Recent Buy

buyWell, my pockets are flush with fresh capital that I neither planned for nor wanted. This is due to the closing out of my position with American Realty Capital Properties Inc. (ARCP) after an accounting scandal that led to the elimination of almost the entire upper level of management, including the CEO, CFO, and COO, and then a credit downgrade that could negatively affect their cost of capital.

As usually happens, I tend to make a list and check it twice when I have some cash. I’m in no hurry to buy stocks, but I won’t shy away from deploying capital in rather quick fashion if I feel that there are attractive investments out there when looking through the lens of a long-term perspective.

I decided to take some of the capital from the ARCP sale to average down on one stock that I’ve been busy accumulating over the last few months. I liked it at $52, so I certainly love it near $42.

I purchased 25 shares of BHP Billiton PLC (BBL) on 12/17/14 for $42.20 per share.

Overview

BHP Billiton Plc is the world’s largest diversified resources company. They’re engaged in the exploration, development, processing, and production of a number of minerals. They also have a substantial oil & gas business.

The company operates in five segments: Iron Ore (32% of fiscal year 2014 revenue); Petroleum and Potash (22%); Copper (21%); Coal (14%); and Aluminum, Manganese, and Nickel (13%).

Their production operations are located primarily in Australia, the Americas, and southern Africa. They have a workforce of approximately 123,800 employees and contractors at 130 locations in 21 countries.

This is a dual-listed company structure. They have two parent companies – BHP Billiton Limited and BHP Billiton PLC – that operate as a single economic entity, run by a unified management team. The company is headquartered in Australia. This article is referencing the BBL shares that trade on the London Stock Exchange and are offered as ADR (American Depository Receipt) shares on the New York Stock Exchange for US investors. One can also purchase the BHP shares which trade on the Australian Securities Exchange, which are also offered as ADRs. Since the BBL shares trade in the UK, the dividends they pay are not taxed by a foreign government due to a tax treaty between the US and the UK.

Averaging Down

I won’t go back over the fundamentals and qualitative analysis on the company, as I did so back in early October. Needless to say, the company is fundamentally sound.

But if you’re looking for a case study in averaging down on a stock that you’re confident in over the long-term, my history with BBL should prove useful.

I initiated a position in the company back in April of 2013 for $55.32 per share. The stock had a pretty spectacular rise until the summer of 2014, peaking above $71 per share. It then seemed to drop just as spectacularly due to concerns over demand for some of the resources they explore for and develop. Iron ore and oil have both been extremely volatile since the summer, mostly to the downside. And since BBL has substantial exposure to both of these commodities, its share price has suffered.

But whereas a short-term investor would be totally bummed out over the stock’s performance over the last 18 months, I, as a long-term investor, am thrilled to be able to buy even more equity for a cheaper price. Now, that’s assuming the fundamentals of the company haven’t changed. BBL only releases results twice per year, so we won’t know what fiscal year 2015 H1 operational results will look like until February 2015. That said, I look at BBL like a long-term investment. And looking at their resources, I think demand will remain for decades to come. Supply and demand is cyclical for many commodities, but these market forces tend to work themselves out over the long haul. In the meantime, BBL’s stock price has corrected substantially.

So I’ve since averaged down on BBL stock four times. In early October, I basically doubled my position at $52.95 per share. I then added additional shares for $50.20 in mid November. Not long thereafter, I averaged down yet again for $47.33 per share. Finishing the process is the purchase I’m writing about today. This last purchase allowed me to buy in with a yield of 5.88%. That seems almost silly next to the 3% yield this stock has averaged over the last five years.

Now, you could look at this activity and ask why I wouldn’t have just waited for BBL shares to drop all the way down to $40 and load up then. Well, that’s because I cannot predict the future any more than anyone else. I value a company with all known data in front of me. If I had future data available, I’d probably own my own private island and declare myself King. But it appears that Freedom Isle will have to wait.

BBL could have just as easily bounced back above $50 after my last purchase in late November. I cannot predict the stock market’s behavior. I often cannot rationalize it either. Rather, I attempt to invest when I think equity in a high-quality company is priced below what it’s worth. It’s really as simple as that. The bigger the spread, the more enthusiastic I am. And that’s why I enjoy averaging down.

I believe that BBL will be worth (and priced) far more than $42 10 years from now. And I’m confident it will be earning more and paying more in dividends, or I wouldn’t be investing. When Mr. Market is depressed about a certain high-quality dividend growth stock and practically giving it away, you can bet that I’ll make every attempt to be there with open arms and a fistful of cash.

New Company

One interesting piece of news that has come out since I last added to my stake in the company is that BHP Billiton has named the new company that will be formed by way of a demerger involving the Aluminum, Magnesium, and Nickel segment, as well as certain coal and petroleum assets. The new company will be called South32. I’ve been a part of a few spin-offs now as a shareholder, which is essentially what this is. And each one of them has done well for me. This action appears to be in the best interests of the shareholders, which will allow the streamlined BBL to focus on its largest and most profitable segments of the company. Meanwhile, shareholders will be receiving shares in the smaller company as well. Based on the stock’s stunning fall over the course of the last six months (down 33.75%), it almost seems like the market is pricing this new company with a value of $0. I propose it’ll be worth more than that.

With the potential of increased focus and profitability on the major businesses combined with reduced capital expenditures, BBL seems self-aware and well-placed in the current environment. BBL has also released an interesting fact sheet on South32.

Risks

I’ve pointed out BBL’s risks in prior recent posts and they remain no different here. I believe BBL is a medium-risk stock that happens to offer a high degree of potential reward for those willing to wait it out. Its primary risk includes the fact that its primary business is in mining for and providing the market a number of commodities and natural resources, of which are exposed to large swings in pricing. These swings can have potentially dramatic effects on BBL’s profitability. Its business is also cyclical, which means its operational results can vary from year to year and cycle to cycle. Finally, there is some measure of geopolitical risk.

I will make a quick note here about risk. Risk can be defined in many different ways. But one risk is valuation. Pay too much for a stock, and you’re placing undue risk upon yourself. Counterintuitively, the market fears stocks after steep drops like what we’ve witnessed with BBL. But the cheaper the stock becomes, the less risky it is (as long as the fundamentals remain sound). It remains to be seen how its profitability will be impacted by the drop in oil and iron ore prices, but the stock is certainly less of a long-term risk at $42 than it was at $52. And I say that because BBL has a longstanding track record of operational excellence and maintains solid fundamentals across the board.

Valuation

In my mind, BBL’s short-term profitability will probably be impacted by the severe drop in the prices for both oil and iron ore. But I always value stocks for the long term. As such, nothing has changed for me in regards to the valuation on BBL’s stock over the last few months. Furthermore, I valued BBL rather conservatively from the start, which allowed a margin of safety.

The stock’s P/E ratio is 8.06 right now. That’s low even for a cyclical stock at the supposed top of a cycle. The five-year average P/E ratio is 14.

I valued shares using a dividend discount model analysis with a 10% discount rate and a 5.5% long-term growth rate. I used what I feel is a conservative rate, as that is about half of BBL’s growth rate for both EPS and dividends over the last decade. The DDM analysis gives me a fair value of $58.14. I think that builds in a margin of safety, considering that even if BBL’s growth is cut in half permanently, the stock is still trading at a discount of more than 25%.

Conclusion

So this concludes the averaging down on BBL for me. I now have 115 shares in the mining giant, which is probably about as large as I ever want to go. I see this as a smaller, ancillary position over the long haul. So I’m targeting a 1% to 1.5% weighting, which means that, unless shares become ridiculously cheaper, this is the last time I’ll purchase shares in the company.

I’ve done well with averaging down in the past. Notably, I chased Target Corporation (TGT) down to $55. It’s since bounced back to above $73. I also averaged down on Digital Realty Trust, Inc. (DLR) twice, with my last purchase occurring below $47. It has since rebounded to above $65. I have no idea if this will happen to BBL over the next year or two, and neither do I care. However, I am confident that this is a rather cheap valuation on a high-quality company. I can’t predict the future, but being confident in your original analysis allows you to direct additional capital toward cheaper equity in a fantastic business, thus reducing your cost basis and increasing the potential of your future returns.

I think BHP Billiton is well-placed as one of the most conservatively run and profitable natural resource companies in the entire world. The proposed demerger and reduced capital expenditures allow them increased focus at the perfect time.

I’m going to include a couple of other valuation opinions below, as I use these to concentrate my reasonable valuation estimate:

Morningstar rates BBL as a 5/5 star value, with a fair value estimate of $70.00.

S&P Capital IQ rates BBL as a 4/5 star “buy”, with a 12-month target price of $59.00.

This purchase adds $62.00 to my annual dividend income, based on the semi-annual dividend of $1.24.

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

Full Disclosure: Long BBL, TGT, and DLR.

What are your thoughts on BBL here? Does it seem like a compelling value? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

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118 Comments

  1. I too recently averaged down my position in BBL. Was also thrilled to initiate positions in COP and OKE at seemingly ridiculous valuations. I love a good sale …

  2. I added to BBL yesterday at around $40 but it is my very small position holding 75 shares. I added to IBM today at around $151 which is one of my bigger positions holding 145 shares.

    I think IBM will turn around sometime next year. I am wishing for lower prices so I can add 55 more shares at around $130 to complete my full position in it. I like that current dividend of 2.91%.

  3. JustBeScott,

    Nice!

    I hear you there on OKE. I did the same recently. Great growth, great assets, great yield, great potential. I like it. 🙂

    Thanks for dropping by. Best of luck with those investments!

    Best wishes.

  4. AJ,

    Nice. Got in at a 6%+ yield. Just insane. 🙂

    I’m confident about IBM, though I plan to keep that a very small position. Even another 10 years of flat revenue and it should still be a satisfactory investment. This company throws off a ton of FCF. We should do well here. I think IBM is one of the most compelling values in the market right now, along with BBL.

    Thanks for sharing!

    Cheers.

  5. I initiated a position in BBL at about $47 in the beginning of the month. About a couple weeks later I was watching the price go down even further for a few days. I thought to myself, if it gets so low that the dividend becomes 6%, I’ll buy some more. Sure enough, the very next day the share price went below that, and I purchased more shares to average down as well. The market has been just hammering a lot of these oil/energy stocks.

  6. I too added some more shares of BBL, averaging down on my cost basis (think I’m down to a $48 and change average). I did the same with some CVX as I cleaned up my portfolio some. I’ve got some cash right now, and will likely make a couple of moves before the end of the month. Should be an exciting close to 2015.

  7. The dividend will probably be cut–it doesn’t mean the stock isn’t cheap, or the divi will be much higher in 10 years from now. I am just saying, the earnings will get nailed due to falling commodities next year, and the dividend will exceeds the EPS probably.

    Thanks for your posts DM and sincerity, especially with ARCP post.

    Cheers

  8. DM,

    I would like to seek your advice on something. After looking at my budget, I know I cannot invest more than the $5,500 I would like to in my Roth IRA. Having already maxed out my Roth for 2014, I was wondering what your thoughts on shuffling some assets around. While I know selling is a last resort, is that the same case with mutual funds in Vanguard? While I look to wanting to add to BBL, IBM, and OKE, I need cash. My first thought was to sell off my position as you did in ARCP, but then the thought crossed my mind I could sell off some or all of my 6K in VASGX and 6K in VGSIX without paying any fees, and initiate in some stocks. I had bought VASGX as my 2012 contribution and VGSIX as my 2013 contribution before starting to follow you and delve into dividend investing. The gains from my mutual funds have balanced out my UL, BBL, and ARCP losses, but was wondering if long term my capital would work harder for me in some individual stocks. At 24 years old, I’m still quite unsure about a lot of these things and greatly benefit from all your advice and experience. I really appreciate it, your words and postings have made a big impact on me and my close friends. I’m sure we’ll appreciate it even more 20-30 years from now.

    DLee

  9. joshua,

    Great job there. A 6% yield on BBL is almost unheard of outside of the financial crisis. I’m really enjoying this opportunity, as apparently are you. 🙂

    Keep up the great work!

    Take care.

  10. W2R,

    Good stuff there. I think my cost basis will be right about the same after this purchase is added in. I’m very happy with a cost basis of $48 in BBL for the long term. I have no qualms with that whatsoever.

    Sounds like the end of 2014 should be pretty exciting for you. Which makes 2015 even better. I think next year is going to be very exciting for quite a few of us. Looking forward to it!

    Thanks for dropping by.

    Best regards.

  11. IP,

    Thanks. Appreciate the support!

    I’m always happy to have my money work for me. Maybe I’m just lazy, but I’d rather my money work for me rather than me work for me. 🙂

    Hope all is well.

    Best wishes.

  12. Captain,

    I included a link in the post that goes over all of the information related to the demerger. At the end of the fact sheet, the company states:

    “BHP Billiton will keep the market informed of relevant developments. Subject to final Board approval to proceed, shareholder approval and the receipt of satisfactory third party approvals, the demerger is expected to be completed in the first half of the 2015 calendar year.”

    I hope that helps!

    Take care.

  13. Bill,

    I disagree the dividend will be cut. The cash flow is extremely robust here. Even if they go negative on the FCF for a year (like they did in 2013), they’ll be fine. They’re in great financial condition.

    However, the dividend may not be raised next year due to the demerger. They’re losing some assets there, though the profit isn’t much. But I’m not sure how that’ll affect things. It may end up like COP where we end up with a much higher total payout across both companies, even if the parent company doesn’t raise the payout right away. We’ll see how it goes.

    Thanks for dropping by.

    Cheers!

  14. DLee,

    Thanks for the question. I appreciate that you have confidence in my ability to help. 🙂

    I’m not quite sure I follow what you’re after, however. It’s tough for me to give accurate advice based on the information you’re giving me. I can say that although I don’t invest in index or mutual funds, I see their usefulness for many others. I’ve tried to give reasons why I’m investing the way I do and why I think it’s a fantastic approach for those aiming for financial independence at an early age, but I’m also not trying to sell anything here.

    There’s also nothing wrong with a hybrid approach. Many investors have substantial exposure to individual stocks along with index funds. This is often due to the fact that many retirement accounts (like a 401(k)) only offer funds. Some like the added diversification.

    So I think you’ll just have to take time to figure out exactly what you want and what you may think is the best strategy to get there.

    Let me know if I can help further.

    Best regards.

  15. DW,

    I definitely didn’t anticipate BBL dropping this far. But I’m certainly happy it did. Short-term pain for long-term gain. 🙂

    Hope all is well over there with your journey as well!

    Take care.

  16. Do you feel the stock is at a high risk for the dividend to be cut? That was my main concern when I bought some last week

  17. DFD,

    I don’t think this is a stock that’s at risk for a dividend cut. If I thought that was the case, I wouldn’t have built up a rather large position in the company.

    Is there anything in particular that makes this your main concern? What about the financials sparks that worry?

    Cheers!

  18. I think you are making a good deal here with such a low price for such a good company. If I had not already bought, what I feel is enough shares in BBL for me, I would totLly buy more at this price. Instead I’m thinking about adding some IBM shares to my portfolio. What do you think about that now that they are down at almost $150? Do you consider adding more IBM at this point?

  19. Martin,

    Thanks! I agree the valuation is compelling.

    I hear you on the weighting. I’m toeing a line there with BBL. This is a “permanent” position now, meaning I don’t want/need to add any more.

    IBM is compelling. I was mentioning in another comment that it appears to be one of the clearest values on the market right now, along with BBL, in my view. Not sure if I want to add any more myself, however, due also to weighting. If IBM does what I expect them to and grows their dividend in the way I expect, then the dividend income it’ll provide will be where I’d like it to be in eight years. And that’s right about 1% or so of my annual income. I may add another 5 shares or so here. We’ll see. I’m just not a big fan of tech in general.

    Thanks for sharing!

    Best wishes.

  20. Can’t go wrong with averaging down on a great company! With your money in BBL instead of ARCP, I’m sure you’ll be sleeping much better tonight. 🙂

  21. Jason, I think you just got yourself a great deal. It’s like shopping for steaks out there right now – we’re stocking up whilst their on sale! Looking forward to your mosque next week too…

    Best,

    M

  22. Well, anytime you find such investment conviction and have an opportunity to average down I’m all for it. Your money is probably put to better use on BBL ownership rather than ARCP as that company is still mired smoke and its future and dividend still remains largely unclear. I just wrote about pure play iron ore companies a few days ago and noticed a lot of deep discounts in those names as iron ore prices collapsed in 2014. Names like X, RS, NUE, MT and more are at or near 52 week lows with some compelling valuations. Have you considered any of those names?

  23. Hi Jason. Nice buy. I entered into BHP (BBL and now also BLT, London) long ago and it was time for me to down average on this company. I guess you never feel copletely right when a company you have in your portfolio dives so low but I consider these times a good way to focus on numbers and future value. Also, whenever I down average I calculate how much I’ve already received from dividends so how less risky that position already is.

    BTW, I’ve just updated my watchlist:

    http://www.dividendogma.com/actualizacion-de-valores-bajo-el-radar/

  24. I suppose my main question is, will it most likely be more worth it for the long run for me to buy quality stocks following a similar strategy as you, or to hold onto the mutual funds. Since I don’t have the option to invest new capital, I was wondering if moving money from the mutual funds to stocks would be a better long term decision… Is that a bit more clear? I’m not sure how to really phrase it

  25. Hi Jason –

    Well, I am going to join you guys on this one. I just put an order in for a few shares!

    My portfolio should gain one more position today.

    Thanks for the great write up.

    Ray

  26. Hi Jason,

    You finaly sold it. I still own my 200 shares of ARCP… I should do the same but I just can’t press the trigger. The “error” wasn’t that big and I think that they are over exagerating the issue but at the same time… we probably don’t know everything and in finance, trust is what’s worth the most… Now that everybody jumped out of the ship there is even more uncertainty ahead… I’ll think about it during the week-end.

    Thanks for sharing your move

  27. DM, if you are ever looking to add another REIT you might want to took at PSA (Public Storage). It has an 18.54% 5-year dividend growth rate, 16.78% ROE, and has destroyed the S&P 500 over both the past 5 and 10 years. Diviend yield is 3.06% right now, but hopefully the price will pull back a little soon. The stock is up almost 22% for the year.

  28. Jason,

    Nice buy. I have only recently been following BBL, but it seems like a solid company with room for future growth. I really like the fact that you are averaging into the company versus throwing down one lump sum. It sounds like you have a nice yield overall. A high yielder like ARCP is nice, but at the end of the day, you should be able to sleep a little better at night moving your money into BBL. I am averaging down into my CVX position currently. I hope these sales last a bit longer! You have certainly had a busy December!

    Josh

  29. I was in the same leaky ARCP boat too. After the accounting scandal broke, I actually doubled my position at around $8.50/sh, due to what seemed like an irrational market response. I was concerned, though, that this was all being laid on the CFO and CAO. CFO’s have a lot to lose and not much to gain from manipulating earnings, so if they do, it’s usually because they’ve been told to. Monday, when I saw the CEO, COO as well as Schorsch were axed, it obviously wasn’t a very good omen. I felt pretty lucky to get out just under where I doubled down. Oil seems to be where the bargains are, for now. I’ve been tickled to get an opportunity to initiate positions in NOV, HP, and CVX… they’ve been on the watch list for years!

  30. Great to see that you put some of the capital from ARPC sale into purchasing a solid company. Keep average down on BBL, I’m sure the price will climb back up soon.

  31. M,

    Thanks! It definitely seems like a strong deal here. I have no idea where the stock is going to go in the short term, but I feel pretty confident about their long-term prospects as a business.

    Make that list and check it twice. 🙂

    Take care.

  32. DivHut,

    I have a lot more conviction in BBL than I do ARCP. I have no idea which stock will perform better, but it’s simply a business decision. The opportunity to average down on BBL this much has been fantastic. 🙂

    As far as the stocks you named, I haven’t considered any of them. I believe the only one in that list that’s a dividend growth stock is NUE. But Nucor offers very little to like from the yield, growth, and valuation standpoints.

    Thanks for dropping by!

    Cheers.

  33. Jose,

    Right. The lower the price, the less risk. That’s assuming the company is still on solid ground. But BHP Billiton has been around a long time and they’ve operated through many economic cycles. I’m confident they’ll be just fine. The only uncertainty, in my view, relates the dividend and the demerger.

    But I think we’ll both be happy with buying BBL on sale here when we look back on this years from now. 🙂

    Best regards.

  34. DLee,

    Well, if you’re looking to become financially independent at an early age whereby you’re able to live completely off of the passive income your portfolio provides, I believe that living completely off of your dividend income is the easiest and most robust way to go about that.

    “…will it most likely be more worth it for the long run for me to buy quality stocks following a similar strategy as you,”

    I cannot answer that question, however. I can only present information and share my journey. I cannot predict the future. It’s really up to you to make the decisions that affect your financial future.

    For further reading on this topic, I would recommend these articles. You should find the answers (either way) in the content:

    https://www.dividendmantra.com/2013/04/why-i-vastly-prefer-dividend-growth/

    https://www.dividendmantra.com/2014/07/why-dividend-growth-investing-is-such-a-robust-investment-strategy-for-those-seeking-early-financial-independence/

    https://www.dividendmantra.com/2014/09/the-4-rule-examined/

    Those should get you started. 🙂

    Best wishes!

  35. Ray,

    Glad you enjoyed the post. BBL is, in my opinion, compelling. I wish I would have waited and loaded up near $40, but you just can’t predict these things. Never know when it’s going to snap back. Could very well dip into the $30s. I have no idea. But I cannot imagine I’ll be unhappy with buying here when looking at this decision years from now. Hard to really look at it that way when the volatility is in your face, but my past experience tells me that things will be just fine. 🙂

    Thanks for dropping by.

    Best wishes.

  36. Allan,

    ARCP could very well be fine. I have no idea on that. And I’m not making a call on the stock or the company. Rather, I’m simply admitting that I’m not a speculator. And ARCP has become, in my opinion, a clear speculation at this point. It’s a gamble. They may be just fine, but they might not be. I’d rather not bet my money either way on that.

    I wish you the best of luck either way on it. It’s a shame that it went like this, because there was a lot of easy money to be made by a lot of people. It appears to me that greed got the better of some people.

    Cheers!

  37. EWB,

    I’ll definitely consider it. I like those metrics. That’s extremely strong dividend growth. Though, the yield is a bit low for a REIT. I’ll give it a good look at some point in the near future, because I do want to replace ARCP with another REIT in early 2015. 🙂

    Thanks for the suggestion!

    Best regards.

  38. Josh,

    Thanks!

    I always average my way in. The positions are built one purchase at a time. Throwing all of your money into a stock all at once means you’re limited if future opportunities present themselves. I certainly have conviction in my ability to analyze and value a stock, but I don’t have a lot of confidence in Mr. Market’s emotional state at all times. Thus, sometimes irrational behavior takes over and you get ridiculous prices. Buying too much beforehand means your hands may be tied when the price drop occurs. I like to average in over the course of years to build positions out.

    I have a nice cost basis with CVX, but I wouldn’t mind averaging down into the $90s if we get it. Great company. A lot of big, exciting projects coming online which should reduce future capex and increase profitability.

    Let’s indeed hope these sales last a while longer. 2015 could be a great year if this volatility continues. 🙂

    Take care!

  39. I admittedly do not own PSA either, the yield has always been a little low for my taste as well. But I really should’ve bought in last year when the whole REIT space pulled back and PSA was yielding closer to 4%. This stock is a long-term winner, and is frequently held in some top real estate mutual funds.

    I am definitely planning to buy in at the next pullback.

  40. soggy,

    Sounds like you made the right move there if you’re not a gambler. I certainly hope it’s just a $0.04 adjustment and the company moves on just fine. But I don’t want to be in a position to speculate either way. Not with my own money.

    It’s great to get some solid prices here on high-quality companies. NOV is one I’d like to average down on at some point in the near future. Great company. Great history. Great fundamentals. Huge competitive advantages.

    Thanks for sharing!

    Best regards.

  41. Nice purchase. I initiated a position at BBL couple of weeks back and have been adding to it since then as part of my weekly purchases. The stock definitely looks attractive and I plan to continue adding it.

  42. Tawcan,

    It’s just a trade on quality here. I sacrificed a little yield for what I perceive to be greater quality. I believe BBL has better visibility over the long haul than ARCP. ARCP’s properties aren’t going anywhere, but I’m not sure about ARCP.

    Thanks for dropping by!

    Cheers.

  43. DGJ,

    I’m right there with you. Seems to be one of the best values on the market. I’m betting that volatility will continue for quite a while, but BBL has operated through booms and busts.

    Happy to be a fellow shareholder!

    Best wishes.

  44. DM,

    Great buy. Averaging down on great companies when they go on sale is a valid strategy. I tend to dollar cost average down every 10% drop. I would have averaged down on BBL too, if it had gone lower, but Russian stocks are offering even more compelling value, so I had to concentrate there with limited capital. Higher risk, I know, but greater return potential.

    JTF

  45. Talk about taking advantage of a fire sale! At these levels, this company may be impossible to resist. I may trade my shares of NUE, which has not increased the dividend significantly in years (I gave the company a chance since its management vowed to never cut the dividend), for shares of BBL. I’ll have to do my own due diligence, of course.

  46. Hi!

    Great buy. UK aristocrat followed for dividend hunters all over the world, and for me too.

    Antonio, from Spain.

  47. DM,

    Way to turn that money around, sad for the reasons it happened though. Hopefully it works out, BBL is a beast and has just been down on its luck in the markets of late. Its really great you were able to average down and really try to get the most out of that money.

    I’ve always like the basic materials sector. It is to industry like consumables are to people, and that is always in demand.

    – Gremlin.

  48. JTF,

    Averaging down 10% at a time is a great way to do it. Sometimes we get those 10% pullbacks, and sometimes we don’t. But if we do, that’s a great way to really roll that cost basis back. 🙂

    Best of luck with the Russian plays. I have my exposure to the Russian economy through many of the blue chips I invest in, which is just fine for me.

    Cheers!

  49. Spoonman,

    NUE is one I’ve looked at, but just never could get interested. The dividend growth, as you point out, has been severely lacking for some time now. I wish you the best of luck either way. Perhaps NUE will start growing the dividend at a more attractive rate in the future?

    Cheers!

  50. Gremlin,

    I turned a frown upside down. Or something to that effect. 🙂

    Yeah, these resources have value. Demand has fallen, but who’s to say how long that will last? In the end, the world needs potash, iron ore, petroleum, copper, etc. I think we’ll be fine here.

    Thanks for the support!

    Best regards.

  51. Hi, Jason,

    Yesterday I bought some shares of BHP Billiton too, but in FTSE.

    Best wishes
    CZD.

  52. Nice upping of BHP, Jason. 😉
    This month I have been busy with oil stock too. As you I averaged down on my BHP and initiated a position in CVX.
    When oil prices drop further in January (and I hope they just will do that) then I’ll try to lay my hands on some XOM.

    A few years from now we will have a big smile on our faces when we think back on today’s low purchase prices and all the pay checks we received by then 🙂

    As for ARCP, that’s is becoming a real pain… I still hang on for the moment. Collected a dividend yesterday. I’ll see what January 5 brings…

    Take care.

  53. Hi Jason!

    Be very careful with BBL — I’m not sure how much more I’d add from here if I were in your shoes. We’re in a rising dollar environment and the mining sector currently could fall considerably from here. From a business standpoint, I like that BBL is maintaining/increasing iron ore production to put the little guys out of business.

    Best

  54. Jos,

    “A few years from now we will have a big smile on our faces when we think back on today’s low purchase prices and all the pay checks we received by then”

    Agreed! I’m confident we’ll look back on these decisions with joy in our hearts (and pockets). 🙂

    Wish you much luck with ARCP. Hopefully, the audit turns up a small adjustment and all is well.

    Thanks for dropping by!

    Cheers.

  55. Antonio,

    Glad to be a fellow shareholder. Could be volatile still, as it has been. But I think this is a great long-term value.

    Thanks for dropping by from Spain. Appreciate the readership! 🙂

    Best regards.

  56. Adam,

    Right. I agree there may be more volatility ahead. But as a business, it appears sound. And this is a long-term investment. Where it’s at one year from now will matter very little to me. And, as you point out, this volatility hurts the smaller players more than the bigger ones. The market always shakes these things out and corrects itself. The value appears to be compelling, however, in my view.

    Thanks for stopping by!

    Take care.

  57. CZD,

    Nice! I see we’re on the same page there. Very happy to be a fellow shareholder in this world-class miner. I didn’t plan for it to be a large position, but I’m pleased with the opportunity to load up while shares are battered. From here, I’ll just happily collect my dividends for the few decades. 🙂

    Thanks for stopping by.

    Cheers.

  58. DM,

    I purchased 80 shares of BBL stock as well; for 40.39$ per share on Dec 15. I was very lucky with that price drop, because the price per share went up the very next day.
    Since I found out about your blog a few weeks ago, I began investing my money and already spent my saved cash – about 18 000$ to buy dividend stocks ( MCD, PG, Pepsi, BBL). This is incredibly exciting to watch portfolio grow and receiving dividends.

    Best wishes from the new blog follower!

  59. I also placed a sale order. I plan to take the cash to fuel an Ira contribution and average down my position in Bp.

  60. I just wanted to thank you for your articles. I look forward to reading where you are investing capital next, and the reasons behind your decisions. Your straightforward articles are spot on!

  61. Jollie,

    Appreciate you following along! I hope you continue to find value in the articles. 🙂

    Great buy there with BBL. The valuation is just insane here, in my opinion. But we’ll see how it turns out.

    Congrats on starting your own journey. $18,000 to start is tremendous. You’re off to a fantastic start over there. The dividends will soon be rolling in and you’ll be rolling your own snowball. It’s very, very exciting. Have fun!!

    Cheers.

  62. Sunny,

    I was looking at BP not long ago. It went below book and appeared to be very cheap. It’s still cheap even after a recovery. I’m just not sure if I want to own more than 80 shares, due to the risks. We’ll see. Great yield and the company will eventually normalize once it has moved past the legal drama.

    Take care!

  63. Todd,

    Thank you for the comment. Really appreciate you taking the time to drop a nice note like that. 🙂

    I do my best to put forth unique, inspirational, valuable, and insightful content on a very regular basis. Hope you continue to stop by!

    Best regards.

  64. Great minds think alike 😉 i bought some earlier in the week. I have a feeling they will run these a bit into end of dec then hammer the market again into March ..but not a clairvoyant either but i’d relish the price to stay here or go a bit lower for a few more months, great long term hold as you say. all the best T PS Still holding my ARCP although i lightened it a little the other day when everyone left lol. that said, the price action was interesting today, will hang until after the filing and see how it goes. RCAP the other one, took a severe beating on the news so maybe there is the risk.

  65. MLP, PLC… So many designations… numbers look solid for a buy here but I really can’t evaluate these companiues…

  66. Tales,

    Great minds do indeed think alike. I think BBL is one of the cheapest large-cap companies on the market (the other being IBM). It’s especially exciting that, even with low iron ore and oil prices, there are still catalysts on the horizon (the spin-off and lower capex). I’m excited for the next few years here with BBL.

    ARCP is definitely a mess. I understand now that there is finger pointing going on, where it’s being accused that the accounting fraud was directed by Schorsch and possibly others. I’m so glad to be out of that stock. Could turn out great, but way too much drama for me. Investing is best when it’s boring, so I’m ready to get back to my usual yawning. 🙂

    Cheers!

  67. Nuno,

    I think you’re getting hung up on something that’s a non-issue.

    BHP Billiton is a normal company. PLC is just a designation for companies used in the UK. It stands for “Public Limited Company”. It’s just to designate that it’s a public company with limited liability to those buying shares. It would be similar to seeing an “Inc.” or “Corp.” after a publicly traded company’s name here in the US.

    Investopedia gives you a definition on it:

    http://www.investopedia.com/terms/p/plc.asp

    Avoiding anything with the PLC desigation would basically mean you’re avoiding all companies listed on the LSE for really no reason at all.

    I hope that helps.

    Take care!

  68. Great article, DM. I had purchased a full position in BBL when it was trading at around 53. While it was already one of my larger positions, I got paid today and decided to lower my cost basis a little by picking up another 37 shares at 43.61. Like you, I’m thrilled to pick up a company at a cheaper price than I was happy with before! It was tough though to decide between BBL and BP/CVX. Ultimately, it was the larger unrealized loss in BBL that swayed me towards BBL.

    I’ve never yet picked up any shares in a new company that was spunoff so I’m kind of excited about that too!

  69. i just bought NGG (National Grid) and RIG (Transocean) for long term buy and hold investments. I love the carnage in the oil related stocks and have bought several in the past week.

    thoughts.

    i already owned 200 shares of BBL otherwise i would have bought more.

  70. DM!

    Stock piling and building that huge position in BBL – I think it’s awesome. I was eyeing out the market and wasn’t sure if I wanted to initiate more into BBL quite yet – was seeing where I want my overall weight to be in. Great move and great further addition to your dividend income and further averaging down on your cost. Wild that there is only 12 days to the year left as well. I know we have done pretty well on the goal front. Talk soon DM and congrats on the latest purchase.

    -Lanny

  71. Scott,

    I hear you there. The weighting was already getting a little heavy for me as well. But I just couldn’t pass it up here. It may go lower, and that’s okay. I’m very pleased and content with my cost basis at this point, when looking at the long-term potential.

    It’ll be interesting to see what happens with the spin-off. I hope that it ends up being like COP where we get a much larger dividend by way of both entities paying, even if the parent company doesn’t raise the payout right away. We’ll see how it goes.

    Hope you’re having a great weekend.

    Cheers!

  72. DLee,

    Well, I watch about 125 stocks. That includes the 50+ in my own portfolio. I’ve thought about putting some kind of page together on the other stocks I watch (they’re almost all featured on the CCC list), but I’m afraid that might be overwhelming for me to track here at the blog. As it stands, I answer a lot of questions on the stocks featured in my portfolio, so it would probably double that workload. Not sure if I’d really be able to live up to that. But I’ll think about it. 🙂

    Best wishes.

  73. Daniel,

    I’ve looked at NGG a few times. Seems pretty solid. Not sure about RIG. Not really in my wheelhouse, but I sure hope it works out for you.

    Great position there with BBL. That’s sizable. You must really look forward to those semi-annual dividends. 🙂

    Thanks for dropping by.

    Take care!

  74. Lanny,

    Thanks, bud. I hear you on BBL. I never intended it to be a large position either. More of a satellite investment. But the value is there, so I’m biting. The good news is that I built this thing up to where I can just leave it alone forever. I’ll just let those dividends roll in and enjoy the income. 🙂

    Appreciate you stopping by. I think you’ve had an even better 2014 than I have. Keep it rolling!

    Cheers.

  75. PIM,

    Thanks for dropping by!

    Glad we’re on the same page here. I didn’t plan on it being a major position in the portfolio because they lack any kind of pricing power, but the shares appear to be silly cheap here. The value investor in me couldn’t pass it up. 🙂

    Hope you’re having a great weekend over there.

    Best wishes!

  76. DM,

    As always, appreciate the blog. Kudos on picking up more shares “on sale”.

    I am curious – if you were to do your typical dividend discount model analysis on all 50+ of your current holdings, how many, according to your analysis, are currently trading a) more than 2% below “fair value”; b) more than 2% above “fair value”; or c) within, say +/- 2% of fair value?

    Thanks.

  77. John,

    Hmm, that’s a good question. I honestly have no idea. Keep in mind, however, that a 2% range is probably unnecessarily tight and unreasonable. The fair value I put together on stocks is really just a reasonable estimate. It’s a hard number, but I look at the end result as something with a 10% or so range on it. So if I come up with $50 as a fair value on a stock, then in my mind that stock is most likely worth anywhere from $45 to $55. One could argue that the spread may be even larger, because the anticipated growth rate has a large affect on the value. But I’d like to think I’m more often than not somewhere in that 10% range. Valuing stocks is part art and science, and surely not a practice that can come within 2% like that.

    Best regards!

  78. Of course. I almost only gave you option a) & b), but threw in option c) at the last minute to accommodate something being around “fair value” without giving the actual +/- % a lot of thought. Choose +/- 5% or +/- 10% if you like.

    I thought it was a good question… glad you agree! 🙂 It came to mind when I read you talking about the most recent purchase being XX% below “fair value”, and that you always have seemed to find something to buy… often multiple times per month. I naturally wondered: I wonder with his valuation techniques how usual or unusual it is for one of his holdings to be “on sale” below your estimate of fair value.

    Since you’ve estimated the fair value for most of your holdings in the last few years (at the very least when you purchased it), and since those long-term growth estimates probably don’t change much from one year to the next, I figured it would be a simple exercise for you to look at that. I actually envisioned you might even have a spreadsheet with your 50 holdings and their “non-updated” estimate of fair value (using your original growth estimates, which obviously would need reviewed before making a new purchase, but should get you in the general ballpark). Otherwise, how do you know one of your other holdings wasn’t a better deal at the time?

  79. John,

    I don’t keep a spreadsheet like that. But I keep abreast of my holdings via emails on earnings and what not, and the prices are all easily tracked across the brokerage account.

    “Otherwise, how do you know one of your other holdings wasn’t a better deal at the time?”

    Right. Well, I mentioned in a recent post that if you perform a thorough analysis and valuation when you first invest in a company, then you’ll generally have a good idea as to where that valuation is as time goes on. I suppose this just takes practice as you go, but I have a fairly good idea of what any stock I own is worth on an ongoing basis just by extrapolating out what I felt it was worth at the time of purchase and what the company has done since then. And it’s not particularly difficult to do a quick valuation check on a stock by seeing what some analysts may think of that particular name at any point in time.

    As far as how often one of the stocks I already own are trading below fair value, that happens here and there. However, I’m not always keen to purchase a stock below fair value just because. One should also factor in risk, exposure, and diversification. For instance, I thought BP was a pretty good deal there after a big drop (and still is, relatively speaking). However, how much BP do I want to own? Probably not much more than I already do. So you have to look at the process as part of building an entire portfolio, and maybe not just one stock at a time.

    Hope that helps.

    Best wishes!

  80. Yes, all of that makes sense, and is to be expected (re: risk/exposure/diversification being factors). Fair enough.

    It just threw me for a loop, if you have a pretty good handle on what all their fair values are, when you said ” I honestly have no idea” what percent are currently over & undervalued. Should be a pretty quick process to at least estimate “about x %”, I’d think.

    Have a good one.

  81. DM,

    I don’t have a brokerage acct. I only have an IRA. Would the BBL shares require a K1 be filed? Also, would it be better to own BHP in a IRA?

    Thanks/rd

  82. John,

    Right. I have no idea how many of my stocks might be trading within 2% of fair value. As I stated, that’s way too tight of a range, in my view. Especially off the top of my head. So it’s not something I even look at. But I do have a pretty good handle on where these stocks are generally fairly valued at and about how far away they are from that. Again, if you’re looking for an exact science with this, you’ll be disappointed.

    Cheers!

  83. We don’t seem to quite be meeting minds. Throw out the “2%”. Forget I ever mentioned that. As I alluded to, it was a mistake to originally include that.

    Look at this as a completely new question: What percent of your 50+ holdings, would you estimate (or guestimate) are a) notably undervalued; b) about fairly valued; or c) notably overvalued? Currently prices, and using your valuation technique.

    If you can quickly get a rough count by scanning down your list, great. If you had to swag a non-exact rough guess (using words like “around” “roughly” “very roughly” “ballpark” are perfectly ok! Nobody in this conversation expects an exact science with investing or valuations).

    For example, I can eyeball my portfolio of 22 stocks and in way less than 5 minutes guess that “maybe 1 or 2 are signicantly undervalued, probably 5 or 6 are overvalued, and the rest are reasonably (“fairly”) valued.

    Can you provide some similar ballpark estimate similar for yours?

  84. Or, even simpler: If you had to guess: how many of your current 50+ holdings are currently notably undervalued, according to your valuation methods?

  85. John,

    Gotcha. I guess I misunderstood your original question. My apologies.

    Taking a quick glance over my portfolio, I believe about 20 stocks are trading below fair value to various degrees. Two are notably undervalued, in my view – IBM and BBL. NOV is probably in the mix there too. I don’t think any are substantially overvalued. The only one that I thought that was – SYY – has been sold.

    I hope that helps!

    Best regards.

  86. Excellent. Exactly what I was looking for, thanks.

    Sorry for the confusion & the poor phrasing of the question.

    All the best.

  87. Doing some research on BBL and found the last ANNUAL dividend total was $1.21 US. That does not seem to equate to a 5.8% dividend…or am I missing something??

  88. Paul,

    BBL pays a semi-annual dividend. The last payout was $1.24. Multiplying that by two is $2.48, which is the annual payout as of right now. However, they generally raise the dividend in the fall, so the forward yield is probably a bit higher (unless you don’t think they’ll increase the dividend as usual).

    You can generally find the best information on these matters directly from the company itself:

    “BHP Billiton has determined to pay a final dividend of 62 US cents per share. As a result, our total dividend for the 2014 financial year increases by four per cent to 121 US cents per share.”

    And:

    “American Depositary Shares (ADSs) each represent two fully paid ordinary shares and receive dividends accordingly.”

    Source: http://www.bhpbilliton.com/home/investors/shareholderinfo/Pages/Dividends.aspx

    It seems you didn’t multiply your figure by two, factoring in the fact that the American Depository Shares represent two ordinary shares.

    I hope that helps!

    Cheers.

  89. Anther solid purchase, I see a lot of value with a purchase of this company, but I decided to spread my arcp cash around a lil. Most in ford but I saved a small amount to use with loyal3. I haven’t read too many reviews online so I spent about a week doing some research and so far I’ve made a few different purchases and I really like it. UL and KO as of now. I plan on using my loyal3 account like a change jar putting what’s left of my cash allocated for paying bills and making larger purchases every month into a loyal3 purchase. Sorry to stray off topic.

    MERRY X-MAS AND HAPPY HOLIDAYS

  90. I’m a bit late to the BBL party. Bought some today @ $43.11. I have also added to my COP, CVX, KMI, OKS and BP positions this month. Probably have enough oil related stocks for now. But we shall see, the prices have been good.
    I also finally gave up on ARCP earlier this month. All the drama was draining.

  91. Pat,

    I like the “change jar” analogy. Even better, that change grows and works for you, rather than just sitting in a jar and rotting. 🙂

    Keep up the great work over there!

    Take care.

  92. Rob,

    I hear you there on ARCP. I felt the same way. Maybe they turn out just fine, but it’s the complete opposite of what I look for in a long-term investment. I’d rather cut my loss and move on completely.

    It doesn’t appear you’re late at all to the BBL party. I’d say your timing is pretty good, considering my cost basis is now somewhere around $48 or so. I’d love to be in at $43. 🙂

    Energy has some value there, but I’m in a similar position where my exposure there is probably a bit heavier than I’d really like. But I’ll continue to pick up some values here and there, knowing I can maneuver some of that exposure over time by avoiding energy down the road. We’ll see. I like the pipeline plays. Not nearly as much exposure to direct commodity pricing. Great job.

    Thanks for dropping by!

    Best regards.

  93. DFG,

    Nice! There could be further downside due to continued volatility in commodities, but I happen to think the upside is far greater when looking out over the long term.

    Thanks for dropping by.

    Cheers!

  94. Hey,

    I bought BBL at these levels too but I am a little bit concerned about a dividend cut. If that happens, would you sell all your BBL-stocks?

    Cheers!

  95. Tim,

    Hmm, I guess it depends. I’m generally likely to sell on a dividend cut, as it’s a sign of poor operations and cash flow. But I guess you have to take some of the cyclical businesses (like BBL) with a grain of salt, as temporary issues with commodities can cloud the long-term picture. I don’t think all dividend cuts are cut from the same cloth. It’s one thing for a dividend cut to be the result of poor management (like ARCP recently). It’s quite another if the cut is a result of temporary and extraordinary circumstances.

    So my answer is it depends on what BBL is communicating, if that were to happen. I’d be likely to hold if it’s just an issue with commodity supply/demand that I didn’t feel was long-term in nature.

    Best regards.

  96. Hi DM, just wanted to see if you had a chance to review the implication of the BHP PLC spin off with SOUTH32. Mainly wanted to see 1. Have you received the shares of South32 to your account (from what i understand for each ADR of BHP PLC you would get .4 ADR share of South32)
    2. Most importantly how would that be taxed from an individual brokerage account standpoint? What would be the cost basis for both BHP and SOUTH32 if you choose to sell it in the future.

    Again appreciate all your comments/articles. Keeps me motivated to stay on course.

    Thanks for your time in advance.

  97. HI DM, I did find the following link http://www.bhpbilliton.com/home/investors/shareholderinfo/Documents/2015/150525_DemergerTaxInformation_USFairMarketValueGuidance.pdf

    So for example if a person owns say 100 shares of BHP PLC they would get 40 shares of SOUTH32
    Based on the valuation the person needs to pay tax on 360 dollars worth of dividend (40 * 9 = 360), in addition he would treat the cost basis for 40 shares of SOUTH32 as 360 dollars.
    What happens to the cost basis for 100 shares of BHP PLC (do you subtract the 360 from whatever the cost basis paid for purchasing the 100 shares of BHP PLC)

    Any thoughts would be appreciated.

  98. DI,

    You’re correct. You’ll receive .4 ADSs of South32 for every 1 ADS of BHP Billiton you own.

    The South32 ADSs commence OTC trading on June 1. I imagine we’ll see shares either that day or very shortly thereafter. I’d keep an eye out early next week for those shares.

    http://www.bhpbilliton.com/home/investors/shareholderinfo/Documents/2015/150317_DemergerofSouth32ShareholderCircular.pdf

    As far as the cost basis goes, that’ll be worked out by your brokerage based on what you paid for your BBL/BHP shares. You’ll see the adjustment in your account information.

    Thanks for stopping by. Appreciate the readership. 🙂

    Best wishes.

  99. At the current price and situation, do you think BBL represents a buying opportunity or would you hold off?

  100. Mike,

    I recently added to my BBL position. However, there are a lot of unknowns regarding the recent dam issue. That will cost the company some money, but it’s all a guess right now. As it stands, FCF is just barely covering the dividend. So without a rebound in some commodity pricing, there could be some adverse change to the dividend. But I do think the long-term value is incredible here.

    Cheers!

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