A stock purchase on the very first day of the month.
What’s new, right?
You know me. Available capital and a high-quality dividend growth stock at an attractive value are like a marriage made in heaven. Free cash might feel nice in the pocket or the wallet… and it actually smells pretty nice, too. But it doesn’t do much beyond that for someone looking to achieve financial independence via passive income, other than to serve as something to exchange for equity in wonderful businesses at fair or better values.
After all, a dollar bill will still be a dollar bill in 10 years, other than the fact that it will actually be worth much less than a dollar after inflation takes hold. But a great business can turn a dollar into two, then three, and eventually even five or ten dollars, plus pay increasing cash flow all the way along in the form of increasing dividends. It’s such an unfair trade, but it’s one I’m glad to make every single time.
And I made that trade once more.
I purchased 10 shares of Union Pacific Corporation (UNP) on 6/1/15 for $100.82 per share.
Overview
Union Pacific Corporation is the largest public US railroad, operating 32,000 miles of track that serves the western two-thirds of the country which includes some of the fastest-growing US population centers across 23 states.
Union Pacific connects with Canada’s rail system and they’re the only railroad that serving all six major Mexico gateways.
Founded in 1862, they now serve roughly 10,000 customers.
2014 freight revenue breaks down via the following six commodity groups: Industrial Products (20%), Intermodal (20%), Coal (18%), Agricultural Products (17%), Chemicals (16%), and Automotive (9%).
2014 carload composition was 61% domestic and 39% international.
Conviction And Averaging Down
I just initiated a position in UNP early last month before shortly thereafter averaging down and adding to that position. So this is the third time in a row that I’ve purchased shares in this world-class railroad.
And that brings me to an important point.
When you believe in a company, find that its stock fits your portfolio and available allocation, see the valuation is attractive, and have available capital, it makes sense to grab your BB gun and load up as much as makes sense at any given time.
Some investors – especially those new to the blog – might assume that I built my portfolio of 58 positions by just spreading out my capital across those 58 stocks as fast as possible. That’s actually not the case at all. I’ve rather typically built larger positions in a relatively short period of time – as fast as capital and other available opportunities would allow – by just buying the same stock pretty much over and over again over the course of a few months or so, before finding myself pretty well stocked up on that particular name and then moving on to other ideas.
Sometimes a stock will run away from me right when I find myself in a spot to build up a position, like Microsoft Corporation (MSFT) did somewhat recently. And some positions, like Armanino Foods Of Distinction Inc. (AMNF), are purposely smaller due to special circumstances. Otherwise, I try to maintain conviction when it comes to buying stocks, especially when a stock I recently bought trends downward in price, offering me an opportunity to average down and buy more stock (and dividend income) for the same amount of money.
Every investor needs to figure out a system that works for them, but I did want to point out the value in conviction. Doing the homework on a stock and liking it at $106 means you should like it even more at $101. As such, I was more than pleased with the opportunity to average down on UNP here. Letting the price drop somehow affect my logic would be a disservice – akin to letting the tail wag the dog. If you do your homework and you’re confident in the prospects, the chance to buy a stock even cheaper should be an event that you absolutely look forward to, assuming you still have room in the portfolio and available capital, and competing opportunities haven’t become somehow more attractive in the interim.
Ignoring a chance to average down means you’ll have to start all over again by analyzing another stock, which might be a poor use of time. Furthermore, it might also mean that you lack the confidence to put serious capital to work in any company.
I won’t reanalyze UNP since I just did that recently, but nothing has changed with the company. And that’s exactly why the further weakness has been so wonderful, in my view.
Risks
There are numerous risks with UNP and other railroads.
There are extensive costs to maintaining a railroad. Unlike a lot of other methods of transportation, railroads must maintain their own networks. This is expensive – UNP has invested more than $31 billion in its network and operations from 2005 to 2014. So the infrastructure there remains extremely valuable and probably impossible to replicate, but also expensive to maintain. In addition, there are significant input costs varying from labor to fuel.
Regulation remains omnipresent. Any negative changes here could have material impacts on UNP’s costs to operate and/or ability to maintain profitability in a competitive manner.
As a railroad, UNP is exposed to the broader economy and all the ups and downs that comes with. Any major drop in activity across the economy as it relates to demand for goods could reduce demand for their services. However, they performed quite well during the recent Great Recession.
There are also black swan risks, including derailments and spills.
Valuation
UNP trades hands for a P/E ratio of 17.37. That’s attractive both in absolute terms and relative terms. Relative to the market’s P/E ratio of 20.64, you can see a lot to like here. In addition, this is in line with UNP’s own five-year average P/E ratio. So you’re getting a stock in line with recent historical norms against a market that’s quite a bit higher. As always, I think one should look at stocks on an individual basis instead of trying to judge the entire market at any given time.
I valued shares using a dividend discount model analysis with a 10% discount rate and an 8% long-term dividend growth rate. That growth rate seems fair considering it’s less than half that of UNP’s own long-term growth rates for EPS and the dividend. I’m factoring in the low payout ratio, growth forecast moving forward, and the extremely strong business model. The DDM analysis gives me a fair value of $118.80.
Conclusion
UNP is down approximately 14.5% YTD, which is similar to most other major railroads. Value tends to hop around from one stock to the next or even from one sector to another over time, which is why, as aforementioned, I tend to focus on one or two stocks at a time before moving on to something else. When the value is there, I try to strike while the iron is hot. And if UNP drops another, say, 5% or 10% from here, I’ll very likely be buying more.
Railroads aren’t popular right now. Shipment volumes have declined a bit thus far this year, especially for coal. But I’m not looking at where shipping volume are at for the first quarter of 2015 or really any other quarter, for that matter. I’m looking at where Union Pacific might be 10 or 20 years from now. And I feel pretty confident that, due to massive built-in competitive advantages I recently wrote about, they’ll be a more profitable company, which should confer additional dividend income my way. Short-term volatility is a long-term opportunity when it comes to great businesses, in my opinion.
This purchase adds $22.00 to my annual dividend income, based on the current $0.55 quarterly dividend.
I’m going to include current valuation opinions from professional analysis services, as I use these to concentrate my reasonable fair value estimate:
Morningstar rates UNP as a 4/5 star value, with a fair value estimate of $115.00.
S&P Capital IQ rates UNP as a 4/5 star “buy”, with a fair value calculation of $116.50.
I’ll update my Freedom Fund in early July to reflect these recent purchases.
Full Disclosure: Long UNP, MSFT, and AMNF.
What do you think of UNP or the other railroads here? Value abound?
Thanks for reading.
Photo Credit: Stuart Miles/FreeDigitalPhotos.net
Wow you are really loading up on UNP! I think that’s awesome. I’m going to average down soon as well. I’m really hoping to pick some up at $100 but I might have to just give in. I don’t want to miss the train…
Ken
Good Day Jason.
I just bought some UNP the other day. After listening to the CEO Lance Fritz on Madmoney last week, I am more convinced that this stock will do well over the long term. I am waiting for more weakness in the stock and I will be glad to add to my position. I think this is the best of breed of the railroads. have a great day Michael
Hey Jason,
Congratulations on your purchase.
Railway seems to be a decent business as it has been running for more than a century!
The low payout ratio looks very promising to me, but the yield is not that appealing.
I think there are better deals for me to get.
Best wishes,
DfS
Ken,
Ha! I didn’t want to miss this train, either. 🙂
Just a great business model all around. And it complements NSC really well in the fact that it covers the other 2/3 of the US.
Thanks for dropping by.
Cheers.
Michael,
Always bumps in the road, but one has to keep their eye on the long term. Like I wrote in the article, I view short-term volatility as a long-term opportunity when it comes to high-quality businesses. As long as the fundamentals are more or less intact, I always look forward to pullbacks.
Glad to be a fellow shareholder. 🙂
Best regards.
DfS,
Yeah, the yield won’t work for everyone. Some just require more dividend income. But I’ve found, over time, that some of my best overall investments have actually been those stocks with somewhat low starting yields. And there are a lot of great businesses out there whose shares feature relatively low yields that I don’t really want to exclude. Go with what works for you. 🙂
Take care!
Great purchase, Jason. Really good time to load up on railroad stocks!
Best wishes
R2R
congrats on adding to your unp position!!…i took a position in hsy + deo , recently.
always good to see the cash flow machine rolling ahead a bit more!!
R2R,
All aboard, right? 🙂
Cheers!
vince,
Nice job putting capital to work over there. I’ve been strongly looking at DEO lately. Definitely a stock that will find its way in the portfolio at some point. I also just took a look at HSY for an article. Seems roughly fairly valued here. Great brands, though the sales in China are troubling.
Keep it up!
Best regards.
For some reasons, railroads stocks are cheap now. I loaded up CNI (TSX: CNR) recently. I will buy more if it dips further. We have only 6 major railroad networks, and it is hard to replace them with a new companies.
Happy investing!
Cheers,
Well done Jason,
Great buy at the early stage of the month!
We just bought Nestlé shares today, will soon make a post related to it. I am very happy to have bought shares in this fantastic company that provide so many goods around the world.
Cheers,
RA50
Still have an eye on UNP, huh? 🙂 Can’t say I blame you; it’ll be one of the stocks I will buy next month. I actually think NSC is a bit better value, but all of the railroads look pretty appealing around now. Even CNI is coming back down to earth, which I previously thought was pretty overvalued. I think UNP is probably the best railroad overall. I mean, they have 150+ years of operating history and helped connect the east and west coasts of the US. Must be doing something right!
Looks like you picked a great time to load up on a quality railroad. I think one of the biggest mental shifts I made from reading your blog is being excited for a stock price to decline while you’re in the accumulation stage.
DD,
UNP seems pretty compelling here, in my opinion. Just a lot to like, especially the low odds of disruption. Allows me to sleep well at night when I don’t need to worry about my money/dividend income. 🙂
NSC is cheaper, but UNP sports better growth and fundamentals across the board. Both are great businesses, however. I just have a lot of NSC already, accumulated at much cheaper prices. I’m 50/50 on adding any more NSC at all. I may just leave that alone from here on out. We’ll see.
Thanks for dropping by. Looking forward to being a fellow shareholder!
Best wishes.
Im looking to start a position in UNP soon because this is a solid long term entry point. I tried to add some yesterday but the price eluded my limit order so I missed out. In the long run paying 0.5-1.0% more won’t mean anything. I’ll be adding this great company to my portfolio soon. Maybe even this afternoon.
RR,
It’s definitely a shift in one’s mindset. Doesn’t happen overnight or very easily. But once it does happen, it’s truly like this weight is just lifted off your shoulders. Really allows you to be in control, rather than letting the market bully you around. 🙂
Take care!
Jason, if I had to pick only one DGI blogger to read you would be it! Thank you for all of your hard work, I follow along with many of your trades.
A couple questions for you or other readers if you have the time.
1. Have you taken a look at CSX and how it compares as a potential buy to the other rails?
2. Are their any drawbacks to holding DEO in a taxable account?
3. I have a bunch of REITS but not all of them are in IRA’s. Would it be beneficial to sell all of my REITS in my taxable account and buying them in my IRA or ROTH IRA? Is this that big of a deal to even worry about and would a mostly REIT portfolio pose a lot of sector risk even though all portfolio’s combined would be properly diversified?
Thanks and keep up the good work!
JC,
I almost never set limit orders. I see an attractive valuation on a stock I want to buy and I just buy it right then and there. Reminds me of Philip Fisher’s lesson on not missing out on potentially massive long-term wealth creation over trying to save pennies in the here and now.
Actually, I could have set a limit order on UNP yesterday. But if I would have, I don’t think I’d own it right now. It started moving up not long after the shares were in the account. Maybe it goes down from here and I would have been better off. But I think I’ll be a happier investor owning UNP rather than not owning UNP 20 years from now, either way. We’ll see. 🙂
Keep up the great work over there. ROST is a strong performer. Should do well for you.
Cheers!
Brazo,
Thanks for the kind words. I do my best to share, inspire, and educate. We’re all learning together. 🙂
CSX has similar routes to NSC, being its prime competitor. But NSC and CSX sport similar fundamentals. And NSC is much cheaper with a higher yield here. I’d prefer NSC if I were looking at a railroad on the East Coast.
There are no extra drawbacks to holding DEO in a taxable account when compared to owning any US-domiciled stock. We have a tax treaty with the UK. So any dividends paid from a UK-domiciled company will flow to you without foreign withholding. The only thing to keep in mind is that ADRs typically have small custody fees that come off of the dividend. That’s something you’ll want to investigate for any ADRs you might be interested in. But it’s not specific to taxable or tax-advantaged accounts.
I really can’t answer that last question for you. Holding stocks in taxable accounts versus tax-advantaged accounts is something that you’ll have to really decide for yourself, depending on your goals, income needs, time horizon, and everything else. That said, many think REITs make a lot of sense in tax-advantaged accounts because of the high yields and ordinary dividend income treatment.
Hope that helps!
Take care.
So many companies to buy, so little capital. Even first world problems can be annoying. I really need to fit UNP in there somewhere. I’ve got XOM, CVX, NOV, RDS-B, TD, WFC, MTB, and now this all starting me in the face screaming “Buy me! Buy me!”, and nowhere near the amount of money I need to buy them all within the next year. And then, of course, DEO pops into my mind every time I go out and have a Guiness.
What was I just saying about first world problems?
Also, I now have the image of you taking a $100 bill out of your wallet and smelling it like it’s Grandma’s cooking or something stuck in my head. That’s one hell of an opening paragraph.
Sincerely,
ARB–Angry Retail Banker
It helped very much thank you, it is nice to know that you are reading these comments and try your best to answer them and help. You are one of a kind.
Start the month as you mean to go on, right? Congrats on adding to your position! It looks like a sound investment 🙂
ARB,
First world problems are the best kind to have. Still problems, nonetheless. We have such a robust stock market with incredible breadth, which is just a massive opportunity. It’s a shame so many people pass it up.
I do love the smell of money, though! Well, fresh money. Not old, stinky money. I still remember seeing the cologne that was supposed to smell like money pop up on Shark Tank. I thought that was a pretty unique idea, though I doubt many people would actually want to smell like money. And I remember a few of the sharks mentioned that it didn’t really smell like money. Might make a good gag gift. 🙂
Cheers!
Nicola,
What better way to kick off June than with an addition to passive income and more equity in a wonderful business? 🙂
Thanks for dropping by. Hope all is well!
Best regards.
I love when the market makes these decisions that much easier for us. Great job, Jason! Are you officially two purchases for two days in the month so far? That’s some serious work my friend, it’s going to pay off very handsomely in the coming months. Keep at it my man!
Ryan,
Two purchases in two days to kick the month off. It’s a party! 🙂
I’m doing all I can to keep my foot on the pedal. It’s tough and it’s a lot of work, but the rewards are insanely worth it.
Besides, I’ve gotta keep up with you over there. You’re doing great. Keep it up.
Thanks for all the support.
Best wishes!
Well done on yet another purchase. It is always good to average down and I am planning on leaving some capital aside for this for one of my companies.
Laura,
We don’t always get the opportunity to average down on a great business, but it’s an opportunity that should be strongly considered when it does present itself. All depends on the individual investor, capital availability, portfolio construction, and competing opportunities. You also have to make sure the fundamentals haven’t markedly/permanently deteriorated. But UNP is truly a world-class business. Happy to own a larger chunk of it here.
Happy shopping over there. It’s just wonderful to be in a position to even regularly invest. 🙂
Take care!
DM, have you ever thought about opening up an Interactive Brokers account? Up to 200 shares buy or sell is $1.00, larger share amounts are 1/2 cent a share thereafter. You do have to pay $10/mo for real time market data services, but that is waived if you generate $30/mo in commissions. You probably would not have it waived, but if you are doing 3 or more buy/sell transactions every month, it would save you money even over Tradeking, and 2 or more transactions at any other brokerage.
Kenneth,
We actually had a spirited debate/conversation on IB over on the article I did on TradeKing. I decided it’s not for me because I don’t appreciate their complicated fee structure and find it incredibly confusing. I prefer straightforward business models.
That said, it’s not all that often I buy more than two stocks per month and pay full commission. Someone mentioned I would have saved $5 this year moving over to IB. But I think that might not even be true because one of those trades was actually free for me, unless I’m mistaken. Either way, $5 isn’t really enough for me to move over to another service if I don’t like it right from the start. Scottrade isn’t the cheapest around, but I like the service. And if $5 is going to make or break you, you’re doing it wrong.
Take care!
Any time you have great conviction in a long term stock and have the opportunity to average down… take it. I’m reading a lot of rail buys among quite a few dividend bloggers and by the numbers for the stock I can see why. I already know your love for this business model and its extreme wide moat aspect so I guess it’s no surprise that this buy came in so early. Seems like your love of the rails and my love for the Canadian banks highlights our convictions and ability to average down. Thanks for sharing.
I happen to hold DEO in my taxable account while I have UL in my ROTH. As DM mentioned there is a treaty between the U.S. and U.K. regarding withholding taxes and as such you will get the whole dividend amount less a “handling” fee as I like to call it. The U.S. also has a treaty with Canada as long as you hold Canadian stocks in a retirement account such as an IRA or ROTH. This is why I have my TD, BNS and RY in my ROTH and there are no withholding taxes. I also own REITs and those are in my IRA because the dividends are taxed at a higher “ordinary income” rate. Hope this clears things up.
Although the market seems so overvalued, you can always find something interesting.
Do you have alert setled or you just have your daily/weekly routine to “see” how the market (huge in the US)?
Dividend Mantra,
Congrats on average down. The rails are a great business to be in as new companies would face HUGE barriers to entry.
Jason, You are really firing BB gun on these buys that I can hardly keep pace with 🙂
I’ve been thinking about UNP and NSC for a while and every time, I see it racing ahead and only recently, it is correcting and dividends are just ok. Will wait for some more time before I fire mine!
I’m liking your recent buys including this one.
Keep it going!
PIM
DH,
Absolutely. If you believe in a company’s prospects, think it has great fundamentals, and the valuation seems pretty compelling, then it probably makes sense to be fairly aggressive. I’m fortunate in that cash flow is solid right now. Doing all I can to chase down financial freedom. 🙂
Thanks for stopping by. Keep it rolling over there!
Cheers.
Jason,
Congrats on the UNP purchase! Have you decided how much you want to own on this one? We expect to own quite a bit in the end but we are at 20 shares as of now. Here’s hoping we can all continue to average down on UNP and other portfolio holdings. Keep up the intensity. FI and book 2 are right around the corner!
All the best.
FD
Nuno,
I’m not quite sure what you’re asking there, but, yes, I try to keep abreast of where value’s at. I mostly do that by passively/occasionally keeping an eye on my own portfolio, looking at the stocks on my watch list, and then paying attention to general market news. Tough not to notice a 15% drop in railroads. 🙂
Thanks for stopping in. Hop all is well over on your side of the pond.
Take care!
IP,
Indeed. The barriers to entry are massive. As an investor, you have to love that!
Best regards.
PIM,
Ha! I’ve got this BB gun on semi-automatic right now. The ammo situation is in good shape right now. We’ll see how the rest of the month plays out, though. 🙂
Let’s both keep it going. Financial freedom is out there waiting for us!
Best wishes.
FD,
Can’t wait to put the sequel together. 🙂
Yeah, I think I’d like to see it at least equal with NSC. So I’ll probably end up buying another 50 shares and then go from there. It’ll be 10 to 15 shares at a time, so I’m hoping the weakness persists for at least six more months. Let’s keep our fingers crossed.
Glad to be a fellow shareholder with you. I really think we’ll do very well over the next couple decades.
Best regards!
Jason, this company would usually miss my screen (based on the low yield). After a quick review, the fundamentals seem to be in place. The growth part is appealing. I may just need to bring out my own BB gun! It just illustrates that there are many places to help you find opportunities for your portfolio.
D4S
Hey mate, what are you paying in brokerage per trade?
Cheers
Jason,
Great way to average down! I almost pulled the trigger on NSC last Friday, but I have more companies than I can reasonably handle right now. I guess it’s like being a kid in a candy story as the saying goes. It looks like your portfolio is getting to the point where you can now just add to existing positions with an occasional addition or subtraction from time to time.
MDP
D4S,
Glad you took a look and like what you see. UNP might seem stodgy, but the fundamentals are pretty impressive. I guess Buffett was on to something when he scooped up BNSF. 🙂
Have fun loading up that BB gun and taking down a target or two!
Best regards.
Geoff,
I pay $4.95 per trade with TradeKing, which is where I bought this stock.
Take care!
MDP,
I hear you. I can only imagine what it’s like having your kind of capital to go buying with! 🙂
We’ll see how the rest of the month goes. Added more WPC today and I’m taking a strong look at some other stocks on my most recent watch list. More stocks than capital, but that’s always the problem.
Best wishes.
Mantra,
Nice job and loving the purchase. Am also becoming a very big fan of the rail road tracks, solid and goods always will be transportation somehow and someway, and the train still is VERY prevalent, to say the least. Great job averaging down again and should bear delicious fruit for you! Nice purchase DM.
-Lanny
Lanny,
Just one more branch on the tree. Looking forward to the quarterly fruit for many, many more years. 🙂
Thanks for stopping by. Keep up the great work over there!
Best regards.
We are also looking to load up on a quality railroad stock this coming month. UNP is definitely a stock in this sector that we favor. After all, if it is good enough for Buffet, it is certainly good enough for you and me. 🙂
Great pick up Jason. We hope to be a fellow shareholder soon and will likely pull the trigger if the stock dips below $100.
Best wishes and continued success on your personal journey! AFFJ
Congrats on the purchase! Definitely a good feeling to average down on a solid company that you stand behind.
I have a question: Do you ever plan to limit the amount of companies that you hold? Or could you someday see yourself holding stocks of over, let’s say, 100 different companies?
Personally, I don’t see much of a disadvantage to holding a large number of companies. Whereas, of course, I do see a disadvantage in holding a very small number of companies. But I am interested in your opinion on this.
hola Jason, vas muy bien con cumplir tu objetivo, ya que no haces nada mas que comprar, jeje, en este caso me parece una buena compra, yo la miré en su momento y actualmente la tengo dejado aun lado.
Quizás sea hora de volver a mirarla.
No dejes de visitarme http://lacasadeldividendo.blogspot.com.es
Un abrazo
I purchased UNP on June 1st too, nice coincidence. If you like train stocks, check out CNR (Canadian National Railway). It’s part of my Canadian portfolio.
Nice buy. Stock rate went down so indeed repurchase some more is a good idea. If you were sure a few months ago why not be sure now.
Jason,
I am sorry, it is an off topic.
You are doing great job in analysing stocks, I was just wondering what is your thought in Brookfield Infrastructure Partners (BIP)?
For my understanding, it is a low risk stock with high quality asserts mix, and with growing juicy dividend. I would like to know about your opinion on this hidden stock?
Thanks,
FJ
I started June by initiating position in NSC, my first railroad stock. Kind of easier to begin there because of better yield. But I might add UNP later, if the price doesn’t lift off.
As a european I feel excited to own a piece of railroad company from the US of A!
AFFJ,
Absolutely. If Buffett likes railroads, I see no reason not to. Although, he landed BNSF at a pretty good price. 🙂
Best of luck finding the right opportunities this coming month along with the capital necessary to execute. Always wonderful when the two come together.
Cheers!
Matt,
I don’t have a limit in mind, per se. I’ll just stop initiating new positions when I seem to run out of great ideas. There’s still a lot of wonderful businesses out there that I don’t own a piece of yet. I can think of about 20 right off the top of my head.
The whole concept of artificially and arbitrarily limiting oneself to a set number of business investments never really made much sense to me, but I discussed this a bit more in depth here:
http://www.dividendmantra.com/2014/11/is-managing-a-large-dividend-growth-stock-portfolio-time-consuming/
Best regards!
lacasa,
Well, you know me. I don’t let up. 🙂
Hope all is well over there. Freedom is out there waiting for us. We just have to work for it and it’ll be ours.
Thanks for dropping by.
Cheers!
Sam,
Absolutely. Canadian National is an excellent railroad. That’ll very likely be the third railroad (and perhaps last) in my portfolio. As soon as I’m done loading up on UNP, I’ll be moving on to CNI next.
Glad to be a fellow shareholder with you in UNP. I think we’ll do well here.
Best wishes.
DV,
Exactly. If you like something at $106, you should like it even more at $101. I’d love it at $90. And I’d be over the moon at $80. We’ll see! 🙂
Take care.
FJ,
To be honest, I don’t follow BIP at all. I kind of ruled out MLPs a while back due to the tax complexities. It might make sense for a lot of investors and maybe I’ll leave some money on the table, but I’m constructing a fairly high-quality and widely diversified portfolio even without them.
Cheers!
DL,
I think you’ll do quite well there. I’ve long been a very happy NSC shareholder. And I’m glad to have you “aboard”. 🙂
Railroads have done well for a very long time. I see no reason why that won’t continue for the foreseeable future.
Enjoy that dividend!
Best regards.
Hi Jason,
Thanks for the reply and the link! Excellent article indeed!
For me, personally, I don’t think it would be too time consuming to have a portfolio of 50 companies or more. When I buy stock, I buy high-quality dividend paying companies that I plan to hold onto indefinitely.
If one of my companies ever stopped paying dividends or began to struggle, the price per share would have already dropped significantly by then and it wouldn’t make sense to sell at that point (if anything I may even buy more). Actually, it’s another benefit to owning a large number of companies, if one ever does fail, it would represent a smaller fraction of your portfolio and the hit is smaller when more companies are owned.
Anway, love the blog! Good luck with your portfolio!
Jason,
I just averaged down on UNP myself last week so glad to hear someone like yourself is in agreement
I have been considering averaging down on the Oil Majors since I have a bit of a higher cost basis. What’s your view on long term oil ?
Guy
Guy,
Nice! I imagine we’ll both be very happy with UNP over the long term. Great company.
As far as oil goes, I’m not buying any right now. I’ve got too much exposure there as it stands, and the prices I bought in at are pretty attractive relative to the long-term earnings power of many of those companies. That said, I tend not to have the same kind of confidence in that industry looking out over the next, say, 20 or 30 years compared to a lot of other industries. I think, slowly but surely, alternative and cleaner energy is going to become an increasing part of our supply. The availability and cost are becoming more compelling. It’ll take time for that to be real competitive, but that’s something to keep an eye on over the long haul. It’ll probably be more apparent in developed countries, but I suspect developing markets will make up for that in the interim.
Best regards!
Hi Jason
I know typically you like to average down at a little greater of a percentage. Any reason that wasn’t the case this time?
Im Looking at adding to my position in UNP or starting one in NSC for diversification. With a portfolio as relatively small as mine I feel diversification is more valuable right now.
Div
DK,
Yeah, I start looking to average down around 5% or so. 10% is even better. My first purchase was around $106, and I thought that was already a pretty solid price. So I like it a lot more down here where it’s at. Averaging down really depends on how cheap you thought you bought in at the start as well as how large of an investment you plan on making. I’d be a bit more picky in terms of averaging down on a stock I might not want to go too heavy on due to anticipated risk, yield, or something else, but I’m pretty excited about increasing the size of this position fairly quickly, which is something I tend to do quite often as I discussed in the article.
I remember building up my UL position with a few purchases in quick succession at around $40 late last year. I thought it was a good value there, so I didn’t worry too much about averaging down. Now it’s around $44. Sometimes you might not get that opportunity. Just depends.
Best of luck deciding where to go there with the railroads. 🙂
Cheers!
Nice buy! The rails should be good investments.
I’ve been kind of absent doing a study abroad program in several European countries coming back home today though.
Hi DM,
Great call on UNP. Have been a shareholder for two years and loving it…
Looking to initiate a position in BAX before the split…
Cheers
Tom
SWAN,
Well, welcome back. Hope you had a great time over there! 🙂
Imagine being financially independent and able to travel at will. How cool would that be?
Cheers!
Tom,
Glad to be a fellow shareholder for sure. Wish I would have bought some UNP when I was buying NSC back in the day (railroads were pretty cheap back then), but my capital has always been pretty limited. So many stocks, so little capital. 🙂
Cheers!
So many great stocks, but never enough money…
I just initiated a position with AAPL, as I’ve been wanting to add some exposure to the tech sector- after all, technology is the way of the future and AAPL has grown immensely over the last few years. I also expect apple to continue this trend(fingers crossed).
I’m also looking at initiating a position in UNP, TGT, SBUX, & CSCO.
In addition to those new positions, I’m looking at averaging down on my KO position as I’m currently at a $43 per share average.
I’m not too sure which order I will purchase them in, but I wish I had the money to buy all them now.
Joel,
I hear you. Never enough cash for the ideas. But I suppose that’s a good problem to have as it forces us to really concentrate on the best we can find at any given moment in time.
Apple still has a lot of potential, which is perhaps surprising considering where they’re at in terms of size and everything else. But the recent quarter was amazing. I’m also actively interested in increasing my modest position there.
Best of luck finding enough capital for at least a few of your ideas this month. 🙂
Take care!
Hi DM,
Nice buy and so early in the month. Keep pushing that snowball! I picked up my last batch of RDSB today, I do now own 650 shares of the company, and I also picked up 100 shares of XOM. So my exposure to O&G is reaching it’s limits. It is time to move on to some other stocks but my BB-gun is empty currently.
Cheers,
G
Geblin,
Wow. That’s some serious O&G exposure! 🙂
I’m not particularly interested in increasing my exposure there beyond what it already is. I kind of wonder about the industry and where it’ll be in 10 or 20 years. And I’m not particularly enthusiastic about the lack of pricing power, since we’re basically just talking about a commodity. Nonetheless, the world will likely run on O&G for many more years.
My BB gun is just about empty as well. I’ve been buying stock every day since June started. Not much ammo left, but I think I’ll be able to sneak in a little more after some of the June dividends start to roll in. We’ll see.
Thanks for stopping by!
Best regards.
I am not a huge fan of commodities but it is comiing down maybe a little lower what do you think of BBL at now a 6% yield. I was thinking about opening a position when it goes down to 38
dzogen,
I think as long as you’re in it for at least five or ten years, BBL will be a great investment. It’s a commodity, so there’s a lot of volatility there. And, of course, they lack real pricing power. But they’re in a good spot to squeeze out the smaller players. It’s not like BBL is going anywhere. But I believe, relative to the long term earnings potential and their position in the global market, it’s a great company trading at a really attractive value here.
Cheers!
I just bought in this morning at $100.82 per share. Good find, I think.
Thanks,
WE
WE,
Glad to be a fellow shareholder! I think we’ll do quite well here over the next 20 or 30 years. UNP will probably still be around and making money long after we’re dead. In the meanwhile, I suspect we’ll collect a lot of dividends along the way and see our holdings increase in value many times over. 🙂
Cheers.