Recent Buy

buyWhat a month it has been!

I kind of feel like the old me. I used to deploy substantial capital with some frequency back when my income was significantly higher than it is now, but lately my stock purchases have been a bit more subdued both in frequency and amounts.

However, the stock market was unusually volatile over the last few weeks or so, and I often say that volatility is opportunity. So I decided to take advantage of that opportunity. Although stocks in general certainly aren’t cheap as a group, I pick and choose those businesses that I feel offer the best combination of value, quality, yield, and growth.

This is now the fourth stock purchase this month. This particular buy wasn’t planned at all, and I was quite content with riding into November with all activity related to the portfolio closed for the month of October. But the particular stock in discussion today fell to almost obscene levels, which gave rise to quite a bit of interest on my end. I dug deep into capital reserves for this purchase, so I anticipate that November’s action will be a bit quiet as a result. But the value here is, in my view, compelling, which allowed me to average down on my position in this company for the first time in more than a year.

It should be noted that this purchase was smaller than my usual transactions in regards to total cost, and this was due to the fact that this was pretty much all the cash I can spare at this time, as well as the fact that I have a few free trades stored up with Scottrade. So I was fortunately able to buy these shares commission-free.

I purchased 5 shares of International Business Machines Corp. (IBM) on 10/22/14 for $161.91 per share.

Overview

International Business Machines Corp. is a global information technology company operating across more than 170 countries.

They operate in five segments: Global Technology Services (39% of fiscal year 2013 revenue); Software (26%); Global Business Services (19%); Systems and Technology (14%); and Global Financing (2%).

IBM is shifting its business from lower-margin hardware to higher-margin software and sales. Unfortunately, there is some short-term pain for long-term gain as the business experiences transformation. The good news is that this is nothing new for IBM. They’ve been around for a lot longer than most tech companies, with corporate history dating back to 1911. As such, adapting to the times is nothing new for this company.

Fundamentals

So IBM sports slightly less excellent fundamentals than when I purchased shares last year. However, shares are down more than 10% in that time frame. I thought there was substantial value before, and I believe there’s even more value now.

Let’s take a look at what this company has produced financially over the last 10 years. Their fiscal year ends December 31.

Revenue has increased from $96.293 billion in FY 2004 to $99.751 billion in FY 2013. That’s a compound annual growth rate of just 0.39%.

Now, the flat revenue isn’t particularly inspiring. However, it should be noted that revenue growth isn’t the holy grail of growth for a company. Ultimately, profit and profit growth is what I’m after. Increasing revenue without also increasing profitability does very little for a company’s value and its ability to deliver value to me as a shareholder in the form of increasing dividends, buying back shares, and investing in the business. And IBM has been excellent over this time frame at increasing profitability even without sustained revenue growth due to a combination of additional efficiency, higher margins, and share buybacks.

That being said, I certainly would like to see IBM start to move the needle a bit at some point as there is only so much additional profit you can squeeze out of the same top line dollar.

One more quick note I’ll make on revenue growth is that there are a number of companies out there that typically go for long periods of time between growing revenue, but still end up being excellent long-term investments. Insurers in particular come to mind, as you can see with Travelers Companies Inc. (TRV) and The Chubb Corporation (CB) – two insurers I wrote about not long ago.

Earnings per share meanwhile grew from $4.94 to $14.94 during this 10-year stretch. That’s a CAGR of 13.08%. Overall, I’m pretty happy with this type of growth in profitability, achieved through a variety of methods I discussed above.

S&P Capital IQ predicts EPS will grow at a compound annual rate of 5% over the next three years. I’m slightly more optimistic, as even recently reduced guidance still puts the company on track for 7% year-over-year EPS growth for FY 2014.

The share buybacks in particular have been aggressive: The company has reduced its share count from 1.65 billion to 1.05 billion over the last 10 years. So that’s certainly generated some of the outsized EPS growth relative to revenue. And while some may argue buybacks aren’t most effective/aggressive when shares are truly cheap, IBM just announced an additional $5 billion authorization on top of the current program. I suspect, due to the timing, this is to take advantage of the particularly cheap shares.

IBM sports even better numbers in the dividend department, which is something I definitely appreciate as a dividend growth investor.

IBM has increased its dividend for the last 19 consecutive years. Meanwhile, their dividend history is actually even more impressive, as they’ve been paying a quarterly dividend since 1916. I don’t know of any other tech company out there that can lay claim to something that impressive.

Over the last 10 years the company has increased its dividend at an annual rate of 19.4%. But even though the dividend has been growing at a more aggressive rate than the underlying earnings, the payout ratio still remains rather low, at just 27.6%. So the stock’s current dividend of $1.10 quarterly per share, which has resulted in a yield of 2.69% here, is well-covered.

IBM’s balance sheet is actually solid, though it seems to confuse some investors. The long-term debt/equity ratio stood at 1.44 at the end of FY 2013. This by itself seems a bit high, especially for a technology company. However, the interest coverage ratio, which measures a company’s ability to pay interest expenses with EBIT, is over 49. That’s extremely high, which indicates IBM is actually using leverage quite responsibly.

The debt/equity ratio appears high not because IBM is overly leveraged with a lot of debt, but because common equity is low as the company shifts from hardware assets to a more service-oriented business.

It seems some investors are concerned about IBM taking on a lot of debt to fund buybacks, but this just isn’t indicative of what’s really going on, and even if it were I’d be okay with it as I’d rather have expensive equity retired for cheap debt. I recently wrote about the potential value in The Coca-Cola Company (KO) and IBM after big respective drops. I found it interesting that a lot of people are concerned about IBM’s debt, but didn’t mention Coca-Cola’s debt at all. IBM has roughly doubled its long-term debt from about $15 billion to about $33 billion over the last ten years. Meanwhile, Coca-Cola has increased its long-term debt from approximately $1 billion to just over $19 billion during the same stretch. So KO increased their long-term debt load nineteen times over and now sports an interest coverage ratio that’s about half of IBM’s. I only reference this as an important point of discussion when determining whether the rumors surrounding IBM’s balance sheet are actually based in reality.

Speaking of big respective drops, IBM’s stock is down almost 14% over the last month after a rather disappointing third quarter report. I wasn’t particularly enthusiastic about the numbers myself, but I don’t see anything fundamentally wrong with the company that can’t be solved. They did notably abandon their $20 operating EPS target for 2015. It should be noted this wasn’t a GAAP EPS target and this target was actually announced before current CEO, Ginny Rometty, took over the company. Nonetheless, it was disappointing due to the company publicly and aggressively touting the figure.

Furthermore, the backlog for the company is down 7%. However, it’s still a monstrous $128 billion. In addition, the company announced the offloading of its semiconductor unit to Globalfoundries Inc., a transaction that IBM paid $1.5 billion to close. With all the recent divestitures accounted for, IBM has reduced revenue by about $7 billion. However, this $7 billion worth of business represented about $500 million in pretax losses. I love that management is offloading businesses that are actually losing it money, even if revenue drops. This allows them to focus resources on growth areas.

Profitability looks extremely sound for IBM. I discussed earlier that the company has been moving away from business with lower returns to business with higher returns. You can see this in the net margin: It has increased from 8.75% to 17.04% during the last decade. Return on equity has increased from 29.27% to 79.15% over the same period.

Qualitative Aspects

So the fundamentals look solid. But what about the qualitative side of the business?

Well, I think it’s important to note exactly what IBM is and does. It’s systematically moved away from hardware, as can be seen in most recently with the semiconductor unit sale to Globalfoundries and the x86 server business to Lenovo Group Limited (LNVGY). As these changes have occurred, they’ve increased revenue in enterprise software, services, and solutions.

IBM now focuses on three areas: data, cloud, and engagement.

IBM cites that data is the world’s new natural resource. I’m not sure how much hyperbole is involved there, but there’s no doubt that accessing and taking advantage of ever increasing amounts of data is becoming more commonplace. IBM’s expertise in these areas gives it a competitive advantage, because once it’s able to implement its infrastructure on the enterprise side, this creates a regular and reliable source of recurring revenue for the company.

So how does IBM plan to take advantage of data and analytics?

Through investment. They have invested $24 billion to date in Big Data and analytics and have landed more than 30 acquisitions in this area. IBM’s size and scale give it an advantage in this market because not only is it able to invest in its own expertise and platforms, but it’s also able to sweep up smaller companies when/where advantageous. Analytics revenue has increased from $11 billion to $16 billion from 2010 to 2013.

It seems some investors are disappointed with IBM’s use of cash, wishing them to invest in the business. But it appears to me that they’re already doing so; they typically spend about $6 billion in R&D each year.

Cloud is another growth and focus area for the company. Notably, 85% of new software is now being built for the cloud.

Again, IBM is heavily investing to ensure their competitive advantages stay intact. They’ve invested $7 billion to date to build out cloud capabilities, which has resulted in this: They grew cloud revenue 69 percent in 2013 and accounted for $4.4 billion in revenue for the company last year. The company now sports 40 cloud data centers across the globe.

So this investment has led to growth in key markets for the company. And it has also led to countless patents that serve as value for the company as well: 500 analytic patents generated every year, over 1,500 cloud patents, and 4,300 patents in mobile, social, and security technologies.

The company is also growing substantially in social, mobile, and security. All of these businesses are up significantly year-over-year, with mobile up 69% in 2013.

One of the main issues I see with IBM right now is that many of their fast-growing businesses are still relatively small parts of the overall business. But the moves they continue to make year after year are setting up the long-term vision for the company and allowing these businesses to grow while some of the legacy businesses slowly shrink.

It seems that betting on IBM here is really making a bet on the company, its legacy, its technology, and its management. I can’t think of any tech company that has adapted like IBM has over the years, and its move from hardware to software, services, data, cloud, and mobile is exactly what they need to do.

I’ve witnessed time and time again as tech companies have fallen by the wayside. I’ve watched a dominant company like BlackBerry Ltd (BBRY) become almost irrelevant in just a few years time. And you know how that happened? Change. BBRY didn’t change, and instead continued to milk a few products. No innovation. No adapting. I like that IBM is changes and adapts as necessary.

Risks

There are risks here with IBM, which should be carefully considered.

Primarily, they operate in highly competitive markets in a sector of the economy that undergoes significant change over time. IBM may not be able to change as quickly or adeptly as necessary to remain competitive.

The core business remains operationally challenged right now, which could lead to persisting problems. Revenue could continue to decline, which would eventually affect the company’s ability to increase profitability and dividends.

They’re also exposed to currency fluctuations due to their global position.

Valuation

IBM has some issues, no doubt about it. While the company has been particularly adept at increasing profitability, it will at some point need to move the needle on revenue so as to garner a larger pool of top line dollars from which to squeeze out even more profit. In addition, some of the areas of the business that are growing especially quickly still comprise relatively small parts of the company.

However, I ask myself whether or not these issues are insurmountable for the company? And I just don’t think they are. They’re positioning themselves well for the future by shedding lower-margin businesses that are losing money while focusing on businesses that are growing rather fast and offer much better profitability and visibility. This positioning is occurring through investment, acquisitions, R&D, and the shifting and alignment of focus within the company.

I often reference Warren Buffett’s attitude on being greedy when everyone else is fearful. It’s precisely when a company is having issues, like IBM is experiencing right now, that represents the apex of opportunity. Business isn’t all rosy for IBM right now, but that’s exactly why shares are cheap here. If everyone wanted to buy IBM because business was great shares would be pricey. Consensus can be awfully expensive.

Shares are trading hands for a P/E ratio of 10.27 right now. That’s not only substantially below the broader market, but also below IBM’s five-year average of 13.2.

I valued shares using a dividend discount model analysis with a 10% discount rate and a 8% long-term growth rate. This growth rate seems reasonable, as their long-term dividend growth is more than twice this, and their EPS growth rate over the last decade is also significantly higher. The sky is falling for IBM right now (as the headlines would have you believe), and yet they’re still growing earnings by 7% YOY and dividends by 15.8%. These are lofty numbers that will require massive and permanent impairment to the business for the long-term growth rate to fall far below my forecast. Furthermore, the payout ratio is extremely low, which allows for dividend growth in excess of earnings growth for some time before becoming worrisome. The DDM analysis gives me a fair value of $237.60 on shares.

There appears to be a fairly large margin of safety on shares right now.

Conclusion

IBM is troubled right now, but it has a lot to be excited about. Shares are incredibly cheap, which means the recent additional buyback authorization will be accretive to EPS, and that’s before we even see more core growth. The company is making what appears to me to be the correct moves by shedding unprofitable businesses to focus on exciting, new growth areas that should propel the IBM of 10 or 20 years from now into a tech powerhouse. In the meanwhile, I expect the company to continue to deliver impressive dividend raises for the foreseeable future.

This purchase adds $22.00 to my annual dividend income, based on the $1.10 quarterly per share dividend.

I’m going to include current analyst valuation opinions below, as I use these to concentrate my reasonable valuation estimate:

Morningstar rates IBM as a 4/5 star value, with a fair value estimate of $196.00.

S&P Capital IQ rates IBM as a 3/5 star hold, with a fair value calculation of $205.00.

I’ll update my Freedom Fund in early November to reflect my recent purchase.

Full Disclosure: Long IBM and KO.

What do you think of this purchase? Think IBM is a strong value here? Think there are better opportunities in the market? 

Thanks for reading.

Note: Scottrade link in article is an affiliate link. There is no extra cost to you if you sign up with Scottrade through that link; however, this blog may receive a commission. I only recommend what I personally use. 

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143 Comments

  1. Hey DM, IBM has never been on my watch list at all so don’t know much about it. I think that is because I am fairly new and since i have been investing the yield was always under my plan threshold. I did see Chuck’s (FastGraph) article just recently on SA and he made a good case just as you have. I actually don’t own any tech, unless you include T.

    The stock does certainly seem to be a bargain. Good luck with it. I have a feeling it will do just fine but I just don’t know enough about it. I suppose I should start peeking under the covers myself.

  2. I’ve given you my opinion already, however I think there’s a strong possibility this will be one of those “writing on the walls” stories 5-10 years from now. Their business is shrinking. That 7% eps growth you’re talking about came 100% through financial engineering. I don’t have a huge issue with that, but why not invest in companies that will give you financially engineered eps growth AND organic growth? Either way best of luck! I’ll keep buying my boring business as usual companies 🙂

  3. Mike,

    It might be worthwhile to take a peek under the hood for yourself. But I would only recommend investing if you’re totally comfortable. There are a lot of stocks out there, so no sense in investing in a company if it doesn’t make sense to you. 🙂

    Appreciate you stopping by!

    Best regards.

  4. took2summit,

    We’ll see. I disagree with the “Their business is shrinking” statement, though. Revenue isn’t the end-all, be-all to this or any other business. As I stated above, many other businesses out there lack sustained revenue growth and provide excellent returns. IBM is growing in almost every other facet.

    I also disagree with the term “financial engineering”. If share buybacks are financial engineering, then almost every major company out there is doing the same thing. Which leaves IBM just as another in the crowd.

    “but why not invest in companies that will give you financially engineered eps growth AND organic growth?”

    Simple. Valuation. The stock is downright cheap here.

    That all being said, IBM faces considerable risks. And it’s not an investment for everyone. There’s no need to invest in the company if you’re not totally comfortable with the company, its position in the marketplace, its future growth prospects, and the valuation.

    Cheers!

  5. A good buy with IBM here, Dividend Mantra. This company will have some turbulent times in the very near future, but I think it will rebound and be stronger. If you plan on holding this stock for a while, you will do well over time and get paid for it with dividends that will keep increasing. The strength of a tech company is it ability to adapt and make changes to their business in order remain competitive. Great write up on IBM in this post and your recent writeup on them.

  6. IP,

    Thanks for dropping by.

    We’ll see how it turns out. I think the margin of safety is sizable enough to allow for further short-term problems, but I suspect that this will be a great long-term holding. IBM could go anywhere over the next year or two, though. Might be a bumpy ride!

    But the valuation is compelling here. And that’s a pretty sizable yield considering the payout ratio and room to run.

    Best wishes!

  7. Putting your money where your mouth is! I respect that.

    I’d be really excited to see them buy Salesforce (CRM). In my mind, that would take them from wanting to play in the cloud to really being the leader. I’d be quite surprised if it happened, but that would give me faith they were going to be a major player 10 years from now.

  8. Well, you know how I feel about IBM already, haha. But the beauty of the stock market is that there’s plenty of other companies to choose from.

    I will admit that shares look remarkably cheap at the moment. It’s a good time for buybacks.

    Good luck with this investment! Interested in seeing how things play out in the next few years.

  9. IBM is a very solid buy. I think they’ll do well long-term. Every company will go through some moment like this. I would like the stock price to be lower. I already own a position so I’ll probably wait for lower prices to reduce my cost basis.

  10. I think that’s a good move. In the long run (we’re talking decades here) it’s difficult to go wrong with IBM. I am very proud to own such an awesome company with so much history. I may add to my position too (if I don’t get lured by another company with undervalued shares).

  11. I personally don’t like tech companies. Even biggest ones with long histories can easily fall out of grace. So I keep buying my boring Unilevers. Hope you succeed with IBM. It has great but risky potential.

  12. Paying out dividends since 1916, and 19 years of consecutive dividend increases sounds to me you found yourself a pretty solid company Jason. Though my knowledge on tech companies isn’t quite where I want them to be, I have heard of the company IBM and i know they have been a big name in the tech game for as long as i could remember. Even if the stock price does down more, as a long term investor I’m sure you won’t be losing any sleep over it 😀

    Cheers

    Ace

  13. I know nothing about tech so I’m curious. How dependent is IBM’s success on hiring the best talent? If very dependent, how are those trends looking? I have read that IBM was considered the elite decades ago. Is this still a company recent graduates prefer to work for? Thank you.

  14. Nice buy of IBM. I’m looking hard at IBM to add to my position, if only I had some free trades from my brokerage. The death of IBM seems a bit exaggerated to me but I won’t say everything is rosy. There’s still concerns about the company but I think they’re strong enough and in good enough financial shape to be able to figure out where to go from here, even if it takes another 5-10 years. They’re a very different breed of tech company.

  15. Great buy DM,

    Glad to see that you are very aggressively buying great companies while others are selling.

    I wish I should have more room in my registered account to buy U.S stocks; however, I am keep adding more Canadian dividend growth stocks when others are in panic.

    Happy investing!

  16. Quick question about purchases. I opened a separate brokerage account last month and transferred all my DRP’s into it. This is the account I’m going to use for my dividend investing. When I opened the account they gave me several hundred free trades and they are good for 90 days. I’ve only made 2 buys since I opened the account. I can save between $100 and $200 a week. My plan is to save weekly and make one or two buys a month.

    Since these trades are free for a while, would you buy each time you have $100 or $200 available? There’s no fee to increase your cost basis. I’m thinking I should just buy as often as possible till the free trades run out and then go back to letting the money build up and buying once a month or so.

    What would you do?
    Thanks.

  17. Hey Jason,

    Happy to see we made the exact same move on IBM. I also bought 5 shares on the 22 of the month (post was on 24 about it).

    I do think it is a risk worth taking – the IT world is constantly changing and the pace is even quicker every year it seems… so it’s expected IT companies have to revise their goals / strategies on a very regular basis and certainly more often than most other field company have to.

    To our success with IBM 🙂 !

  18. DM,

    Really terrific explanation of why IBM makes sense to buy here for the long term focused value investor. Allow me to provide one idea on where IBM does have a “moat.” It is their mainframe business. Many of those old mainframe computers from 20-30 years ago are very much alive and well in the Fortune 500 companies. The cost of replacing them is much larger than maintaining them with IBM. The financial sector is one example of a company where I personally have experience with IBM Mainframe technology. It is old, reliable and working. If you do some research you will find that this is a significant economic engine for IBM with a good moat.

    Great article.

    Thanks,

  19. Not a fan of Tech Companies however i believe that IBM have some great value to offer to it shareholders, good buy there Jason 🙂 Myself went on a shopping spree in ARCP, they fell 20% since the accounting problems. I believe since the assets they own are real, market overreacting a bit, however it is concerning. What’s your view on ARCP today?

    Have a good one!

  20. I sold my shares of ARCP. Once something like this hits a stock, its hard for the company to recover and regain investor’s trust. And given ARCP’s recent track record, I doubt they will be able to recover anytime soon. I will no longer invest in this company. But I do wish you luck in your investment,.

  21. Good analysis but I’m not comfortable investing.
    I see IBM as a dinosaur in the midst of a fast paced tech and support industry, I just can’t see it keeping up.
    I hope I’m wrong and can see why you’re investing, just not for me personally.

  22. Have you read the news yet on ARCP? I switched it out with WSR, a lot of investigations are about to be underway. Pretty devastated to see that first thing this morning

  23. Nice purchase DM…i have considered entering into a position with IBM but for me the dip in oil is more attractive at the current moment. I am sure IBM will be a solid position in your portfolio for years to come.

  24. DM,
    What are your thoughts on ARCP. I have a small position, are you looking to sell your pos!!!!! Curious. I’m glad I didn’t buy more this last dip.

    Thanks,

  25. You may want to check out the news on ARCP. Not looking good with them. Good thing for diversification.

  26. Yea, I’m happy ARCP was only 4% of my portfolio. This is where diversification comes in when the largest REIT faces serious trust issues which probably have just started. Sold with a -25% loss and will put it into J&J instead on a dip 🙂

  27. Tad,

    I do put my money where my mouth is. That doesn’t mean I’m right all the time, but at least I have skin in the game with everyone else. I’m not just talking to hear my own voice. 🙂

    I haven’t delved too deeply into CRM, probably because it isn’t profitable (and wasn’t the last time I looked at it) and doesn’t pay a dividend. However, it’s still worthwhile and recommended to know what the competition is up to. But if IBM feels it has a whale on the line, it could certainly swallow the cost.

    Thanks for dropping by!

    Take care.

  28. Seraph,

    Absolutely. Plenty of opportunities in the market, even right now. No sense in buying into IBM if you’re not totally comfortable.

    But I also agree with you that it’s very cheap. The margin of safety appears to be quite large, even if you don’t believe they’ll grow as fast in the future as they have in the past. We’ll see how it goes, though. I don’t want IBM to be a large position, but I’m excited to be able to average down a bit here.

    Best regards!

  29. Everyone’s chatting about ARCP 🙂
    Looks rely bad, could be worse, my payday is tomorrow hopefully stock won’t rise so I can benefit from that “FEAR!”

    IBM.. I don’t understand the business enough to buy, they make software right? 14 year old’s can make software too, rely hard to evaluate price of 1 and 0. But I could buy it on bigger dip.

  30. Henry,

    Glad to be a fellow shareholder. 🙂

    We may get an even cheaper price than this. Could go anywhere in the short term. I hope you get your wish and it drops down to around $150 or so, which would offer an exceptional opportunity. But I think the stock, and the company, will do quite well over the long term.

    Cheers!

  31. Spoonman,

    Another fellow shareholder. Love it! 🙂

    I don’t know of any other tech company out there with the kind of history that IBM lays claim to. Their ability to roll with the punches is just incredible. This is no Blackberry we’re talking about here.

    And we’re on the same page as far the time frame goes. I’m buying these shares with a time horizon of decades in mind. So what the stock does over the next year or five really doesn’t matter too much to me. However, I am closely watching the business side and core operations.

    Best wishes.

  32. D-Crat,

    I think Unilever might be my next purchase as well. I’d love to average down just a bit on the new position, and eventually build Unilever up to around 100 shares or so over the next year. Great company, great brands, solid valuation and yield right now. IBM really can’t be compared to Unilever as the valuation, industry, and risk is very different, but I think I have room for both.

    Thanks for stopping by!

    Take care.

  33. 30% loss isn’t fear, thats the company losing trust from investors, the news on it is numbers were fudged last year (which caused the all time high). Yea they got rid of the couple people that should’ve been all over it. But the “intentionally not mentioned for a year later, I wouldn’t be surprised if ARCP has to start selling off properties

  34. Ace,

    I’ll be honest and admit that I’m no tech wizard either. But I can work my way around IBM’s annual reports with a decent amount of ease and comfort. I get the gist of what they’re talking about and what kind of value they bring to the table. We’ll see if that translates into long-term success moving forward, but their 100-year history is pretty solid thus far.

    I wouldn’t recommend anyone take up IBM as a core position, but the margin of safety on the valuation and the dividend coverage is substantial.

    Best wishes!

  35. Joe,

    I think you have to take what you read with a grain of salt, especially when we’re talking about hiring/firing and overall company talent. I read these types of articles at Seeking Alpha sometimes, and I wonder how exactly does the writer have any insight as to the IQ level, college grades, or general skill/knowledge/intelligence in regards to IBM’s recent hires? I’d love to have access to their database. 🙂

    Cheers!

  36. So isn’t a more than 30% dip just panicking? They are still the biggest REIT right? Just the assets must be worth more. (I’m actuallly close to crapping myself, never had a daily drop like this…)

  37. JC,

    Oh, everything is definitely not rosy with IBM. I think they have some operational issues to work through. And they’ll have to eventually make up that $7 billion in lost business somewhere else.

    But if everything were rosy the stock would be expensive and everyone would want to buy it. Funny how that works out. 🙂

    I agree that they’re a very different tech company than what you might see elsewhere. I’ve heard people compare them to the likes of Kodak or BlackBerry, and that’s just not apt at all. Kodak and BlackBerry didn’t want to change, and continued to rely on a limited number of products. IBM is really closer to a Google in the sense that they’re working on big ideas all the time and have their fingers in all kinds of pots. I’m not saying the quality or the business is the same, but rather IBM isn’t easily labeled like a Cisco or even an Apple.

    Best regards.

  38. Jason,

    funny to see IBM at $162 per share, isn’t it?
    I like you buy since I believe they will turn things around at some point.
    The yield is growing nicely and approaching interesting levels.
    I already own a full position in IBM, thus I am not buying more right now.
    However, for the sake of buybacks I actually like the lower levels.

    Keep up the great buying pace.

  39. FJ,

    Be greedy when others are fearful, right? 🙂

    Keep up the great work over there. Canadian or US, all that matters is that you’re getting high-quality equity at a fair or better price. Keep reinvesting those dividends and you’ll be fine!

    Cheers.

  40. SR,

    I would use up those free trades. No sense in letting them go to waste. So buying $100 or $200 of stock at a time is a fantastic idea in your situation.

    However, don’t buy anything you wouldn’t ordinarily buy. Don’t buy something for $100 if you wouldn’t be willing to buy $2,000 worth of the company.

    Too bad they expire after 90 days! Have fun shopping 🙂

    Take care.

  41. Fab,

    Looks like we’re on the same page! 🙂

    I wasn’t going to buy more IBM, but I just saw the low-hanging fruit there. Had to grab a little.

    Tech changes a lot. It’s precisely because of that change that I don’t like to invest a lot of money in tech. However, it’s that same change that has allowed IBM to morph and become bigger over time. They’ve actually excelled at change whereas many other companies have died by it. They seem to be on the right track to me, and I get paid to wait. We’ll see.

    To our success, indeed!!

    Best regards.

  42. I think its probably a good buy. A smaller purchase than your usual perhaps, but using a free trade is nice like that! And if I calculated right you averaged down nicely on your current position as well.

  43. sherm50599,

    Absolutely. Great point. IBM’s mainframe business is still a core aspect of the company. And this provides them plenty of incoming revenue while the other, newer businesses are catching up and growing. In fact – I’m not sure if he specifically mentioned the mainframe computers – Warren Buffett pointed to this aspect of the company as one of the moats he found when looking at and deciding to invest in IBM. I had read that these might be under pressure with cloud and mobile, but they seem to be doing just fine.

    Thanks for stopping by!

    Best regards.

  44. Peter,

    ARCP is interesting. It’s almost like they’re trying to make this harder than it really is.

    The way I look at it is this. The accounting issues are very serious and very disappointing, and the people responsible have already been sacked. However, these issues are also temporary. What is enduring is their portfolio of properties and the rent revenue they take in from them. Will we be talking about these accounting issues five years from now? Probably not. But ARCP will still be collecting cash from rent.

    I don’t know if I want to really be buying any more ARCP here, because there really needs to be some demonstration that they have it together over there. And the restated AFFO is showing that the payout ratio is dangerously high. But I’m also not selling. The rent revenue is real money, and so is the dividend. If the dividend is cut, however, I’ll probably look to exit.

    Best wishes!

  45. Lewys,

    I hear you. There are a lot of investors that don’t like IBM right now.

    We’ll see how it turns out. I’m not comfortable putting a large portion of my net worth into any tech stock, so IBM is a rather small position. But I think the margin of safety warrants special consideration.

    But you could be right. Maybe this time is different and they’re not able to get it together. I’m hopeful/optimistic that’s not the case. 🙂

    Thanks for dropping by!

    Cheers.

  46. sjlarowe,

    Hard to miss the news when the stock is down 30%. 🙂

    I’m not selling here. The damage is already done and the people responsible have already been terminated. Meanwhile, the properties, rent, and dividends are real and lasting. Whenever I hear news like this I often ask myself if we’ll be talking about it in a year or two or five? Maybe, but probably not. However, the odds are much stronger that the rent checks will still be rolling in and the dividends will still be paid out to investors.

    However, if ARCP needs to cut the dividend then I’ll probably move on. I also probably wouldn’t be interested in buying here, not until they get things cleared up and demonstrate some ability to keep things under control over there.

    Best regards.

  47. I also like the IBM buy. It may require some patience, but IBM has been very good to it’s shareholders and has enormous assets in terms of it’s systems infrastructure with it’s customers, which include almost every major institution, both public and private, that you can think of.

  48. Josh,

    I agree. There are some attractive opportunities in energy right now as well. If I weren’t already fairly heavily invested there, I’d probably also be looking in that direction right now. Specifically, BP is awfully interesting right now, although it’s one of the riskier plays available. Some of the oil services companies seem appealing as well. Happy shopping! 🙂

    Take care.

  49. David,

    Absolutely. This is exactly why we diversify. Some investors prefer to go all in on 10 or 20 stocks, and I don’t like to do that because you can’t possibly see all the angles or predict exactly what’s going to happen. While you can do the analysis, look at the fundamentals, try to pick out competitive advantages, and do everything within your control and power, there are some things outside the scope of your control. And accounting issues at the company level is a great example of that.

    Thanks for dropping by!

    Best wishes.

  50. Thanks. That’s what I want to do. It just seems odd to buy such small amounts so often. Almost feels like I’m doing something wrong. Nice to have a second opinion. And I have been saving up for something so I’ll work on acquiring that.

  51. swedendividend,

    We’ll see what happens here with ARCP. I have nerves of steel and the patience of a saint. So the drop doesn’t really concern me, as long as they can get it together and move forward. However, if there are more issues and/or a dividend cut then I’ll probably have to lick my wounds and move on.

    Not a bad move there with JNJ. Few companies, in my view, as high in quality.

    Best regards!

  52. AnhaInvesting,

    Yeah, the ARCP news was a bombshell. I didn’t see that coming. I suspect nobody saw that coming. I’m not particularly interested in buying more here. That’s partially because my position in the company is about as large as I want it to be, and partially because I need to see they have it together over there.

    IBM is a bit more than just software. But they do have substantial business in software. However, you’re right in that the barrier to entry in tech is obviously a lot lower than, say, railroads. But IBM offers services, software, and hardware that’s extremely difficult to just replace over night…even if that 14 year-old is really smart. 🙂

    Best wishes!

  53. teppo42,

    Well, people are selling ARCP right now because of confidence issues. It’s difficult to trust management when there are accounting issues, especially when it’s discovered those issues were intentional in their deceit. But the people responsible have already been fired.

    It’s difficult to say where the company and the stock goes from here. I’m not interested in buying any more, and that’s partially due to the fact that I already had more than enough stock anyway. But I probably wouldn’t be buying after these issues anyway. There’s a big difference between a stock drop due to a bad quarter and a drop because of accounting issues, in my opinion.

    But I’m not selling, as I stated earlier.

    Best wishes!

  54. Stef,

    Glad to have you on board as a fellow long-term shareholder!

    And I hear you on the buybacks. I’m so glad they announced they were increasing the authorization. The timing couldn’t be better. Sometimes buybacks are not done at the appropriate time, but this is an example of buybacks done right. And IBM is pretty consistent over the years, from what I’ve seen.

    Thanks for dropping by.

    Best regards!

  55. Great buy here in IBM. Not a fan of ARCP (lot of people compare it to O, but it’s not). Long both IBM and O.

    I think lot of people who is selling ARCP today and in next few weeks might move their capital in O.

  56. DW,

    Yeah, this was definitely a smaller purchase than I usually like to make. I generally like to keep the buys between $1,200 and $1,400 or so. Preferably on the upper end of that range, when possible. However, there was no commission here, so I was okay with going a little lower. And it was really all I could spare anyway. 🙂

    I averaged down by more than 10%, which I was pretty ecstatic about. I don’t get opportunities like that often, as I generally try to buy in at a solid valuation right from the start.

    Best regards!

  57. A-G,

    Their cloud business appears to be actually quite strong, but it might get lost a little bit when it’s in a $160+ billion company. Either way, the company isn’t without their issues. The question is whether or not these new businesses (like cloud) can grow at a pace that exceeds their divestitures and losses in some of the legacy businesses. I like their chances over the long haul, but we’ll see.

    Thanks for dropping by!

    Best wishes.

  58. Chris,

    Yeah, IBM might not be super popular with investors because it’s hard to really see the tangible side of the business. A lot of their business is done on the enterprise side. But I like the history, the shareholder friendliness, the businesses in new tech, and even some of the big legacy stuff (like mainframe).

    Cheers!

  59. AJ,

    Thanks. Glad to have you on board as a fellow shareholder. 🙂

    Regarding ARCP, I think people are already selling it and putting the capital into O. O is up more than 1.5% today. NNN is also up.

    ARCP actually has a bigger (and arguably better) property portfolio than O, but obviously their history and management team cannot be compared. I’m glad I own both.

    Best wishes!

  60. Mr. Stock Fox,

    I think you made a great choice there, and I’m obviously putting my money where my mouth is here. Anything could happen over the next year or two, but I think IBM is a long-term winner. In the meanwhile, I look forward to collecting my rising dividend income. As I’m sure your mom will. 🙂

    Cheers!

  61. Jason, fully agree with you on ARCP.
    And further:
    * Rule number 1 of investing: Never sell in a panic
    * Rule number 2 of investing; Never buy into a hype (positive or negative)
    * Rule number 3 of investing: Diversify

    For IBM I still look at it from the side line for now 🙂

    Cheers.

  62. Ahhh, the ebbs and flows of dividend investing. IBM is the name of the day in recent weeks especially after their nice discount was priced in. While not a bad investment as you point out, especially regarding revenue growth and your mention of CB and how that worked out (I happen to hold CB for over 7 years and have been very happy thus far). Personally, I hold no tech names and not interested in the sector at all. Things change way too fast in the space and I’d rather own stocks in a less volatile space. Still, I have to give credit to IBM being the uber senior citizen that it is and still relevant in 2014. No other tech company can lay that claim. Thanks for sharing. I just updated my recent buy as well for the month. That’s three purchases for me in October.

  63. Jos,

    Completely agree with those rules! Should save you a lot of heartache and a lot of money. 🙂

    It seems that a lot of investors are sitting on the sidelines here in regards to IBM, so you won’t be lonely. We’ll see how it turns out. I’m optimistic that they’ll figure it out in the end, but I also, due to my rather shy nature around tech, wouldn’t want a large portion of my net worth invested in the company.

    Best wishes.

  64. If Warren Buffet is still invested in IBM, then it’s for a good reason. I’m thinking about buying a few shares.

  65. The ARCP thing is pretty annoying, but on the good side of things, V, BP, and AFL all announced dividend raises. Especially good for Visa, with a 20% raise.

  66. Tawcan,

    Well, take a peek under the hood and see if you like it. I think there’s a lot to like, and the margin of safety appears sizable. But there are risks that should be carefully considered.

    Thanks for stopping by!

    Best regards.

  67. Yah im not too happy to see this. But i think its a rather large overreaction. We will see long term if i should have taken the loss and ran but i’m with you, holding not buying any more.

    They still have a boat load of actual real estate paying rents. Even if they cut the dividend i’ll be surprised if its on the same order of magnitude as the price overreaction.

    In either case, this is why we diversify folks. Not too worried 🙂

  68. DivHut,

    I actually think IBM isn’t the name of the day, based on its unpopularity. But that’s okay. Popularity can be expensive. 🙂

    I’ll definitely head over to see what you’ve been buying lately. Always fun to go shopping, although my November will have to be a bit light.

    Cheers!

  69. I know you don’t trim over-valued stocks (and i do it only for about 20% of the portfolio). But if i do decide to sell it is nice to know i can offset gains with losses. Small consolation, i know, but still better than nothing. I really want to let the dust settle before i make any actions. If they cut the divi but not obscenely so i’ll have some serious thinking to do.

    Best of luck! I will say this is first “accounting scandal” in one of my holdings =P

  70. I love those Jos! I read the news this morning and initially went EEP! Shrugged and went to get a breakfast burrito. I’ll let the dust settle first. It was also only a speculative play that is a small% of the portfolio. Reminder to myself not let that part get too far outta wack from the “core” holdings. I’ve been creeping up on the more risky plays because finding value in the cores was getting very difficult.

  71. Joel,

    Tough to say for sure whether or not Buffett is still invested and to what level. Berkshire’s latest 13F hasn’t been released yet. I would imagine he is, however. Based on his behavior and previous comments about IBM, he must be thrilled with the cheaper stock and the additional buyback plan.

    Regardless, I’m still optimistic about the company and its fortunes. I’m even more optimistic about the valuation here, as it would take a massive shift in its business model to mean that this was a bad long-term bet.

    We’ll see how it turns out!

    Best regards.

  72. Justin,

    Absolutely. Diversification is important to limit the impact of serious and unforeseen problems. That’s why I hold 51 positions. 🙂

    I’m happy with the V dividend raise. I was actually hoping for just slightly more, but 20% is very nice. I think it’s likely we’ll continue to see raises in this neighborhood for the next few years and possibly beyond. They certainly have the room between growing earnings and a low payout ratio.

    Thanks for dropping by!

    Cheers.

  73. Zol,

    I suppose there is a first for everything. Unfortunately, this is my first accounting scandal as well. Not particularly fun, but that’s the just one aspect of risk (management risk) we take on as investors.

    The dividend will be my cue. I’m probably going to be firm on that, in light of all the other issues with this particular company. If the dividend is cut, even just a bit, I’ll probably sell. Could be just what they need to right the ship, but I’d rather move on to bigger and better things.

    Best wishes.

  74. Hi DM ,
    Your expose on IBM has completely changed the way I looked at it. I also ran another more conventional Discount Cash Flow (Buffettsbooks.com) and came to a value of 275. What a change ? I wish I could see opinions on stocks as you do more often on msn money or cnn money and the likes. Few serious people around.

    So now what’s left to do ? I guess I will be very soon again a co-owner.

    Good to you, and thanks again .

  75. Good buy! As you know, I’m looking at it too. That valuation is really compelling here.

  76. Warned ya about ARCP. IMHO, no way they will be able to continue the dividend. Reaching for yield in a low yield environment will burn those fingers.

  77. First thing they will probably have to do is freeze the dividend. That is why there was a big drop after the announcement of the investigation.

  78. DD,

    I agree the valuation is compelling. Even if the company grows less quickly moving forward, which is quite possible, it’s still a good buy here.

    Thanks for dropping by!

    Cheers.

  79. Dave,

    A few things:

    1. “Warned ya about ARCP.” I just searched through every comment you’ve ever made here. I don’t see anything about ARCP. Care to point me in the right direction?

    2. “Reaching for yield in a low yield environment will burn those fingers.” There’s no way I or any other investor could have predicted an accounting issue with this business, or any other business. Furthermore, their yield has nothing to do with fraudulent accounting behavior. And I wasn’t reaching for yield. I bought the stock because of the real estate portfolio, valuation, and what I felt was an attractive yield. My portfolio has a yield of ~3.5%. If I wanted yield, I could easily reach for it by buying up BDCs, MLPs, etc. I don’t reach for yield. However, it appears you do. I’ll quote a previous comment you made here:

    “In my ROTH I own SDR yields 27%, WHZ yields 23%, CPR yields 20%, CLM yields 19% among others. No way I would hold in a taxable account.”

    So it seems you’re the one to reach for yield, not me. By the way, you made that comment in this post:

    https://www.dividendmantra.com/2014/07/a-0-allocation-to-fixed-income/

    3. We’ll see what happens with the dividend. Even with restated AFFO it’s still covered, albeit barely. I do, however, doubt we’ll see a raise in 2015 or possibly 2016. If the dividend is cut I’ll probably sell.

    Thanks for stopping by and dropping all that wisdom on us. 🙂

    Cheers!

  80. Back then, you were buying REIT after REIT after REIT and I mentioned that making your dividend income look good by buying stocks based on a high yield in a low yield world is something that you need to think about. I said maybe lower yield, high dividend growth stocks could be a better longer term way to go.

  81. DM,

    Nice! Loving the fact you ended up adding to your position – I knew you would at some point, just awesome. I bet you’re pumped to average down on your position, it’s awesome. They have bumps now, but they have been able to change their direction – whether that’s focus on the niche markets they want to serve or via buy backs and different stock programs – they have the ability to show a performing company. I am excited for what’s to come, I was on the fence about buying more, but with our crazy work week with 10Qs as a public accountant – this just didn’t allow me to do so at this time. Nice work, and congrats!

    -Lanny

  82. Dave,

    Again, want to point me out to the comment where you “warned me about ARCP”? Maybe you have a crystal ball that can predict almost unprecedented issues like accounting fraud?

    I’m aware of my purchasing habits, and I’ve never purchased “REIT after REIT after REIT”. I only hold positions in four REITs, and they’re a small part of my overall portfolio. Furthermore, they’ve all been relatively spaced out over the years, except maybe DLR which I averaged down on rather aggressively. But you’re not here to talk about how well I did “reaching for yield” with DLR (which has turned out incredibly well).

    I noticed you didn’t comment on your own comment in regards to which of us is actually the one who “reaches for yield”. But I guess it’s just easier to remain off-topic, as you usually are.

    Cheers.

  83. Jason,

    Congrats on this pickup and on an excellent month of new capital invested. I was already prepared to wait a long while for IBM to get its act together, so the news wasn’t so surprising to me. The large price drop surprised me though because I thought a good sum of this risk and unrealistic eps goals were already priced in. While it’s not the best company or fundamentals I could invest in right now, I find the risk to reward possibilities too compelling to pass up and want to add on my next paycheck. I’m finding it interesting balancing the risk in my portfolio and deciding how much I’m comfortable with. Since I’m still in the early stages, I’m thinking a little extra risk to reward is called for, especially since it’s hard finding attractive valuations in this ever rising market. Hopefully we’ll get more options at some point because that dip in prices early this month didn’t last nearly long enough. Keep up the great writing, I’ve very much enjoyed all of your recent content!

    Best Wishes,
    Ryan

  84. Peter,

    Impossible to say. If I were you, I’d ignore the noise and make a decision for yourself. I’m personally not selling here because they still hold an enviable portfolio of real properties with real tenants that send real rent checks back to ARCP. And those checks are then trickled down to shareholders in the form of the sizable dividend payment.

    The accounting charges are pretty serious, as I was mentioning before. However, the steps I would recommend – firing those involved and quickly assuaging fears that it’s not a people/system problem, but rather a problem with a couple of knuckleheads – have already been taken. It’ll take time for this to blow over. And there’s a chance the rabbit hole goes deeper. Will there be some type of legal action against the firm? Will they have problems accessing credit markets?

    I can see the dividend is still covered, even with restated AFFO. But just barely. I’ll likely sell, however, if the dividend is cut.

    So there’s really no cut and dry answer here. I think they can dig their way out, but it’ll take time. And they really have to get things under control. It’s frustrating and disappointing that they’re just not getting it right here.

    I hope that helps!

    Cheers.

  85. Currently working on an article discussing my.recent purchase of IBM. I guess great minds think alike 🙂

  86. Lanny,

    Absolutely! I’m definitely excited to average down here. I was actually quite happy with buying over a year ago at just over $180. So I’m truly ecstatic to buy at a little over $160. This just appears to be low-hanging fruit for me, and it appears IBM feels the same with that new buyback plan.

    I have confidence in the company. They’ve turned the corner many, many times in the past. And they have a lot of exciting, new businesses growing quite quickly right now. I’m always averse to tech, but this is the one exception for me. We’ll see how it goes.

    Best wishes!

  87. Ryan,

    I agree 100%. I’m also surprised IBM dropped as much as it did. I thought there was plenty of value already there, and I thought a lot of risk was already priced in. But I’m not the type to pass up even more value. 🙂

    People are calling for the “death” of IBM, yet it’s still growing at a 7% rate. It’s almost comical. And then you hear about their “debt problem” when they clearly don’t have one at all. Or the fact that they’re not investing in the business, yet they spend $6 billion in R&D every year. This is why I ignore the noise. 🙂

    It was a good month for capital deployment, but November (and probably December) will likely be a bit light. I pulled the lint out of the pockets with this IBM buy.

    Appreciate the support! Thanks for stopping by, bud. Keep up the great work over there.

    Best regards.

  88. alexg,

    I haven’t run across your blog before. Looks like you just started it up? Congrats. Wishing you much success with it! 🙂

    Look forward to your write-up. Great minds think alike!!

    Cheers.

  89. I’m always a big fan of ‘buy when people are fearful, sell when people are greedy’. I usually buy when the poop hits the fan like today and if i think the fundamentals are pretty good still. I think the risk/reward on ARCP at $8 today was worth a shot so i increased my position. If it doesn’t work out, c’est la vie, that’s the market but i still like it long term – problem is most people only think 3 days or 3 months ahead. I think in a year or two things should be fine, assuming there aren’t any other bombshells. You only have to look at the crap during 2007/2009 to see how fearful people get and look at the returns.

  90. T,

    I love the guts, my friend! 🙂

    ARCP is already really maxed out for me, so I’m not buying here. But even if it weren’t I don’t think I would have bought here. Fraudulent accounting and bad quarter or year is different. That being said, it may turn out wonderful for you. You already received a bit of glory for your guts, since the stock recovered nicely from the ~$8 lows later in the day after the conference call.

    We’ll see how it goes. I’m okay holding here, but I should probably actually tax-loss sell. I will sell if the dividend is cut, though. The mismanagement of this firm so far has been embarrassing, but it’s not impossible to fix. I wonder if a whole new management team might be necessary here.

    Good luck with it. I admire the greed!

    Cheers.

  91. I was at the 2003 ACM programming competition. There were two companies that sent recruiters: Google, and IBM. I don’t know anyone that went on to work for big blue, but they did have a recruiting presence.

  92. Adam,

    Thanks for sharing that. I hope that’s not indicative of a company-wide problem, but it’s certainly not all that reassuring either. That being said, there doesn’t seem to be a problem with headcount (which speaks to recruitment), as it just recently dropped (by company directive).

    Best regards.

  93. ya, i i have been through it before with a whole bunch of other things, some stocks work out, some don’t. I am not looking at any profit on this at all for at least 2-5 years out unless things rectify quickly which i assume i won’t. Just seeing all the lawyers crawling out of the woodwork today put a lid on any rapid profits from the original drop. The main thing for me is the insider transactions, the sheer amount of properties, book value etc. They messed up but even if the dividend got slammed down by 50% i’d still be ok because i’m not in this one for a month etc, it is a 10yr+ plan for me. If the stock goes to $0 then i won’t be over the moon but it won’t kill me. In my view, it is the same usual nonsense – short-term thinkers crapping out all over the place, same with AIG, BAC etc virtually impossible to get any positive feedback and look at where we are 5 yrs on. Tortoise and the hare on this one.

  94. Aspenhawk,

    Hey, I’m glad you’re taking a look. And I only say that because I think there’s value and quality there. I wouldn’t be buying it myself if I didn’t think so. But definitely take a look.

    I think $275 might be a bit hefty, but even if I was also aggressive and it’s only worth $200 or so you’re still looking at a ~20% margin of safety here.

    Would love to have you as a fellow shareholder, but only if you’re comfortable. There’s a lot of stocks out there, lucky for us. 🙂

    Best wishes.

  95. Hello again Jason, and belated congrats on your engagement!

    I also averaged down on IBM this week after the drop. Lack of “growth” is a ridiculous statement to me given the profitability of this company. They have $11 billion cash and $13 billion FCF last year. . . if they wanted to buy the next high growth cloud computing or next best trend company in tech, they could. Old school cash flow and good management and vision beats growth any day in my book.

    I also bought ADI last week, which is another tech play with outstanding DGI credentials. It had a 3% yield, 10yr Dividend Growth Rate of 42.3%, and 5 yr DGR of 11.8%, Payout Ratio 62% and a strong balance sheet with excellent net margins and EPS GR. With a recent drop in price to forward PE of 16.8 and P/CF of 16.8 hit all the blinking lights and bells on my invest now alarm.

    I think I am all tech’ed out now. Looking for my next buys to be in downtrodden European based/multinational consumer staples stocks UL and NSRGY that have taken a price drop from Europe troubles and strong dollar as well as some lagging retail of late such as WAG and WMT.

    Keep chugging and play the next hand dealt, DM.

  96. Looks like you made a good addition with your IBM purchase. I also deployed a bit more capital than normal this month, trying to take advantage of the dip. I initiated two new positions. One in JNJ at $97.48 and the other SON at $39.16. I felt SON was fairly priced and is a “Steady Eddie” stock in the materials sector which I needed more exposure to. JNJ is a stock that I have wanted since I shifted to this dividend-investing strategy, but it has been so high for so long (like most everything else), that I just decided to jump on it when it finally pulled back just a little bit.

    BTW, congrats on the engagement!

  97. Daniel,

    Thanks so much! Appreciate the kind congrats. 🙂

    I hear you, my friend. The term “death” and “IBM” really just don’t belong in the same sentence when we’re talking about a company that generates $13 billion in free cash flow. That’s absolutely monstrous.

    ADI seems interesting. I’ll take a look at it, but I’m personally not likely to invest in any more tech companies. IBM is a stretch as it is. But the numbers definitely look good. That DGR in particular is mighty impressive!

    It’s funny you mention UL. That’s actually at the top of my watch list for next month. I won’t be averaging down, but I think it’s cheap enough here to add to my position. And I’d eventually like 100 shares or so anyhow. I think it’s attractive from multiple angles, and the yield is certainly very nice here.

    Appreciate you stopping by and sharing. Have fun out there!

    Best wishes.

  98. BCS,

    I like the JNJ buy. You’re already up nicely on that one. I honestly though about adding to my position as well, but it’s still by far the largest holding in my portfolio. I’m still trying to build up other positions around it, but there’s a reason why I’m so heavily invested in the company: quality.

    SON is interesting. I was actually just writing an article for DTA about recent dividend increases and RKT was on that list. As a bigger competitor in the space, did you look at that company as well? What are your thoughts in regards to SON and RKT? I haven’t done a lot of research in the packaging space, but it seems like a great place to invest.

    Thanks for sharing. And I appreciate the congrats very much. 🙂

    I hope all is well with you!

    Cheers.

  99. I did not look very hard at RKT simply because of the lower dividend yield. Although it looks like a great company that is currently fairly valued , since I am still in the accumulation phase of the dividend investing strategy, I liked SON largely because of the 3.18% yield. The other packaging company that I looked at was BMS.

  100. Hi Jason, IBM is a tough call. If they can maintain their dividend through the ups and down, I think they will come out in the long run. The question is , how long will the long run be? For now, I think I would rather put extra money in the oil companies which have gone down sharply for whatever reason. I think RDS, CVX, SU and XOM are a better place to put cash. Oil will ( I think ) go up again after the commodity traders get finished playing their games with it and move on to something else.

  101. Dan,

    Big Oil isn’t a bad call either. I personally have plenty of exposure there already, and you have to remember that it’s still basically a commodity play there. The supermajors have less control over their own destiny (due to the fluctuating price of their main product) than many other companies in other industries. Plus, they are extremely capital-intensive businesses. Benefits and drawbacks to everything, and that’s why I diversify. 🙂

    Best of luck. Would love to have you as a fellow shareholder in some of the oil majors.

    Thanks for stopping by!

    Take care.

  102. Nice buy Jason…we also picked up a few shares of IBM lately. A 19 year dividend grower with a payout ratio of just 27%…its hard to argue against those numbers. I think the recent pull back is short term. Long term, I am confident our recent purchase will be rewarded.

    Cheers to dividend growth while we wait for the stock to recover! AFFJ

  103. AFFJ,

    Sounds like we’re definitely on the same page here. I suspect that IBM’s share price will eventually recover as the quality of the business stands true, while in the meantime we’re paid to wait. But I’m okay with the stock lingering for a while, as it remains low-hanging fruit. 🙂

    Thanks for dropping by. Hope all is well with you and the family! 🙂

    Cheers.

  104. I must say that I am _really_ hurting with this ARCP crap. I was under the impression that this stock was pretty much a safe haven without any actual risk, so I actually had almost a quarter of my protfolio in this (500@12,45) so a drop of 30% is really painful. So yes, I am very much pissed off right now (third day running already) but at least I’m not actually relying on my portfolio for any living expenses, rather it’s more like a small hobby. I could lose my entire investment and not have to change my lifestyle at all, but of course I still hate to lose (virtual) money in just days.

  105. teppo42,

    “I was under the impression that this stock was pretty much a safe haven without any actual risk”

    No offense, my friend, but I think you made a big mistake there. Stocks always have risk, which is why the expected returns are a lot higher than what you get at the bank. We expect 8% to 10% returns on our money in stocks because of the risk we take on. Furthermore, high-risk stocks are implicitly riskier than low-yield stocks. Thus, the 8% yield is a sign. I felt the risk was priced in, but an accounting scandal is something that’s impossible to predict. Although, I did specifically mention operational risk and management risk due to some recent moves and their relatively short operational history.

    I would strongly suggest not investing 25% of your portfolio in one stock in the future, especially a high-risk stock like ARCP.

    These kinds of unforeseen/unpredictable events are exactly why I’ve discussed diversification so much. Some people have criticized my level of diversification, but it’s risk management.

    Just my take. But I’m riding out the storm with you, for now.

    Best wishes!

  106. I always thought that the highest risks were always with the smallest companies? And inversely, the biggest companies would carry the smallest risks. ARCP being the biggest REIT in the market would make it a relatively low-risk investment, right? That’s why IBM or MCD or WMT are more or less blue-chip investments, right?
    As for investing 25% of my portfolio in one stock, it’s a bit difficult to not do that when you only have about 20k€ to invest. I currently have only six stocks in my portfolio.

  107. So let’s say i have 2000USD right now; should I buy 200 more of ARCP, to lower my average, or buy 10 of IBM? Or 20 of WMT?

  108. teppo42,

    “I always thought that the highest risks were always with the smallest companies? And inversely, the biggest companies would carry the smallest risks.”

    Not necessarily. Risk is something specific to an individual company. Kodak was once a large company. So was GM before bankruptcy. Relying on market cap to determine risk is, in my view, faulty.

    It actually wouldn’t be that difficult to reign in your weighting in a portfolio worth 20,000 euros. You can look back on my earlier posts to see how I diversified, even with a portfolio worth a fraction of what it is now. I did that by not being overly aggressive, especially with high-yield stocks. You could have simply invested 1,000 euros in ARCP, and that would have been only 5% of your portfolio. Certainly a high weighting based on the absolute number, but relatively very little capital exposed.

    Based on what I’m telling you, I would definitely not recommend to buy any more ARCP. That’s just my take on it. I’m also not buying right now, and that’s because of the lengthy discussions I’ve had on the blog about not all the risks regarding the fraudulent accounting fiasco being known right now. We don’t know if there are other issues, other managers possibly guilty, whether or not they’ll have their access to credit markets punished (via a credit rating reduction), etc.

    I think it’s important to decipher between a pullback due to stock market emotions, a temporary issue, and a real problem with a company. An accounting issue is not something to take lightly. ARCP could recover just fine, and a $0.04 to $0.05 adjustment to AFFO isn’t the end of the world. However, this is far from over. And it could take a while for the company to really get back on track. You just don’t know. This isn’t a quarterly miss from a blue chip company where you want to buy more based on a temporary blip.

    But this is a good learning experience for you, me, and many others. Never take risk lightly.

    Edit to add: I cannot really advise you on stock purchases. Nor can anyone else. You’ll really have to make those decisions for yourself, which is how it should be if you’re managing your own money. We all have different risk profiles, time horizons, means, goals, capital availability, etc.

    Cheers!

  109. I am way too old to learn, and since you did not give any recommendations (well, some, thanks!) I just bought 10 of IBM (I now have 30.) In six months I might be able to diversify again, but until then I’m pretty much stuck with these six stocks…
    As for the risk, the only way is to take it lightly; if you start to to think too much about the risk, you are in way over your head. Or just too depended on your portfolio. I only invest what I can afford to lose.
    OTOH; my Finnish broker gets 15€ on every buy or sell; any recommendations on an American one? Could I even get one since I’m an European?

  110. Hi Jason,

    I’m trying to keep up with all the blogs here, not easy so many are sharing here now, but good thing right?

    I have a question? Scottrade offers the FRIP at no charge, to auto-invest dividends….do you use that for any of your stock companies? I was considering using that method in the future since i use them as a brokerage.

    Also, congrats on your engagement……all the best wishes for you…….just don’t forget the prenuptual agreement……:P

    C

  111. teppo42,

    Exactly. If risk is something you’re thinking about all the time then you’re probably not investing the right way. It’s like Buffett’s quote about how you shouldn’t be in stocks if you can’t stomach a 50% loss.

    I’m honestly not sure how brokerages work for you over there in Finland. But I would imagine you’d be restricted to brokerages based in your own country, just like we American’s don’t open foreign brokerage accounts (none that I know, anyway). Opening an account here means we’re funding it with USD, trading on our home exchanges, protected by our government agencies, etc. It’s unfortunate your commission fees are so high. I would most likely invest even more than I do now per transaction if my fees were that much.

    Best regards!

  112. Christine,

    Haha. Our community has definitely grown. When I first started blogging back in early 2011 there was really only a handful of other blogs discussing dividend investing. And certainly none of them were doing what I was doing – sharing budgets, discussing financial independence, sharing stock choices, etc. But it’s great to have this wonderful community now.

    I don’t personally take advantage of the FRIP. Seems like a can’t-lose program, however. It’s like a DRIP, but really flexible since you can reinvest anywhere. If your dividends are sizable enough it basically allows you to bypass commission fees altogether. I may use the FRIP down the road once I diversify brokerages and my fresh capital gets diverted to another firm. At that point, I could just reinvest dividends for free in the Scottrade account while working on the second account.

    I wish I could give you a firsthand opinion, but I just haven’t used it yet.

    Cheers!

  113. I’ve been wanting to pull the trigger on some IBM, but when I saw IBM miss and the stock price drop I knew it was time to buy. . I have been loading up on a regional bank lately FNFG they have been going through some issues and sorting out regulatory items(like most banks post 2008).

  114. Derrick,

    IBM is the only tech company that I’m aware of that has been able to stay relevant for this long. Cloud computing has changed things for them, but they’re aggressively scaling up. Could be difficult for a bit, but the valuation seems pretty compelling to me.

    I wish you luck with FNFG. Looks like the FCF has been a bit weak over the last few years. I hope they turn it around for you. 🙂

    Cheers!

  115. I got 25 new shares at 161.88! Now up to 100 shares. I sold all 300 ARCP. Good, hard lesson. I feel we were all reaching for yield on that one. So many things were sketchy, the red lobster, the cole capital sale that looked like a sweetheart deal for some billionairs, etc. I don’t think I’ll buy such a flimsy story again…

  116. I added to my IBM position as well. This is an example of an iconic blue chip reinventing itself for the future. I have strong faith that big blue will be stronger in the future than today while simultaneously getting “smaller” with share repurchases. Does anyone think Buffett is going to invest $12B in a company and actually be wrong in his analysis? I don’t think so. Buy, buy, buy. Back up the truck!

  117. DD,

    Nice!

    IBM is still a small position for me for a number of reasons. That isn’t because I don’t believe in them, but rather because I’m just rather averse to tech in general. But I can think of no tech company that has the kind of staying power IBM possesses.

    I hear you on ARCP. I actually wasn’t reaching for yield, but I just felt the yield was so high because the valuation was so low. If ARCP traded in line with O, the yield would have been much lower. If the accounting scandal wouldn’t have broke I think a lot of people would still be happy ARCP owners. It’s just something you can’t really foresee. Although I wasn’t a fan of some of the other issues, I think that’s exactly why ARCP was cheap in the first place. But the accounting fraud really puts it into a new zone of risk that’s outside my comfort zone. I can’t blame you for selling. I’m still waiting to see where things go, but I may eventually look for an exit. Q3 results should be interesting.

    Best wishes!

  118. SE,

    Right. People look at the lack of revenue growth in terms of absolute numbers, but the revenue per share is up substantially over the last decade. The company is aggressively going after growth industries (cloud, mobile, analytics, security, etc.) while there’s less shareholders to divvy up the profits between. Sounds good to me. 🙂

    I’m not backing up the truck here only because I’m not a huge fan of the tech industry, but this is one tech company I feel good about betting on for the long term.

    Thanks for dropping by.

    Cheers!

  119. FNFG is struggling a bit, they aquired 195 branches from HSBC bank in Western New York so they had a lot of expenses in updating the branches, updating technology within the branches and other expenses associated with bringing the branches and employees on board. Not to mention the overall environment banks are operating in now. I think once this fully works on things will settle in and the stock will start moving again.

  120. I think it says something great about your conservative investment philosophy when the mighty IBM is considered risky. THIS is the side of stock market investing that the average person needs to see.

  121. Joey,

    Haha, thanks. Yeah, I carefully consider risks with every investment I make. And I always try to make sure that the risk is priced in, and the potential rewards outweigh the risks. Once in a while, I’m wrong (like ARCP). But I’m usually pretty good at reading risk and value.

    But that’s one thing that can get investors in trouble – underestimating risk. That’s a big mistake, because even major companies offer some degree of risk.

    Appreciate all the support, Joey! 🙂

    I hope you had a great October.

    Best wishes.

  122. I’ve been on a dip-based shopping spree too. Picked up some BAX, COP (both new to me), and more WMC (that’s my riskier play). Sold my shares of MO that I picked up ages ago before the PM spinoff. I’m hanging on to the PM. And I’m thinking of selling some LO. I bought it right before the 1:3 split and selling part of it would cover all my costs… I think it will go up a bit more and then I’ll put the trigger. Anyway, it was a good time to have a little cash waiting to deploy. (PS – CONGRATS on the return to FL and the engagement!!!)

  123. TM,

    Sounds like you’ve been busy. That’s good stuff right there. Always wonderful to go on a (stock) shopping spree! 🙂

    I sold some LO a while ago, before the announced potential acquisition by RAI. There’s some value in shares here if the merger goes through, as the total price for LO is substantially higher than $61, after you factor in cash and RAI shares. Of course, not everyone wants to be invested in RAI, but you can always sell your shares afterwards. Just something to consider there.

    Keep up the great work!

    Cheers.

  124. Thanks for your thoughts on the LO possible merger. I’m thinking of off-loading some now (or soonish) to open up some $$ for new acquisitions which will also hedge my bets in case the deal doesn’t go through — it got a bounce and has held some of it since the announcement.

    And then, if it does go through, unblocking the additional $ in another bounce and RAI shares. But quite honestly, I’m not feeling super-solid on the deal going through.

    PS – nice job on Radical Personal Finance podcast!

  125. ToughMother,

    Thanks! I’m glad you were able to check out the podcast. I plan on linking out to that for the weekend reading compilation. 🙂

    Yeah, tough to say if the deal goes through. If it doesn’t, I’m okay holding a rather small stake in LO. Newport is still gaining market share and blu is dominant in the e-cig space. If the deal goes through, then I make some money and get a stake in the new company. A win-win. Though, I’m not sure if I’ll hold RAI afterward.

    Cheers!

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