Recent Buy

buyI continue my epic summer of 2015 with another stock purchase.

If every month that passes by is one step closer to financial independence, I’m probably taking two steps forward this month.

What’s really interesting is that I’m seeing some opportunities across various industries. So I’m spreading that capital out across not only different industries, but also differing companies with unique business models. And these stocks all give the portfolio something different in terms of yield, growth, quality, and risk.

This most recent pick up involved the purchase of a stock that I think blends all of those aspects incredibly well, so I’m getting an attractive yield, great growth, high quality, and somewhat low risk.

I purchased 5 shares of T. Rowe Price Group Inc. (TROW) on 6/4/15 for $79.30 per share.

Overview

T. Rowe Price Group Inc. is a global investment manager that provides asset management services for institutional and individual investors.

As of December 31, 2014, the company had a record $746.8 billion in assets under management.

Approximately 64% of the company’s managed assets are held in sponsored US mutual funds. And the vast majority of the AUM are held in retirement accounts and variable-annuity portfolios.

Great First Quarter

I initiated a position in TROW back in early March a bit under $83 per share. And like I recently wrote about, sometimes the market discounts high-quality merchandise for seemingly no reason at all.

TROW seems to fit that description.

The stock is down more than 4% since then, yet what has the business actually done over the last few months?

Well, they reported a great first quarter.

They reported revenue, investment advisory fees, and assets under management were all up 8% from Q1 2014. EPS was up 1% YOY.

So you’ve got a business that’s growing – growing at a robust rate in some areas, no less – yet a stock that’s falling. That spells o-p-p-o-r-t-u-n-i-t-y.

I decided to not let that opportunity pass me by. I never intended for TROW to be a major position for me (and still don’t), but I also don’t mind averaging down a little on a great business like this. I analyzed the stock back in March (you can read the analysis using the link above) and concluded that it was high quality across the board. Growth well into the double digits and fundamentals that rank it at or near the top of the industry. Just a lot to like here.

One major difference between buying TROW in early March and buying TROW in early June, however, is that the stock no longer comes attached with a $2 special dividend – that was paid in April.

I’ll also note that James A.C. Kennedy, CEO and president and chair of the company’s Management Committee, will retire from the firm in 2016, after 38 years with TROW. William J. Stromberg, who’s been with the company for 28 years, will take over those roles in 2016.

Otherwise, this is really just an incredible opportunity to average down on a high-quality dividend growth stock with almost three decades of strong dividend growth under its belt.

Risks

I see the primary risk for the company as the rising prominence of index funds. Some recent large outflows have been apparently due to some clients interested in saving fees, and thus moving assets to index funds. T. Rowe Price’s issue here is that if it decides to offer low-fee index funds to appease clients and retain AUM, it would sacrifice significant fees. And I’d be willing to venture a guess that management feels it deserves the fees its charging due to consistent outperformance.

Another risk is the fact that the domestic stock market has risen so much so fast over the last five years that any correction could cause a reduction in AUM that may be compounded by the possibility of outflows as an emotional response by clients. While cash inflows have significantly contributed to the positive change in AUM over the last decade, market appreciation has accounted for much more. And TROW remains heavily exposed to equities.

Lastly, a more mild risk is the fact that TROW calculates its investment advisory fees on a daily AUM calculation, so any increased volatility could affect their revenue and net income.

Valuation

TROW’s P/E ratio is 17.78 here on my price, which compares extremely favorably to the stock’s five-year average P/E ratio of 21.7. In addition, TROW is trading for a P/E ratio well below that of the broader market. Moreover, TROW’s five-year average yield is only 2%. It’s now 2.62%. That’s a spread of more than sixty basis points.

I valued shares using a dividend discount model analysis with a 10% discount rate and an 8% long-term growth rate. That growth rate is on the higher end of what I usually use, but it seems to be warranted here. TROW’s long-term dividend growth rate is substantially higher and the most recent raise just announced earlier this year was almost twice that. In addition, the payout ratio is moderate. There’s a chance that upcoming dividend raises could be lower if the market corrects significantly, but I believe that would be somewhat short term in nature like it was during the financial crisis. The DDM analysis gives me a fair value of $112.32.

Conclusion

I discussed this business’s incredible fundamentals and competitive advantages back in March, so I won’t rehash that.

However, I will note that I’m always more than happy to average down on a fantastic stock when the market decides to discount merchandise for no apparent reason. The business just posted another excellent quarter – another in a long line of them – and yet the stock is down almost 10% YTD. Absolutely fine by me.

This was a rather small transaction for me, but I used a free trade in my Scottrade account. So there was no commission fee here.

This purchase adds $10.40 to my annual dividend income, based on the current $0.52 quarterly dividend.

I’m going to include current valuation opinions from other analysts below, which I use to concentrate my reasonable valuation estimate:

Morningstar rates TROW as a 4/5 star value, with a fair value estimate of $89.00.

S&P Capital IQ rates TROW as a 4/5 star “buy”, with a fair value calculation of $94.50.

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

Full Disclosure: Long TROW.

What are your thoughts on TROW? Is this high-quality merchandise that’s irrationally marked down? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

Note: Affiliate link included.

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114 Comments

  1. Hey Jason sorry to ask this because I’m sure you’ve answered this a million times before but how much are you trading commissions/fees ?

  2. Congrats on another buy Jason. Gotta love having free trades which don’t require you to worry about these smaller purchases.

    You been enjoying the beginning of your Florida summer?

  3. CG,

    No problem!

    It depends on the brokerage I’m using. I mostly use TradeKing ($4.95 commission fees) these days now that I’m building out my new account. However, I noted in the article that I used a free trade in my Scottrade for this one.

    Cheers.

  4. Hey Jason,

    Congrats on another purchase! Your valuation looks good there. Nice below average P/E and higher than average dividend. That’s the stuff I like to see! Keep it up man, you’re killing it!

    Best regards
    DB

  5. Congrats, DM. You were a whirlwind on Twitter today. I guess we’ll be seeing a lot more “Recent Buy” articles in the next week(s).

  6. Oh sorry! That section must’ve gone straight over my head, but cheers for answering !

  7. Howie,

    Yeah. I should probably maximize those free trades and use them just like a free trade so that they last longer, but I actually enjoy the additional flexibility in terms of being able to average down just a bit on some positions that I want to boost a little.

    Summer down here is hot and rainy, so it’s really our worst season of all. But it doesn’t necessarily get that much hotter than a lot of other areas of the country – it’s rather just consistently hot all day and all night. We mostly stay indoors for the next few months, waiting for that beautiful fall to start up. 🙂

    Hope you’re having a great start to your summer!

    Thanks for stopping by.

    Take care.

  8. DB,

    TROW appears to be potentially substantially undervalued here. The only thing that could really change the thesis and valuation here is a major correction in equities, which will reduce AUM.

    But I do like what I see for the long haul here. I’m also hoping we see more special dividends in the future. 🙂

    Thanks for the support. Keep it up over there!

    Best regards.

  9. cwalczaksd,

    It’s been a really crazy June. I wasn’t planning on being as busy as I have with the purchases, but the cash from the LO transaction left me with more capital. It’ll be a challenge to get all of those articles out, but I’m up for it. 🙂

    Cheers!

  10. Camille,

    It’s really tough to see a lot to dislike here with TROW. Especially with the pullback this year in the midst of strong operational results. They just keep on humming, but the stock keeps on falling. That’s music to my ears. 🙂

    I want to diversify my exposure to asset managers, but TROW is really one of the best.

    Best wishes!

  11. I was just thinking about addi g to my position in TROW yesterday. Like you I’m bullish on the company long term and if you’re bullish on the global economy/stock markets then asset managers are a great place to invest. There definitely seems to be a lot more value opportunities available. Almost pulled the trigger on JNJ and XOM yesterday. And like I said TROW is looking good as well. Nice buy!

  12. Wow you are really on a roll this month – congrats! TROW is one of my favorite stocks and it tops my dividend growth stock ranking screen every month. I initiated a position mid May and I don’t think I’m done with it.

    Take care,

    Ken

  13. Good buy. I have not really looked back on my original purchase of TROW to add any shares. I’m looking at healthcare and utilities at the moment. Seems like you made a great decision to buy more, congrats!

    – HMB

  14. JC,

    TROW is an interesting stock in that you’re getting exposure to the stock market twice, both through it being a stock and also in the way that their results are largely tied to AUM (which itself is largely tied to the stock market). But if we weren’t bullish on stocks, high-quality companies, and the broader global economy, we wouldn’t be investing the way we do. 🙂

    Thanks for dropping by. Keep it rolling over there!

    Best wishes.

  15. Keep up the good work, with your blog and stock purchases! I always look forward to new content! I am also having an exciting month with purchases, and can’t wait for the free money to start rolling in.

    Best wishes,
    Steven

  16. Ken,

    Thanks so much. I’ve been fortunate this month to put a good amount of capital to work. I’m finding it challenging to get all the articles out, but another reader above was right in that it’s a good problem to have. 🙂

    TROW is a really great stock. It kind of flies under the radar a bit, which belies the quality. But I remember taking a strong look at it late last year and felt compelled to initiate a position from there.

    Glad to be a fellow shareholder!

    Cheers.

  17. Steven,

    Sounds like we’re both having a great June. 🙂

    It’s incredibly fun to put new capital to work, right? And dividend growth stocks are the best merchandise of all since they actually pay you to own them. Can’t say the same for clothes in the closet!

    Thanks for stopping by. Let’s stay aggressive!

    Best regards.

  18. HMB,

    We’ll see how it goes. I actually see some opportunities across multiple industries, but TROW was going ex-dividend and I liked the valuation.

    I’ve noticed that a lot of utilities have strongly corrected over the last six months or so, and rightfully so for the most part (many were substantially overvalued). Not a huge fan of the sector, but I might add a little exposure there over the coming months.

    Have fun shopping over there! 🙂

    Cheers.

  19. Another one!? That’s two in just a couple days! You REALLY want to reach financial freedom fast, don’t you?

    Sincerely,
    ARB–Angry Retail Banker

  20. ARB,

    Financial independence isn’t going to achieve itself, right? 🙂

    This month has been really busy on the purchasing front. I still have five more articles to get out. Just crazy. Although, July might be a tad slower than usual because of that. We’ll see how the cash flow looks.

    Thanks for stopping by!

    Best regards.

  21. leon,

    BEN is another great stock. I also like it quite a bit. In fact, it might be the second asset manager I accumulate after TROW.

    TROW sports better fundamentals pretty much across the board as well as a much higher yield, but BEN has the more attractive valuation. On paper, TROW appears to be the better company. But I doubt you’d go wrong with either/both over the long haul.

    Take care!

  22. Wow. Lots of activity going on lately! Stay thirsty, my friend.

    TROW and BLK are both on my watch list. Both are quite large and have the scale to weather the ups and downs. I’d prefer to wait for a downturn to pick them up, but given they are growing earnings consistently at or above 10% per year, the opportunity cost is high to wait, and the yields on both are also growing at a fast clip. All considered, it’s tough for me to imagine why two companies growing earnings over 10% annually are trading at 15x or lower forward earnings.

    Soon to be long either or both!

  23. Jason,

    Well my first thought is wow you’re throwing a lot of capital around, but that’s exactly what you can do when you live frugally and make sacrifices now so that you can have a great future. Such an inspiration.

  24. DM,

    Averaging down on something is great, isn’t it? Even better is commission free. Those dividends will keep rolling in.

    Did you receive that special dividend they announced recently too?

  25. Jason, back to back buy articles! Exciting times for your portfolio. Nice utilization of the free trade. How many free trades do you typically have? That’s a huge advantage over the market by eliminating transaction fees!

  26. Ravi,

    I’m thirsty like I’ve been stuck in a desert for the last month. 🙂

    The stock market is a funny place. You sometimes get high-quality merchandise that is priced like garbage and you sometimes get vice versa. But I long ago realized that it was an irrational marketplace and that I was going to use that to my advantage. Once you decide to use Mr. Market’s folly against him, you’re in good shape.

    Looking forward to having you as a fellow shareholder!

    Cheers.

  27. Tyler,

    That’s exactly it. Once you realize what the true sacrifice really is (working for most of your life) it becomes quite easy to live below your means and aggressively save/invest. I’ve been fortunate in that I turned it around while I was still relatively young and I’ve been able to take advantage of some opportunities along the way. But it all starts with realizing what you really want out of life and being willing to do what’s necessary to go out and get it. 🙂

    Thanks so much for the support. Hope you’re having a great June as well.

    Best wishes!

  28. SWAN,

    I do love averaging down, especially when a company is actually improving results. TROW was cheap before, in my view. Down in the $70s, it’s even better. 🙂

    I did receive that $2 special dividend. Hope TROW is able/willing to send out more special dividends like that in the future. Every dividend counts!

    Cheers.

  29. RTR,

    Yeah, I’ve been busy this month. Like a kid in a candy store. 🙂

    The free trades vary. Just depends. I had four going into June, but I used them all up. I get them via surveys that Scottrade sometimes sends out and I also get quite a few by referring people to the brokerage. But I’m down to zero now, so it’ll probably be a little while before I’m quite this active again.

    Thanks for stopping by!

    Best regards.

  30. DM,

    TROW’s dip also caught my eye the other day too. I still do like it, but consider my position full now (unless it REALLY dips!). Looking elsewhere for opportunities. Actually interested in BEN too as further exposure to financial services. Love the strong balance sheets on these guys.

    Good to see all this buying activity lately. Keep it up!

    -RBD

  31. RBD,

    I hear you there. I, too, didn’t want to go too crazy here as my position in TROW is really about as large as I’d like it to be right now. And that’s why I averaged down the way I did with a smaller transaction. Really love the fundamentals, but I’m also interested in spreading the wealth out across a few different asset managers. BEN is another great play in this space. Yield’s a bit low, but frequent special dividends make up for some of that.

    Plenty more articles to come. Going to be difficult to fit them all in this month. A good problem to have, though. 🙂

    Thanks for dropping in!

    Best wishes.

  32. Wow, you’re on one hell of a shopping spree dude! But it’s certainly money well-spent, haha! This was a solid pickup, and commission-free to boot. That extra $10 in annual income might seem like nothing, but after 5 years of investing, you know better than anyone just how quickly these small gains can accumulate.

    Keep up the great work as usual, Jason!

    Cheers

  33. Hi DM,

    Good job. You are an inspiration. Keep up the good work.

    Sorry for asking, but I was wondering how I can get many free trades like you do with Scottrade. Thanks.

  34. Mike,

    Thanks so much. I write and share the way I do to inspire others. So I’m glad that it’s coming across. 🙂

    As far as free trades go, you can get them by filling out the occasional survey that Scottrade sends out and/or referring people to the firm.

    Take care!

  35. That’s how you do it! I saw TROW’s fall and really like it here, I’m hoping to join you if it can hover just a little longer. This is such an impressive June for you, and I’m a big fan of all your recent purchases on Twitter! I’m guessing June officially takes the cake for most contributions in a month, what an awesome boost to your forward dividend income. You still have 14 days and I’m hoping for at least one more.. keep it going Jason!

  36. Ryan,

    Thanks so much. Looks like we’re both having a blockbuster June. Awesome, right?

    Looks like I’m up to nine buys this month. I don’t think I’ll cross 10, but we’ll see. That would be an epic way to really get the summer started!

    Let’s keep it rolling. How exciting it is to be that much closer to financial independence. 🙂

    Best regards.

  37. WOW! I peeked in at Twitter. I. can. not. wait. for your HSY content! Welcome aboard. You’re killing it. I’m near out of capital this month (one more buy of ORI, hopefully soon cuz I missed the main boat on that) but am enjoying living vicariously through your buys. Nuts! Great, great buys.

  38. divy,

    The Twitter feed has been blowing up. June’s been a lot of fun. I’ve been spoiled, though. I now wish every month was like this. 🙂

    Thanks for the support. I should be able to get the HSY post out sometime early next week. Got a bit of a queue going now, which is obviously a great problem to have!

    Stay in touch.

    Best wishes.

  39. Hi Jason, nothing to say about the company of course, but don’t you think that would be better to wait the price to show some kind of strength ? Now looks few weak, maybe you (and me) could buy it at cheaper price..

    How do you think ?

    PS. I know is a long term investment (and even with few impact on your portfolio) and you don’t care much the price fluctuations.

    Thanks !

  40. Jason,
    you bought TROW twice. You like BEN. But what about BLK?
    What are your thoughts concerning BLK?

    Thanks in advance
    ZaVodou

  41. Hi Jason
    Using Warren Buffet’s initial assessment formula where he looks for P/E less than 15 and P/BV of less than 1.5, TROW looks quite expensive, coming in at P/E of 17.6 and P/BV 4.1.

    What Buffet looks for:
    P/E * P/BV < 22.5

    TROW results:
    P/E * P/BV = 72

    The book value of TROW is just $19 vs a market price of $78, I see that the company has good growth and very little debt, but I am wondering if you are being thrown off by their 12/13 growth. TROW's income growth AND book value is slowing dramatically (BV up 11.5% YOY 13/14 as opposed to 23% 12/13)

    I think that TROW's fantastic growth in 12/13 is an anomaly. Their growth looks too inconstant and risky to me considering the yield is not much above a 10 year treasury note (currently 2.32%). If the current trend holds, you can expect growth of just over 5% for this financial year which I suspect would cause their stock price to fall significantly.

    But good luck with them and I hope their numbers next quarter prove me wrong. Your site and story is fantastic, I only found your blog a couple of weeks ago but I am now a regular reader.

    L

  42. Good day Jason. it is great reading about your journey to financial freedom. TROW should add nicely to your freedom fund. This dividend paying stock (TROW) will help you achieve your dream. Hopefully the rest of the year will just as busy. Take Care

  43. Man, that really seems a great company: rising revenue, rising profits, rising eps and no debt.
    Imagine if they, choose to buyback a few shares now and then. It would be perfect!
    Nice buy! Another $10 in your pocket every year!

  44. Mantra,

    One word to reiterate – EPIC. Nice work, all I have to say. Keep the capital flowing! I love T Rowe’s stock right now… awesome dividend policy.

    -Lanny

  45. TEI,

    Right. What you’re proposing is basically market timing. Of course, the price could fall tomorrow, next week, or next month. It could just as likely rise. The key is to find a high-quality company selling equity for a fair or better price and then pull the trigger. It likely won’t matter whether you paid $78 or $74 30 years from now, assuming the company does what it’s supposed to.

    Hope that helps!

    Take care.

  46. ZaVodou,

    BLK is another great asset manager. My only concern there is its size. Its size is both a benefit and a drawback. The benefit being that its size gives the firm immense scale, resources, and diversification. But the drawback being that its future growth opportunities are relatively limited. Great fundamentals, though. I just wonder how large the AUM can possibly become there.

    Cheers!

  47. L,

    If you’re waiting for TROW to fall under that 22.5 mark, I’m afraid you’ll be waiting for a very long time. I think the lowest the P/B ratio been over the last decade was about 3.7. Its P/B ratio was approximately 5 a decade ago. The P/E ratio was 23.9 then. So that’s almost 120 there. And TROW has delivered 12% annualized returns since then. So there you go.

    I’d be careful not to rely on your formula over there, or really any other formula like that. Buffett, through Berkshire, has been aggressively buying Deere lately, for instance. And its P/B ratio is almost 4. Multiply that by its P/E ratio and you get almost 50. I’ve never actually witnessed anything relating to any P/B or P/E formula insofar as it relates to the stocks/companies that Buffett buys. Not in any type of consistent manner, at least. But people on the internet love to think they have it figured out.

    Edit to add: If you’re referring to the Graham number, Buffett hasn’t been buying “cigar butts” for a few decades now.

    As far as inconsistent growth, the only fiscal years they managed to not grow EPS was 2008 and 2009. And that coincided with the financial crisis. Relative to a lot of other financial firms, they actually did incredibly well there. And the dividend of course was increased straight through.

    Thanks for dropping by!

    Cheers.

  48. Michael,

    Thanks for the support! 🙂

    I’m also hoping to stay just as busy. June will definitely set some records for me, but I think I might manage to eke out a great summer here.

    Hope your journey is proving just as fruitful!

    Best regards.

  49. Nuno,

    The fundamentals really offer a lot to like. The fact that they’ve managed this kind of growth over the last decade with no debt and no buybacks is pretty amazing. That gives them a ton of flexibility moving forward.

    Thanks for dropping by. Hope you’re having a busy June over there as well!

    Take care.

  50. Hi DM,

    TROW is on my watchlist and I’m hoping to initiate position in the near future. I currently on EV.
    Have you ever looked at EV?

  51. Jason,

    Very nice. Small purchase for you, but that is a position I would take on any day. My next buy will be between TROW, BEN, UNP, and NSC – and right now TROW and UNP make the most sense then BEN and NSC. You are right, so many opportunities out there right now, no reason to sit and wait on them.

    -Gremlin

  52. Gremlin,

    We’re on the same page there regarding TROW and UNP. In fact, I plan on buying more UNP next month as well. Just trying to find enough capital to keep buying what I’ve already been buying while still opportunistically opening up new positions in companies that have exciting long-term prospects. We’ll see how it goes.

    Happy shopping over there!

    Best regards.

  53. Interesting concern. I think I read in a recent report that many 401k plans have also hit their “peak” with net outflows (inflows are now less than withdrawals plan-wide). Of course that’s offset by the value of the market, so it’s not a direct effect on the asset managers.

    If it does end up impacting the asset managers (i.e. TROW and BLK start seeing net outflows regularly), my guess is there would start to be more industry consolidation. Perhaps the smaller managers would become targets, or maybe the larger ones would merge. I don’t imagine a ton of fixed costs and also low capex in the industry, so it could be interesting to see it play out. If anything, the overall growth of international and emerging markets could really minimize the effect anyway.

    Interesting to think about, but not an issue today. Can’t prevent everything!

  54. Ravi,

    TROW continues to see inflows, which is actually perhaps a bit surprising considering the popularity of passive funds. But I think they’ll have to widen their scope regarding passive offerings in the future in order to compete. I think it makes sense to diversify across some of the major asset managers, however, because they all differentiate themselves a bit in terms of their exposure. BLK, for instance, has far more exposure to passive, which I think should insulate them somewhat with the prevailing trends.

    We’ll see how it goes!

    Best wishes.

  55. DM,

    hello, its been a while since I commented.

    I have a general question about stocks, i want to get your opinion.

    There are many quality stocks out there that have higher yields than ever. If you use the yield as a proxy for earnings quality and management sentiment, you could argue that many stocks have gotten cheaper. For example, XOM is yielding almost 3.5%, which is rare in recent history (<20 years), higher than it was in 2009 and 2010. XOM management is smart, they are good at determining an acceptable payout ratio. The market is not valuing the company in its traditional range.

    I could go on with many other companies, CVX, EMR, IBM, CAT, HSY.

    Even a stock like UNP, which has done a tremendous job at increasing margins over the last 10 years, is actually cheaper on an yield basis than it was in 2004. And yet it is a much better business now.

    What this has meant is that returns over this time period haven't been that great for many of these companies. If you are buying now, this is a good situation. Do you think that the market is wrong or do you think there is something else going on here (such as increased payout ratios).

  56. sfi,

    Long time, no talk. Hope all is well over there!

    As far as your question goes, I think it’s a combination of many things. Many companies have improved efficiency across the board, bought back a lot of stock over the last 10 years, and also increased payout ratios. So I don’t think you can point to any one thing. Depends a lot on the individual company. I will note, however, that many of the oil companies are simply paying out a greater portion of earnings in the form of a dividend now than they were back then. HSY, on the other hand, appears to have been just plain overvalued 10 years ago. So you might be painting with too broad of a brush on this.

    In addition, not all of them have had poor returns over the last decade. UNP is well into the double digits on an annualized basis. Even much-maligned and criticized IBM is over 10%. Of course, some of those businesses (like CAT, EMR, and the supermajors) are cyclical, so you have to compare peak to peak or trough to trough.

    But my answer would be like most things: it depends. Depends on the company, its industry, operations over the last decade, valuation at the beginning of the period, the payout ratio, outstanding shares left, and growth prospects moving forward.

    Hope that helps!

    Thanks for stopping by.

    Best regards.

  57. Another great addition! Right now I’m looking at walmart, It trades at 14.8x earnings, has some short term growth problems but is investing heavily in smaller stores and the digital space. What do you think of WMT right now?

    Take care,

    Bo

  58. That’s a good point. I guess another good time to apply the age-old question, should the company or the investor diversify?

    Might be an interesting post when people are considering different purchases! 🙂

  59. Bo,

    I just recently covered WMT in a quick piece here:

    http://dailytradealert.com/2015/04/22/this-stock-has-raised-its-dividend-for-42-years-in-a-row-3/

    I like WMT here, though the recent dividend raises have been rather disappointing. The valuation I came up with shows that it’s roughly fairly valued right now, and I recently added to my position in the company. I think there’s a lot to like here, but it’s no steal and there are challenges ahead. That said, it’s still one of the best retailers in the world.

    Hope that helps!

    Take care.

  60. Ravi,

    I think the answer to that question will always be the latter. It takes me two seconds to buy stock in a company that diversifies out my exposure. Conversely, it can take years for a firm to diversify its operations. And that’s just part of the fun for me and why I love being an investor. I can simultaneously become a railroad baron, real estate mogul, and retail giant quite easily. 🙂

    Cheers.

  61. Jason,
    I was wondering why you did not consider buying more WPC, it has a yield of 6.20%? Trow has a yield of 2.64%. If you are going to hold a stock for years WPC has the better yield and it is around the 52 week low. In this case the more dividends looks like it would be a better choice. Will the increase in interest rates effect either stock? Also, another question please, do you see any difference between Tradeking and Scottrade, beside price? Do you find that one is more easy to use or has better tools?
    Thanks for your help!!! YOU THE MAN!!!!
    Nut501

  62. Nut501,

    Well, the answer to your first question lies in diversification and management of risk. I could just load up the entire ~$200k portfolio in stocks all yielding 6% or more. And I’d be a lot closer to being able to live off of my dividend income right now. But how risky would that be? What would the growth of that income look like over the next 30 or 40 years? How many industries would I have exposure to? I’m interested in buying more WPC here in the near term, but I have to weigh out the fact that it’s already a rather substantial dividend payer for me when considering its yield. As it stands, WPC will be sending me almost $200/year in dividend income. It’s sending me more income than, say, KO. So it’s just balancing that out.

    As far as Scottrade or TradeKing, I personally prefer the former. I’ve had a better experience with their customer service and I also like the fact that I can stop in at my local branch if I need to. But they’re both fine services.

    Thanks for the support!

    Best wishes.

  63. I have a question on VOD. Your cost basis (on the portfolio tab on the website) is over $4k but the current market value is about $3k. Are you really down 25% on this ? I looked at the 5 year chart and it doesn’t look possible that you are no matter when you initiated the position. Is it due to the large dividend when they sold their stake in Verizon Wireless ? I’m considering initiating a position.

  64. Andrew,

    That’s a good question.

    VOD underwent a major change in early 2014. They performed a 6/11 reverse split on the stock after sending VZ shares and cash shareholders’ way when VZ bought the portion of VZW they didn’t yet own from VOD (it was a joint venture). So my cost basis remained the same (but my shares were reduced), but I received cash, and I also received VZ shares.

    I actually spent a bit over $4,100 to accumulate 150 shares in VOD. In the end, I now have 81 shares of VOD worth a little under $3,200, 39 shares of VZ worth approximately $2,000, and I also collected about $740 from the “Return of Value” from VOD back in early 2014. That’s not including the sizable dividends from VOD and VZ along the way. It’s actually turned out to be a very profitable holding for me. And this case kind of illustrates why you can’t really rely on stock charts to tell you the whole story a lot of times.

    Cheers!

  65. Looks like a great purchase, DM. Fundamentals look good and looks like a great company to own for the long run.

    Best wishes
    R2R

  66. You are killing it on these stock purchases. I can hardly wait to see what you do when you have your “book income soldiers” put to work!

    My $.02 and personal experience with TROW – I have not considered them as an investment but have been a customer for 25 years. I guess I should have bought what I know? The bulk of my retirement savings are invested in various index, mutual funds, and individual equities with them. From a customer’s perspective they have great services and products. I can now tell them I know one of their owner’s ….. 🙂

  67. R2R,

    We’ll see how it goes, but I’m pretty excited about their long-term prospects. Over the short term, anything is possible. And a broader market correction could drag the stock down as AUM drops, but they did quite well during the financial crisis. And they’re bigger and better now than they were heading into that.

    Thanks for stopping by. Congrats again on your blogiversary! 🙂

    Best regards.

  68. Bryan,

    Thanks so much. It’s been an incredible month, but the entire journey has really been incredible up until this point. I’m just so grateful that I “woke up” and turned it around a few years ago. Time sure flies by, which is why it’s so important to start saving and investing.

    Thanks for the feedback. I always appreciate that kind of insight. If you look at TROW’s track record, you’ll find that they’re really killing it in terms of their performance against peers.

    Appreciate the support – both as a reader and a TROW customer. 🙂

    Best wishes.

  69. TROW is a keeper, almost always a good buy. It is one of those old hat companies that seems to just plug along.

    I just added to my position in XOM today. I wanted more exposure to the energy sector at this point. I also looked at adding to my holdings of KMI or initiating a position in RDS.B, but I thought XOM is fairly valued here, and took the opportunity to average down.

  70. Wow… two buys in a row I can get behind. I still like the financial sector a lot which includes banks (you know I have been buying up the Canadian banks), insurance (largest holding is AFL and I have CB too) and of course the asset managers such as TROW. Nice to read all these buys. Not sure what’s happening as I too have made buys each week in June and I have not done that ever. I think we have the dividend investing bug. Thanks for sharing this solid dividend buy.

  71. Hi Dividend Mantra,

    Now that the exchange rate USD/EUR is good for US citizens, you do not plan to buy some more European stocks?

    Regards,
    Dividend Fish

  72. BCS,

    Looks like Richard continues to add to KMI, so we’re in good company there. 🙂

    I actually thought about adding a bit to XOM as well quite recently. It’s trading just a bit below my cost basis here. I think there’s more pain ahead, but XOM is a solid long-term holding. I decided to add a bit to OKE instead. Really could have gone either way. I’m still not super interested in energy, in large part due to my concentration there, but there’s some value here and there. I still like NOV here at book value.

    Keep it rolling over there!

    Cheers.

  73. DH,

    June’s a watershed month for sure. Looks like I’m going to finish at nine buys this month, unless I’m able to squeak one more out.

    There’s definitely some value there in Financials. It appears to be one of the better sectors, in my view. But it’s also the one that could get hurt the hardest with any negative macroeconomic changes, so one has to be vigilant there and balance that out.

    Thanks for dropping by. Let’s keep it up!

    Best regards.

  74. DF,

    There actually isn’t a ton of value there, from what I can see. However, I mainly just watch UK stocks due to the tax situation. I’d love an opportunity to average down on UL, but it popped not long after I bought. I think it’s roughly fairly valued now. DEO is one I’d love to get my hands on, but I’m not crazy about the price here. We’ll see what we get!

    Thanks for stopping by!

    Take care.

  75. Nice pickup DM. There really isn’t anything else to say here haha I like BEN as well, but TROW’s yield is more than double BENs, so to me it is worth the slight premium there.

    I like the industry in the long run, especially considering the large inflows that the asset management companies have seen in recent history. The best part is that I don’t see that trend reversing anytime soon, especially as companies continue to push 401k plans on employees.

    Keep up the great work. It seems like you have been on quite the purchasing streak recently. Hopefully you keep it up and continue to add more strong companies to your portfolio!

    Bert

  76. Bert,

    Definitely. BEN is a great company. I absolutely wouldn’t mind owning a slice of it. But the gap in yield is pretty large there.

    TROW has been bucking the trend when it comes to inflows into active funds, which I think speaks to their competitive position, reputation, and quality. So we’ll see how that goes. I would like some exposure to passive funds to offset that risk, however.

    Thanks for dropping by. You guys are staying really busy over there as well. 2015 is turning out to be an incredible year!

    Best wishes.

  77. I know you’re not a big market timer but I think you will have a chance to load up more when greece defaults. End of june. i still continue to accumulate cash, but follow yer discipline and activities with interest.

  78. Hi Jason
    I wasn’t suggesting waiting for TROW to fall under 22.5, just suggesting a different way of valuing a stock which includes book value. Did you factor in their high price to book when you were assessing this company?

    In regards to being careful with the formula, I believe it is more of a guide to help make an informed decision. By including book value it helps gain a better insight into the company. There are some great videos from Preston Pysh here where he goes into detail about what WB looks for when investing.

    http://www.youtube.com/channel/UCLTdCY-fNXc1GqzIuflK-OQ

    As for Deere, you are right, it comes in pretty high too, Im sure the man who wrote the formula knows when to break it.

    What I mean by inconsistent growth is if you look at TROW’s net income statement the picture looks pretty good.

    2012 – $884M
    2013 – $1048M (18% improvement)
    2014 – $1230M (17.5% improvement)

    Growing net income, excellent!

    But, look at their balance sheet under total stockholder equity

    2012 – $3.8B
    2013 – $4.8B (26% improvement)
    2014 – $5.4B (11.5% improvement)

    Hmm. Looks inconsistent to me. There is something going on under the hood that is not related to TROW’s income that is affecting their book value. Perhaps 3 years isn’t a large enough sample, but thats all I could find on Yahoo finance. I am watching with keen interest what TROW’s 2015 total stockholder equity will be, but I’m not expecting a jump back to +26%, I would bet something more like +5%

    What are you expecting for TROW’s book value in 2015?

    L

  79. Jason,
    I like the buy. An excellent company with great fundamentals – low payout ratio, no debt (!) etc. I bought this in the low 80s and it is currently at a good point to average down.
    Good job on making your money work for you!
    D4S

  80. Hi Jason,

    First of all – really like your blog!

    Regarding trade commissions, I’d take a look at Bank of America Merrill Edge self-managed accounts. If you have enough assets to qualify for Platinum Honors Rewards level with BOA (which, based on what I read here, you do) then you get 100 trades a month for free (no maintenance fees of any kind either, plus you get nice benefits like free money orders, etc.). It’s nice not to think about commissions…

    Cheers!

  81. dzogen,

    I certainly hope you’re right and we get that kind of opportunity. I’m still going to be buying stocks for many years, so every correction helps. That said, I’ve been hearing the same thing for years. Except you just replace “Greece defaults” with any number of other things. “I think you’ll have a better chance at cheaper stocks when X happens.” Of course, X happens and stocks keep on chugging for the most part.

    But even a broken clock is right twice a day. And I hope noon strikes here pretty quickly, as I’d love to shop on sale. 🙂

    Take care.

  82. L,

    “Im sure the man who wrote the formula knows when to break it.”

    Not sure why you think Buffett wrote the formula. Like I mentioned in my first comment, people on the internet tend to write formulas for Buffett and claim they have his technique figured out. Yet none are running a company like Berkshire Hathaway. Benjamin Graham actually came up with the formula, not Buffett. That’s why it’s called the Graham Number. In addition, like I mentioned earlier, Buffett hasn’t really been buying those cheap “cigar butts” for decades now. Some of his buys fall within that criteria or just outside it (like banks) and some don’t. There doesn’t seem to be any definitive correlation there at all. In fact, looking over the last quarter of transactions for Berkshire, I can see that NOV for sure fell within that criteria, and was probably the cheapest stock of all. Yet Berkshire was selling it, not buying it. Again, approaching stocks in a formulaic manner is a huge mistake, in my view.

    As far as TROW’s book value, it’s not something I look at closely. I simply make sure it’s not inconsistent with its historical norm on a valuation basis when I buy the stock – TROW’s P/B is cheaper now compared to its five-year average. But a business, to me, is ultimately worth all the cash flow they can produce from now until the end of time, discounted back to today. As such, book value becomes somewhat irrelevant to me. I’m not looking at liquidation value. I’m looking at cash flow. Moreover, I even invest in stocks with negative book value (PM and MO) and I’ve done pretty well there.

    Cheers!

  83. D4S,

    Glad to be a fellow shareholder here. I think TROW will serve us well. We might see better opportunities if/when the market corrects, but TROW has been there and done that. Looking forward to collecting decades of growing dividends alongside you. 🙂

    Best regards.

  84. MTT,

    Thanks so much. Appreciate you following along. 🙂

    Yeah, I might go with Edge for my next brokerage. We’ll see. My only major issue there is that right around the time I’ll start collecting free trades ($50k), I’ll be looking to diversify out of the account. So that might not provide me a lot of value. In addition, I’ve come across a disproportionate number of negative reviews for the firm. But anecdotes aren’t necessarily all that insightful.

    Thanks for stopping by!

    Take care.

  85. Hi Jason,

    Great blog! Like you, I am also with Scottrade. Nowadays, I invest mostly in Blue Chip stocks and Dividend Aristocrats. However, when I first started out a few years ago, I purchased one risky stock fund. So far, my portfolio has been working out nicely except for that one single purchase. When I started investing and was fairly new in the game, I invested a considerable amount into PIMCO’s PHK, when Bill Gross was behind it. I was attracted to the steady monthly dividend. At the beginning of every month, PHK dumps about $600 into my account like clockwork. Every single month. Never skips a beat! It’s very tempting to hold on to it, but I don’t know if that is wise. My average cost basis is about $12.50 per share (high, I know!) Now, the price of PHK has dropped to about $10.43 a share and I am debating whether to hold or to dump it. If I sell at today’s prices, it would be a loss of about 9K. I added up all my dividend payouts over the years, my total dividends from PHK so far have added up to about 7K (which I have been reinvesting into At&t and some other blue chip stocks over the years). Bill Gross left PIMCO for Janus, I believe. He has since been replaced by two very qualified managers: Alfred Murata (Stanford) and Mohit Mittal (U-Penn Wharton School of Business).

    http://financials.morningstar.com/cefund/operations.html?t=PHK

    Dump or Hold? I don’t know. Right now, it’s just a paper loss. If I could go back in time and do it over, I probably would have bought less PHK and at a lower price, along with more T, ORI, WPC, SBUX, AAPL, TROW, etc.

    What are your thoughts?

    Thank you for this inspiring blog and for being so open with your portfolio. I look forward to reading your blog every afternoon with my cup of coffee. 🙂

  86. P.S. I forgot to mention that I started out with a smaller amount in PHK, and added to it. I would receive about $31 in monthly dividends, but after buying more and more shares during those early days, I am now at about $600/month – just wanted to clarify.

  87. LPI,

    Thanks for the support and readership. I really appreciate that!

    However, I know absolutely nothing about PHK. I hesitate to expound on something if I’m not familiar with it, and this is one of those situations. But perhaps there’s a lesson in that. How well do you know the fund? How do they generate the payments they send you? What are the top investments? What kind of leverage is being employed here? How confident are you that they’ll be able to continue delivering those payments? Are you comfortable with the risk? Are you aware of the risks?

    I’d only recommend to be careful about chasing yield. PHK’s payment today is the same as it was 10 years ago. While the yield is higher now than it was then, that’s only because the stock price is down so much. The total returns over the last decade are pretty solid, but not like what the yield might lead you to believe. So just make sure you’re sticking to quality, know the value of what you’re buying, and know what you’re investing in.

    Cheers!

  88. hey Jason, I think you’ve mentioned that your not a big fan of Motif Investing at the moment. I was interested so i gave it a shot and must say its very user friendly. I created a motif of div stocks (many same as you own). I just learned that if you create a motif and others buy, or modify, it the creator gets a royalty. It would be cool if you had a DM motif out there. I’d be a buyer…

    on another note, you can attach an image to the motifs so i googled “div growth images” and found a simple bar graph image of red rising blocks with dollar signs and an arrow moving from left to right (or lowest point to highest). i liked the simplicity so i saved to my desktop. Low and behold, dividend mantra .com is the source. No idea if copyrighted, public domain, etc so just thought I’d ask. Can i use it? Totally understand if I shouldn’t.

    enjoy your site, man…

  89. Appreciate the good thoughts, it was a good fight, but just didn’t have the healthy talent that was needed. “next year” as us Clevelanders always say…

    Lanny

  90. Joe,

    Glad Motif is working out so well for you. That’s fantastic. 🙂

    I wouldn’t feel real comfortable setting up something for a royalty, however. There are actually a few platforms out there that offer something like that, and I’ve actually turned down a few opportunities for that. Probably easy money, but just not something I’ve ever felt real comfortable with.

    As far as the image goes, you’re free to use any headline images here on the site. However, you’ll want to make sure you credit them properly. That image you’re looking at should have come from FreeDigitalPhotos.net, and it’s likely I put the attribution near the bottom of the post. They’re all free images, but they require giving credit.

    Thanks for dropping by. Best of luck with the new portfolio over there!

    Cheers.

  91. Hi Jason,

    Let’s buy stocks every month next 30+ years if possible. The cash flow will be awesome – that’s the key point. No matter what Mr. Market is doing, we just focus on buying quality stocks every month.

    Have a great midsummer.

    – AT

  92. AT,

    The amount of wealth we’d have with buying thousands of dollars’ worth of stocks every month for three decades would be superlative. Since my expenses aren’t superlative, I’m going to stop accumulating assets within the next decade. But the great thing about money is that it works even when you’re not, and it tends to work harder and harder (when invested correctly) even when you’re no longer adding worker bees. 🙂

    Let’s both have a great summer!

    Cheers.

  93. Added to HSY @ $88.88. Still not a full position yet. Love to see it goes to $85. Its dividend increase also coming next month.

  94. AJ,

    Nice move there. I’m still somewhat lukewarm on HSY over the long haul, though. I’m glad to have initiated a position here, but I’m not sure how heavy I’d want to go. If it drops another 5% or so, I might average down. We’ll see.

    Cheers!

  95. Jason,

    Absolutely right. My stockbroker is Interactive Brokers in which commission fee is only 0,25 USD per trade. That’s the point why I can buy stocks every month and use not so much money per trade.

  96. DM, I continued adding to positions in XOM, JNJ, and WMT early last week. JNJ is finally up to 2.5 percent of my overall portfolio. I’d go as high as 5 percent if it keeps going down. I have a hard time buying it at 98 even though I know it is a great buy as my original purchase was at 66 just a few years ago.

  97. DM, correction, my first purchase of JNJ in 2010 was actually 100 shares at 58 dollars!! So it’s hard to add at 98 even though I know it’s smart!

  98. DD,

    Yeah, I know what you mean. It’s tough to average up, especially if the gap is large. But just like it’s important to focus on value on the way down, it’s also important to focus on value on the way up. Value is value, irrespective of price.

    But I also recently bought WMT for the first time in a long time. The value now is similar to what it was the last time I bought, even though the price has jumped. Of course, if we’re buying high-quality companies and they do what they’re supposed to (increase profit and dividends), then the price will naturally rise over time. Just a function of doing the right things.

    Glad to be a fellow shareholder!

    Cheers.

  99. Yes ,I am glad too. My first purchase of WMT was for $48 for 100 shares in 2010, so was also difficult to add recently!

  100. Jason, with all the purchases this month it looks like the snowball is rolling downhill with no brakes. Congrats on the new purchase. Love TROW, though it’s not on our radar it’s a great company to own. Looking forward to more posts on the purchases you made this month.

  101. Hi Jason!

    I’m trying to learn the use of the DDM analysis and wanted to ask you that do you value stocks using the current dividend of the company or some estimate of what the dividend will be next year? I used the basic formula of the ddm with 10% discount rate and 8% growth rate with the current dividend (2.08 annual dividend) and it gives me a value of $104 for TROW. So there’s a small difference with your valuation. Anyway I think this is a solid buy for you and thanks for the article!

  102. ridah1o1,

    Thank so much!

    I don’t think I’ve ever been more aggressive in regards to saving and buying high-quality dividend growth stocks than I am right now. This snowball is going to turn into an avalanche before I’m done. 🙂

    Hope you’re having a great month over there as well.

    Best regards!

  103. Sampo,

    Good question there.

    I use the current dividend. I can’t use an estimate because I have no idea what the next raise will be, which means I’d be getting inaccurate output. The output is only as good as the input. Garbage in, garbage out.

    I use a spreadsheet for the DDM information, but this calculator gives the same output as what I have in the post:

    http://www.calculatorpro.com/calculator/dividend-discount-model-calculator/

    Hope that helps!

    Cheers.

  104. Sampo,

    Hmm, I’m not sure. The only thing I can think of is that maybe the spreadsheet I’m using (and the calculator I referenced) is somehow front loading the growth, spitting out a one-year target price. But the numbers I come up with tend to be pretty consistent, on average, with other FV calculations I run into.

    Hope that helps!

    Cheers.

  105. Ok. Just something that I noticed: I get your value by adding four years of dividends to my calculation (4*2.08=8.32, 104+8.32=112.32)

  106. Sampo,

    The difference is really that of one year’s growth rate, or 8%. That’s why I mentioned I think the difference might be a one-year target price versus a price based all on TTM information. So I think one calculation (the one I’m using) is forward looking and the other is backward looking (the one you’re using).

    Cheers!

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