November 2013 Dividend Earnings

Two dividend payouts came my way in November.  Clorox distributed the first payout since I established that position, so that this quarter I didn’t just have one position.  Feels good to not just have one entry in my table this month!

HoldingDividend/Shr# SharesDividend TotalReinvestedNew SharesAccount
$36.69
CLX$0.7130$21.3YES0.2271Trad IRA
DE$0.5130.184$15.39YES0.186ROTH IRA

Income of $39 was a substantial improvement on my August figure of $15.

 

 

Purchase of CLX – Bleach and Bags from Clorox

CLX Logo

CLX Logo

I’ve had a goal of purchasing one of the major consumer staple companies since first starting to build this portfolio a few months back.  Unfortunately, for the time I’ve been monitoring these companies most of them are very generously valued by the market – which makes me doubt the wisdom of buying in at these prices.  I purchased a full position in Clorox (CLX) today.

CLX (Clorox), PG (Proctor & Gamble) and NSRGY (Nestle) are all on my watch list.  While I consider NSRGY to currently offer the best value for money, I wish to purchase it for my taxable brokerage account.  Given the dearth of free cash in that account – and my ongoing attempts to complete my KO and MCD positions – Nestle is currently not on the table for me.

Proctor and Gamble seems to be experiencing a period of transition and uncertainty; switching back and forth between Lafley, then McDonald, and now Lafley again as CEO.  I have high hopes they can improve execution going forwards, but would like to see a discount in the share price while they sort things out. Failing that it is not on my immediate purchase list.

I recently placed a limit order for CLX at $85.12, and this price triggered with todays’ broad based drop in the markets.  Interestingly my trade confirmation says it executed at $85.04, but that I paid $85.27.  My trades are commission free, so I am not entirely sure why the discrepancy – this was my first triggered limit order, so I imagine I will learn about the intricacies of pricing for these as I gain more experience. UPDATE – following morning I received my official confirmation, and I did pay $85.04, not sure what the $85.27 amount was referring to.

For now some more on Clorox and why I find it appealing. Firstly, it is the only firm in this corner of the Consumer Staples sector that Morningstar is currently rating as a buy. I found their research arguments solid and could see nothing obvious to disagree with.

I do know when I go to the store and see the price of Clorox Bleach now I am amazed at how much prices have gone up. I used to buy a lot of bleach for my pool back before I had it converted to saltwater, and it used to be a lot cheaper.  The $4+ bottles of bleach at my local Kroger are mind bogglingly expensive to my eye, but presumably they are still selling them successfully!

Dividend confidence is important to me, and I have a very high degree of confidence that consumers will continue to buy Glad trash bags and Clorox bland breach no matter what the state of the economy.  I really don’t see anyway CLX can slide into bankruptcy or meet any other similarly disastrous state.

The dividend earnings payout ratio for Clorox is a little higher than I’d like at 66%.  Due to this I anticipate relatively small dividend growth in the next few years. I’ll be happy if the company achieves a DGR of around 7% per year over the next decade.

I do not feel I got a great purchase price on this investment, but it was at least not grossly overvalued.  I really wanted exposure to one of these type firms, and right now they only way to get it was to pay a little more than I really wanted too.

I should now be able to put off any future purchases off this type – PG, KMB, JNJ, NSRGY – until a time that the valuations are more attractive.

Purchase of 30 shares of CLX at $85.04, for a cost basis of 2,551.20. Dividend yield at time of purchase 3.33%. Dividend Reinvestment enabled. Initial dividend income $85.20 annually.