Recent Buy

buyI have to admit that I feel incredibly blessed right now. To be able to take a break from conventional work to focus on writing is such a gift, but to be able to continue my investment activities takes it to another level of gratitude.

I’m not making nearly as much as I was when I was working for a luxury car dealership, so it’s unlikely I’ll be able to keep pace with my former scope of operations where I was investing upwards of $3,000 or more per month. But if I can continue socking away $1,300 or so per month while enjoying what I do I’ll be extremely happy.

This all being said, I was able to scrounge up enough cash to make a purchase early this month. The market has oscillated a bit lately, and this has opened up a number of opportunities that I felt were moderately overvalued prior to the recent swoon. However, I decided to stick to my watch list and put capital to work in a company I was freshly familiar with after some recent research and a subsequent purchase.

I purchased 15 shares of Deere & Company (DE) on 8/4/14 for $85.10 per share.

Overview

Deere & Company is the world’s largest farm equipment producer. They also have sizable business in construction machinery and lawn service equipment.

The company operate in three segments: Agriculture & Turf (77% of fiscal year 2013 revenue); Construction & Forestry (16%); and Financial Services (7%).

Averaging Down

I’m going to diverge a bit from my usual ‘Recent Buy’ article format where I discuss the quantitative fundamentals and qualitative aspects of a company, which would explain my reasoning and logic.

And the reason why is I just went over all of this as I initiated a position in this company less than one month ago. To repeat myself would be a waste of your time as well as mine.

Instead, I’m going to take a little time today to explain why I averaged down on Deere. While Deere’s price per share didn’t drop substantially after my purchase, it was a rather sudden pullback immediately after purchasing. Now, when this happens you will either wonder if you made the right choice or it will make you excited.

If a stock drops, say, 5% or 10% soon after a purchase and you’re shaking in your boots, it’s quite possible that you either don’t appreciate cheaper stocks or you don’t have the necessary conviction to buy and hold the stock in the first place. There’s nothing really wrong with that, as most people would prefer seeing a stock meteorically rise after a purchase.

As a value investor, however, I’m quite different. I prefer a stock I buy to stay relatively static in price, or even drop in price, long after I purchase it. This gives me the opportunity to continue allocating capital to that company and build a position over time at an attractive price. If the stock continues to shoot up that means the subsequent capital I’m putting to work becomes less and less effective as it buys less shares, and with that, less yield and dividends.

But you have to have conviction in your ability to analyze and value a company, and conviction in the company to execute. If you lack that conviction then a quick drop in its share price will leave you uneasy, at best.

Opportunity

I personally get excited when I buy shares in a company and it drops after my purchase. If I like a stock at $X, then surely I must love it at less than $X, right? Right.

This gives me an opportunity to buy additional equity in a high-quality business for more money, which means my capital goes further by buying more shares at a higher yield with more dividend income. And the higher the dividend income, the closer I am to financial independence, not only today but forever. That higher dividend income means more passive income hits my account soon thereafter, giving me more firepower for subsequent purchases. And those larger subsequent purchases provides more future dividend income as well. That doesn’t even factor in all the dividend raises.

Cheaper stock prices are your friend, assuming the quality is high and a company has excellent future prospects for future profit growth, and with that future dividend growth. I’ll never shy away from a good chance to average down on a position I already own if Mr. Market becomes moody and gives me the opportunity. And I don’t think you should either.

Valuation

The P/E ratio based on my purchase price is just 9.31, which is obscenely low in today’s market. It’s so low because earnings are forecast to drop over the next two fiscal years, due to a possible drop in demand for Deere’s products and price weakness in certain commodities, such as corn. But if one is investing for the next 20 or 30 years, this matters very little. In fact, it provides even more opportunities for averaging down, as I was discussing above.

I valued shares last month using a dividend discount model analysis with a 10% discount rate and 7.5% long-term dividend growth rate. I think that growth rate is far as it’s far below what DE has posted in growth for both earnings and dividends over the last decade. Even a drop in profitability over the next couple of years doesn’t really skew the long-term picture all that much. The DDM analysis gave me a fair value on shares of $103.20, and I obviously think it’s still appropriate. I believe think the margin of safety right now is definitely large enough to cushion any future volatility in earnings. The yield on my purchase is 2.82%.

Conclusion

As I spoke about before with Deere, I think the future looks bright. It’s a virtual guarantee that more people will inhabit this planet in the near future. And these people are going to be hungry, right? Well, that’s where Deere comes in. They provide the equipment necessary for farmers to put food to table. And as more and more people inhabit the planet, there’s less room to grow the food necessary to feed everyone. Deere predicts a future where farming will be increasingly mechanized, which bodes well for a dominant company that produces the machinery.

This purchase adds $36.00 to my annual dividend income total based on the current quarterly dividend of $0.60 per share.

My portfolio still holds 49 positions, as this was an addition to an existing investment.

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

Morningstar rates DE as a 3/5 star value, with a fair value estimate of $95.00.

S&P Capital IQ rates DE as a 2/5 star Sell, with a fair value calculation of $110.00.

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

Full Disclosure: Long DE.

What are your thoughts? A fan of DE at this price?

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

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109 Comments

  1. Nice buy! Yeah, at 9 times earnings, DE is surprisingly cheap. Though Yahoo Finance has their forward P/E at around 12, still cheap. I recall management stating they aim to reach $50 billion in sales by 2015, they’re at around $38 billion so they can maybe still achieve it. Good luck with the investment!

    Cheers.

  2. Hey DM,
    I really like DE at these prices and you have made some solid points on future growth for the company. I have also looked at XOM this week and feel like this is another company that should be in my portfolio. A few good buys around the market. I was hoping to buy into KMI but the funds weren’t available in time. I’ll have to wait to see how the market plays out this week. Keep up the great work Jason, and good luck!

  3. Absolutely great idea.

    I think infrastructure and related services will generate gobs of cash over the next few decades. Efficiency in farm equipment, water treatment, transportation, energy, etc, will be huge opportunities as our existing infrastructure ages and new technologies are developed.

    Should be exciting both as an investor, and a citizen!

    I wish I knew more about companies involved in infrastructure technology. Something for me to research further as I look for the big winners over the next few decades.

  4. Pingback: DEERE & CO | Dividendo
  5. Hi Jason
    I’m with you.
    For a dividend investor is terrible see the price up day by day.
    Today is very difficult find new fruit trees to plant.
    Why don’t you take a look at european equities ?
    In Europe(i’m Italian) the volatility has increased a lot and there are many opportunities.
    Good luck Jason

  6. Hi Jason,

    I think it’s a change in mind. Normally, it feels bad when stock prices go down. When you understand dividend investing and choose the right companies, it feels great. You can now buy at a better price and better yield!

  7. Deere seems like am interesting pick here. I’m with you when a company goes on sale as long as it’s fundamentally sound you should be eager. Sideways markets are the best ones as it allows you time to accumulate shares.

    I couldn’t wait on whole foods dropping anymore so I pulled the trigger. What re your thoughts, do you thinks it’s bottomed out

  8. Ha, I also bought 15 shares of DE on the 4th. Guess that makes me a fan of the purchase.

  9. Hi Jason

    How many shares are you targeting to purchase eventually overall? Do you think the recent Russian import bans on livestock coming from North America will have an impact on agriculture related stocks? Pigs eat corn and corn needs farm equipment. These are the types of questions that go through my head but maybe I over analyze it.

  10. I was early with my second purchase of DE and I’m hoping to see the share price in the $83-85 range again so I can average down. I’ll be a bit overweight in DE with another purchase but I’m willing to do so for a nice increase in the yield. The next year or two could be tough but over the long haul DE should be a great DG holding. Thanks for the update.

  11. What was it like working for a dealership? a lot of hard work and commitment? I’ve always wondered what it’s like being a car salesman

  12. Growing up in the middle of nowhere with a John Deere plant a few miles away, I say great choice on stock selection. As far as the numbers are concerned, I agree with the comments here, could be a great value investment play, because nothing runs like a Deere right?!

  13. I like the purchase Jason. I’ve been eyeing DE, GE, and even possibly a partial position in IBM if it can dip back down a little further.

    Didn’t comment on your KMI article, but definitely happy that it is my largest holding at this point. I think the next few years will be extremely rewarding for shareholders.

  14. Great buy — and very nice to be able to average down… You know, of course, that I also bought DE for DivGro. Looking forward to many years of dividend income from this one!

    Cheers
    FerdiS

  15. I read your article here AFTER seeing my purchase of DE went through this morning @ $87. I’m slowly building a long term portfolio of quality dividend stocks, and your thoughts (and a few others) helped me jump in. Was either that or JNJ, but I’ll get that one later.

  16. Mongrel,

    Thanks!

    Yeah, I think DE is one of the more compelling plays right now. The next couple of years could be volatile, but the long term should be bright.

    Good luck finding the right company at the right price. 🙂

    Cheers.

  17. A-G,

    Most of the metrics look pretty favorable. But I think there will be opportunities over the next couple of years as earnings drop. So you’ll probably see a combination of P/E ratio expansion and a price drop, which provides further opportunity. We’ll see what we get!

    Thanks for stopping by.

    Best regards.

  18. Ravi,

    I’m with you. I think infrastructure should be a great play on global growth, because you not only have the necessary investment in developing areas, but also developed countries where existing infrastructure is getting old and needs to be replaced.

    I’m sure there will be winners and losers here, just like with anything else. But DE looks pretty compelling. Obviously, GE is a major player here as well. So is CAT. I like DE for its diversification across both ag and infrastructure. Seems to catch both sides. We’ll see!

    Take care.

  19. Alfred,

    The European equities I look at are the same as I look at here in the US: dividend growth stocks. As such, I do have investments in VOD, BP, and BBL. I’m also interested in possibly picking up shares in Nestle at some point.

    Good luck to you as well! 🙂

    Cheers.

  20. DD,

    Exactly. It’s a change in one’s mindset. And once you have that perspective it makes it a lot easier to stomach volatility. 🙂

    Thanks for stopping by!

    Cheers.

  21. Charles,

    The key is definitely making sure the company appears fundamentally sound. Obviously, we can’t tell the future and we don’t know all of the inner workings of a company and its competition. But if the fundamentals appear sound then it makes sense to welcome share depreciation.

    Whole Foods is one I looked at briefly. I noticed there was a lot of share dilution, and competition seems to be heating up. That being said, they operate a fantastic business model and their customers seem to be quite loyal to the “experience”. However, I’m leery of all retailers in general, and I’m honestly surprised I have exposure to two retailers in my own portfolio. Grocery is especially difficult because the margins are typically low. Whole Foods has gotten away with higher margins for a while, but you have to wonder if that will continue. I think if the P/E compressed a bit, which would allow the yield to rise, I might get interested. But this one is outside of my scope right now.

    Best of luck with it!

    Take care.

  22. Debs,

    I don’t have a particular number of shares overall, but I do plan to keep DE a relatively smaller position for me. So I wouldn’t want it to exceed 2% of my portfolio over the long term. So it’s near that right now, but as my overall portfolio increases I’ll have more room for DE. I could probably add another 15 shares here, but then be done for a while.

    I’m not really worried about Russian food bans. These are issues that come and go, like commodity price volatility and diseases that affect certain animals. The key is to look at the trend over the next 20-30 years or more, and looking at it like that leads me to believe that the demand for mechanized farm equipment should stay strong.

    Cheers!

  23. JC,

    I hope you get the price you’re looking for. That would be excellent for both of us. 🙂

    The next year might indeed be rough, but even with a substantial drop in earnings this still looks like a pretty solid long-term play. Time will tell, though.

    Thanks for stopping by! Glad to be a fellow shareholder!

    Cheers.

  24. aaron3719,

    I worked in the service department, so my experience might vary from a sales position.

    It was long hours and a lot of hard work. It’s a very dog-eat-dog type of world, where it’s ultra competitive. I found it to be incredibly stressful.

    Most of my dealings were with customers that weren’t super happy to see me because their car needed work, and with technicians that seemed to dislike their jobs very much. So I was always between a rock and a hard place. Sales might be easier because the people coming to see you are happier, as buying a new or used car is generally a good experience for most people.

    Best regards.

  25. evensteven,

    I spent most of my later childhood years in the middle of nowhere too, where big John Deere tractors would run 10 mph on the road and frustrate the hell out of me. Now, I don’t mind so much. 🙂

    If nothing runs like a Deere, let’s hope nothing pays dividends like a Deere!

    Cheers.

  26. W2R,

    Awesome news with KMI in that case. Nice work. 🙂

    I’m watching pretty much the same stocks as you. GE is another one that I find attractive right now.

    Happy shopping!

    Best wishes.

  27. DivGro,

    Great minds think alike, my friend. 🙂

    I’m also looking forward to many more years of dividend growth from the green machine!

    Thanks for stopping by.

    Take care.

  28. Nice to have you as a fellow shareholder!

    I think DE looks good here from a valuation perspective plus the fairly recent dividend raise gives investors more confidence. I still buy a few shares every once in a while to keep up the portfolio weight. I have been dollar-cost-averaging since December of 2013.

  29. pastorash1,

    Nice move! 🙂

    I don’t think you can go wrong with either name, but I much prefer JNJ. I just think it’s a fantastic company. However, it’s also my largest position right now. So I’m trying to diversify elsewhere.

    But I’m sure you’ll catch JNJ another time.

    Cheers!

  30. Since i don’t have anymore sharebuilder credits or free trades left, I bought a little bit of VGK today in my Vanguard brokerage (Vanguard European ETF) for some yield. It contains most of the large high yielding european stocks inclusing GSK,TOT, BP, BAT, VOD, BBL.

  31. Henry,

    Thanks!

    The forward P/E is higher because earnings are expected to drop from here. Though, even with an earnings drop and P/E ratio expansion I still think it looks solid.

    We’ll see what happens with the mean green machine. 🙂

    Best regards!

  32. Brent,

    Glad to be aboard. 🙂

    The most recent dividend increase is what gave me the confidence to go ahead here. If a dividend raise is a sign from management that things look good for the foreseeable future, then things are looking very green at Deere!

    Thanks for stopping by.

    Best wishes.

  33. Stock Fox,

    Thanks! Looks like we’re definitely on the same page here. 🙂

    Not much to dislike here, other than the drop in earnings over the next couple of years. But I think the long term still looks good.

    Best wishes.

  34. Interesting choice. What I don’t quite get about your and others’ purchases is that if you all acknowledge that the next few years will be tough for DE, why not just wait a year or two, then buy? Are you worried about mistiming DE’s cycle, or missing out on dividend payments? Just speaking of someone who likes capital appreciation, I’m not sure I want to buy a company whose price is going to stagnate for a while, especially if it will never be a large holding for me.

    Instead of buying a stock recently, I added to my gemstone collection. Picked up a very wonderful Columbian emerald, untreated. Very small in carats, but these kinds of stones are rare, so it should retain its value nicely over the coming decades. Besides, they’re much prettier than gold or silver!

  35. DividendDeveloper,

    That’s a good question.

    The acknowledgement has to do with the earnings forecast, not the stock price. I have no idea what’s going to happen with the stock price. I would assume there’s going to be some kind of combination of P/E ratio expansion and stock price depreciation, but I’d rather invest now, collect the rising income, and buy more if the stock price does drop. Of course, earnings might not drop all that much, the price goes way up, and the P/E ratio still expands. It’s exactly because of all this we buy dividend growth stocks in the first place. We cannot time or predict the market.

    Gemstones seem nice, but I would never invest in something that doesn’t produce cash flow. Owning my own residence might be the only the exception only because I have to live somewhere, and there’s imputed rent to think about. But I don’t own gold or much of anything else besides my portfolio. However, if it’s a hobby then that’s great. 🙂

    Best wishes!

  36. Tawcan,

    I’m with you 100%. Every investment I make is with the intention of holding until I die. Of course, life happens and companies change. So we must roll with the punches. But my intentions are to hold for a very long time.

    Cheers!

  37. You say you want exposure to infrastructure but not sure of which to buy. My suggestion then is the IGF etf by Ishares which gives you global exposure to every aspect of the sector.

  38. DM, any advice on how/what to track in my master excel spreadsheet.

    What are the main things you track in your personal spreadsheets? I am trying to keep things simple, but excited and continue to track all kinds of things that probably aren’t really necessary – I obviously want to do this for the rest of my life and do not want to get burnt out just tracking everything?

    Any suggestions are thoughts on your stats or numbers that you must track.

  39. DM,
    Nice purchase again and an opportunity to average down is even better. I am looking at few stocks myself as I stated in my watch list and also looking at opportunities to average down my current positions. I was hoping the market to continue to go sideways/down, but has started going up the last couple of days. Looking forward to buy DE sometime soon.

    DGJ

  40. You can’t fixate on daily, weekly or even monthly price swings. Sure, it feels bad when a stock drops right after you purchase it, but as DM puts it, when you have a long term outlook it means you have real conviction in your investment.

  41. Thanks for sharing your recent purchase with us. DE, like TGT a few months back, is making the rounds among many of the dividend bloggers. It’s great to average down in a stock that you have long term conviction in. DE is a solid company with lots of growth in its future and a very long and rich dividend history. Good call on adding some shares to this one. I’ll be sharing my recent purchase today or tomorrow. Take care!

  42. Jason,
    Congrats on living the dream and picking up some more DE. Since you started posting about DE, I have been following the company closely. Don’t own any shares, yet. I picked up CAT a while ago before the price trended up so much. Tempted to buy some DE at current prices, don’t think anything in my portfolio has a sub-9 PE at this point. I really like the points you make about global food and infrastructure demand, I very much agree with your logic. Thanks for sharing your recent buy!
    All the best,
    Ian

  43. Both CAT and DE are great long term buys. Personally, like you, I went the CAT route a while back but DE is a great long term dividend stock as well.

  44. E,

    I’ll be honest and tell you I don’t track a lot of things. I’ve seen some really intense spreadsheets in my time, and that just looks like a lot of unnecessary work to me.

    I basically track what you see on my portfolio sheet, gains/losses through my brokerage, dividend income as you see on my dividend income page, and my budgets via Mint.com. That’s pretty much it. Most of it you see here on the blog. And my gains/losses can be seen via my portfolio page because I track my cost basis on there.

    I hope that helps! Some people are in heaven with a ton of spreadsheets, but I find that to be data overload. Puts me in a state of analysis paralysis. What we’re doing here (saving + investing = financial independence) isn’t really that hard.

    Best regards!

  45. DGJ,

    Averaging down is always wonderful, as long as the company in question remains fundamentally sound. Stock market gains do nothing for me other than to limit the progress I can make with new capital.

    Thanks for stopping by!

    Take care.

  46. DivHut,

    DE’s most recent dividend increase gave me the confidence to go ahead and initiate a stake here. I love a company that takes its dividend seriously, and reward shareholders even with a couple of gray skies on the horizon. That tells me management is confident about the long term, which is what I’m after.

    Looking forward to reading where you went with your capital!

    Best regards.

  47. Ian,

    CAT is another great investment in this arena. I passed on it when it was in the $80s because I was concerned about rising competition from Asia, and an accounting scandal. I probably should have seen the scandal was just a temporary misstep rather than a sign that management is incompetent.

    DE would compliment CAT well, if one has the space for both in a portfolio.

    Keep up the great work over there!

    Best wishes.

  48. Its the first time that I have looked into this fund. Is it my imagination or is this ETF really yielding over 4%? If so, that is a great buy IMO.

  49. *Shameless plug*
    I’m going to have a blog post coming up soon talking about how I track use Google Spreadsheet to track our dividend investments. I just figured out a way to automatically track yield and dividend amount which makes life a lot easier.

  50. It also says that the earnings growth rate is 8.7%. Not bad, especially with the security of owning 515 different stocks in one commission free purchase!

  51. DM,

    Glad to see your going strong. I recently initiated a purchase in GSK after the earning drop and outlook. Since this will be a long term hold for me, I don’t mind collecting the dividend and possibly averaging down in the future if it comes to that. What is holding you back from adding GSK to your watch list?

    PS – Want to thank you for my introduction to the Kinder Morgan company – after starting to read your blog a year ago I initiated a sizeable position in KMR. (didnt mind not receiving the divvy now & also like the tax benefits) I was a happy camper on sunday when I saw the news.

    Regards,
    Tom

  52. I completely agree. This earnings challenge is just short term with the cyclical nature of the business. I would add that DE has proven dedicated to shareholder value with share buyback program as well. If the price continues to fall, they will continue the buyback program at even lower prices, stabilizing the stock, lowering the shares outstanding, and providing more of the earnings pie to dedicated shareholders! From Morningstar, the shares outstanding data for the last 10 years is: 2004-506 mil, 2005-493 mil, 2006-472 mil, 2007-455 mil, 2008-436 mil, 2009-424 mil, 2010-429 mil, 2011-422 mil, 2012-402 mil, 2013-389 mil, TTM-379 mil.

    Very confidence inspiring to have management actively buying back shares now at a lower price during this “earnings weakness” period. I recently initiated a position at a cost basis of about $88.20 after commission (right before your first purchase) and will be looking to buy more if price stays down as more capital becomes available. With increased dividends, low payout ratio, and share buyback program in place, a lower price in the near future is a Win-Win-Win for long term shareholders!

  53. I had been watching DE closely, but I ended up going with JNJ instead. Not that I mind, though 🙂

    Thanks for sharing your purchase with us. Great buy!

  54. Busy, busy, busy aren’t we? =). I see you are backing up the truck for more awesome shares of DE. Averaging down is one of the great joys of our investment strategy. All this DE action is really watering my appetite. I’ll give DE serious consideration when I roll over my 401k into an IRA and create another DG portfolio.

  55. I’m the same in that when I buy a stock, I really don’t care whether it goes up in the short term. In fact, if it goes down I usually buy more. Buy and hold long term is my strategy – boring and basic. My timeline is so long (20 years or more) that I can afford to make a few mistakes along the way

  56. DM,

    Just want to say nice “re-up” on this position! I was curious if you were going to move in on more, given the almost $3 decline in share price, showing more yield and more income for your portfolio. Congrats on averaging down and buying more shares of a cash flowing dividend paying company! I dig it. Keep at it DM, talk soon. Sorry this is short – bert and I just left a tribe game and I’m drenched from the rain delay. Pumped for the rest of the week.

    -Lanny

  57. Tawcan,

    Oh, I look forward to reading that. I’m no spreadsheet wizard, and actually don’t have much of a desire to become one. However, I probably wouldn’t mind a few tips! Anything to make life easier. 🙂

    Cheers.

  58. Tom,

    Glad I was able to introduce you to KMI. I bought my initial stake in the company at an expensive price, but I knew I was holding for decades. I think KMI will continue to do very well from here, and it’s now one of my largest stakes.

    As far as GSK goes, I view them as *almost* a pure play on pharma. I say almost because they do have some consumer product exposure, but they’re nothing like a JNJ. GSK could be a fantastic investment, and the yield is wonderful. But I remain concerned about pipeline issues, patent cliffs, R&D, and all the other issues that come with a large exposure to pharmaceuticals. I’d rather stick with a more diversified firm, or companies that produce medical devices.

    I hope that helps!

    Best wishes.

  59. diggidydan,

    Excellent points there. I referenced DE’s aggressive share buyback policy in my first article on the company, and they’ve been quire prodigious with it. And I usually consider share price declines as very favorable not only for shareholders looking to buy shares, but also for the company itself. It allows all of our capital to go further.

    Glad to have you on board as a fellow shareholder! I’m actively looking to further increase my position even more, and may even add another 15 shares before the end of the year, depending on capital. Let’s hope their dividends remain as green as their tractors. 🙂

    Best regards.

  60. Seraph,

    Can’t go wrong with JNJ, my friend. It’s my largest investment for a reason.

    I sometimes think about what if I would have went elsewhere with investment capital, but choosing between two excellent companies is definitely a first world problem. And it’s a nice problem to have. 🙂

    Take care!

  61. Spoonman,

    Always busy, no matter what! 🙂

    Averaging down feels pretty good. It’s analogous to someone who’s really into clothes to walk into the mall only to find a 20% sale on what they were already going to buy.

    I’d definitely give DE a look. Let me know what you think if you do.

    Thanks for stopping by!

    Cheers.

  62. Dan,

    I’m with you. I also have an incredibly long timeline (40 years or more), and so price fluctuations are nothing but opportunity to me. Some are scared by volatility, but I see volatility as opportunity.

    Cheers!

  63. Lanny,

    Sorry to hear about the rain, but I hope you guys had a great time at the game. I love going to a good baseball game. I went to a Tigers game for the 4th and a West Michigan Whitecaps (Tigers affiliate) game just last weekend. Always awesome to watch a great game in the summer.

    Hope all is well over there. Get some sleep, bud! 🙂

    Best wishes.

  64. Nice buy Jason. We have also been picking up shares of DE lately. I think the long term prospects are wonderful for DE. And with current valuations, DE is a very attractive stock right now. Keep adding to that Freedom Fund! 🙂

    Wishing you continued success! AFFJ

  65. Hi Dividend Mantra – first – I really like your site/blog – I am sitting in Copenhagen, Denmark, and enjoy your pursuit, As a Fulbright scholar I take a methodological approach and research well like you do. I have several questions for your consideration and future blog postings – on REITs. 1) It seems that REITs should belong in our long term portfolios as many outperform S&P500 over time, and they didn’t crash with 25-50% in 2001 and 2008. But how big a part – could they be up to 30% of a portfolio?? 2) Many buy O, ARCP, HCP – but I have found several REITs that have been performing great since 1995. I am wondering if you have looked more into (specialized) REITs? 3) I have looked into all of the REITs in the Vanguard REIT ETF. If you use http://www.dividendchannel.com and their tool on the right hand side of the webpage, you can track 10.000 USD invested in a stock since 1995. ALL of these REITs have beaten the S&P 500 and turned into 100.000 USD (Simon Property Group – 240.000 USD) in 19 years, implying 10-baggers: Realty Income, Vonado Realty Trust, Universal Health Income, Public Storage, National Retail Properties, Health Care Reit, HCP, Federal Realty, Extra Space Storage, Essex Property Trust, Equity Residential, Digital Realty Trust and Boston Properties — could you perhaps go into some of these, that you have not looked at before ? And give your considerations as to how large a part of your portfolio should be in REITS`? (placing all REITS together does not make sense).. PS. Did you take a stock analysis course to ensure you have the right framework for choosing your stocks? PPS. I am considering building a similar European blog – Germany are building REITs as well.

  66. Man am I envious, waking up each morning with the thought in your head “What do I want to do today?” instead of “If I have another ten minutes in bed will I still get to work on time”.

    I love to read your blog, and long for the day when I can have the same though in my head as you currently have.

    Best Wishes, and hope the great articles keeps on coming

    FI UK

  67. I like your attitude, Jason. Being able to continue to invest while you’re not working a traditional job is a great place to be. It need not be a sprint…a steady jog is just fine.

  68. AFFJ,

    I’m with you 100%. Seems like a pretty solid buy right now, all things being considered. And it looks like they had a pretty strong quarter. The YOY decline was expected, but they came in above predictions. Guidance was reduced, but I remain impressed with how well they’re holding up through the cycle.

    Wishing you and the rest of the frugal family continued success as well.

    Thanks for stopping by!

    Cheers.

  69. Christian,

    That’s a great question there. I’ve discussed my thoughts on REITs before, but have not devoted a whole article specifically to it. Rather, I’ve been open about my preference for a 5-10% allocation to REITs whenever I discuss any transactions regarding REITs.

    I wouldn’t want a 30% allocation for a few reasons:

    1. REIT dividend income isn’t taxed as generously as dividends from qualified sources like normal corporations due to being pass-through entities.
    2. The growth is somewhat bound due to the nature of real estate and collecting rent/fees from owning physical structures.
    3. REITs naturally have to dilute current equity holders to fund growth.
    4. They’re somewhat sensitive to interest rates, which can create a more sensitive portfolio if a large portion of the portfolio is allocated to REITs. Many have done well since 1995, but we’ve also been in an environment where interest rates have been constantly declining during that time frame.

    I like some allocation to REITs for exposure to real estate and the generous yields, but that’s just my take on it. I’m sure there are others out there with much more allocation to the asset class, and may have done well. But I’d have to cap it at 10% for my portfolio.

    I hope that helps!

    And I wish you the best with your journey over there in Denmark! Building a blog would also be a great idea. I know there are a few bloggers from that side of the world that enjoy it. 🙂

    Thanks for stopping by.

    Best wishes!

  70. FI UK,

    I’m in a fortunate position right now, and every day is really a gift. But the great news is that there’s light at the end of the tunnel for everyone else following this strategy as well. My light came earlier because I decided to deviate from the original plan and focus on writing, but I was on a path that led to exiting the tunnel either way.

    You’ll get there, my friend. And you’ll thank the you of today for putting in the necessary work. 🙂

    Appreciate all the support!

    Best regards.

  71. DB40,

    I love running, don’t get me wrong. But I figured out that a steady jog will get me to the same destination while also leaving me with more energy once I get there. It’ll just take a little longer. However, I now have time to enjoy the scenery on the way. 🙂

    Thanks for stopping by! Hope all is well.

    Cheers!

  72. Hey Jason,

    I don’t know whether this is the right place to discuss financial details and the intrinsic value of DE, but I don’t think that DE is some kind of value bet here. By far the largest part of the assets is represented by receivables and the ration of price / equity is approximately 3. A company with a competitive advantage or popular product does not need to increase receivables year after year from my point of view.

    I’ve seen a production plant of DE here in Mannheim (nearby my home in South-West Germany) and had the chance to see that they do a lot of things right from an engineering point of view, but I still think, that their business lacks some real competitve advantages and regarding this I find that the stock is fairly valued at current prices.

    Best regards
    Ralf

    P.s.: Don’t get me wrong. You know that I like your work and your blog, but I would also like to start a discussion why stock A is cheaper than B or too expensive today and so on….

  73. Ralf,

    No need to worry. It’s impossible to exactly value a stock. The best one can do is come up with a reasonable range. I put a number on it using a dividend discount model analysis, but even then I try to buy under that number when possible to allow for a margin of safety in case a company doesn’t live up to a proposed growth rate.

    In my opinion, a company is ultimately worth the amount of cash it can produce from now until eternity. Moreover, I’m most concerned with how much of that cash they pay me directly in the form of rising dividends. So the DDM basically takes what a company pays in dividends now, how much it will grow that payout, and attempts to reasonably value a company based on that cash flow.

    But all opinions will vary. Some won’t find Deere as an attractive investment right now, and that’s fair enough. But that’s what makes the market so wonderful; there are thousands of publicly traded stocks one can buy at any given time.

    As far as receivables go, I went over that in the last post. They maintain a large network of dealerships, and so that results in a large receivables account which can cloud the balance sheet.

    Best regards!

  74. Alfred,

    I think Diageo is attractive right now, and it’s on my watch list. The recent dividend increase combined with the pullback in stock price has put it on my radar. It appears to be a very reasonable purchase right now.

    Cheers!

  75. If you used to invest 3000 every month, and currently 1300, does that mean you invest only in the freedom fund? That means nothing else to 401k, savings etc?

  76. I hold REITs in my pre-tax accounts: 401k and Roth IRA due to the tax implications related to the dividends in the US. I’m a bit heavy in Real Estate right now, but most of my holdings are focused on the health side of the REITs, which is see as a much larger growth sector with the massive amounts of baby boomers about to need those services in the coming years.

  77. Ay,

    Correct.

    I never invested in a 401(k) because my previous employer offered no match, and the fund options were poor. I discussed that here:

    https://www.dividendmantra.com/2013/08/why-i-hold-100-of-my-equity-investments/

    As far as savings go, I don’t quite understand your question. I keep a little cash on the side at all times for emergencies, but the Freedom Fund in and of itself is savings. It’s still almost $170,000 that I could use for whatever in life, if I were to choose to. Luckily, I don’t need to and it keeps increasing.

    I hope that helps!

    Cheers.

  78. blahblah903,

    Sharp eye! You haven’t missed anything. Rather, I just haven’t had a chance to put it out yet with all the other content I’ve been publishing. But it’ll go live Sunday, so keep an eye out. 🙂

    Cheers!

  79. Hello Financial Freak Mantra!

    Well, gotta say, you got yourself a very loyal fan base. I’m jealous. Whenever someone leaves a comment on my blog, I wear my unmoved look in front of family and friends and hurry to my computer (when the visit is gone!).

    It’s like a little party! Pop the wine, let’s celebrate. (5 minutes top)

    So yeah, I pretty much hate you for being so popular! (it’s true by the way) (not kidding) (ok, a little!)

    Anyway, about John Deere. Love those green mowers. How about Richard Farnsworth in the Straight Story? He finally made it to see his brother, didn’t he?

    I have to say, props to you for turning your personal finances upside-down (mostly Up).

    Just one worry and I will share it with you for what its worth. (after all who am I but a pathetic bloger who flees its family to read a post…)

    My concern : the amount of companies you own. 49 ! Oochie Mama!

    I’m thinking, up to this point, why not buy a low fee ETF; you’ll get as many (and more)? Indexing might me your path. You would save on commission. And only buy when the market is down. No?

    It seems to me that the diversification you are trying to get is more or less becoming « diworsification », as Peter Lynch would put it. Studies have shown that versatility and stability is obtained with 20 blue chips companies (some argue it’s 12 to 15). Above that, it’s useless and kills the leverage you could get out of a portfolio.

    There is no way (unless you are a Freak, which you may be since I suppose I should not like you!) (I do!) one can follow closely all those 49 companies. Even though they are great, you are bound to miss out on some important information.

    Anyway, just a thought. Props to you for getting there

    PS I’m not insane. (wife says yes).

    The proud writer of the infamous The Great Escape blog.

  80. Financial Freak,

    Haha! I’m sorry my popularity is causing you distress, my friend. But I’m probably not quite as popular as you think I am. Doesn’t really matter anyway, as we’re all on the same team.

    As far as owning 49 positions, I explained my reasoning here:

    https://www.dividendmantra.com/2014/04/why-i-eventually-want-to-be-invested-in-50-companies-income-diversification/

    I would be careful with owning just 12-15 companies. If you’re living off of your dividend income and one company cuts its dividend you’d be facing a severe income cut. A dividend cut by one of 50 companies, however, is quite another matter. Furthermore, diversification spreads and reduces risk. My primary concern is limiting risk and reducing the chances of permanent capital loss. Owning 12-15 companies means one mistake and you might be looking at substantial losses.

    As far as just owning an ETF, that would defeat the entire purpose of what I’m doing here. But for further reading on that subject I recommend:

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

    Thanks for stopping by! And keep on writing. 🙂

    Cheers.

  81. Nice purchase, keep it up:) I think it’s impressive you were still able to keep buying despite not having the regular income of your other job.

  82. Well Done Jason !

    I personally bought 90 shs last December and am down now a bit more than 4%. I wish I had bought incrementally.

    I think I will hold a very very long time to those precious parts of a wonderful company.

    About another topic : Have you read the news for General Electric and their new “Data Lake” ? Impressive !

    Keep on the good work !

  83. Super Simple,

    I’m definitely in a really fortunate position. To be able to write for a living and do some of the things I love is one thing, but to be able to keep on rolling as far as equity purchases is quite another. I’m really blessed.

    Thanks for stopping by!

    Best regards.

  84. Aspenhawk,

    You’ve got the right attitude there. It doesn’t really matter if it’s up or down if you’re holding for the long haul for the rising income. 🙂

    I did read about that from GE. It’s pretty amazing what some of these big companies are doing with data. Just the sheer amount of data they can now analyze is pretty crazy.

    Thanks for all the support! You keep up the great work over there as well.

    Best wishes.

  85. Nice purchase! I own ITW, so didn’t think it necessary to get into Deere. I did, however, initiate a position in MCD this past week. They gave back six months of gain, and are now paying over 3.2% in dividend. Just right for my portfolio!

  86. Dave,

    MCD seems like a great pick. The value appears to be there, and the yield is pretty juicy. I’m a shareholder with a fairly sizable position, but I do have my reservations about the company. I think they have a lot of work to do, so I’m watching MCD a bit closer than most of my other core positions. We’ll see how it turns out!

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

    Take care.

  87. Dear DM, I initiated a small purchase (50 shares) of BP on Friday at a yield of 4.95 percent. This is my first purchase of BP. i hope to move up to 200 shares, but thought Id see if it goes down even more as the standoff w Putin in Eastern Ukraine continues. I got some DE recently. I think it could also continue to go down and will look to accumulate. Best, DD

  88. DD,

    Nice move there. I think BP will be fine over the long haul, but things could get a little bumpy in the interim. I’m not really worried about sanctions, but I do think the recent judgement against Russia in the Yukos case is pretty interesting. Not sure how that would/could affect any BP/Rosneft assets.

    DE becomes more attractive by the day. If it goes down to $80 I’ll most likely add to my position yet again.

    Cheers!

  89. ITW had a great increase announced this month. I just mentioned them in a recent post about dividend increases. As a dividend investor you have to love that!

  90. I just wrote about ITW increasing their dividend and several other August increases as well. As a dividend growth investor you have to love that.

  91. DM,
    What’s your recent thoughts on “TIS” Very close to a 52 week low, great dividend. Am I missing something here?????? Insiders buying,+ a potential buy-out candidate I would think????? Looking to open a pos! or in your case adding.

    Thanks,

  92. Dave,

    I did see that! Very nice to be a shareholder. 🙂

    We’ve had some really nice raises this year. I’m consistently writing about raises over at DTA, and some have been quite generous.

    It’s good to be a dividend growth investor!!

    Best regards.

  93. I am embarrassed to say that I did not know you write at DTA (didn’t even know what DTA was!), but happy now that I have a ton more reading to do in order to keep up with you!

    Thanks again for all of (even more of) your hard work!

  94. Dave,

    No problem at all! I try to link to some of those articles when I list weekend reading material, but it’s easy to miss those.

    Appreciate all the support!! 🙂

    Best regards.

  95. DE looks pretty good with that low PE ratio. I was looking at it in the last two months, but didn’t pull the trigger because of the 2.95 Price/Book valuation. Instead I bought GS. I try to use the Ben Graham screener where you find a Price/Book at 1.5 or lower. What are you thoughts on that specific valuation?

    P.S. Both of the above stocks are in Buffett’s portfolio, so it makes it a little easier pick.

  96. midwestlock,

    I don’t look at book value because it’s not necessarily a great metric to judge a lot of businesses out there, especially for those without a lot of assets but are heavy on cash flow.

    In the end, every investment is worth the amount of cash flow it can provide from today until eternity. And so you just discount that back to present time. Obviously, the biggest issue is predicting growth rates, but that’s why you try to build in a margin of safety either in your projection, price you pay, or both.

    Cheers!

  97. Pingback: August Dividend Diplomat Watch List | Dividend Diplomats

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