Tiny Bites of The Pie
I had little to report for July, so I didn’t. Progress is slowing. Our portfolio is getting knocked down hard from its peak. No doubt, it’s a bit disheartening. Still, the income rolls in… and that’s what it’s really about. It’s difficult for me to get excited about buying much of anything so I’m slowing it down some. I did however complete rather small purchases on two stocks that that should help improve dividend growth in the future.
NOV – National Oilwell Varco (A Higher Risk play)
Clearly, the oil industry is in shambles right now. This provider of drilling rig equipment and oil field services has not been immune to the chaos. It has fallen more than 50% from its 52 week high. On the plus side, it is one of the best at what it does and until oil fields cease to exist, NOV will be in business.
I made my first purchase of NOV at $40/share and made it 1.3% of our portfolio. Current yield at time of purchase was about 4.55%. Not bad considering the 5 year average yield of just over 1%. I’ll be honest and state that this is purely a speculative play on my part. It may be several years before it turns around for NOV. The high yield may indicate a dividend that is at risk. NOV is hardly a dividend aristocrat, though if it plays out like I think it will, I should be content with my purchase in the future. NOV is king in its sector so I’m placing a small bet, with cautious optimism.
TROW – T. Rowe Price (Less risky)
TROW has a history of solid dividend growth. In my quest to add at least a few holdings that provide higher dividend growth, I’m attracted to the 5 year average growth of 12%. I made my initial purchase of TROW @$69.24 at a 3% yield, making it 1.5% of our portfolio. TROW is in the asset management business which, at least for the moment, is not under the duress experienced by oil companies.
I view TROW as a somewhat speculative position, primarily because it is in the financial services sector. I therefore doubt that I will ever allow it to have more than a 3% weight. I’m content with our current position for now in that it is our only holding in this sector. With a 5 year average yield of 2%, I’m glad to have made a purchase at a 3% yield with a TTM payout ratio of 41. Some other items that cause me to be attracted to TROW….
The 3% current yield is higher than even the 2.7% that occurred during the recession. The P/E of 14.7 is favorable compared to “normal” blended P/E of 22.2. The dividend growth (white dotted line) is quite steady in its upward direction. The large spike in 2015 was a special dividend. In general, the price seems fair when looking the orange earnings justified line.
The first FAST Graph earnings estimate graph show projections based on analyst estimates. If estimates are correct, the projection is for a total annual return of 14.24%. Of course analysts can be wrong but I’m willing to take the risk for the potential return, even if it’s not quite up to the prediction.
On the second estimate graph which uses a “normal” P/E for TROW, we can see potential annual returns of 27.82%. I’m thinking that might be a bit much to hope for, so I won’t hold my breath. Nevertheless, it’s encouraging.
Finally, we have a couple charts created by Dave Van Knapp. I use these for illustration in that I like this format and will be working on developing my own color coding scheme.
Clearly, these charts have a lot of green on display. I like to see that. Even the yellow “yield” line would now be a pale green because of the 3% yield. Overall, I’m quite comfortable with this pick. Should the price drop further, I may very well bump our allocation up to that 3% weight that I mentioned.
Dividend Income Progress
Two of our holdings increased their dividend during August. Alliance Resource Partners (ARLP) bumped the payout by 1.9% (ex-div 8/5/15). This is ARLP’s third increase for the year. Target (TGT) provided a raise of 7.7% (ex-div 8/17/15). I’ll take it.
2015 YTD forward dividend income (through August)
- Stock purchases have added 14.3% to our dividend income
- Dividend increases have added 4.11% to our dividend income
- Stock sales have decreased forward income by 5.71%
- Overall, our YTD forward dividend income increase is 12.7%.
- Month over month, dividend income was up 28.72% over August 2014
- Year to date, dividend income was up 42.2% compared to last year.
Stocks I’m Watching at the Moment
A few stocks exist that are getting close to tempting.
- I’m watching PG, though I’m a little leery. They are a powerhouse, no doubt. I’m unsure though of their efforts to streamline their product offerings. If the price drops another buck or two, I may add a little to our 3.8% weight holding. The yield is as high as its ever been, though certainly not without reason. My suspicion is that they will pull through and once again become the PG dividend monster that we all know and love. Still, I’m not ready to go all in.
- I’m also watching VTR. It has about 1.1% weight at the moment. It’s currently priced at $53 and change. Should it go to $52 or below, I’ll probably double our holdings.
- MMM is teasing me big time. There is currently none in our portfolio, and I want to change that. My buy price is $136 and it keeps flirting with me, but doesn’t quite get there. I may take a small initial position at $139. It seems that I won’t be able to take a full position without a serious market correction.
Are you close to a buy on any of your favorite stocks? Let me know in the comments section. Thanks for reading.