I made a small purchase this month. I have been increasing my investments as I’ve been pretty successful in budgeting down my expenses. I have a little cash on hand for a possible second purchase this month, but I may wait until August. It seems to be a wait-and-see game in the market.
I purchased 25 45 shares of TEF at $22.16 a share on 7/11/2011. Telefonica has been hammered since I initiated a position, as they are headquartered in hard-hit Spain. Spain is not doing nearly as bad as some of the other Eurozone members, but there is, of course, a lot of negative attention on the entire union. I made this purchase on July 11, when a lot of ADR’s (American Depository Recepits) were being hammered and some were unjustly punished. I have averaged down on this position as I purchased my initial allotment of shares near a trading high and have made two separate purchases at subsequently lower prices. These two additional purchases have lowered my cost basis, but increased my risk through a higher position weighting.
Telefonica is a little unique in my portfolio. It’s my highest yielding position, and I think it’s fair to say it’s also the highest risk. It is headquartered in a shaky Eurozone country and the debt load is far from satisfactory, even for a telecom. I believe their dividend is fully sustainable, or I wouldn’t have increased my position size. There is a little blood in the streets regarding the Eurozone right now, and I decided that TEF is now fully in the undervalued territory, even with the high debt load.
The payout ratio now stands around 70%, which leaves room for increases. Telefonica is very shareholder friendly in regards to dividends, as I have discussed a few times. The majority of revenue comes from Latin America, a growing region far away from troubled Spain. The entry yield on this investment stands at 10.17%.
I liked TEF at $25 a share when I first initiated a position with the company, so I love it at ~$22 a share. I feel it’s currently overweight in my portfolio, or I’d increase my position even further. As it stands, I believe I will hold from any further additions to this position, even if the price drops further. I made my purchase when TEF was down over 4% for the day.
S&P currently has TEF at a 4-star BUY. They have a 12-month price target at $30 a share. I feel that’s probably fair once the Eurozone gets things under control.
I feel comfortable with this purchase. I am a fan of averaging down, if the investment thesis remains static and fundamentals remain unchanged. In my case, TEF has been unfairly beaten down to the Eurozone crisis. Due to this, I feel that it represented an opportunity to increase my holdings.
What are you buying?
Thanks for reading.
Edit: I made an error. I purchased 45 shares of TEF, not the 25 originally published.
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