Well, volatility continues to rule the market. One day, the euro zone is saved…the next day the collapse of the financial system as we know it is imminent. I don’t really pay too much attention to headlines. You know why? Dividends! No matter what the talking heads say, the companies that I invest in continue to pay out dividends which I use to reinvest so that I can compound my investments over time. When the newspapers say the end of the world is near, and the stock market takes a dip as a result, I use that as an opportunity to pounce on attractive investments. I did that again over the past week.As part of my Recent Buy series, I try to let my readers know of any equities I purchase soon after the transaction is completed. This is just one way I try to document my progress toward early retirement and financial independence.
The Dow Jones Industrial Average broke below 12,000 points this past Thursday. With all the volatility the markets were experiencing that day I decided to put my capital to work for me. I had a larger amount of capital to work with this month due to my recent sale of my Telefonica S.A. (TEF) (ADR) holdings.
For my first of three purchases this month, I purchased 35 shares of Illinois Tool Works Inc. (ITW) on 12/8/11 at $46.68 per share. I’m pretty happy with the value I received on the price I paid for my shares with ITW. This is a new position for me, and it’s been on my watch list for some time now. ITW has raised dividends for the past 48 years, with a 5-year dividend growth rate of 16.8%. This company has great fundamentals, with low debt. They produce boring, but necessary components in a variety of industries. I love boring companies! The entry yield on my purchase price is 3.08%. This holding will provide me with $50.40 in dividends over the course of the next year based on the current dividend payout. I purchased this stock at a P/E below 12 and I think it’s attractive as a long-term investment. ITW is down almost 12% on the year, handily underperforming the general market. As a value, and dividend growth, investor I look forward to purchasing a quality stock like ITW on weakness.
I also purchased 30 shares of Emerson Electric Co. (EMR) on 12/8/11 at $50.88 per share. This is also a new position for me, and another solid company that has been on my watch list for a while. I had been interested in purchasing EMR around $50 a share, as I think this is a pretty solid long-term value at these prices. EMR is down almost 10% YTD, vs. the S&P 500 at a break-even level. Another underperformer, and another purchase for my portfolio. EMR has been raising dividends for the past 55 years, which is huge. They have a 5-year DGR of 9.8%. Another company that produces boring, but necessary, products and has great fundamentals with low debt at a 0.4 debt/equity ratio. The entry yield on my purchase price is 3.14%. Based on the current dividend payout, I’ll receive $48.00 in dividends over the next year.
For my final purchase, I decided to buy 50 shares of AT&T Inc. (T) on 12/9/11 at $28.87 per share. This is another new position for me. T is an interesting choice. I think that capital gains in the form of share price increases will likely be minimal with this stock as it operates in a very competitive environment and one that is fairly saturated. However, the hefty dividend will provide the rest of my portfolio a little juice, as this holding increases my reinvestment capital availability. I don’t foresee T being a large holding of mine, but I do like the fundamentals of this company and view it as one of the stronger telecom plays available. After my recent Telefonica sale, I wanted something with a little higher yield to fill a little of the gap left behind by a large dividend payer, but something with much better fundamentals in terms of debt and management. T fills that role for now. The entry yield on my purchase is 5.95%. I just missed the 6% yield entry-point, but with T likely to raise the dividend soon, I’ll get my 6% YOC soon enough. I’ll receive $86.00 in dividends over the course of the next year based on current payouts.
Some analyst opinions on my purchases:
*Morningstar currently rates ITW as a 3/5 star valuation.
*S&P currently rates ITW as a 3-star Hold.
*Morningstar currently rates EMR as a 3/5 star valuation.
*S&P currently rates EMR as a 3-star Hold.
*Morningstar currently rates T as a 3/5 star valuation.
*S&P currently rates T as a 5-star Strong Buy.
I’ll update my Freedom Fund in early January to reflect my recent purchases.
What are you buying?
Thanks for reading.
Photo Credit: Stuart Miles/FreeDigitalPhotos.net
It looks like you are following the Dividend Aristocrats list. That’s pretty much what I do. So far it has worked out for me. But I look at other lists too, particularly Dividend Champions and Dividend Achievers.
I had T and ITW before S & P added them to the Aristocrats list.
I think those are all good dividend-growth stocks. Back in November I bought ITW (40 shares at $42.60) and in September I bought T (55 shares at $27.48). I do not own EMR but I watch it from time to time. Like you, I don’t foresee T being one of my large holdings — I think of it more like a utility with a high yield but low DGR. I agree that a small dividend increase (maybe 2%) should be coming up soon for T.
I have thought about T and ITW, but haven’t committed to them yet. I think dividends will be important to stock returns for the next several years.
Everyday Freethought,
Thanks for stopping by and commenting.
Actually, although I do occasionally reference the S&P Aristocrats list, I actually mostly use David Fish’s CCC document (Champion/Contender/Challenger). I think that’s one of the most complete documents I can find on dividend investing.
Best wishes with your investments.
deedubs,
Great moves and great prices there. There were definitely some deals a couple months back. It seems that we are in similar age and have a very similar investment philosophy. Great to see you around and I hope to kick ideas around with you one day as I learn the most when sharing ideas with other investors.
Best wishes!
cashflowmantra,
I think both are solid picks, as I put my money where my mouth is. It seems you are really zooming along with your dividend income as you’re lapping me! Great to see you making such incredible progress with your new dividend income strategy. Best of luck!
Take care.
I like those picks. I’m long ITW and T. AT&T is one my larger holdings and pumps out huge dividends. It’s due for an increase soon too! The T-Mobile deal bothers me, but at these prices it’s been factored in imo.
Mantra,
I own AT&T also. What do you think of the relatively high payout ratio of 87%?
Ken
Stuart,
Thanks! You got in with ITW at much better prices than I did. Great job there. Solid long-term investment. T is definitely a cash cow. So, it’s one of your larger positions? I’m a little concerned about T being too large for me as I’m still fairly young and concerned about the future growth being limited to maybe 2-4%. I think it does provide a nice cash boost to the portfolio to fuel medium-term growth.
Looking forward to seeing you around and exchanging ideas.
Take care!
Ken,
Looking at the FCF payout ratio, it’s at 66% right now. I think the dividend is sustainable long-term…especially considering the fact that T has committed to slow dividend growth. I don’t see the dividend growing by much more than $0.04 per year anytime soon. I think it’s a solid pick cash cow pick.
Best wishes!
Nice cash cow pick in T. I own it as well.
ITW is a dividend stud. Well done!
MOA,
Thanks buddy! Definitely a cash cow pick. 🙂
ITW is definitely a stalwart. Looking forward to being a long-term shareholder in both companies. I love expanding on the Freedom Fund and can’t wait for early January to complete another purchase or two.
Hope all is well. Take care.
Yes I’m currently overweight T. I originally picked some up late 2010 and made another purchase September of this year. I won’t be looking to add more for a while.
I’m about the same age as you (31) and my portfolio is about the same size, a little larger. You save more than me and will catch up next year I bet.
Your blog is the best one I’ve seen along with dividends4life.
Take it easy
Stuart,
Always great to hear from someone who’s similar in age and portfolio size. That’s extremely inspiring and certainly mutually motivating!
Just to ask, what are your investment goals? Do you have a desire to reach financial independence at a young age like myself, or are you simply shooting for a large portfolio to draw from later in life?
Thanks for the compliments. I appreciate that. It means a lot to be anywhere near the company as D4L, as he’s definitely the king of the hill in terms of dividends.
Best wishes!
T just cut the dividend! Perfect momentum…! Good job DM!
AJ,
Thanks for stopping by!
You mean TEF, not T…correct? If so, yes TEF just cut the dividend and I’m glad I got out when I did. I think it’s in the best interest for the company’s long-term vision to cut the dividend and further cuts to it may be necessary. I foresaw a cut, but I didn’t think it would be quite so soon. Lucky timing!
Thanks again for stopping by! Take care.
DM,
My ultimate investment goal is to retire before age 50, I’m shooting for 48. I invest in dividend growth stocks but also dabble in some higher yielders that won’t grow as fast (MLPs, REITs). Under different circumstances I would devote a large chunk of my portfolio to bonds and fixed income. Right now I cannot justify bonds so I stick to equities only.
I’m in the Army and do not make much. However the Army has a good retirement plan. I expect to receive a pension and medical care. Dividends should cover the rest of my income needs. I currently make about $3,275 in annualized dividends, with cash on the sidelines for dips. Like other dividend investors I focus on income, not portfolio size. I hope to never sell anything, but still monitor.
I can respect and learn from ERE, but it’s not for me. I want my retirement to be a step up in terms of lifestyle. I want to travel foreign countries, eat out, etc. I am a huge cheapskate compared to other people my age, but don’t want to be like that when I reach FI.
For now I will live cheaply, build my income, and happily serve our great country.
Stuart,
Thanks so much for the detailed response. $3,275 in annualized dividends is awesome! I hope to somewhere near that by the end of 2012. We’ll see. You’ve got a great start going there.
I totally hear you on “stepping up” in retirement. I’m not highly interested in living quite as frugally as I do now. It’s great now, and I’m saving a lot of money and investing quite a bit to really supercharge my portfolio in its infancy. I don’t really want to “penny pinch” for the rest of my life, however. We’ll see. Life changes, things happen. I’m not really sacrificing right now, but like you I would love to travel. I think that if I could wish for one benefit in retirement it would be travel.
I’m open minded to many things. I’ve discussed living outside the U.S. to live a more luxurious life on less money. I’m also open to working part-time even after I’m financially independent. Part-time work, while not being “retired”, could fund travel and other luxuries that perhaps dividend income alone couldn’t.
It’s great to discuss ideas and it’s nice to see someone in my age range living and investing similarly. Thanks for your service!!
Take care!
Illinois Tool Works Inc is an excellent stock pick how many companies can lay claim to being able to raise their dividend for fortythree years in a row very very impressive. The company is also in a cyclical business that makes this feat even more amazing.