October Recap

Wow, what a crazy month! Huge market swings, lots of earnings reports, and major negativity surrounding the markets. Even after all the crazy (often irrational) market movements, the Dow closed October by hitting an all-time high of 17,390. Good thing I’m an investor and not a trader, and can ignore short-term market noise like this past month and instead just focus on continuing to save a large amount of my income and purchase income producing dividend growth stocks.

On a personal note, I am back home after taking a cross country road trip and visiting family and friends for the past three weeks. I had a great time as I was able to see people back home for the first time in several years. Nothing like a little time off once in a while to be able to relax. Now its time to get back to work and get back to some regular blogging updates as well.

Today I’d like to highlight some of the recent news from companies in my portfolio and watchlist.

Kinder Morgan (KMI)

The energy giant announced a 2.3% increase to its quarterly dividend from .43 to .44 per share. With expected 10% dividend growth moving forward as the Kinder Morgan companies consolidate under one umbrella, KMI, I really like the stock as a long-term holding and recently added some more shares to my portfolio.

Visa (V)

The global payment processing company reported strong 4th quarter earnings that has since sent the stock soaring to new highs. Glad I managed to add some more shares in September around $213 a share and didn’t wait. 4th quarter EPS of $2.18 beat estimates by $0.08 while revenue jumped 8.8% year over year. Payment volume grew 11% to a staggering $1.2 Trillion dollars. With China announcing recently that they are opening their market for clearing domestic bank card transactions, Visa looks primed to continued growing revenues, EPS, and dividends at a strong pace going forward.

Realty Income (O)

The monthly dividend paying company announced 3rd quarter Funds from Operations of .64 per share which missed estimates by .01. Revenue beat estimates and showed 16.6% growth from last year. If I wasn’t so heavily weighted in O (accounts for 23% of my projected annual dividend income), I’d probably pick up at some more shares here in the low $40’s.

International Business Machines (IBM)

What a month for IBM. And not in a particularly good way. Revenue growth continues to stagnate as the blue chip technology company reported a 4% decline in revenues for the 3rd quarter and abandoned their previous goal of $20 in EPS for 2015. In all fairness, the EPS was established by a previous CEO. However, EPS growth continues, albeit at a slower than expected pace as the company has begun focusing on improving and growing its business in key segments with an eye towards the future. From CEO Ginni Rometty on her company’s results, “We again performed well in our strategic growth areas cloud, data and analytics, security, social and mobile-where we continue to shift our business. We will accelerate this transformation.”

IBM also provided guidance for 2015 EPS which falls in  a range of $15.97 to $16.30. Applying a P/E of 13 which is where IBM has traded historically, we can come up with a fair value of $207.61 based on the low end of guidance. IBM also added another $5 Billion to their share buyback plan. While the lack of revenue growth is disappointing, I like that the company is aggressively buying back stock, cutting costs, and increasing margins in order to continue growing profits. IBM is a company in transition as they shed old businesses and focus their efforts in faster growing segments like the cloud. While it won’t happen overnight, I think IBM will turn things around and get revenue growing again in the future. Since the dividend is still well covered by earnings, I’m content to just collect the dividend and let it reinvest at low share prices in the meantime.

Aflac (AFL)

The insurer and dividend champion reported so-so numbers for its 3rd quarter report, earning $1.51 in profits missing estimates by 8 cents a share. Revenue beat estimates but still came in slightly lower than last year by 2.5%. Aflac also announced a 5.4% increase in their quarterly dividend to $0.39 a share and increased the size of their buyback plan from $1 billion to $1.2 billion which I like since it shows management is being smart when it comes to buying back stock on cheap valuations. The company also announced it plans to have a $1.3 billion buyback plan for 2015. Currency issues continue to hamper the company but with a low payout ratio, Aflac is set up to weather times like this without risks of dividend cuts or freezes. With the stock hitting 52 week lows, now may be a good time to add to or initiate a position in the company.

Disney (DIS)

Disney is a stock I’ve been looking at recently after reading a write-up by fellow blogger Brian over at Long Term Mindset. Disney recently announced a large slate of new Marvel movies that are expected to be released over the next 4 years.

Check out the list:
The Avengers 3-split into 2 parts in May 2018 and May 2019
Captain America: Serpent Society in May 2016
Doctor Strange in November 2016
Guardians of the Galaxy 2 in May 2015
Thor: Ragnarok in July 2017
Black Panther in November 2017
Captain Marvel in July 2018
Inhumans in November 2018

Pretty impressive, especially since this doesn’t even include the Lucasfilm Star Wars movies (the third trilogy of Episodes 7, 8, and 9 plus spinoff movies) which I am looking forward to as both an investor and Star Wars fan. Although DIS seems to always trade at a premium valuation, I’ve been coming around lately to the idea that this premium is deserved due to their strong growth prospects. I may start dollar cost averaging into a position via Loyal3 soon.

BP

Announced a 2.6% increase to their quarterly dividend to $0.60. While a relatively small increase, I’ll take it as BP’s high starting yield helps make up for it. The stock continues to trade at an attractive valuation compared to their peers and is on my shortlist for portfolio purchases after its recent pullback to the low $40’s. While its easy to get caught up in all the negativity surrounding the company regarding lawsuits over their oil spill, the company is still generating large profits and remains committed to steadily increasing their dividend.

J. M. Smucker (SJM)

Announced a 5 million share increase to their buyback program, bringing their total authorized buyback plan to 10 million shares which will retire about 10% of the company’s outstanding stock if fully executed. How cool is that? Another stock on my short list (I feel like I’ve said that a lot today, so many great stocks, so little capital! 😉 ), I’d prefer to buy it near the 17 P/E mark but may initiate a position sometime during the last quarter of this year or early 2015 if shares continue to trade around 19 times earnings.

 

Disclosure: I am long KMI, V, O, IBM, AFL, and BP and may initiate positions in DIS and SJM in the coming weeks/months.

How about your portfolio and watchlists? Any important news or events this month?

10 comments

  1. Good to see your back SFZ!

    Looks like you’ve got a good list of companies on your watch list. My personal prefrence (of course), is biased towards KMI DIS and V. Really, really strong companies that will spew dividends for decades.

    IBM’s in a tough spot. Revenue has been stagnant. EPS has been rising only due to cost cutting and share buybacks. Management recently suspended its “$20 EPS by 2015” roadmap.

    Not good.

    If you think the EPS is safe, and could rise, IBM could be a steal.

    If trends continue, IBM could be a value trap.

    Good luck!

    Brian

    1. Complete agreement on KMI, V, and DIS. All 3 are at the top of my buy list right now, just because of their excellent quality. Just wish V hadn’t run up so much after the most recent earnings beat, would prefer to add more around the 25x earnings mark.

      I hear you on IBM. There’s a lot to dislike about the stock but with steadily growing EPS that covers the dividend well, I’m willing to hold here and possibly add more if/when capital is available. They have shown historically that they can adapt their business to better fit with current technological trends, we’ll see how it goes during this current period.

      Thanks for stopping by and commenting.
      -SFZ

  2. Starting From Zero,

    It has been quite the roller coaster month. Forgot to mention the big Visa 20% dividend increase up there as well! Such a strong quarter for them… I also won’t even divulge the price that I purchased them (let’s just say I bought them a few years ago… haha). Regardless – solid month for dividend increases, though I expected more from Aflac to be honest this quarter to $0.40 per share, but an over 5% increase will be just dandy for me. Great post, talk soon!

    -Lanny

    1. Lanny,

      I don’t know how I forgot V’s raise! Like you mentioned, it has been a very busy month. If you bought them a few years I’m guessing you have an excellent cost basis, would be interested to hear what your yield on cost is, with their strong dividend growth history the last 7 years.

      Aflac’s raise was a little small, compared to what the company has done in the past, but I’m okay with management being a little conservative with dividend raises here in the short-term until currency issues in Japan improve.

      Thanks for stopping by.
      -SFZ

  3. I really wish I had jumped on V when it dipped down to around $200 early last month. I’m thinking of adding to my IBM position sometime this month. BP’s increase was small but they increased it earlier this year as well giving them a total of a 5.3% increase from the last dividend payment of last year. Not bad for a higher yielding stock. Once all of the regulation/lawsuit overhang is done with DG should tick up. I wouldn’t mind seeing a dip again in November so I can actually purchase some shares this time.

    1. JC,

      With their recent run-up, I wish I had jumped on V more! 😉 Depending on what other stocks in my watch list do, I’ll see if I can average down on my IBM position as well here soon. Might as well take advantage of the pullback if you can.

      I had forgotten about BP’s increase earlier this year, thanks for bringing it up. So many stocks to keep track of, easy to forget things like that. I think we’ll see better dividend growth and potential for capital appreciation when the lawsuits are over as the P/E expands to be more in line with their peers.

      Thanks for stopping by JC.
      -SFZ

  4. SFZ,

    Looks like things are just humming along for you! 🙂

    I’m a big fan of V’s recent results. Love the dividend raise and the results are solid.

    IBM is positioned well, but I’m anxious to see just how well they accelerate their transformation. In the meanwhile, I’m happy to continue collecting my well-funded dividend.

    DIS is also on my watch list. They’re doing some great things over there.

    Cheers!

    1. Jason,

      Things are going pretty well, can’t complain at all. 🙂

      Same here with regards to IBM, it’ll be interesting to watch how much revenues grow in their target areas over the next few quarters or so. It’ll be nice when they’re actually large enough to contribute to top line growth.

      I really like DIS’s growth prospects over the next few years and just started a small position with them today through Loyal3. With a higher P/E than my preferred valuation, I’m going to slowly build up a position in them through dollar cost averaging.

      Thanks for stopping by and commenting. Congrats on your recent engagement, glad things are going well in Florida.
      -SFZ

    1. DK, thanks for stopping by. Nice to see another young person striving for FI using dividend growth investing.

      Judging by your portfolio I’d say you’ve been taking advantage of these prices to load up on BP. Good job man. I think BP represents a pretty good value here. Hopefully it’ll stay in the low 40’s by the time I have some more capital available for a purchase.

      Best wishes,
      SFZ

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