Friday, November 23, 2012

Recent buys by Dividend Mantra

Wow. How about that election? Obama gets re-elected and the market has a three-day performance that has me grinning ear to ear. The Dow Jones Industrial Average is down some 430 points (or 3.25%) over the last three trading days. That sounds like opportunity to me. It just so happens that I received my monthly commission check from my day job this past Thursday, which was great timing! I promptly transferred this fresh capital over to my brokerage account in the morning to get shopping.

Although a 430 point drop isn't a major stock market correction, as always I like to look at equities on an individual basis. As such, for my recent purchases I tried to target dividend growth stocks that have experienced particular weakness lately. I found a few quality companies whose shares have been beaten down lately due to macroeconomic events, rather than company-specific issues and so I decided to get busy buying.

As part of my Recent Buy series, I try to let my readers know of any equities I purchase soon after the transaction is completed. This is just one way I try to document my progress toward early retirement and financial independence.

I purchased shares with two separate companies on Thursday, and finalized a third buy on Friday. I'll be discussing Thursday's transactions below. I'll publish Friday's buy early this coming week. 

For my first buy, I purchased 20 shares of McDonald's Corporation (MCD) on11/8/12 for $86.08 per share. This purchase gave me a 3.58% yield on my price. What can I say about Mickey D's that you don't already know? It's a global juggernaut, and a dominant player in the restaurant industry. MCD suffered the first same store sales decline in 9 years during the month of October. This news caused a small sell-off in shares of MCD, and seeing as how I'm investing in MCD for many decades to come I decided to scoop shares up at an attractive long-term price. This purchase adds to my existing position, and I now own 60 shares of this high quality company.

Adding these 20 shares of MCD will provide my portfolio with $61.60 in annual dividend income, based on the current quarterly payout of $0.77 per share. MCD shares are currently trading for a P/E ratio of 15.96, which is very attractive for long-term investors in my opinion. Shares dropped in price after my purchase, but again when you're looking at investing in a company for possibly forever share price fluctuations don't really matter other than to serve as an opportunity to buy more when said fluctuations are to the significant downside. MCD's payout ratio is currently sitting at 58%, which is well in line for dividend growth going forward. Although I anticipate MCD will not be able to continue their 10-year dividend growth rate of 27.4%, I do believe MCD will be able to raise dividends in the high single-digits to low double-digits going forward. Their debt is manageable, the brand name is just as strong as ever and there is still plenty of growth ahead for this company in emerging markets.

I also purchased 20 shares of Norfolk Southern Corp. (NSC) on 11/8/12 for $59.95per share. This buy provided me with a 3.33% yield on cost. This is a good example of averaging down, as my last purchase of NSC shares was completed back in September for $65.86 per share. Obviously you only want to average down like this after a large share price drop if you still believe in the company long-term. I took some time to review the financial position of NSC, as well as its business model and historical performance. Looking at the fundamentals, I still believe NSC is a strong long-term investment after factoring in recent weakness amid reduced coal shipment volumes. Railroads provide a fuel efficient method of travel for clients, and the barrier to entry is extremely high.  

These new NSC shares boost my overall stake in this company to a full 70 shares, which is a position I feel very comfortable with right now. Factoring out another significant drop in share prices, I'll hold pat with this position size for a while. This purchase provided me with an additional $40.00 in annual dividend income to my portfolio based on the current quarterly dividend of $0.50 per share. NSC is trading for a cheap P/E ratio of 10.56. I find NSC shares very attractively priced for the long-term investor. NSC has 11 years of dividend growth behind them, with a 10-year dividend growth rate of 21.3%. If they can keep this rate at 10% over the long haul, I'd be a very happy shareholder. 

With these recent purchases I still have 29 positions in my portfolio, as I added to two companies I was already invested in. 

Some analyst opinions on my recent purchases:

*Morningstar currently rates MCD as a 4/5 star valuation.
*S&P currently rates MCD as a 4/5 star Buy.

*Morningstar currently rates NSC as a 5/5 star valuation.
*S&P currently rates NSC as a 4/5 star Buy.

I'll update my Freedom Fund in early December to reflect my recent additions.

Full Disclosure: Long MCD, NSC

Thanks for reading. 
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