above. I valued shares using a dividend discount model analysis with a 10% discount rate, but two stages of dividend growth: 20% for years 1-10 and 8% as a terminal rate. This growth is aggressive, but I think it’s fairly reasonable based on what they’ve been able to post thus far. This gives me a fair value on shares at $232.89, which is a bit above where the stock trades at now.

International Business Machines Corp. (IBM)

International Business Machines Corp. is an information technology company. They provide integrated solutions for clients through a broad range of product and service offerings, designed to solve business problems using data and technology.

I initially invested in IBM back in August 2013, and the stock hasn’t really budged since then. As such, I remain interested in adding to my position here as I still think it’s undervalued. It’s especially interesting that the stock hasn’t really gone anywhere considering the broader stock market has been breaking new records seemingly daily. But I remain happy that this is the case as the stock remains low-hanging fruit for me. Plus, this is another Stage 3 stock I can get my hands on.

Growth in IBM’s business paints a mixed picture. EPS is up from $4.94 in 2004 to $14.94 by the end of 2013. That’s good for a CAGR of 13.08%, fueled by the company’s aggressive buybacks. Revenue, however, is mostly flat. Total company revenue stood at $96.293 billion in 2004, and ended at $99.751 billion in 2013. That’s a CAGR of just 0.39% over the last decade. The lack of revenue growth is why there’s a large base of investors that aren’t a fan of the stock, but even with little organic revenue growth the company throws off very healthy cash flow which they send shareholders’ way via aggressive buybacks and growth in the dividend. S&P Capital IQ predicts EPS to grow at a compounded annual rate of 6% over the next three years.

Dividend growth has been very strong, although this isn’t the primary way IBM rewards shareholders. The company has a 10-year dividend growth rate 19.4%, which is very, very healthy. The yield right now isn’t lighting the world on fire at 2.42%, but this is near the all-time high for this stock. And the payout ratio remains very moderate at just 30%. Overall, I predict strong dividend growth to continue.

IBM is an interesting holding for me. I’m not a big fan of tech companies in general, and this remains my only pure play in technology. As such, I’ve been content to keep it a small holding. However, the clear value in shares here has presented a scenario where I can see myself adding to my position. Although there are risks with investing in any tech company because technology is so inherently fickle, IBM has fairly stable revenue thanks to the integration of its platforms.

Shares are trading hands for a P/E ratio of just 12.43, which is well below where the market’s at. I valued shares using the DDM analysis with a 10% discount rate and an 8% long-term growth rate. This growth rate seems more than feasible considering the historic growth in earnings and dividends, along with the company’s model of rewarding shareholders via buybacks and dividends. This gives me a fair value on shares of $237.60, which is approximately 30% higher than where shares are priced at right now.

Conclusion

I view shares in both of these companies as reasonably priced considering their growth histories and the likely growth still yet ahead. The yield for each respective company isn’t particularly impressive, but the payout ratios are low, which when combined with continued earnings growth means dividend growth well above average should persist for the foreseeable future. I think IBM is the better value of the two, but I also anticipate V will grow much more quickly. I’m likely going to purchase shares in one of these two businesses in July, assuming prices remain relatively similar to where they’re at right now.

Full Disclosure: Long IBM.

How about you? A fan of either of these businesses at today’s price? 

Thanks for reading.

Photo Credit: bplanet/FreeDigitalPhotos.net

Edit: Corrected Visa’s 2013 earnings figure. 

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122 Comments

  1. Interesting picks, DM. I find V interesting and have looked at V and MA briefly a while ago. On the surface, they are both great companies but I wonder how the future technological disruptions will affect them. There arent a lot of payment systems out there, but there are some greenshoots appearing in the tech sector. Im not saying that someone will come up with a brilliant business in a month, but there is definitely some risk there. Would like to hear your thoughts on the risks for the industry.

    Best wishes
    R2R

  2. Hi Jason,

    I like the V pick. I bought a half position in MA yesterday, and I am thinking of picking up some V as well soon. Any thoughts on MA vs. V? Also, any thoughts on using bonds (Muni, Corporate) sometime in the future after interest rates normalize (assuming they do- haha)? I am starting to educate myself on them for that time, and may add some Muni’s for yield without additional tax burdens.

    Thanks!
    Presone

  3. I’ve been keeping my eye on Visa as a potential one to perhaps invest in as it looks pretty solid at the moment. The only problem is can it keep up with the competition? Only time will tell I suppose, but it’s whether to make the jump in or not.

  4. DM,
    I’ve been looking at both of these as well. Big Blue is one of the best US companies in the past 100 years. I don’t have any large enterprise IT industry plays in my portfolio yet, even though I work in that industry. So I’m looking at both IBM and ACN. V sort of fits in there too. Great business and balance sheet. When I see zero debt on a balance sheet, that gets me excited. Not to mention profitability and div growth.

    Overall I’m feeling the same as everyone else, hoping for some kind of pullback, but I’m not confident we get it any time soon. Because when we do, everyone will buy and it will come back up. It’s going to take a catalyst like oil or violence (which hasn’t impacted us yet). Tough times for dividend buyers.

    -RBD

  5. I own V and have been pretty happy with it and it’s potential.

    I have a question that’s kind of un-related, but I’m not sure where else to post it. I have DRIP’s with 5 different companies. The oldest goes back about 12 years. The newest, 2 years. I thought about opening a brokerage account and transferring them into it and then, with the money I add regularly and the dividends I get, add to those positions or buy new companies. This would be something outside of my 401k investing.

    Would you transfer the shares into the brokerage account or just close the DRIP’s, sell the shares, and put the money into the account? I think transferring in the shares makes more sense because I won’t pay capital gains. Plus, I like all 5 companies and don’t really want to sell the shares.

    Would appreciate any thoughts or suggestions you may have.

    SR

  6. R2R

    I understand that technology can change, but who is going to take the large chunks of market share away from established companies like MA and V? I think they have a duopoly in this market (I’m separating MA and V from AXP and DSP because I think they are different companies). Will there be competitors trying to break in? Of course. Will some have success? Of course. But I just don’t see two well run companies like MA and V being overtaken anytime soon by some yet unknown companies or even Paypal. Bitcoin seemed to gain some (illegal?) steam, but ultimately fell apart. Given the low debt business models of V and MA plus the inevitable expansion into emerging markets, these two companies have plenty of room to achieve the lofty growth expectations.

    I also cannot overstate how much room for growth there is in emerging markets. From first hand knowledge, I lived in two South American countries that almost exclusively only used cash while I was there (Ecuador and Chile). In fact, I was paid in cash by the school I worked at in Chile. Crazy. My stays in these countries were a while ago, but the younger generations were not anti-banking establishments like the older generations.

    Of course, I just opened positions in MA and V earlier this week and placed them in my Roth IRA. So, take what I say with a grain of salt!

    Happy investing and good luck.

    Andy

    Long MA and V

  7. R2R,

    I honestly don’t know how much technological disruption we’ll see in mobile payments. It seems like most of the innovation I’ve seen has been with POS, but you’re still using the major credit cards there. PayPal has been seen as the biggest competitor, but even they partnered with MasterCard for their credit card, and still process quite a bit of Visa and MC transactions that aren’t paid directly through a PayPal ACH. Overall, I just don’t view the economic moat for Visa shrinking any time soon.

    I think the biggest issue for the credit card companies will be the interchange fees. If a major competitor does come along, that will incentivize retailers to look elsewhere, which could force Visa to lower its fees and hurt margins. I see that as the biggest potential issue.

    Cheers!

  8. Hi SR-

    I did this recently, I recommend to do shares transfer to brokerage, this way you don’t need to sell and had to deal with capital gains. Only thing to watch out for is fractional shares, most of the time they don’t allow fractional shares transfer. When this happened to me, i sold the fractional share and moved all full shares to brokerage.

    I use Merril Edge, and i really like their 30 free trade offer as long as you meet certain requirements.

    Hope this helps.

    Balaji

  9. Good stage 3 picks DM! V is very interesting but the low yield keeps me from investing for now. IBM is actually the newest addition to my portfolio and I’m also looking in to adding to my position at the current price.

    Thanks for sharing!

  10. Thanks Balaji. I hadn’t thought about the fractional shares. Part of me wants to just leave them as they are, but I don’t want to have to deal with those accounts plus a brokerage account. One account for everything is so much easier to deal with.

  11. presone,

    I chose V over MA because the valuation looks better, the yield is higher, and they have a better history of dividend growth.

    As far as bonds go, I’d be interested in fixed income once interest rates climb. I don’t know when we’ll see significantly higher rates, but I’d have to see a totally different landscape in bonds to get me excited. I’d be looking for the 10-year to be near 5%.

    Munis are a great idea if the backing entity is sound and the interest rate is reasonable.

    I still think equities make the most sense here for the most part, as you can get similar yields to even the best bonds, but with some growth as well.

    Cheers!

  12. Nicola,

    I believe the moats that the major credit card companies have built are pretty substantial, and I don’t think competition is going to come in overnight and challenge that. I think the fees at some point might cause bigger rifts between the credit card companies and their clients, and that may be the opening someone else needs. We’ll see. I don’t anticipate anything changing for at least the next decade, but I could very well be wrong.

    Thanks for stopping by!

    Best regards.

  13. RBD,

    I’m with you on the excitement of seeing zero debt. That’s very, very nice. 🙂

    We’ll see what happens with the stock market. I’m actually surprised we haven’t seen more volatility to the downside, but this is exactly why I don’t try to time my purchases. If my long-term success relied on my ability to pick the best times to buy stocks I would never be able to retire.

    Take care!

  14. SR,

    Hope to join you as a V shareholder sooner rather than later. 🙂

    I agree with Balaji. I’d transfer the shares over to the new brokerage and sell the fractional shares, if necessary. No need to sell all the positions and close the DRIPs, in my opinion.

    Best of luck with the transfer!!

    Cheers.

  15. Christoph,

    Perhaps it is. But as long as they can keep that up for the next 30 years or so then I’ll be happy. The terminal rate is a “forever rate”, or out to infinity. But I’m not going to be alive for infinity. So although I value stocks using a terminal rate, I also keep in mind that I won’t be alive that long. If they grow by 8% year until the day I die and then drop to 1% the day after my funeral it won’t really matter at all to me.

    Best wishes.

  16. What a coincidence! I just opened a position in IBM today. My portfolio is light in tech; so, it adds a little diversification. I think of it more as a stage 2 as it has a decent (~2.4%) yield and dividend growth. Stage 3 seems more speculative in the sense of projecting above average growth to compensate for the relatively low yield. In contrast to stage 1s and 2s, do you look at them with a different time frame to be “fruitful”?

  17. Andy,

    Thanks for adding your thoughts!

    I agree. I don’t see the economic moats for MA and V shrinking anytime soon. And most of the innovation I’ve seen in mobile payments that could be taken out to scale are geared toward POS. And that doesn’t really affect V and MA anyway. Even PayPal relies on V and MA for a significant portion of their transactions. I just think the infrastructure and system is geared to benefit these companies for at least the next decade or more. Of course, it’s difficult/impossible to see that change coming sometimes. There might be a technology that hasn’t even been invented yet that could challenge V’s throne in the future. We’ll see, but I’m not worried.

    And emerging markets are a huge opportunity for V. I think this is where a lot of their growth will come from for the foreseeable future.

    Hope to join you as a V shareholder here pretty soon. 🙂

    Take care.

  18. Love V and IBM as I own them both. Both down in the short term but still I dont know if they are attractive in valuations just yet. Both will be long term term holds for me however, especially Visa.

    The more research I do the more I realize my portfolio is out of whack. That said I think many of us investors are neglecting the Asia and Europe developed markets. They havent had the bull run like we have had in North America and many think they are undervalued right now. But who really knows if they will rebound in the next 5 years.

    Another problem with foreign investment is availability of certain companies that dont offer ADR,s in the states. Also you are subject to country by country different withholding taxes which are often between 15-30%. With all that you still have to worry about currency fluctuation that may hurt your return.

    But if you are not globally diversified it wouldnt be a bad idea to add a Europe/Asia dividend ETF to add this exposure to ones portfolio. You can find a good solid one paying about 3.5% in dividends monthly which is not bad. VEA from Vangaurd looks pretty solid or VEF if you are in Canada.

    I know this goes against most dividend stock pickers mindset but the more I look into it makes feasible sense to add a low cost fund so u skip the headache of different world exchanges, currency exchange and micromanagement.

    Just a thought!

    Good Day and Grind On!

  19. Leveraged DGI,

    Glad you enjoyed it.

    I think both stocks make sense here. I’m happy IBM has been lagging so much, as it gives me a great opportunity to add here. Although, V is a strong competitor right now for my fresh capital. We’ll see how it goes!

    Take care.

  20. Greg,

    Glad to have you as a fellow shareholder in IBM. 🙂

    IBM is interesting. If you look back, it traditionally had a yield far below 2%. But that low yield was compensated for by the high dividend growth. I think when I first started looking at IBM a while back the yield was around 1.5%. But the share price has stagnated and the big growth in the dividend has led to the rising yield. So it’s now starting to get to that 2.5% yield mark, but also sports really big dividend growth thanks to the low payout ratio and big EPS growth as a result of the aggressive buybacks.

    As far as being fruitful, there are definitely different time frames. A stock with a 5%+ yield is fruitful right away. For the most part, a stock with a 3% or so yield is pretty fruitful right away as well. But a stock only yielding 1% or so is going to take a while to make a meaningful impact on your dividend income. Exercising patience is key, but I don’t have a specific time frame in mind. Rather, I’m simply looking at the dividend growth rate. If it keeps up as I had expected then I’m happy. If you’re receiving a 15%+ growth in your dividend you’re going to do very well no matter what. Your income is rising fast, and the share price is as well, assuming a static valuation and yield.

    Best regards!

  21. DM,

    I like your two potential additions for July, especially V. What are your thoughts on DIS as a Stage 3 position? I’ve had it on my watch list for a while although I did choose MA and V over it recently.

    Thanks for another good article.

    Andy

  22. Asset-Grinder,

    I think IBM is the more attractive valued stock of the two, but V should grow much faster. We’ll see. I’m excited at the idea of the prospects for both.

    As far as investing in Asia and Europe, I don’t know if it’s necessary to do so directly. I personally won’t buy shares directly from a foreign exchange, but I do have ADRs with many foreign companies like BP, RDS.B, and VOD. But most of the major companies I invest in already have quite a bit of exposure to Asia and Europe. PM, for instance, is a completely foreign company for all intents and purposes. And companies like KO and PG receive considerable portions of their earnings abroad already. So by investing in many of the multinational blue chips you’re already technically investing in these foreign economies. That’s the way I look at it.

    But for someone who wants more direct exposure, either ADRs or an ETF makes the most sense.

    Best regards!

  23. I was thinking about Visa when I read some things on it recently but then when I learned about stage 3 stocks here, I discounted it due to my age and time to retirement. I know it is silly but I do like to own stocks of products I use, and with a 4% cash back on gas and groceries, I use Visa for all my purchases.

  24. Andy,

    I’m a big fan of DIS. It’s not a traditional dividend growth stock, but the business model is fantastic. I was mulling intiating a position in the company before they announced the Star Wars deal. It shot up quite a bit after that and I started to look elsewhere. I may eventually initiate a position in the company, but it’s not on my immediate radar.

    Appreciate the support!

    Cheers.

  25. Debs,

    Well, the yield is very low with V. So those looking for more immediate income may have to look elsewhere. But for those with some time to let the income build, this could be a great holding.

    And I’m with you on owning a piece of companies who have products/services I use everyday. And Visa would fit that credo very well for me. 🙂

    Take care.

  26. Shmuel,

    SBSI is up almost 10% over the last month. I was looking at it as a potential purchase last month, and it kind of took off. I probably should have added to my position right away, but I was little leery of having a larger position in a really small bank. My loss, but also my gain since the stock is up.

    Take care.

  27. IBM looks solid, V has too low of a yield for me, but looks like an amazing company. At some point V might cease being a growth story and become a dividend story like Microsoft, IBM, and Cisco. I first bought IBM last fall at a 2% yield and it looks like in a couple of years it will be over 3%.

    You have definitely been working on all stages of your rocket ship…..DLR, TIS, ARCP, CLX, BAX, IBM, and maybe V. Keep building and escape velocity will be right around the corner.

  28. Thanks for sharing your thoughts, Mantra and AndySchabo.
    I hear you on the wide moats in the current industry. Bitcoin, I gather is more of a currency than a payment mechanism/gateway, and now that the US government made the decision to treat it like a commodity an tax it means that its future is dubious. I guess thats the power the governments have to protect their own interest.

    I agree that the barriers for entry are higher and will need some immense push from a technological and investment point of view to bring V and MA down from their throne. As Mantra suggested, their future for atleast a decade is secure, it seems.

    PayPal could take on them if they decide to scale and take the business in that direction.

    cheers
    R2R

  29. MDP,

    I agree V will likely eventually transition into a Microsoft or an IBM. But the key might be getting in before that happens. You’ll get the big growth on the front end, and the stability and big dividend on the back end. It’s a risk, but a calculated one since I already have a nice stable of dividend growers already built up. And these types of stocks will be few and far between for me.

    Next month it will be back to the usual suspects, depending on valuations. Escape velocity is the name of the game. 🙂

    Cheers!

  30. Both V and MA are indeed great picks, Jason. No major investments needed to run the business + great ROE. I agree with you that in case you need to choose between V and MA, I go with V. I’ve been watching V for a while now. I find P/E just a little high. I like to have some margin of safety. But when the price drops, for sure I’ll pull the trigger.

    Thanks for sharing your analysis.

  31. Jason, I’ve been picking at more TUP the last few weeks. Great yield, great growth, reasonably priced. The vast majority of their future earnings will come from emerging markets (rapid population growth, growing middle class, low debt, etc.) so I like that exposure as well. Not sure why this one has been off the radar.

  32. Jos,

    I’m with you. Very, very little capital expenditures are needed for this business. And so you see this monstrous free cash flow. The metrics are just off the charts. I only wish I would have pulled the trigger below $100 when I first started looking.

    I don’t think the valuation is crazy here, considering the growth. As well, you have many stocks like KO and PG trading for similar valuations with much lower growth profiles. So it seems fairly justified.

    Best wishes!

  33. Randall Reinwasser,

    I looked at TUP a little while back and just didn’t like the direct sale business model. That being said, they’ve done incredibly well with it. So I suppose it’s been my loss.

    Cheers!

  34. I picked up 13 shares of IBM last week. I keep going back and forth with V. But will probably add some at some point this summer.

  35. I still after all these years of investing dont have any stage three stocks (Good analogy.) as of yet but a compensation cheque arrived on my doormat a week ago and since this is unexpected money I’m considering my first one, UNILEVER, did think about J&J and VISA but the tax/dealing cost of foreign shares plus the Dollar/Pound exchange rate is going the wrong way for me, so I’m staying this side of the pond for my first stage three purchase, might be UNILEVER might not, still undecided, might just buy more SHELL or BP instead.

    Cheers,

    Dave….

  36. Lost my post so i’ll try again. I always hear that we should stay invested and now we should buy on the pull back. If I’m totally invested how do you buy on the pull back ? And what is a pull back ? Is a pullback measured in dollars or a percentage ? If its dollars, how many ? If its percentage, what percentage ?
    Thanks,
    ( I’m a dividend investor and live on the dividend.)
    Don

  37. Considering the stock was at $95 at the start of 2014, I’d say it’s you who made the smart move 🙂

    FYI, I’m looking at the Value Line report and their estimating 15% annual dividend growth through 2019.

    Value Line has an interesting table (well they have lots of interesting tables) that shows “Stocks With HIghest Projected 3-5 Year Dividend Yield on Recent Price”. KInd of fun to look at and see how many of your stocks are on there. Gives me lots of ideas to look at too. Your local library probably has it if you didn’t know…

  38. I really want to get DIS into my portfolio at some point but the valuation isn’t there yet. Really love the company and the more I read about them the more I like them. If only they would switch their dividend from an annual payout to at least a semi-annual one.

  39. I have never been fond of IBM and the flat revenue they have posted over the years has been a turn off for me once I began dividend investing. They have spent a long time doing a growth by acquisition model, which as an investor I don’t really like that much (althought a few companies I own do this).

    I work in the software industry and get to use IBM products first hand. They are getting stiff competition from Open Source software and tool suites that are far cheaper than they provide. My company is in the process of getting ride of IBM products as we speak. Well, any pay for tools really, so not just singling out IBM.

    With that said, they sure aren’t going anywhere and have reward their shareholders very well over the years. So it may be a good thing to put my biases aside and take another look!

    Take care!

  40. Jason,
    I was going to ask why V instead of MA, but I see that you already answered that question. I’m long both stocks, but have approximately three times as much stock in MA based on dollar value. Either way, they are a great duopoly that should serve you well over the years. Oh, and debt debs, I’m 57 and MA is one of my top 10 holdings.

    I really don’t know what to make of IBM, but I don’t think it’s a stage 3 stock. More of a stage 2 in my opinion. I know that the dividend crowd doesn’t like AAPL, but with a yield over 2% I like the long term prospects there much better than IBM. The forward PE is only 14.4 with a PEG of 1.1 per Zack’s, so the valuation looks great in this market.

    Best of luck whichever way you go.
    KeithX

  41. Don,
    A pull back is generally a drop in price based on percentage. A pull back can be broad market, sector, industry, or specific company. I don’t know if there is a hard and fast rule as to what constitutes a pull back, but I think 10% is considered a correction.

  42. I’ve already made my choice. It’s V. I bought under 200 a while back.

    It’s about margins. Companies with high margins usually get competed away. V has a strong moat that makes this difficult. Operating Margins are 62%. For comparison, IBM has 20% margins. My favorite sector, tobacco, has margins of 40-45%.

    As if that were not enough, you get a dividend and buybacks (small).

    You could do worse things with your money than buy IBM. I figure 10% average returns based on yield and earnings growth. Over a long time 10% average will make anyone rich.

    But at 200, V is priced at 22x 2014 earnings of $9, ending in Sept 2014. This is a 19% improvement over 2013.

    Sure 22x is expensive. But not overly expensive considering the 17% estimated earnings growth rate.

  43. Rob,

    Nice! I personally own just 10 shares of IBM, but I expect to probably double that at some point. I wouldn’t want IBM to be a major component of my portfolio, but I do like owning a chunk of Big Blue.

    Like you, I expect to own a piece of V this summer. 🙂

    Take care.

  44. travels,

    Nothing wrong with your strategy. Stage 3 stocks aren’t necessarily for everyone.

    I don’t know if I’d classify Unilever that way, however. I look at UL as more of a PG or a KO where you’re getting a ~3% yield with moderate growth. UL is actually a company that has escaped me a few times now, but I would love to own a piece of it at some point. So many stocks, so little capital. 🙂

    Take care!

  45. Don Klinger,

    I don’t know if there is a definition behind a pullback, but I generally look for 4-5% or so. A 10% drop is technically considered a correction.

    As far as having capital goes, this is really all based around your individual strategy. I prefer to have most of my capital working for me at any given time because I have no ability to time the market. And since I buy equities regularly I’ll naturally hit those pullbacks and corrections over time (as well as the times when the market is expensive). I just prefer to average my way in, rather than keeping capital aside to time the drops.

    I hope this helps. Best of luck out there. 🙂

    Cheers!

  46. Randall Reinwasser,

    Wow! I wasn’t aware of the performance YTD for TUP. Maybe I should take a look. I just glanced at the stock, and the valuation and yield seem very respectable here. I took a good look at the business a while ago and was just not enamored with direct sales at all. I guess I’m wrong because they’ve grown so much.

    I’ve heard great things about Value Line. Their services are probably available at most local libraries, although the library in this small town I’m currently in is about the size of a pizza shop. 🙂

    That predicted growth rate is fantastic. Very encouraging.

    Cheers!

  47. JC,

    I agree with you on the annual dividend. I wouldn’t mind too much since I have almost 50 other stocks that are paying more regularly, but I’d prefer at least a semi-annual payout.

    But you have to love the business model. And the customer base is super loyal.

    Take care!

  48. ILG,

    That’s discouraging news there with your company’s relationship with IBM. From all the research I’ve done with IBM I think they’ll be fine, but tech is so hard to predict. That’s exactly why I never intended it, or any other tech company, to be a large position. There’s just too many questions. The revenue growth is concerning, and they’ll have to get that going at some point here. However, even with low sales growth they should be able to post pretty solid returns through the dividend and the buybacks.

    Thanks for stopping by!

    Cheers.

  49. KeithX,

    I agree totally. V and MA should do very well for the foreseeable future. I just can’t see any competition changing the status quo with the infrastructure they’ve built over the years. Not to mention the trust that most consumers have with using their products. And I hope chipped cards improve that trust.

    I missed out on AAPL when it had that significant pullback. That was a great opportunity, but I still had my doubts about their innovation and how product cycles would work in the future. No doubt that customers can be pretty loyal to Apple products, so that should keep things rolling for the time being. That split, buyback increase, and dividend boost shows they really care about rewarding shareholders.

    Best wishes.

  50. Sfi,

    I hear you on V. The margin is extremely impressive. The capex necessary to run a business like this is very low. It’s just a cash cow, and I love me some cash cows. 🙂

    I’m leaning toward V right now. If prices stay stable I’ll likely buy 10 shares in July and see where things go. There is just not much to dislike about this business, other than the low yield. And I agree with you on the valuation. It seems pricey, but the growth more than justifies it.

    Best regards!

  51. Both are great picks. I believe V has a better growth potential compared to IBM. There is lot of growth opportunities in emerging markets where credit card usage is still low. Also, I just looked up their outstanding shares in morningstar. They have reduced the share count from around 1393Mil in 2008 to 656Mil in 2013. That’s about 50% reduction. Really impressive. I do regret selling V when it was around 120 few years back. Might enter the stock primarily for growth if there is some pullback.

  52. Those are great picks, I’m an owner of IBM and I’m very happy with the company. I wish I owned Visa, but it got away from me a long while back. Regardless, I think V is a great investment because it will super charge your portfolio’s DGR.

    A year and a half ago or so I remember the front cover of Barron’s predicted the Dow at 15000 or even 17000 by 2014. I just looked at the cover and laughed, “you’ve got to be joking”, I told myself. But here we are, at all time highs and that imminent crash is nowhere in sight. As someone who’s now living off dividends, I just see these market highs as another margin of safety, but nothing more. I don’t sit there monitoring my account everytime the market inches a bit higher.

    I hope you can make those purchases next month. It’s really badass that you can still buy shares after quitting your job!

  53. I like V for the long haul exactly for the reasons you mentioned. I started a position at $200 and if I had more money ,I would buy during dips. What I regretted was that I spotted V at 170 and was evaluating the stock and pulled the trigger a bit late… after much appreciation. Nevertheless not a big deal as I’m going to hold it forever unless it goofs up big time.

    At some point, I will add more money to V if it goes lower than my cost basis and I have cash to invest. I’m all invested now with very little new money left to invest.

    At 1.92% of my DGI portfolio, it’s part of the growth component where I trade lower yield for growth and expect a better yield on cost many years down the line. I have around 23% of my portfolio in such growth oriented DGI stocks. I’m expecting the growth components to take a bigger hit if we have a protracted bear market but companies like V should be able to survive better as they have moat as a payment processor with rich cashflow, no debt and low payout ratios.

  54. I agree that tech is tough to predict, as the winds seem to change direction in that industry much more quickly than in others.

    Personally, I’d rather own MSFT than IBM, but at this point we might all be a bit late to the MSFT party. I knew in Q1 2013 I wanted to play tech in a big way, and put about $4k in between AAPL and INTC, which have both posted close to or slightly more than 50% total returns in just over a year. I wanted all three big tech names, but didn’t have the money, and it would have thrown my asset allocation way off. Ahh, I suppose we have to be content at some point.

    I was tempted to sell, but I would rather lose 10% from today’s prices from a pullback than the next 100% over the next decade if I sold today.

    I think both AAPL and INTC (and MSFT, even though I won’t be participating) will be bigger and more dominant in new ways in 10 years in the tech software/hardware/semiconductor spaces.

    Tech is too big to ignore, but you have to find a way where the risk/reward makes sense.

    For me, I see AAPL’s glory days in the past, but as long as they churn out decent devices, their ecosystem is a big moat, and even if other makers can replicate the hardware, it’s tough to do both hardware and software (no other company does that right now, Google even gave up by selling Motorola because they couldn’t execute). INTC will succeed through the growth of computing everywhere, particularly in enterprise and *hopefully* they’ll score a few wins in the hardware space outside of PCs. We shall see, but both pay solid dividends which are enough to pay me to wait and see!

    We’ll see who wins, friendly competition! 🙂

  55. To be honest with you, I used to think the same things, thought it was an out-of-date company using untrained people to sell their cheap products. Then I watched this interview with their CEO and it completely changed my view. If you have time to watch, I think you’ll like the quote: “We are a cash generating machine”

    http://video.cnbc.com/gallery/?video=3000144377

    Value Line is a great resources but it costs an absurd $600/yr for a basic subscription. Hence, the library!

  56. DM,

    Depending on your capital levels – may not be a bad idea to initiate a position in V and increase your exposure to IBM. That 10 year dividend growth rate is quite impressive at IBM, and the fact of how long they have been around with a proven track record for spending on R&D, which is much needed within that industry. The analysis you performed over IBM intrigues me, which I may have to screen it out and see what I think. Geesh, thanks for homework tonight DM and it’s already almost midnight! Hope all is well, one week left until half the year is over.

    -Lanny

  57. DG Journey,

    I agree with you. I also think V has the greater potential for growth, hence the P/E ratio that’s almost twice as high. But I think both are solid picks for the long-term at today’s prices, especially considering what else is available right now.

    The buybacks both at IBM and V are especially impressive. V has been on an absolute tear lately, and they’ve been open about their preference for buybacks over dividends. That being said, they’ll still sport some pretty aggressive dividend growth going forward as they generate gobs of cash.

    We’ll see what happens in July. 🙂

    Cheers.

  58. Spoonman,

    Thanks for stopping by.

    I definitely plan to keep buying equities just the same as I always have. Perhaps the allocations will be lighter because my free cash flow won’t be as impressive, but the game plan hasn’t changed a bit. 🙂

    “As someone who’s now living off dividends,”

    I didn’t think you were already there. I thought for some reason it was July or August? Congratulations, my friend! That’s awesome. I hope you and your significant other enjoy this great transition into a new life. I don’t know if you’ve ever said what you plan to do with your free time? It’s amazing how even without a full-time conventional job I’m still busy. I honestly don’t think I would have been able to keep this blog going if I didn’t jump ship when I did. It’s amazing to me I did it for as long as I did.

    I’m sure you guys have a whole docket of activities to keep you guys pretty busy. I’m excited for you! 🙂

    Best regards.

  59. George,

    Nice job on spotting V there. I actually passed on it when it was still below $100/share. I’m a real dummy sometimes, but what can you do?

    I don’t plan on having quite that kind of allocation to growth-oriented stocks, but I do want a little allocation there. I feel the time is right now that the dividend income is pumping in at a decent rate. Of course, some people might find my timing odd now that I need dividend income more than ever (after recently quitting my full-time job). But I plan on doing what’s best for the long-term health and growth of my portfolio and dividend income, regardless of my current situation.

    Thanks for stopping by!

    Best regards.

  60. Dave,

    CB is a great insurance company. That’s one I probably should have bought a while ago to complement AFL. HCC and TRV are a couple of others.

    I might end up buying KRFT at some point. It’s been on a big run over the last year, but what hasn’t? I’m just concerned about the growth as it operates solely in a challenging US grocery market.

    I do want to eventually buy some more PG. I don’t think it’s particularly attractive right now, but it is one of my favorite companies. And I don’t own as much as I’d like.

    Thanks for adding those names. A pretty solid list. 🙂

    Take care.

  61. Ravi,

    Intel has run up quite a bit since I sold, but I don’t regret a bit. I invested for a growing dividend and they weren’t delivering. And I ended up buying BP with some of the proceeds, and that’s done well.

    I’m not sure if I’ll ever add any other names to my tech holdings. V is a quasi-tech holding, but it’s really a financial play. I suppose MSFT would make the most sense to add to IBM for me, but AAPL would probably be right there with it. I actually picked INTC over MSFT way back in the day, and boy was I wrong. I really wish I would have went the other way with that one, but you can’t win them all.

    I agree with your thoughts on AAPL. Even if the big growth is behind them shareholders should do well with the dividend, buybacks, and occasional innovation. The key is keeping clients in that ecosystem, but Apple customers seem to be pretty loyal.

    Best regards.

  62. Randall,

    I tried viewing that video a couple of times, but it wouldn’t load for some reason. I’ll try again later. But I’ll definitely take a look at TUP. The dividend growth history is pretty short, but they’ve been very aggressive as of late. That one big raise back at the beginning of 2013 was especially impressive.

    Best wishes!

  63. Lanny,

    Homework, baby! 🙂

    I don’t know if I’ll have enough capital to go both ways, but I suppose I could maybe afford five shares of each. We’ll see. I’m leaning toward V right now, but we’ll see what kind of mood Mr. Market is in over the next couple weeks.

    The year is definitely flying by. I didn’t think at the beginning of 2014 that I’d be where I’m at, but I’m sure glad it turned out like it did. Life is funny sometimes!

    Hope you’re having a good week!

    Take care.

  64. You know, I used to have all types of problems watching CNBC videos, can’t remember what I did to fix it. Anyhow, the div history is short but they are now super committed to paying shareholders. Here’s the transcript if you can’t get it to play:

    lately t been a lot of fuss over direct sales company they use regular people to sell their products. last week we had the issue over herbal life a claim which the company denies. and thursday an outfit was shut down called fortune high-tech. not all direct sellers are scams like this firm the fdc shut down. like herbal life. some are totally legitamite. breed companies like tupperware. even the queen of england land gets her breakfast cereals out of them. it is a huge hit in the development world as it gets 59% of its sales from emerging markets. this morning it reported a solid quarter a two cent beat on competitors that are up. and not only did the company give upside guidance. the company gave you a 72% dividend boost giving you a yield at these levels the stock shot up to a new high. let the stock 207% at slightly less than $20 giving you a big return. let’s check in with the chairman and ceo of the company to get a sense of what is happening in the world of direct selling. welcome back to mad money. guttentach. i’m here in frankfort. you did it again. what gives you the level of confidence to increase your dividend by an unbelievable amount? the largest i’ve seen? a couple of things. we really have confidence in a going forward approach. you know it is interesting that i’m in germany. people asked me what keeps you up at night and it was germany. it was 60% of our profits. now, we have multiple engines of growth and we are very much an and business. it is established markets like germany where we were up strongly this last year and very strong profits as well and we are emerging markets. second thing, we really look at our business and we look at the runway that we’ve got ahead and we say we are a cash generating machine. we have enough cash to grow the business and we decided you know what? we can handle this kind of leverage. we did a return 1.75 and we said let’s return this to the shareholders. we don’t have an interest in acquisitions. that means we are going to return some in the form of continued share repurchase. a lot this year. but we raised this dividend. it is a combination of these things. let’s talk about that buyback. you could say you are buying 50% of your company in from the open market. i loo the numbers for this year. and what we are going to be buying it is 10% of the stock of the company. jim, a lot of people have asked us, why did you do it this way? i’ll tell you, our partners are our shareholders and we went out to our 25 largest shareholders and some of them want it in dividends, they are looking for this high yield and others wanted it in share repurchase. and both look good for us. it is a signal that we wouldn’t have down this unless we felt that we had confident growth. and i have to add, jim, we still have four or five markets that aren’t doing what we want them to do. the other thing that you have done, rick, because you know that there has been a back and forth on our own network. karl, you have never retreated from distinguishing your company from these others including an excellent white paper where you say bal life is a network marketing company. you along with others are a direct seller. why are you distancing yourself from some of the other companies that claim to be in your industry? i’m not going to take issue with multi level marketers but they are chalk and cheese from traditional sellers. what you had from prior to 1950, avon, fuller brush. even tupperware people went out and sold to a retail customer. you had these network marketing companies tha recruited people not so much to sell, but to consume their products and you saw it smetics and a lot of them came and went because their episodic kind of businesses. they are wholesale buying clubs and based on sign up to save money and consume the product. we a based on we recruit our people, we finance them with their kit, we train them free and we teach them to go to a retail cust. who is the customer? over 90% of our sales are to a retail customer. only 10% to the sales force and they buy that because have new products every year. the bulk of their products are consumption by their network. so they are chalk and cheese. how do you know that yours is 90%. if you have 3,000 store fronts in china. how caitor that. you wouldn’t believe the level of detail we have. every monday morning we have a stand up meeting. i don’t care if it is christmas day because the world isn’t christian. it is one hour. we have a report of what happened the previous week. what the sales were and people that went to the party. we manage our bigs down to the detail of it. so it is not if maybe might. we know for sure. rick, i notice, and i follow your products, new chopper and new dish that i like. you can buy these things online and go to the website, it is not like i have to go to someone and then become a seller myself in order to get the product. no, but what happens is, most people don’t understand our product unless they come to a demonstration. and so what will happen is, less than 3% of our sales are sales online. but when somebody comes to a presentation they see this is this new chopper that sells for $70 in the us and $50 euro here, they come to a party and they don’t focus on what it does. they focus on what it makes. and i’ll tell you, the younger women we are recruiting today. she says show me how to save time. we have a whole line of products that safers for younger women.

  65. I believe that emerging market will be an area of growth for V and MA, but far less so than commonly expected. In my opinion payment systems like M-Pesa serve the particular needs of emerging market customers much better than anything V and MA have to offer right now.

  66. DM,

    I am looking at IBM as well. That rate of div growth is awesome. I am not buying stocks for the price appreciation. I am buying them for the dividends. As long as they keep at it, it is a good investment. I am in the tech industry and have worked at companies that used IBM products. Once they are in the door it is very hard to switch products/services because they become part of your business process. I say go for it.

    DFG

  67. I’m building a cash reserve right now – to hopefully buy a house. No purchases for me for the time being.

  68. Christoph,

    Well, I wouldn’t mind if M-Pesa becomes even more popular as that’s a Vodafone product. And I own a chunk of Vodafone. 🙂

    But I think that while that product may serve their needs better now, will that be the case when some of these markets grow and people have traditional banking accounts? Will they want to go exchange cash for mobile payments? I think credit card companies’ opportunities grow as middle classes grow in these countries and their wealth expands. We’ll see, though.

    Thanks for adding that!

    Cheers.

  69. DFG,

    Thanks for the confidence in IBM. I’m a fan of IBM. And I agree with you that the solutions they provide are typically integrated pretty heavily into a company’s process. That works for both IBM and the clients they serve, assuming both are happy with the relationship. We’ll see what July brings us!

    Best wishes.

  70. Hi Jason,

    I may not add those two stage-3 stocks right now. I will be focusing on stage-2 stocks for now to create a cash flow (dividend income), may be few years later I may buy them along with Mastercard stocks. It may not be the same price as today, but I need some time & money to buy those low yields.

    Best Regards,

  71. Added to GIS in premarket at $51.50. There are ton of good dividend growers to buy now.

  72. For my money I would go with V. Just love that crazy increasing dividend. I know it is something that cannot be sustained forever but I still see many more years of above average dividend increases for V. Besides, I am partial to the financial sector these days. It seems that’s where all the relative values are these days. I just posted my June buys on my site which is almost all financial. Thanks for sharing your stock considerations.

  73. Finance Journey,

    If I didn’t already have sizable dividend income built up I wouldn’t be looking at a stock like V right now either. The key is to find the right time for certain holdings and buy what feels right for you and your situation.

    You’ll have a nice source of passive income before you know it. 🙂

    Best wishes.

  74. Dave,

    Nice move there! Quarterly misses and subsequent pullbacks like this are perfect opportunities for long-term investors. GIS is now back on my radar, but it’s still trading far above its average P/E ratio going back the last five years.

    GIS is definitely a company I’d like to own at some point.

    Cheers!

  75. DivHut,

    Nice buys there. A few really stable companies. I like the insurance plays as well. TRV and HCC are a couple of other insurers I like to peek at.

    I’m leaning toward buying V right now, but we’ll see what happens in July. The low yield is a bit frustrating, but this definitely isn’t a stock one buys looking for current income.

    Best regards.

  76. Hi DM,

    I have been reading your blog for several months now and enjoy it as both informative and inspiring. Personal finance is as you note “personal” and I have commenced buidling a DG portfolio that b/c of my lifestyle wont really be able to cover my expenses and gain FI in my 40s (I am 27) but rather hope for it to become a significant revenue stream that will help cover part of the monthly expenses. Perhaps not freedom but flexibility. To that end have you looked at VIVO? Its a Health supplies company that has a nice dividend 3.9% and has had a recent pullback and has decent high single digit growth prospects. Any thoughts?

    Thanks

  77. Shmuel,

    Congrats on starting your own journey. I remember when I was almost 28 years old, just starting this journey. It’s very exciting! 🙂

    And financial independence at a young age isn’t what everyone shoots for. And I don’t think that’s a bad thing. Ultimately, we have to draw up goals that make sense for our personalities and situations.

    As far as VIVO, I just took a look. The dividend remained static from 2010-2013. They did recently increase it, but it wasn’t all that impressive. And I wonder why the stock has been an absolute dud? It’s trailed the market significantly. Now, that could be a wonderful thing if it’s a great business. But the valuation and lack of dividend growth doesn’t really interest me. I wish you the best of luck, however, if you do invest here.

    Take care!

  78. I apologize for the confusion, our game plan is still to pull the trigger in August. I guess I’m starting to adopt the mentality that we’re solely living off our dividends.

  79. Spoonman,

    No problem! I guess I just read your comment wrong.

    Best to get used to living off dividends now anyway, since the “real deal” is right around the corner. Still really excited for you guys. 🙂

    Cheers!

  80. DM – Both are great stocks. In fact, both are stocks that Buffet holds highly in his portfolio. That has to mean something right? 🙂 Of the two, I really like IBM and considering initiating positions at the current levels. I like the potential for future growth that IBM offers. And with the low payout ratio and decent P/E, I find the dividends to be stable also. Thanks for sharing these two stocks on your radar. Best Wishes! AFFJ

  81. AFFJ,

    Thanks for stopping by!

    I like your thoughts on IBM. It’s such a tough race for me. The both I look at both, the more I like both. Unfortunately, my capital is quite constrained right now so it’s definitely one or the other. IBM’s growth in all aspects of the business except for revenue is just off the charts. V’s free cash flow is just ridiculously impressive, but the yield leaves something to be desired. We’ll see. 🙂

    Best regards.

  82. Hi DM
    Nice Article as allways :), im long IBM and V, i find IBM still undervalued as you mentioned. V have a huge moat.. here in switzerland close to everybody has a Visa / Mastercard or even AXP 🙂 but what about DLR for your portfolio? (Reit)! A Dividend growther in the CCC List of D. Fish and seems undervalued using a ddm model and also with the Fastgraph-tool. not to forget the nice 5.8% Yield.

  83. sdgi,

    I’m with you on IBM. I think the valuation looks very, very solid right now. And the fact that I can buy more at this level is really encouraging and tempting. 🙂

    I actually already own a piece of DLR. I bought it a while ago after it started dropping fairly significantly. But thank you for the suggestion!

    Take care.

  84. DM – Compared to the other well-valued DG stocks available today, IBM continually rises to the top. It’s been on my “buy list” since I started tracking that sort of thing a few years ago. It is interesting that while it seems like such an attractive investment, the price has essentially remained static since the beginning of 2012 (with gradual moves up and down within that time). Why would such a seemingly attractive investment show no movement in a year where the general market was up 30-40%? I guess that’s what has kept me from pulling the trigger on it yet, though I don’t think I will wait too much longer. Hopefully this will end up being a good entry point when we look back in 5 or 10 years.

    With respect to V, I must say I was puzzled when I read that you were thinking about being a buyer. Nothing wrong with the stock of course, but it doesn’t seem to fit the criteria for someone trying to reach a specific income goal in a relatively short amount of (investing) time. Then again, you wouldn’t want to miss out on potential good opportunities for growth purely to meet a self imposed “deadline” would you? I wonder if your thinking about V and SBUX suggests that you are starting to view your transition at 40 as more of a “soft one” rather than a hard transition like quitting a full time job and writing full time would be. In this case, meeting an exact number may not matter, as you very well may not have to change anything at 40, thus giving you the opportunity to set yourself up for some longer term (but hopefully greater) growth! Apologize if you have discussed this already and I missed it, I just find the thought process interesting.

    I’m in this for the long haul, and don’t mind taking a few positions with high growth and low starting yield (one could always balance them out with something like SDRL or something similar for example), so I will likely join you on V before the end of the year also.

  85. Thirsty Investor,

    I’m with you on IBM. Mr. Market hasn’t been a fan, likely due to the lack of top line growth, and that’s fine by me. Creates a nice opportunity here. All the other metrics look really solid, and the dividend growth should continue at this pace for the foreseeable future.

    As far as V goes, I just think it’s a really unique company. I’m still planning to become financially independent by 40, but I also think V can still fit there if the growth continues like this. I’ve got eight years to go, so if they’re able to keep growing the dividend at 25% or so I’d be looking at nice income from the stock by then. But the rub is that we don’t know if they can keep growing at that rate. Maybe they grow the dividend less, maybe more. Those questions are why I typically stay away from a lot of stocks like a V or a SBUX. But I honestly think this company will grow the dividend extremely aggressively for the time being, but we’ll see. I’m kind of anxious to see what the next raise this fall looks like.

    But if these big growers do keep up that growth for a long period of time you’ll be looking at really strong income after a decade or so, along with big capital gains. The bet is bigger, but the results can be as well. I prefer lower risk, which is why most of my portfolio is allocated to more conservative plays like JNJ, KO, PEP, PG, and PM. But if you balance out a couple plays like V with some of the higher-yielding stocks you’ll probably still see strong income in the interim anyway, plus big growth on the back end.

    Thanks for stopping by!

    Cheers.

  86. V is my only real growth stock. The rest of my portfolio is crammed full of Large Value, with a couple small caps thrown in for kicks.

    Picked up PM today at 85. Wish I would have bought it at 75 during that nice dip in February! But, I took a nice haul out of that dip (TGT, CVX), can’t buy everything.

  87. Justin,

    Nice buy there with PM. I can’t add any more as it’s already one of my largest positions, but I think this is a long-term winner. The recent e-cig acquisition is speeding things along as well.

    And you’re right. We can’t buy everything. So many stocks, so little capital. The key is to pick up the values as/when you can and hold. 🙂

    Best wishes!

  88. Jason, I will be interested in IBM if it goes down to $173 – 174 level as it has huge support at this levels (3 big rebounds from this level in last year)…
    PM is becoming pretty appealing with current pullback… it’s yielding again 4.5%….. I have already big position in PM…so will wait a little more…
    Also have question to you….. Currently thare are ETFs and MFs that invest into S&P500 dividend aristocrats… I just was wondering if the fact that specific stock raises dividends for 22-24 years and most likely will be added to dividend aristocrats should be considered while researching stocks? Hence when those stocks are added to list, those ETFs and MFs should start buying those stocks…
    As an example , next year GD should be added (now it’s on 24 years streak)
    What do you think?

  89. gibor,

    That’s an interesting thought there. As a stock hits certain criteria, that could provide a catalyst as certain funds have to add the stock. But I don’t really buy stocks based on that kind of potential, because you just don’t know that will work out. That could provide a quick pop that’s quickly lost in the noise of the daily volatility. And companies with pretty large market caps might not even notice the extra volume.

    Now, if the valuation is there and I’m already interested in the stock then that might provide just a little extra icing on the cake for me to go out and buy it. But that would be about it for me. Just my $0.02. 🙂

    Best regards!

  90. Jason, by no means it can be the major criteria to buy or not to buy 🙂 agree that this is “just a little extra icing on the cake ” 🙂 .Just remembered , when last year CPG got enlisted on TSX60 , it did popup as out biggest ETFs (like XIU) and MFs should’ve buy it…. but such events you cannot predict, but you can predict that GD will make the list 🙂

  91. DD,

    Nice move! One of my biggest positions. Unfortunately, I can’t really buy any more as it’s already such a large investment for me. But I think the price is pretty attractive here. I recently valued shares in PM above $100/share, so I think the value here is pretty compelling.

    Keep up the great work. 🙂

    Best regards.

  92. Thanks! I had 75 at about the same cost basis so seemed like a Good moment to round up to 100! I could really kick myself I didn’t get in at a lower price but even this cost basis gives a 4.5 percentage yoc. Did you see the doom and gloom article on seeking alpha this afternoon about how the dividend is at risk do to ecigs and other factors? I guess it’s been doom and gloom amount p m for 40 years. Best, DD

  93. DM, Great that you are looking to pick up exposure to more high growth dividend payers. Visa would be a good buy. I think it represents reasonable value here. Not a great bargain, but not really overpriced. Thing is, I think it has good prospects for sustained double digit long term growth for a considerable period of time, which should make it look pretty reasonable valuation wise in several years time.

    Having a portfolio diversified across various stages of growth (mature, classic, early stage) is a good strategy for sustained income growth and total return in my view.

  94. DD,

    I did see and read that article. I agree with the premise that e-cigarettes are going to change the game. However, I don’t agree that Philip Morris will somehow become irrelevant because of this. If anything, it’s a very exciting change as cigarettes were slowly becoming extinct anyhow. This makes them relevant again. The recent moves are encouraging, and they just purchased one of the largest e-cig manufacturers in the United Kingdom. Good stuff. 🙂

    Cheers!

  95. Integrator,

    I agree. Diversifying across multiple stages of growth is generally a good idea. You get the big, stable dividend with some of the more mature companies, and an opportunity for more growth with some of the newer entrants. V is a bit interesting because it’s a huge company, but went public not long ago and still has a ton of growth ahead of it. So the risk is a bit smaller than a typical growth play. Really interesting.

    Thanks for stopping by!

    Best wishes.

  96. Hey DM,

    Nice picks! I’ve already got V and could get some IBM. I picked up some shares of MAT last week.
    Going forward I will probably start going back after core quality stocks as I have been branching out a bit in tangent sectors.

    It’s about 1 year now that I have fully embraced dividend growth investing and progress has been great. I like tracking my forward projected dividend income much more than tracking my net worth. Your articles and your writing continue to inspire! It has changed some of my thinking and priorities in life for the better, especially in regards to side projects and learning new skills.

    All the best!

  97. Hi Jason

    Two fine companies there 🙂

    I added some IBM to my portfolio on Friday. Hovewer, IBM is currently at seven per cent of my portfolio. Therefore, I’m unlikely to add more.

    I’ve also taken note of Visa’s great metrics. The only gripe is the stock price. I’m open to starting a small position at something like 22-23x earnings. Down the line, V has a good chance of being a highly lucrative investment.

    Have a nice summer!

    Regards

    Jarmo

  98. Alphatarget,

    Nice moves there. I definitely hope to join you as a shareholder in Visa at some point here. Just a fantastic business.

    I’m so glad you’ve found some inspiration in what I do here. Inspiring others is the primary reason I write, so I appreciate you sharing that. It’s really all about maximizing happiness and minimizing all the noise. I can tell you that since I’ve had more time to enjoy my passions my quality of life has improved dramatically. It’s amazing what some extra time can do for you.

    Great job on the June dividends, by the way. Keep it up!

    Best wishes.

  99. Jarmo,

    IBM is a big position for you. Very nice. I think it’s far undervalued right now, and one of the few high-quality blue chips that are such.

    And V leaves little to be desired other than the valuation/yield. I think the valuation is fair considering the growth rate, but I wish the yield was a bit more attractive. However, management has been open about preferring buybacks to dividends.

    It’s a tough call right now. I keep going back and forth. 🙂

    Best regards.

  100. A good option is to do both:

    Add some IBM and start a small position in V. If you’ve got enough capital to keep trading costs at a decent level, nothing stands in your way.
    I like having a small position to start with. That helps me keep track of the companies in my investment universe. I recently added a very small position in DE with this philosophy in mind.

    V’s yield isn’t the thing that’s putting me off. It’s the low earnings yield. The growth required from here to perpetuity has to be really fast to make V a very good investment. That said, I think it may well overcome the high valuation.
    V will get more attention from me during my vacation (four weeks starting next Wednesday!). Crunching the numbers with this one is even more crucial than some companies with lower valuations. Spending an additional 5-8 hours more on V’s numbers should allow me to make up my mind for certain.

    What ever you decide, I’m confident you will make a good choice to match your goals.

  101. Jarmo,

    If I had the capital available I’d definitely do both this month. And that’s because I like both pretty equally, for different reasons.

    I might be able to do five shares of each, for around $1,000 per transaction. But that might be stretching it a bit for me. I’m trying to be conservative with the equity purchases right now after all the changes in my personal life.

    I agree with your philosophy there. V probably demands a bit more due diligence because of the valuation. I think the risk is probably a bit higher there than IBM because of that valuation, but the reward is also potentially greater.

    Cheers!

  102. I must confess that from a DGI perspective (and in other ways) I am envious of your youth. I’ll be retired within a year, so I’m not able to focus much on the low yield / high growth stocks, especially those paying less than 2%. I have been giving a little thought to IBM. Our portfolio is completely lacking in technology stocks. IBM doesn’t have a great yield, but it’s not horrible. As for Visa, I can’t do it. In your case though….. just think where the yield might be in 20 years. I’m thinking you will be happy you bought it.

  103. Steve,

    I hear you. One’s time frame definitely has a major part to play when considering stocks with a low starting yield. And you have to count on that company being able to keep the growth up for a long, long time. So there’s some risk there. But if I were even 10 years older it might make it more difficult to go after a stock with an entry yield of less than 1%. Of course, IBM and V have both been on fire lately, so I’m not sure where to go now. We’ll see what happens!

    Best wishes.

  104. Jason, I am planning to buy 150 shares of GE on Monday. Everything is expensive and GE seems to have a bright future and is trading at a fair price and at a discount to S & P and w a significantly higher div payout.

  105. DD,

    I like your GE play. GE has risen to the top of my watch list as well. It’s trading near my cost basis right now, and it’s of the few stocks priced like that right now. IBM and V have both shot up quite a bit rather quickly, so I’m not sure that’s where I’m going to go now. I honestly wasn’t expecting for V and IBM to both lead the Dow the other day. Crazy stuff.

    Cheers.

  106. Hi DD,
    I like GE too and I may add, but remember, GE is half industrial half bank (or a bank that happens to make jet engines, I think the saying goes). So while the P/E looks like a deal in comparison to pure industrials like MMM and ETN, it is more expensive than WFC, COF, etc. In fact, the valuation looks to be about the average of those two asset classes.

  107. DD,

    I’m not allocated too heavily to GE right now. I could easily buy more and increase my weight, but we’ll see. I’m not in a rush to spend any capital right now, but GE is near the top of my watch list after IBM and V moving up quite aggressively over the last week.

    Cheers!

  108. earthtodan,

    Great points. However, keep in mind that GE is unloading significant portions of their financial assets. The spin-off of 80% of the retail finance division should occur next year for shareholders, after 20% goes IPO. The thought is that once they become more of a pure industrial play the P/E ratio should rise. We’ll see. At any rate, I’m a big fan of GE.

    Best regards.

  109. Interesting to see you are also looking at Visa (V). I just picked up a few shares for many of the same reasons you have hear. I’ve been told they are overvalued but I have different thoughts on valuation. Visa is currently a high growth company. You can’t expect to get high growth without paying a premium for it. For example, I wouldn’t pay the same valuation for a more established lower growth company such as Coca-Cola or Wal-Mart. But I’m willing to pay the higher valuation for Visa as I expect growth to continue going forward for quite a few more years. They have lots of room for international expansion.

    Eventually, I expect growth will slow for Visa and the P/E multiple will begin to contract. I’ll also expect dividend increases to continue and the dividend yield to climb higher. The same thing happens to all companies as they eventually saturate the market and switch gears from high growth to steady consistent growth.

    And last, I’ve added Visa to my highly diversified portfolio. If I’m wrong and I’ve paid maybe slightly too high of a value for my shares, it won’t make that much of a difference in the grand scheme of my entire portfolio and my long term investing timeline.

  110. Dan Mac,

    I agree that the valuation for V seems to make sense here, given its growth potential. I definitely wouldn’t pay 25 times earnings for Coca-Cola, but that’s because the growth profile is totally different. And I also expect V to mature at some point and the P/E ratio to contract, but I suspect that’s still quite a few years away. If they keep up this outstanding growth then investors will be willing to pay up for it.

    I was hoping to see V maybe come back closer to $200 and instead it went the opposite way on me. I’m also watching GE and DE this month. We’ll see. It’s fun to go shopping! 🙂

    Take care.

  111. Pingback: Recent Buy
  112. Great insights for V, just shocked on how some people see EM… Andy may be you lived in Chile 50 years ago or you were living in the middle of the mountains… Or maybe, im writing here with morse code and smoke signs…come on…

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