January Stock Purchase #3

This week’s Sharebuilder purchase is another small step along the path towards Financial Independence. I decided to split my automatic purchase among three companies in different sectors this week, and I will be adding to an ETF position at Vanguard.

Emerson Electric

I used to work at Emerson Electric (EMR) before moving to Detroit last year. It’s a $40B company with 5 segments – Process Management (44% of FY14 Earnings), Industrial Automation (18%), Climate Technologies (17%), Commercial and Residential Solutions (10%) and Network Power (11%). Emerson isn’t particularly aimed at consumers but you may have come across the company from its popular InSinkerator brand.

EMR is justifiably proud of its dividend history, having increased its dividend for the last 58 years. Its shares currently give a yield of 3.1% from a dividend of $0.47 per share. It has a consistent increase pattern, raising dividends each November. The payout ratio decreased 3% from 2013 to 2014 and is currently 58% which is the high end of its range over the last 5 years. The dividend growth over the last 5 years has been 5.8%.

Its P/E of 19.6 is higher than the industry average (18.6) and S&P Average of 18.6. The P/E has always been higher than the S&P’s average for each year since 2004 however and the current value is lower than last year’s 20 and 2013’s value of 25. Its projected EPS growth of at 8.1% over the next 5 years is down 1% from last November’s value.

EMR pays 3.9% of my projected annual dividend income, below my 5% limit.

JP Morgan Chase

JPMorgan Chase (JPM) is a $215B bank and financial services company. Notable for its colorful CEO, it looks to have its legal troubles under control after a $13B settlement last year. The company has increased its dividend since 2010 when it cut them and so this year it achieves a 5-year dividend growth history. Its payout ratio is 29% with a current dividend yield of 2.9%. The last 5 years’ annualized dividend growth from 2009 to 2014 is 24%.

Its P/E of 10.2 is lower than the industry average of 14 and the S&P 500 average of 18.6. For the most part of the last ten years, the P/E has been significantly below the S&P average; exceptions being 2004 & 2008 when low earnings increased the P/E ratio to 22 and 38 respectively. The current P/E value continues the downward trend since 2013. The 5 year EPS growth estimate is up 3% since last August to 7.1%.

JPM currently contributes 2.7% of my projected annual dividend income. I won’t add to a position if it exceeds 5% of projected dividend income, so JPM passes that test.

BHP Billiton

I bought another $100 of BHP Billiton (BBL). See my purchase last week for more details on the company.

BBL currently contributes 0.9% of my projected annual dividend income.

Vanguard Utilities ETF

Vanguard Utilities ETF (VPU) is an ETF which holds 79 utility stocks, the top 10 being Duke Energy, NextEra Energy, Dominion Resources, Southern Company, Exelon Corp, American Electric Power, Sempra Energy, PPL Corp, PG&E Corp and Public Service Enterprise Group. These 10 companies occupy about 50% of total net assets.

It’s low cost (0.12% ER), commission-free and currently yielding around 3.8% in qualified dividends. Its dividend growth has been about 4.9% since 2009 and has increased every year since 2007. VPU contributes 2.6% of my projected annual dividend income.

January Stock Purchase

So this week’s purchase will be

JPM ($100)
BBL ($100)
EMR ($100)
VPU (3 shares @ ~ $105)

With an average yield of 3%, the Sharebuilder purchases add $11 to my projected annual dividend income plus another $12 from VPU.

 

Quote of the day

If owning stocks is a long-term project for you, following their changes constantly is a very, very bad idea. It’s the worst possible thing you can do, because people are so sensitive to short-term losses. If you count your money every day, you’ll be miserable.

14 thoughts on “January Stock Purchase #3”

    1. Hi moneyoryourtime,

      Yes, it’s a good quote. Daniel Kahneman did a lot of research into Behavioral Finances and the psychology behind money which I find really interesting.

      Thanks for stopping by!

      Best wishes,
      -DL

    1. Hi DivGuy,

      Hopefully JPM has learned from its expensive mistakes and will do better going forward. I don’t want to hold too much in financial stocks as a lot of them have cut dividends before e.g. BAC, JPM etc.

      VPU is a cheap way to diversify across the utilities sector – there’s an annual ‘fee’ compared to holding the stocks directly but 0.12% is pretty low. I do have an ulterior motive in adding to my position as well since it contributes to reaching the next level of service at Vanguard which reduces stock trade commissions to $2.

      Best wishes,
      -DL

        1. Hi DG,

          Yes your review of WFC was quite thorough – it’s not been on my radar since they’re not on David Fish’s list which is my usual starting place.

          I do have a good opinion of WFC’s stock but my personal experience with WFC and their mortgages hasn’t been so good, so I’ve been a little biased against them. I bought JPM originally because my checking and mortgage was with them and I’ve been quite happy with their service.

          The main reason for me not to add WFC at this point is because I was only buying $100 of stock and it made more sense to add to a current position than start a new one.

          Although since I currently have 4 stocks in the financial sector including one bank (JPM), I think if I add a 5th stock it’ll likely be something international to diversify more but we’ll see. I will be adding WFC to my watch list this year to keep an eye on it.

          Best wishes,
          -DL

  1. love emerson. have been considering it recently, but the strong dollar is putting me off buying any more american shares right now.

    also, love the quote too.

    Cheers!

    1. Hi M,

      Hmm…I may have to do some more shopping over in the UK then! Looks like the Euro is getting cheaper against the pound though – are there any European stocks catching your eye?

      I’m glad you liked the quote – I think this post is the first time I’ve had any feedback on a quote and I try to put one in most posts just for fun 🙂

      Best wishes,
      -DL

    1. Hi DFG,

      Yes that’s true! I’ve always been amazed at how project development budgets are typically heavily restricted yet unlimited money always seems to be available at the end of the project to address quality issues and rework / repair parts. Just because management want or need a budget to be small doesn’t mean it’s achievable.

      Best wishes,
      -DL

  2. That’s an awesome quote which has a very similar lesson to what I hear from many intelligent investors today.

    Thanks for sharing your purchases. It’s great to get perspective from other investors outside my own!

  3. I just added to my EMR in January as well. Been a while since I bought into that stock and decided to pull the trigger on it this month. VPU is an interesting ETF. I like boring ETFs that hold utility companies. Have you checked out UTF and DNP as well? While I only own individual stocks, funds and ETFs in the utility space do look interesting to me especially some of the higher yielding ones. Thanks for sharing your recent buys.

    1. Hi DivHut,

      EMR is always a good long term holding I think as they’re diversified and tied into long term trends such as energy saving and process management.

      I had a quick look at UTF and DNP – my reservation there would be their high expense ratios…1.42% for UTF and 1.05% for DNP vs. only 0.12% with VPU.
      From data at Yahoo, it looks like VPU has easily beaten both funds for capital growth over 10,5 and 2 years. Morningstar shows that both UTF and DNP have returned capital as well as paid capital gains in their distributions, whereas VPU pays only qualified dividend income. So I’d still take the passive and cheaper VPU over the more actively managed ETFs.

      Best wishes,
      -DL

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