Another Puff Of Philip Morris

PM Logo

PMI Logo

As the market continues its emerging market driven rout, a lot of great blue chip companies are seeing significant drops in price.  This is resulting in more of my limit orders being triggered.

When I checked the markets today Philip Morris was trading below 79 dollars, well below my $80.01 limit price.  My order was fulfilled at exactly $80 per share , resulting in a purchase of 32 additional PM shares at a cost basis of $2560.  This latest addition to my holding has a beginning dividend yield of 4.7%.

Philip Morris is now my largest individual equity position – ignoring my 401(k) index funds, which I don’t discuss on this blog.  I have a total of 92 shares with a current valuation of over $7,300.  This will result in an annual dividend payout of $345 into my Traditional IRA account.  Dividend Growth Investor has a great article on some of the merits of PM.

I still do have some uncommitted cash in that account, so could potentially buy more if the price continues to drop.  History shows that price drops in tobacco stops are just a chance to buy cheap and make even bigger returns in the future, and I am confident that this approach will hold true – however, I am not certain!  Given that I will try (and maybe even succeed) to resist the cravings to build this position further for now. Although, only 8 more shares would round my position to an even 100…

Hopefully if the markets continue to tank some of the other securities I’m pursuing will come into buying.  I have an order to add more KO at a limit of $36.77, compared to the closing price today of $37.90.  It does not seem inconceivable that this could trigger in the next couple of days if Mr Market continues with his present sour mood. I also hope to add some more Exxon-Mobil or Nestle if their prices dip down far enough.

 

More Coke? Yes Please

KO Logo

KO Logo

After much contemplation I decided today to increase my holding of Coke.  I’ve read a lot of articles and analyst research and have convinced myself that it is one of the few bluechip companies that are trading at a fair price.

Barring a significant rise in price in the near term, I anticipate making several such KO purchases when my supply of capital allow.  I am slowly converging on a list of core equities that I would like to build a large position in – KO, PM, XOM and NSRGY.  In the event of a significant market correction I will be scrambling to buy as much of these as I can!

One major factor for me in focusing in on Coca-Cola was a recent WealthTrack interview with Don Yacktman, who is very bullish on KO.  His funds have performed exceptionally well over the last 10 years, so his thoughts held a lot of weight with me.

With dividend reinvestment in place I’m hoping I will see a long term return in the neighborhood of 10 to 11 percent annually.  7% to 8% through earnings growth, plus the 3% from the reinvested dividend.  With Cokes ability to sell a few cents of syrup for a dollar or so a serving, and the strength of their brand around the world, I consider their moat and their profitability to be a relatively safe bet.

My original position from earlier in 2013 was 64 shares. Since then dividend reinvestment has boosted my hold to 65+ shares.  Taking advantage of todays price dip I purchased another 64 shares for $2510.08 at $39.24 a piece.

The Coca Cola holdings in my portfolio now total 129.112 shares with a new cost basis of $5082.54.  The yield is floating somewhere between 2.8% and 2.9%, so my annual KO dividend has now increased to roughly $145.

The Danger of Fear and Panic During a Stock Market Crash

One story I hear again and again about investing in equities, is how easy it is to lose a lot of money. While this is true to a certain extent, there are ways to mitigate these risks.

In the late 1990’s many investors got caught up in highly speculative tech stocks, when high prices of many issues were unsupported by their profit levels – or in many cases unsupported by any profits at all. With the benefit of hindsight, it is obvious that this bubble had to eventually burst.  Engaging in this kind of speculative investing in hopes of rapid short term gains is somewhat of a gamble, and a very easy way to squander a lot of capital.

Investing in the latest ‘sure thing’ may pay for a while, but eventually you are going to get burned.  For those willing to settle for slower but surer returns, purchasing positions in solid companies with a long track record – and preferably a wide moat protecting their business – at a fair or discounted value is a lot more likely to provide satisfactory results.

Of course, even prudent investors can find the value of their holdings go down considerably at times. During the financial crisis the S&P 500 dropped from a high of over 1500+ in late 2008, down to less than 700+ in 2009. While some companies – especially those financial firms dependent on leverage and mortgage based securities – suffered dramatic falls in share price for good reason, other non-financial firms also fell drastically.

Stalwarts such as Coca Cola – little impacted by troubles in the financial sector – traded as much as 25% lower in the depths of the financial crisis bear market than it did beforehand.  Did the intrinsic value of KO really decrease that much?  I don’t think so.  Earnings continued to grow, dividend were still paid out – and continued to increase annually.

During this time many 401(k) investors – seeing their balances decline by so much – sold all of the equity positions in their retirement accounts.  Now that the markets have fully recovered and now exceeded their former 2008 highs, these people have missed the opportunity for huge gains and will suffer in retirement accordingly.

For investors who have purchased shares in a quality blue chip company – KO is only one example, others are JNJ, PG, NSRGY, MCD – at a reasonable price, a stock market crash is not a time to panic and sell.  These firms are – barring catastrophe – not going away.  They sell products that people will continue to buy in good times and bad.

If the economy is down for some reason – recession, war, famine – the market as a whole might punish these firms out of fear they will not perform as well in the near team.  However, looking out into the future we can see from history these basic, somewhat boring firms, will continue to prosper and thrive when times improve.  In fact, with proper management, the down times can provide a quality firm the change to take market share from less sound competitors.

Rather than panicking and selling when your investment in Johnson and Johnson drops 20% due to some temporary bad news, stop and consider what is happening.  Is there some specific event that will truly impair the long term prospects of this particular company?  If not, take advantage of those panic driven sellers pushing down the price and increase your holding.

Don’t let fear and panic mess with your mind in the next stock market crash.  Hold the positions you have in quality companies and look for bargains to deploy any available cash you have.  If you can pick up ‘best of the best’ firms at a P/E of 15 of less – particularly during temporary periods of depressed earnings – then you have excellent odds of great returns when the psychology of the markets turns bullish once more.

December 2013 Dividend Earnings

My December 2013 dividend earnings are in. It has been a busy month!

HoldingDividend/Shr# SharesDividend TotalReinvestedNew SharesAccount
$159.8
RDSA$0.9038$34.20NO0Brokerage
KO$0.2864.6496$18.10YES0.4624Brokerage
XOM$0.6330.215$19.04YES0.202ROTH IRA
INTC$0.225106.058$23.86YES1.010ROTH IRA
ADM$0.1975.395$14.33YES0.352ROTH IRA
MCD$0.8127$21.87YES0.2295Trad IRA
IBM$0.9514$13.31YES0.0752Trad IRA
CSX$0.15100.5681$15.09YES0.5413Trad IRA

I got my first full dividend for MCD, after the piecemeal purchases I made earlier this year. My Shell investment returned one last ‘funny’ dividend – I received $34.20 in cash, but immediately has $5.13 clawed back as a foreign dividend tax.  Hopefully this should be resolved next quarter now that my RDSA has been liquidated from my brokerage account and I have purchased RDSB in my Traditional IRA.

$159 of dividend income is not too bad.  Unfortunately January and February will not be as lucrative, my dividend paying investments in those months are rather sparse at this time.

 

October 2013 Dividend Earnings

The totals are in for my Dividend earnings for October 2013.  I had three positions pay out this month, General Electric, Philip Morris International, and Coca Cola.

HoldingDividend/Shr# SharesDividend TotalReinvestedNew SharesAccount
$65.49
GE$0.19110.842$21.06YES0.807ROTH IRA
PM$0.9428.152$26.46YES0.3117Brokerage
KO$0.2864.1729$17.97YES0.4767Brokerage

The biggest news this month for my Portfolio was the PM dividend increase taking effect.  My payout went from the previous $0.86 per quarter up to $0.94 for a whopping extra $2 in dividends.  It may not sound like much, but I’ll take it!

Of the $65 income $44 was earned in my taxable brokerage account, while the other $21 is tax-free in my ROTH IRA. I’m slowly getting closer to my initial goal of averaging $100 a month.  Probably another $5000 worth of investments will push me pat that target.

 

Purchase of NSRGY – Nestle

Nestle Logo

Nestle Logo

After resolving my block for trading Pink Sheet stocks – my Merrill Edge Safepass arrived in the mail – I have finally moved forward with my Nestle purchase.  The addition of the NSRGY ADR to my portfolio is a goal I’ve long targeted.

The bad news for me is that due to the delay caused by waiting on the security mechanism to arrive, the price of the security increased by roughly $5 per share.  I had set my limit order to $68.00, and sat and waited for the purchase to trigger. While I would have preferred a sub $65 price – where it was trading a while back – I still feel it is attractive at sixty eight.

Nestle is a Swiss based firm, largely focused on the food industry, that has in the neighborhoods of 30 billion dollar brands.  It is truly a huge company, and with the breadth and depth of its product offerings it will not be going away anytime soon.  Amongst its chief competitors are General Mills, Kraft, and Kelloggs.  The firm also has a large beverage division – particularly in the bottled water arena – so also competes to a certain extent with Coca Cola and Pepsico. As I have already purchased KO I now have multiple positions in the beverage industry.

While not a hugely popular holding for individual investors in the US, many people hold them in their 401k accounts due to its presence in a large number of major index funds.  The main listing for the company is on the SIX Swiss Exchange, and one side effect of this is that many of the US based financial statistics aggregating sites have bad information for the firm.  Sites like Yahoo finance and Google finance should not be relied upon for dividend data for these international firms, it is best to go direct to the source – i.e. the firms’ corporate website.

Nestle, being a non-US forms, has some unique characteristics that makes it different to my other holdings.  For one, it only pays a dividend once a year, rather than every quarter.  Also, the dividend is paid in Swiss Francs (CHF) which is of course converted into USD for the ADR.

This means the size of the dividend – and of course the price of the underlying security- will vary over the years depending on the underlying CHF-USD exchange rates.  This does expose me to some foreign exchange risk, but since Nestle sells products worldwide I am not concerned about this.  I had a lot of trouble finding accurate historical information on the Nestle Dividend, this is probably the best reference (straight from the source) as it eliminates confusion caused by taxes and currency conversions.

With this firm I am exposed to every currency – some of which will be strong and some weak in any given year.  The major concern I would have is if I were forced to liquidate my position at a particularly unfavorable time – when the Dollar is weak against the Franc.  I plan on holding this stock for life however.

Purchase of 37 shares of NSRGY at $67.98, for a cost basis of 2,515.26. Dividend yield at time of purchase 2.71%. Dividend Reinvestment enabled. Initial dividend income $67.17 annually.  Note – this yield reflects 15% withholding.  My research indicates I should get credit for this at tax time, if this proves to be the case I will come back and adjust the yield upwards accordingly.

 

 

 

 

Completion of KO Position

KO Logo

KO Logo

After failing to purchase NSRGY earlier today, I instead used a portion of my funds to complete my position in Coca Cola. I needed to purchase a little over a thousand dollars’ worth to achieve my desired cost basis of $2500.

While KO was a little cheaper earlier in the week, I am content with my price of $38.62 for 37 additional shares.  This gave me a very slight ‘averaging down’ in the price per share of my whole position – bringing it down to $39.52. Overall I believe this was a reasonable price to buy, but not a huge discount to fair value. I am confident that their business will continue to produce solid returns, and my position has a solid chance of being very lucrative in the long term.

My earlier Coke trades are documented first here, and second here.

With this soda company purchase complete, I will put my thoughts of buying to buy PEP (Pepsi) or DPS (Dr Pepper) on the back burner.  While they appear reasonably valued, I would like to diversify my portfolio into some other sectors with my next few purchases.

Overall position is 64 shares of KO at $39.52, for a cost basis of 2529.28.  Overall dividend yield at time of completion of position is 2.83%. Dividend Reinvestment enabled. Initial dividend income $71.68 annually.

UPDATE – added to KO position!

Moving My McDonalds Holdings to Make Space for Nestle

I have been doing some thinking about how best to split my portfolio amongst my Taxable brokerage account, my Traditional IRA (an old 401k rollover) and my Roth IRA account.

I have a surplus of uncommitted funds in my Traditional IRA, and a shortage of free cash in my Taxable account. This is proving a bit troublesome as some of the companies I have an interest in – namely RDSA (Shell) and NSRGY (Nestle) are best purchased in a non tax advantaged account.

Word on the interwebs is that the Nestle dividend is subject to partial withholding, but that those moneys can be recovered at tax time. To do this however, the ADR must be held in a taxable account. Is this accurate? I’m not sure – but I’m going to assume so for now,

To this end I have decided to liquidate my partial position in McDonalds from my regular brokerage account, to free up this cash for a possible Nestle purchase. At the same time I will use some of the uncommitted cash in my tIRA to establish a full MCD position in that account, taking advantage of the dip in price of Mcdonalds in the last week or two.

The net result of this change will be:

  • MCD moves from partial to full weighting in my portfolio.
  • Roughly $1000 will be freed up in my brokerage account for a possible future purchase of NESTLE – or another company that similarly benefits from placement in that account.
  • I no longer have to scrimp and save my ‘new’ investable capital to finish building out my MCD position.

I may end up doing something similar with my KO holdings one day, but for now I will leave them as is.

I have placed the orders for these two MCD trades to execute tomorrow. They will be fee free thanks to my brokerage firm – well, if I ignore the 2 cent sales fee from the SEC.  I will post a McDonalds positions update to reflect this once the trades have gone through.

For portfolio tracking purposes I will adjust my cost basis in MCD to whatever value Merrill Lynch shows me. This won’t reflect the fact I lost a bit of money since my initial purchase, but I can live with that slight discrepancy in the name of keeping things simple.

Additional KO Purchase – How Not To Trade

KO Logo

KO Logo

One benefit of having commission free trades in my Brokerage account is that I need not worry about trading fees on small purchases.  With the current drift down in the prices of Coca Cola (KO) I decided to spend the cash I had on hand to build on the partial position of Coke I built earlier.  I was able to muster about $500 for additional Coke shares today.

This is still not enough to obtain my full desired holding, but since prices are down I thought I would dollar cost average down while I could. Unfortunately I ran into a small glitch with my Brokerage…it is a bit embarrassing, but I don’t mind looking foolish so I’ll share it!

The purchase order I placed was not permitted to proceed as the sum exceeded 95% of my available funds.  The reason why was not stated, but my best guess is they like to leave a little for any trading fees (not that this applies in my situation).

To resolve this issue I went back and decreased the share count by one, then resubmitted the order.  Alas, the buy order defaulted back to sell – so I actually ended up reducing my position instead of adding to it.

Word to the wise…never employ me as your broker!!

After this giant ‘doh’ moment I placed a limit purchase for 25 shares – including rebuying the 13 I unintentionally sold – this time correctly.  The order triggered and was executed shortly before the end of trading for the day.

Increased my initial position of 25 shares by 12 net new (13 sold, 25 purchased) shares of KO at $38.78 with dividend yield of 2.89% (almost 3%, but not quite!). I still have at least one KO purchase more to complete – when funds allow – to reach my target position of $2500.

Current position of 37.1729 shares of KO has a cost basis of $1441.56. Dividend yield is 2.89%. Dividend Reinvestment enabled. Annual dividend income for position is $41.63.

 

 

Purchase of KO – Coke Is It!

CLX Logo

KO Logo

I’ve finally made the decision to initiate a position in KO.  I have owned Coca Cola before via a DRIP about ten years ago, but had to liquidate the position.  This time I plan to hold it forever.

Funds in my taxable brokerage account (where I want to build this position) are tight, and since I am also purchasing some MCD I only have around a thousand dollars available for this initial purchase – thank god for free trades!

So, why am I purchasing Coke?  One big reason is that Buffet loves the company.  I know that just blindly following another investor isn’t considered particularly innovative, but I know my limitations.  I am not a good stock picker – I’ve learnt that by past bad experiences. I’m happy to steal the investing ideas of those who are smarter than me!

Morningstar – my go to analysis source – values KO at $45, so my purchase price of under $41 seems reasonable.  I don’t expect a screaming deal on quality firms like Coca Cola in this frothy market, I’m just happy not to seriously overpay.

The chief risk I see to Cokes future is consumers shifting away from the purchase of bubbly sugar (or fake sugar) filled soda as their beverage of choice.  This may turn out to be the long term direction in the US, but there is still plenty of room for overseas growth in my view. Plus, Coke also owns a variety of other beverage products (iced teas, energy drinks, juices, etc…) that should allow them to pick up domestic growth in those areas.

Dividend wise, I have solid hopes for the future.  While their current earnings payout is close to 60%, and I expect annual dividend increases in the neighborhood of 8%.  It’s not spectacular, but decent enough given my starting yield.

Purchase of 25 shares of KO at $40.88, for a partial position ($2500 desired, more purchases planned) with a cost basis of $1022. Dividend yield at time of purchase is 2.73%. Dividend Reinvestment enabled. Initial dividend income $28 annually.