Although my writing lately has been dealing with expenses and other non-investing subjects don’t think that I have abandoned my interest in investing. I still follow the markets daily and continue to search for new companies I would like to add to The Stoic Portfolio.
I’ve built a decent position in cash over the past eight months, one-third of my current portfolio’s value is cash, but the market this year has not really cooperated with my desire to invest that cash. I’ve made one purchase this year and that was VOD, everything else I’ve found too expensive. In my limited experience I believe that dividend investing comes down to three things:
- Consistency, constantly adding new capital to a portfolio
- What you buy, finding quality companies that pay dividends and grow dividends
- When you buy, quite possibly the most important factor of all
That is it. Yes, you play with a number of variables within each of these factors, but the main factors outlined above are the essence of a solid dividend investing approach.
By lowering my expenses I’m able to add new capital on a consistent basis. That is why this year I’ve been working hard to get my expenses down. I know the actions I take now will become the habits of tomorrow and I prefer those habits be beneficial ones.
Like many of you I keep a watch list of several companies I would like to own and view this list frequently to see what news is effecting the stock price. This is the what of buying. Having a system that allows you to find quality companies and watch their performance over time before allocating real capital is invaluable.
Having capital to invest and quality companies on your watch list to select from puts you two-thirds of the way there, now you have to decide when to buy and this is tricky. I think it is entirely possible to buy good companies at bad prices and doing this will impact an investors total return and limit the margin of safety that could otherwise be gained by waiting and purchasing shares when valutions are reasonable.
Investors use a variety of techniques to determine when is a good time invest in a company. Some investors don’t even think much about it and put new capital to work using the dollar cost averaging approach. When you hear one investor insisting that P/E is the best metric to determine a fair entry price and another saying that dividend discount model (DDM) is the way to go it can become a bit confusing. The thing to remember is that each investors approach is a reflection of their temperament as well as the sum of their current knowledge and experience. My investing approach is different from what it was when I started and will be different from five years from now just as it differs from the man or woman with thirty years of investing experience. Each of us find our own way in investing as well as life in general.
My own approach has taught me that P/E ratios and DDM are useful, but the real inefficiencies in the market tend to manifest around earnings season. Regardless of what valuation method you use, the opportunites to purchase companies often present themselves around the time earnings are reported. My investments in both INTC and NSC are examples of such inefficiencies. Large sell offs caused the stock of these companies to drop to 52 week lows. However, their business models aren’t broken, they are just having a few rough quarters. It is up to the investor to determine if that is indeed the reality; short-term problems or long-term trends, I concluded the former in the examples I’ve given above.
Searching For Inefficiencies
This is a big week for Q1 earnings reports and several of the companies I’ve been following are reporting this week as well. What follows are six companies that I may initiate a position or add to a current position.
Caterpillar Inc. (CAT) This is a cyclical company that builds construction and mining equipment, diesel and natural gas engines, industrial gas turbines as well as diesel-electric locomotives. With this line of products it doesn’t take much to see that CAT profits stem from how well the world economy is doing. It’s trading near 52 week lows and with earnings scheduled to be reported before the opening of the markets on Monday it may come near or below that low next week.
Apple Inc. (AAPL) This one is sure to raise a few eyebrows from some of my regular readers. AAPL really isn’t considered a dividend growth investing stock pick by many, but when a company like Apple has lost over forty percent of its recent stock price one has to ask; is there a point it becomes a good investment?
I initially started watching AAPL when it reported its Q4 earnings from last year. At the time it was trading around 500.00 and then dropped to the 430 range where it stayed for a while until recently when word of one its suppliers reported less demand for product from “a large customer” which many people believe to be Apple. Now the stock is at 390.00. I’m not going to lie, I’m tempted, but I will wait to see what happens after Apple reports its earnings after market close on Tuesday.
Norfolk Southern Company. (NSC) Norfolk is a transport company that ships products by rail primarily to the Southeast, East, Midwest, and via interchange with other rail carriers. I’m currently an owner of NSC stock, opening my position back in November of 2012. NSC would have to take a really big hit in the stock price for me to add shares as I have a cost basis of 60.94. Not likely to happen, but one can hope. NSC will report earnings after market close on Tuesday.
AT&T (T) AT&T is a telecommunication company providing services in the U.S as well as other parts of the world. This is a company I formerly owned when it’s dividend yield was at six percent. T is expensive for my liking at the moment, but you never know what news may shake the stock and cause it to come back down to more attractive levels. T will report earnings after market close on Tuesday.
Yum Brands, Inc. (YUM) Yum is the parent company of popular brands such as Pizza Hut, Taco Bell, and Kentucky Fried Chicken (KFC). I’ve been watching Yum for some time now and missed an opportunity to pick up shares just below 60 a few months ago. If the opportunity presents itself again I will be ready.
The problem Yum had with its chicken suppliers in China had an impact on the results it reported in Q4 of last year. How much of that spills over into Q1 results of this year is yet to be determined. Analysts are expecting profits to be down compared to the same time period of last year. I’ll have to wait to see if this impacts the share price Wednesday after Yum reports earnings after market closing on Tuesday.
Aflac (AFL) Aflac is a life and supplemental health insurance company. AFL was added to my watch list a couple of years ago when it dropped to just over 31 a share. Selling pressure from concern over the Japan tsunami and exposure to the Euro Zone debt crisis lowered the stock price to levels that would have made a great entry price. As I’ve done on many occasions, I let the opportunity pass me by waiting to see if it would go lower, it didn’t. The stock price went on a run reaching a 52 week high of almost 55.00. Aflac share price has dropped about eight percent this year and I will be watching the price Thursday morning after AFL reports its Q1 earnings after market close on Wednesday.
There are several other quality companies reporting earnings this week, but these are the ones I have my eye on and may possibly present buying opportunities. I would love to put a little of the cash to work, but only if the price is right. Those opportunities are always presenting themselves; it’s a matter of when not if.
What are your thoughts on these companies? Any specific ones not listed here that you are looking at this week?