Recent Buy

buyBam.

My 10th stock purchase this month.

More than $6,000 in new capital (including reinvested dividends) put to work.

Those will likely be records that stand for a long time to come.

I honestly wasn’t planning on doing anything else this month. Not only was I happy with the stocks I bought and the prices I paid relative to their respective intrinsic values and long-term earnings power, but my capital was just about exhausted. And that’s why I prefer cash flow to cash: The former regenerates itself, while I have to actively rebuild the latter. And with all that money I spent on stocks this month, along with a fat quarterly estimated tax payment sent in, cash is low.

But I expect some income tomorrow, so I’m okay with a precariously low cash position if we’re talking about just a day or two. And by precariously low, I mean anything less than $3,000 in my bank account. I tend to keep between $3,000 and $5,000 in cash for emergencies as well as just running the monthly budget. Allows me to sleep well at night. And I like my sleep.

What happened here is the market pulled back some yesterday on fears over what’s going on with Greece (an economy that’s smaller than the metro Boston area). Nothing more than really just a hiccup; I was hoping for fireworks!

Nevertheless, many of the stocks that I’m actively buying have been steadily and consistently pulling back to even better values. As always, I follow and value individual stocks, not the broader market. And the stock I’m about to discuss is now down approximately 20% YTD. Who needs a stock market correction when individual stocks are correcting twice over? I see that as an opportunity to go shopping!

I purchased 10 shares of Union Pacific Corporation (UNP) on 6/30/15 for $95.50 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.

More Averaging Down

I can’t predict where stock prices are going to go. I certainly can’t predict what the entire stock market’s going to do tomorrow. But I can predict with some confidence and accuracy that Union Pacific will be a more profitable company a decade from now and will also be sending out more dividends to shareholders. And that’s really the only prediction I care about.

The last time I bought shares in UNP was just earlier this month at $100.82 per share. I tend to look to average down when a stock has fallen about 5% or so. We’re there. And I actually feel comfortable averaging down even quicker than that when we’re talking about a stock like UNP where the growth, quality, and valuation are all there for me. I thought it was a solid long-term value at the ~$106 I paid when I initiated my position in this great railroad. I liked it even more when I bought more below $101. So I love it at $95. Of course, I wouldn’t mind at all seeing it drop to $90 or even $85. More shares and more dividend income for the same amount of money works wonders for my long-term goals.

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’s stock sports a P/E ratio of 16.28 right now. That compares favorably to both the broader market as well as the stock’s five-year average P/E ratio of 17.5. In addition, the current yield of 2.30% is significantly higher than the five-year average of 1.7%.

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

Like I’ve mentioned numerous times about UNP, the railroad business model is one of my favorites. The built-in competitive advantages regarding scale, cost, and barriers to entry are absolutely incredible. I find the odds that UNP will be around in 50 years to be quite high, which, from a long-term dividend growth investor’s perspective, are the kind of odds I like. Union Pacific has been making money (and quite a bit of it) for more than 150 years and I see no reason that will dramatically change tomorrow, the next day, or 10 years from now.

I’ll very likely continue to build this position over time and scale my way in. If I can keep averaging down like this, I’ll be ecstatic. The long-term plan is to make UNP a fairly large position, so I see another purchase or two ocurring over the near term.

If you’re interested, I included some fantastic coverage of UNP and railroads in general just recently. Definitely worth a read if you’re a shareholder or interested in becoming one. In addition, I included a link to my original analysis on UNP above, which goes over the investment thesis behind these purchases.

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 other analysts below, which I use to concentrate my reasonable valuation estimate:

Morningstar rates UNP as a 4/5 star valuation, 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 $109.10.

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

Full Disclosure: Long UNP.

What do you think about UNP and/or the railroads here? Think there’s tremendous long-term value? Concerns?

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

Similar Posts

109 Comments

  1. Awesome Jason! I’m really looking forward to my pay day to be able to add this gem on my portfolio.

  2. Nice going there J,

    Nice correction on UNP… pretty big hit this year… Same thing going on on the TSE with CNR…
    Keep consuming the dividends!

    Best regards
    DB

  3. Wow u are killing it this month. Congrats. I got 12 shares at 95.95 yesterday. I also got in small positions on BBL & NSRGY which are new positions for me. Those continue to slide today and I will keep buying on way down. BBL in particular is yielding 6.27% and seems to be headed much lower….I hope

  4. Awesome job averaging down on UNP! They aren’t on my radar for now, but who knows maybe in the coming months I can find a place for them in my portfolio! Can’t wait to see the updated numbers in the coming days!

    Best wishes,
    Steven

  5. Jason the buying machine is back. No time to answer your previous post that you take out the wallet again.

    Well done with this purchase.

    RA50

  6. Hi Jason
    no doubt that UNP is a great company. I am long UNP,bought some at around $100 and I have been waiting just like you to buy more at lower price. I have been a little worried about this quarterly report. I have been thinking I might be able to buy at lower price. but in the long term I think its a good buy here. I might pick up some in the next few days well see.But I say well done Jason on this stock buy. Also l really in joyed the book. enjoyed the enthusiasm for investing in dividend stocks and why. This can be a lesson to those that think it can’t be done but it can be done. Well done on the book and I hope it can’t wait for the next one. Cheers

  7. Great job! I was hoping for a sharper dip on the whole, but alas not quite there. All the while the talking heads talking about a stock market plunge and how the S&P had it’s worse first half since 2010. Meanwhile tons of stocks are still over valued and pricey. I bought UNP at way too high a price, but I believed in the company and still do. Not sure I want any more shares though, but this is a great time to average down. Hmmmm……

    – HMB

  8. Patrik,

    Thanks so much. Appreciate the support!

    Hope it drops for you so you’re able to buy as many shares as possible once that paycheck rolls around. 🙂

    Cheers!

  9. I build over 100 shares position in UNP yesterday so you know my love for rail road. I would still like to add about 40 more shares at around $93. I hope it goes down a little bit.

    I am also planning to build position in CL next at around $63/$64.

    Look like June was a great month for both of us on investment capital. Most of my purchases were with stocks being down 20 to 25% from their highs although S&P been only down 3.5% from its high.

    I also sold some stocks in month of June that were up 250% or 150% or 100% such as BAC, JPM, INTC to name a few. I wanted some capital to invest and this stocks were up way too much and I am also a fan of consumer staples where my weight is about 40 to 50%.

  10. DB,

    Yeah, UNP has corrected and then some, even while the broader market is still sitting near all-time highs. That’s why I always like to remind people that I’m buying and valuing individual stocks, not an entire market.

    I wanted it to drop further and it did. Really, really happy about that. Hoping it drops even more as I see myself buying more over the next few months. 🙂

    Thanks for stopping by!

    Best regards.

  11. dzogen,

    We’ll see how it goes with BBL. It’s heavily cyclical, so you can either stomach it or you can’t. But those who keep clamoring about China’s slowdown seem to forget that most of India lacks basic infrastructure. Lots of building out yet to occur. 🙂

    Take care!

  12. Steven,

    Once I see a stock that’s attractively valued and high quality, I pounce. Looking forward to getting this position built out before focusing on new ventures. 🙂

    Thanks for stopping by. Hope you’re having a great month over there!

    Cheers.

  13. RA50,

    Cash is nice, but growing cash flow is far superior. Fortunate to be in a position to continually transform the former into the latter. 🙂

    Let’s keep it up!

    Best regards.

  14. michael,

    Well, I hope it’s lower after the quarterly report. I look at buying UNP with the time frame of the next 30 years. One quarter to the next matters very, very little to me. And I certainly can’t predict what will happen. So I just continue to buy when everything is aligned and looks good. It’ll likely matter very little anyway in 30 years whether my cost basis is $104 or $102 or whatever. Once you start thinking about stocks with decades in mind, the rest becomes noise. 🙂

    Glad to be a fellow shareholder with you here. Let’s hope Mr. Market continues to be depressed about its prospects!

    Cheers.

  15. HMB,

    I’m with you. I heard the sky was going to fall. Alas, the clouds are still quite high. When the sky doesn’t fall, the doomsayers say it’s tomorrow and then the next day. When they’re FINALLY right, they then point to what they were saying all along. Even a broken clock is right twice a day. 🙂

    Talking heads are nothing but noise. I’m glad I don’t have basic cable anymore. I remember watching CNBC at work while on lunch break and I always thought the whole thing was a complete circus. One day this. The next day that. Then back around again. No wonder more and more people are recommending to just buy index funds and forget the rest. That’s far, far better than listening to the stuff on the financial networks.

    We’ll see what we get, tough. I’m going to have more capital over the coming days. Let’s hope for disaster! 🙂

    Cheers.

  16. D4S,

    Getting too cheap to ignore now. Let’s see if it goes to $90! 🙂

    Thanks for dropping by. Appreciate the support.

    Best wishes.

  17. Fantastic Jason! I too have been looking to buy some UNP but just no capital at the moment. Hopefully they keep falling, I’d love to get them $85 to 90 range. I already own CSX so UNP would be a nice addition to the portfolio. I’d be just about covered from coast to coast.

    Congrats on 10 purchases!

    ADD

  18. AJ,

    Nice move there with UNP. I absolutely wouldn’t mind 100 shares in UNP, though I’m not sure I’ll end up with quite that many. It’ll really depend on competing opportunities and capital availability. I could see myself eventually owning 70 or so.

    Great job sticking to the clearance rack over there. I hope to bring some coupons to the store here over the coming days once more! 🙂

    Best regards.

  19. DD,

    Thank you. I hope for the same. I’ve been far more successful and aggressive this year than I ever hoped or planned to be. It’s been really incredible. I’m so fortunate to have a really supportive readership. We’re doing something pretty amazing as a group here. Let’s keep it up! 🙂

    Best regards.

  20. DD,

    Yeah, I’m with you there. I own NSC for coverage in the east, and now UNP for the western 2/3 of the country. You want to ship it by rail, odds are pretty good I’m going to profit. 🙂

    Thanks for the support. Let’s hope July is another blockbuster month for us all!

    Cheers.

  21. I bought some more UNP today too. Both UNP and NSC are out of favor with Mr. Market, so I see this as a good opportunity to add some high quality stocks to the portfolio for years down the road (or the tracks, in this case). Happy investing!

  22. Dividend Mantra,

    Congrats on averaging down on UNP. I believe the railroads are going to be more important in the future as they are most cost and environmentally better than the alternative of trucks. Either of these transportation methods are really important to keep the economy going.

    More people from other parts of the world are moving towards Canada and United States. That means more goods will be needed and the railroads are going to be there to make it happen.

  23. I’m a bit of noob here when it comes to dividend models… This article all made sense except I couldn’t quite work the math on this last paragraph you wrote:

    “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.”

    Can you walk me through the math… Or simply point me to a good reference so I can learn to crunch these numbers too?

    Either way, thanks for the info and congrats on the trade,
    -e

  24. KeithX,

    Thanks!

    I sure love when the market hates a high-quality stock. The more it hates, the more I love. 🙂

    Hope you get the opportunity you’re looking for.

    Best regards!

  25. Jim,

    We’re definitely on the same page here. 🙂

    Glad to be a fellow shareholder. Great opportunity to add for years down the tracks, indeed!

    Thanks for stopping by. Happy investing to you, too.

    Cheers.

  26. I just recently averaged down myself and might have to do so again if the price dips a bit more. I want to build up my position in UNP because there’s a lot of competitive advantages to the railroads. I don’t really see them being replaced because they’re just too efficient in moving heavy goods a long distance.

  27. IP,

    Couldn’t agree more. The costs far favor the railroads, though I’d like to eventually gain some exposure to trucking as well. CHRW seems like a solid play there. Getting trucking into the portfolio would then cover most transportation bases. Goods have to move. And I’d like to profit from that. 🙂

    Thanks for adding that!

    Best regards.

  28. e,

    I use a spreadsheet for the DDM analysis, though there are a number of calculators you can use online for free. This one works:

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

    If you plug in the three numbers (the annual dividend, discount rate, and dividend growth rate), you’ll get the same fair value I got.

    This article will give you the basics on the dividend discount model:

    http://www.investopedia.com/articles/fundamental/04/041404.asp

    Hope that helps! 🙂

    Take care.

  29. JC,

    Buffett seems to think railroads aren’t going anywhere anytime soon and I concur. There are only so many ways you can move goods in bulk, and railroads continue to be one of the most cost-effective ways to do that. I don’t see that changing anytime soon.

    Glad to be averaging down with you here. Love the opportunity here on UNP. It’s a stock I’ve long wanted. Feels good to get your hands on a stock you’ve long wanted to add to the collection. 🙂

    Best wishes!

  30. Just averaged down on KMI. JNJ was my next bet but I am also considering MMM. Trying to push for 1k this year in received. I’m at 450 received this far.

    You are the man. Congrats on the month! See you in two days after your next purchase 😉

  31. Hi Jason your story really inspires me and I would love to follow the same path as yours. Size of my portfolio is 10th of yours, but I m not giving up and will continue to add funds and save money and add more funds.

    I just initiated position in unp, but my biggest holding is cvx. What are your thoughts on that?

  32. Dividend Mantra,
    Nice post! Great purchase….Averaging down is always a great feeling when you know the big dog will turn right around and begin to climb again. Keep in touch friend.
    LOMD

  33. Jason – UNP is a popular stock lately (along with XOM)…and for good reason. DGI investors were picking up shares of UNP last month in the high $90’s and low $100’s. At current prices, the stock is at a 5% discount from just last month (and roughly 25% discount from its 52-week high!). Nice purchase, way to keep the pedal to the medal with your 10th purchase of the month!!

    Best wishes and continued success on your journey my friend. AFFJ

  34. DM,

    I suspect UNP hitting the $95s triggered quite a few purchases from DGIs over the past couple days. I FRIPed a couple shares myself today after having already made a second purchase in the $97s not too long ago. 2015 goal to add railroad stocks = check.

    Would you eye another buy around these levels or look for another 5% drop?

    Hope all is well in FL.

    Best,

    DWC

  35. Mike,

    Great companies there. MMM is one I regret not buying years ago. I have a whole basket of stocks I regret not buying, which is funny seeing as how my portfolio is a collection of more than 60 stocks. That just goes to show how many wonderful businesses there really are out there.

    Appreciate all the support. Hope you continue to find a lot of value here. And I plan to put out another “buy” article here pretty soon!

    Cheers.

  36. Parul,

    Whatever you do, don’t give up. You can see some of my earliest posts where I was updating my portfolio with a value of ~$30k. And that was just a few years ago. It scales fast if you continue to save a high rate of your net income and invest it in great businesses that pay and grow dividends. The proof is there. 🙂

    CVX is a great company. Just make sure you’re okay with the cyclical nature of the O&G industry. It can be volatile.

    Best regards!

  37. LOMD,

    Absolutely. I’ve averaged down hard on a lot of stocks in my time, only to watch them surely and eventually start to climb back up. The harder they fall, the more intense the bounce. 🙂

    Appreciate all the support. Let’s keep it going!

    Cheers.

  38. AFFJ,

    I only know how to keep on it 100% and push that pedal to the metal. Freedom is out there and I’m going to take it. 🙂

    Thanks for the kind wishes. Wishing you and your frugal family continued success as well!

    Best regards.

  39. DWC,

    Ha! I hear you there. I have a few industries that I was keen on adding a lot of exposure to this year, and the railroad industry was one of them. Check! 🙂

    We’ll see how it goes. I’m scaling into it, but I’d like to double the size of the position over the long haul. Near term, I’d probably add another 10 or 20 shares. Wouldn’t mind buying more at $95, but I’d love to see it drop to $90 or even back into the $80s. How much I continue to average into UNP will depend on capital and other opportunities.

    Thanks for stopping by!

    Cheers.

  40. Mike,

    The supermajors are looking more attractive here, but I think there’s more pain ahead. For perspective and context, I bought XOM at $86 when oil was $100. I bought CVX around $100, also when oil was a lot higher. So I’m not super enthusiastic, but I don’t think any are necessarily bad buys. RDS.B sports some of the worst fundamentals in the industry, however. And BP has specific risks. You get the big yields to offset some of those risks, though.

    Take care!

  41. My my…you’ve been busy. Congrats on adding UNP shares here….looks very attractively valued. Cant go wrong adding the railroads

    R2R

  42. Nice. The clock ticks to the end of the month….and you make one sweet final purchase. You’re “chuggin'” perfectly a-long.

    July!–for all of us here who wanted in on so much but could only work with what we had. Forward! Toot, Toot! I’ve got UNP and SO on my radar.

  43. R2R,

    Doing my best to stay busy while the cash flow allows. Really fortunate that I’ve been able to put a good chunk of fresh capital to work this month. It’s unlikely to be repeated anytime soon.

    Appreciate all the support. Nice buy over there with JNJ!

    Cheers.

  44. divy,

    Ha! Yeah, trying to chug along for sure. I was able to pick up speed this month, but it’s unlikely to continue into July. Happy to do what I can when I can, though. 🙂

    SO is definitely a lot more attractive now than it was even a few months ago. A lot of the utilities have come way down, rightfully so. Not a huge fan of the industry, but I wouldn’t mind dipping my toes there for the first time in a while. I’m lukewarm on a few utilities. SO is one of them. WEC is another.

    Let’s keep it rolling into July!

    Best regards.

  45. Jason, your “Fortune” link about UNP the other day made impressive reading! Most informative and entertaining.

    So I totally understand this buy and envy it. I had to decide between a new position (UNP) or averaging down on EMR and went for the later. I guess it was just a gut feeling and no market timing, I am out of that game. EMR is more cyclical for sure, but I do not care, I will never sell it anyway.

    Nevertheless, UNP is top on my watch list.

    What a month … All the BEST – Thorsten

  46. Thorsten,

    Glad you enjoyed the article. I think they’ve been putting out some really great stuff lately. Makes for excellent reading.

    Nice call there on EMR. A fantastic company. Incredible dividend growth record. I highly doubt you’ll be unhappy with that investment over the long term. The newly announced spin-off is interesting as well.

    Glad to be a fellow shareholder! 🙂

    Cheers.

  47. Thanks for the reply.. I’m definitely learning something.

    But can you help me out one more time though… Following the formula on investopedia… And the formula I think the calculator pro is showing… I can’t recreate $118.80

    $ Annua Div
    /
    (rate return% – div growth%)

    2.20
    /
    (.10 – .02)

    2.20
    /
    .08

    = $110

    This other calculator matches my math:
    http://www.miniwebtool.com/dividend-discount-model-calculator/

    Per the investopedia link… It appears I’m using a basic “Gordon model”
    http://www.investopedia.com/articles/fundamental/04/041404.asp

    In your example … It appears you are using the Stable Growth Dividend Discount Model … These two calculators compute your higher value of $118.80

    http://www.buyupside.com/calculators/dividenddiscountmodelstablev1.php

    http://www.calculatorpro.com/calculator/dividend-discount-model-calculator/
    (The formula displayed in the explanation of calculatorpro looks wrong?? ie states Gordon but computes Stable?)

    Either way
    $95.50 < $110.00 < $118.80
    So your purchase seems well supported by either of these models.

    Just out of curiosity… Are you intentionally using the Stable model over the Gordon model for a particular reason?

    Thanks again,
    -e

  48. e,

    The difference between $110 and $118.80 is about 7%, with both numbers indicating pretty solid undervaluation. Keep in mind that valuing stocks is really part (mostly?) art and part science. Trying to narrow down a stock valuation to an exact penny is impossible.

    Like I mentioned in my original comment, I use spreadsheets and calculators. I don’t run any of the math shorthand because I don’t see a reason to. If I weren’t writing 30 or 40 articles per month and running these numbers constantly, I might be more inclined to manually run some calculations. But spreadsheets and calculators make it far too convenient to even consider the alternative. 🙂

    What you may want to do is run the system you feel most comfortable with and go from there. Although, the difference is really quite negligible if you’re really going to hold the stock over, say, 20 years. But every penny counts and surely I’d rather have a larger margin of safety, even if it’s just perceived.

    Best regards!

  49. Wow, you’re killing it with all the recent buy posts — congratulations and keep up the great work! You continue to be an inspiration for us all.

    Cheers
    FerdiS

  50. Ferdi,

    Thanks so much. Really appreciate it. Doing my best to inspire through real-life action. 🙂

    You’re doing great over there as well. Keep it up!

    Cheers.

  51. For sure spreadsheets and calculators are the way to go. I’d never intend to do the numbers manually except the first time to understand the basics of a formula.

    Although it’s irrelevant now (or perhaps to serve as additional reasons to use a tool instead of crunching numbers by hand), my original comment on the math had a number flipped. In case anyone is reading my bad example… It should be
    2.20/(.10-.08)=
    2.20/(.02)=$110

    Thanks again, I appreciate the response as well as your articles.
    -e

  52. Averaging down always sounds nice to me especially when it’s a stock you already like and plan to keep for a multi-decade term. The way the market is behaving I think I’ll be doing some averaging down in July as well. Keep up the good work.

  53. Hi Jason,

    Do you have any views on using Direct Stock Purchase Plans rather than a broker? I noticed there seems to be lots of added fees with the DSPP whereas at least with a broker you know where you stand….

    What method of investing do you think is best? And what do you do?

    Best regards,
    Lee.

  54. Ten buys in a month, I am certainly very jealous!! You did the right thing averaging down, it is always good to nab a bargain. One of my high yield dividend stocks, National Grid has fallen quite a bit this month and if I was not on maternity pay I would certainly be topping up. Looking forward to seeing the value of your Freedom Fund and of course your June dividend income.

  55. DM

    I have UNP already in my portfolio for almost 1 1/2 year, I liked it before and now even more, but I don’t have the cash to generate more cash flow 🙁

  56. DM,

    I was also hoping for more than just the hiccup we received! I thought perhaps on Tuesday things would follow-up with the looming payment default in Greece, but many of the stocks I follow actually increased.

    Nice job with a record month for purchases, brother.

    Take care,
    – Ryan

  57. Jason,

    Wow you still slipped 1 more in! I just went long on UNP myself, very nice move there. Congrats on a record month. Enjoy that freedom.

    – Gremlin

  58. Quick question, where do you find your data for the historical PE ratio? Do you usually go by the 5 year average or a longer-term average? I have a Scottrade account just like you, and I don’t see that on there.

  59. Nice buy. It certainly has been a very heavy investment month! Will–quite literally–pay dividends in the future.

    I was surprised how small the pull-back around Greece has been. In itself it may be a very small cog in the global economy but the ramifications of their future in the Euro are rather larger. But the comparatively modest drop even here in the UK was a bit of a surprise for me!

  60. Nice purchase there.The railroads will be here to stay for many years..

    It is funny that I keep getting asked what to do when there is nothing to buy. When in reality, since we select individual businesses, there is always something available to deploy your cash in. Most often the problem is which of the 20 ideas I have to buy today.

    I also think the situation about Greece is overblown. However, some financial institutions with exposure there might end up suffering write-downs.

  61. Hi Jason!

    UNP seems like a really solid buy at 95 here, I’d probably buy it to my own portfolio but I still have to wait for another month or so to load my bb-gun. Really hoping that UNP stays at these levels or better yet gets even cheaper.

    I’ve got a question: Can you name three companies of most quality that you don’t yet own, but would like to if they came down in price? So three wonderful companies that right now are perhaps overvalued but you’d like to own at some point. Thanks!

  62. Just curious – would you have made so many buys if your trades weren’t free? Sometimes I wait until I have more to spend so the cost of the trade is a smaller percentage of the total cost. Do you take that into consideration?
    Thanks.

  63. DH,

    I certainly hope we get more opportunities. Was expecting fireworks over the last few days with all the hullabaloo, and I instead got sparklers. 🙂

    But that’s why I don’t bother worrying about the market or trying to predict it. Sticking to the long-term plan is where it’s at.

    Cheers!

  64. Lee,

    I prefer a full-service brokerage, and that’s what I use. I use Scottrade and TradeKing (you can find links on the right sidebar). The fees are straightforward and I know exactly what I’m getting and what I’m paying. Everything is fairly quick and I’ve got my portfolio all in one place. Works for me. 🙂

    Using a service like Computershare would probably work out pretty well if you’re investing a very small sum of money, like, say, $50 or $100 per month. Now, that’ll add up over time. But for anyone attempting to realistically achieve financial independence in a fairly short time frame, they’ll want to be investing thousands of dollars per month. So that’s where the brokerage comes in. And the fees aren’t really that bad. I try to limit commission fees to 0.5% per transaction during the accumulation phase, keeping in mind that the period where I’ll be living off of my dividend income will be much longer and likely pretty close to fee-free.

    Hope that helps!

    Best regards.

  65. Laura,

    Thanks so much.

    It was an incredible month. Definitely very fortunate. Likely to not be repeated anytime soon. But it’s nice to have the ability to accelerate like that every once in a while.

    Looking forward to going over the updates. Keep an eye out! 🙂

    Enjoy maternity pay over there. An exciting time for sure. Congrats!!

    Best wishes.

  66. divorcedff,

    No problem with not having cash. Sometimes an investor just doesn’t have cash. Certainly a first world problem to have, my friend. The good news is that UNP and their thousands of employees are working on your behalf to generate profit and cash flow for you. That company is working in the background while you go on about your life. And you’ll receive a little paycheck just for that one good decision to buy stock in the company. It’ll likely pay off for the rest of your life. Keep it up!

    Cheers.

  67. Ryan,

    Yeah, you can just never tell with the market. Could surprise us and drop 10% tomorrow. Or it might continue to recover from what was really a very small hiccup. I had a few readers email me to advise me that the market was going to drop by at least 10% on Monday. Crystal balls are always cloudy, right?

    Appreciate the support. It was one of those once-in-a-blue-moon months, that’s for sure. But if I can pull off something like this every few years, I’ll be very, very happy. 🙂

    Let’s keep it rolling!

    Thanks for dropping by.

    Cheers.

  68. Gremlin,

    Ha! Wasn’t planning on it, but seeing UNP down 20% YTD and trading well below what I think it’s worth put me in a spot there. There was one more BB left in the BB gun. 🙂

    Looks like you picked up 10 shares for the same price. Nice move!!

    Glad to be along for the ride with you. The view should be fantastic.

    Best regards.

  69. EWB,

    Good question.

    I use Morningstar for that. If you pull up any quote and then go over to the ‘Valuation’ tab, you’ll see five-year averages for a few key metrics (including the P/E ratio).

    Hope that helps!

    Take care.

  70. TDD,

    Yeah, I wasn’t sure what to expect with that. I was hopeful for a 5% or 10% drop, but I wasn’t holding my breath. It seems like just the catalyst the market needs to cool off for a bit, but no luck so far. I just go into every day with the mind of a shopper. When prices are good on individual merchandise and I have cash, I’m excited to buy. But I don’t pay too much attention to what the whole store is doing.

    We’ll see how it goes. Greece’s economy is very small. Greece could literally disappear off the economic map and never buy anything again and the world would keep on humming. So I’m not particularly concerned. And the whole eurozone seems like a poor idea. It’ll get figured out eventually after much can kicking.

    Cheers!

  71. DGI,

    I hear you. That’s why I try to hammer home the idea of looking at individual stocks rather than the entire stock market. It’s not like you look at stats on your local grocery store comparing its overall price of all goods added up. Why would that matter if you’re not buying everything in the store? What does the price of salmon have to do with the price of peanut butter?

    Greece is a speck on the economic map. I’m sure it’s a fine country. Appears to be really beautiful. But it’s not like we’re talking about China or something here. They need to come down hard on them, though. Playing softball is obviously not working. Munger’s comments about the drunken brother-in-law seem particularly apt here. Some people just can’t handle money well and you need to ween them off.

    We’ll see how it goes. Hopeful for better opportunities down the road. I’m more upset about HCC and CB being bought out recently than I am about anything going on with Greece.

    Cheers!

  72. Sampo,

    I hear you there. I’m reloading as we speak. 🙂

    Three really high-quality companies I can think of off the top of my head that I’d love to own but seem a bit pricey here are SBUX, BDX, and CL. They’ll eventually find their way into the portfolio, though I may not score any deals there. We’ll see.

    Have fun shopping when the time arrives!

    Best regards.

  73. SR,

    Definitely not. I wouldn’t have made so many buys without the free trades because the fees wouldn’t have made sense. I invested a little over $6,000 last month. So assuming no free trades, I would have made no more than six purchases. Maybe even only five. But I’ll certainly take free trades when they’re given to me. 🙂

    Overall, I try to keep commission fees to 0.5%, on average, during the accumulation phase. So with the TradeKing account I’m now building out, that means around $1,000 per transaction. That 0.5% isn’t bad in and of itself, but it’ll be especially low when you average it out over my entire lifetime considering that I’ll likely be paying little or no fees for the better part of, say, 40 years.

    Cheers!

  74. Wow, that’s a lot of buys! Good for you 🙂

    I don’t see much future growth potential for this company, but it is a great dividend payer and some good quality fundamentals. It does fit in a long-term strategy like yours.

    Cheers,

    Mike

  75. Mike,

    It was a great month. Super fortunate and grateful! 🙂

    We’ll see about growth. Most analysts and experts seem to predict a very healthy long-term picture, and so do I. If they can grow over the next 10 years at half the rate they have over the last 10, I’ll be a very happy shareholder.

    Thanks for stopping by!

    Best regards.

  76. Mantra,

    Everytime I think I reload your page I feel it is the same post, but guess what it isn’t… HOLY CRAP $6K!?!?!?! I cannot even fathom this. Awesome company and great job averaging down for the 2nd time. Money. Perfect.

    -Lanny

  77. DM,

    You gonna sell BAX now that the combined two new company’s dividends will be lower than the aggregate pre-split yield, as I understand it? Appears the dividend policy going forward may also not be as favorable…would be interesting to hear about your sells (however occasional) as well as the buys.

  78. Lanny,

    Ha! Yeah, I try to mix the articles up as much as possible. But I just didn’t get a chance to this time around. Too much stock buying to talk much about anything else. That’s obviously a great “problem” to have. 🙂

    Thanks for the support. UNP is a great company operating in a great industry. Railroads have been making money for about as long as anything else, and I suspect they’ll continue doing so for a long time to come.

    Keep it up over there!

    Best regards.

  79. Lex,

    I plan to continue holding BAX and BXLT moving forward. All I’ve heard about the dividend has been speculation. No hard numbers until both companies declare their next respective dividends.

    In general terms, I find myself less and less interested in selling stocks at all. Unless a company really goes out of its way to piss me off, like ARCP did, I’m inclined to just hold for the long term. I’m a patient guy. Perhaps too patient. I once heard (or read?) a portfolio is like a bar of soap; the more you handle it, the less of it you’ll have in the end. I believe that. Great companies sometimes go through growing pains or difficult periods. If the companies come right out and say, “We’re going to cut our dividends and never raise them again”, then I’ll sell. Otherwise, I’m more inclined to own a piece of both companies. BAX was a great investment as one piece. I see no reason that’ll be any different because it’s in two pieces now. A chocolate bar tastes just as good when it’s in two pieces, and I suspect BAX’s management knows what they’re doing here.

    Listening to the noise and jumping the gun probably isn’t conducive to successful long-term investing. Less is sometimes more.

    Best regards!

  80. Also very disappointed with the CB buyout! I almost pulled the trigger, but went for another holding a few weeks ago. CB was still very much in my top 5, but no more. 🙁

  81. Ravi,

    I guess we’re late to the P&C party! That totally sucks.

    I was very, very interested in building out positions in HCC and CB after I was done with TRV, or possibly even concurrently with the TRV buy. Not possible now, though ACE is still on the board. Probably even better with CB swallowed up. Makes me think I’m getting a pretty solid deal on TRV than I think with all these premiums being paid… 🙂

    Just gotta move on to the next one.

    Cheers!

  82. I was lukewarm about UNP back when it was in the 105-110 range. A nice discount from the highs in the past yr, but not great considering the yield and business.

    Well, another 10% off that and I’m very interested now! Definitely in my top 5 at the moment and will likely end up in the portfolio so long as it doesn’t spike up too soon. I tend to avoid buying stocks I already own, though I have a much smaller portfolio with something in the 30s-ish of different stocks. I may start to add to existing positions once I close in the 40/50 range. Fortunately, most new purchases now are barely 1.5% of my portfolio, so I don’t worry so much about stock-specific or company specific risks in the context of a portfolio. Even good companies struggle from time to time. KO is doing that now, JNJ had some troubles I think a year or two ago, SBUX had all the “coffee prices are going up 1 million %” naysayers I believe in 2010, and 2 of the 3 have already turned the corner from those issues. Things happen, and companies either learn and adapt or get left behind. Can’t win them all, but I’ll take what I can get more often than not.

    Happy hunting! July probably won’t be as active, but excited to see what comes next for you.

  83. Ravi,

    Yeah, UNP (and many other railroads) is very compelling here. I really think there is at least a modest discount to the actual value of the company and its long-term earnings (and dividend) power. But even a fair price for a high-quality business that isn’t going anywhere is generally not bad. Nonetheless, it’s one of my better long-term ideas right now and I’m very pleased to be able to continue buying in.

    Happy shopping for you as well. Should be fun. Let’s hope Greece really brings some drama. I could use some help, especially now that I’ll have less capital to work with this month. Never waste a good correction. 🙂

    Best regards!

  84. Nuno,

    I do, too! 🙂

    Thanks for the support. July for sure won’t be as crazy as June was, but I think it’ll still be another really solid month. And, really, any time one can save any money at all and buy stocks, it’s a great month. A lot of people out there in the world don’t have that kind of opportunity. We’re blessed.

    Hope you have a great July as well!

    Cheers.

  85. LancasterGate,

    Copy away! 🙂

    Just make sure you do your own due diligence and feel comfortable with the investment. That way you know how to react if something changes.

    Cheers!

  86. Hi Dm,

    Wow what a month, 10 buys!! Crazy. I wish you could keep up this rate of buying.

    Cheers,
    G

  87. Geblin,

    I wish the same. These kinds of months are fun when they happen, but I also know they’re not necessary to reach my long-term goals. I’ll certainly enjoy them when they occur, though! 🙂

    Let’s keep it going in July!

    Best wishes.

  88. DD,

    It definitely feels good. Just adding to the collection. 🙂

    Let’s hope for more volatility in July. Feels good to nab a deal!

    Thanks for dropping by.

    Best regards.

  89. Hi Jason;

    I enjoyed reading your article. I will have to do some due diligence on CN. Being a Canadian it makes more sense to buy it as there has been a price dip for it too.

    Anytime there is discussion about railways, I can’t stop thinking of the board game of Monopoly that most of us have played at one time or another. It seemed a good idea to pick-up a railway anytime you landed on one. Same thing goes for utilities…as long as you are a patient dividend investor. 😉

  90. Dave,

    Glad you enjoyed the article. This one was light on the analysis, but you can read my analysis on UNP using the link above.

    I know exactly what you mean about Monopoly. I remember tweeting something to that effect when I bought UNP, that I owned two railroads. And it was on to the next one or two so I could “own them all”. Good stuff. It was always a strategy of mine to own all four railroads when I played the game, so it makes sense that I’m still doing that all these years later, except now with real money. Life imitates art?

    Sure is fun to be an investor!

    Thanks for stopping by.

    Take care.

  91. Amazing month, congratulations! I’m busy starting up a new fund of my own for my son. Right now I’m budgeted for one purchase a month – ten is out of this world great! This month I bought a little more KO to keep adding it as one of the core holdings to mold the rest of the fund around over time. Your FF has been an influence. Thanks, Brian

  92. Brian,

    That’s fantastic that you’re building a fund for your son. I imagine he’ll be sitting pretty years from now. Awesome! 🙂

    Tough to go wrong with Coca-Cola. Still one of my favorite stocks. I’m pretty topped up on the big beverage players here, but it’s definitely about as blue chip as it gets.

    Keep up the great work.

    Take care!

  93. CSX has also recently dropped to nice price as well?
    have you considered about it?
    currently, i have purchased nsc, unp and csx!

  94. leon,

    I honestly haven’t looked at CSX in some time now. I don’t think I see much of a reason to own it since their network largely overlaps with Norfolk Southern. I love diversification, but owning CSX and NSC at the same time doesn’t strike me as something that’s worthwhile. The next railroad I might like to own is CNI. But that would probably be it for railroads. At that point you’d have complete coverage across both sides of the US, with exposure into Canada and Mexico.

    Best of luck deciding which way to go over there!

    Cheers.

  95. Hi Jason,

    Good choice…love the infrastructure providers; good long-term prospects, sustainable business model, good cash flow generation, high barriers to entry, and low chance of obsolescence.

  96. TSW,

    Thanks for dropping by!

    Yeah, railroads have been around for a long, long time. And I see no reason why that won’t persist. Recently added one more tranche here to this position, pretty much filling it out now. Very happy to be in it for the long haul now. 🙂

    Take care.

Leave a Reply