February Stock Purchase #2

This is the second of my 4 weekly stock purchases in February via Sharebuilder’s automatic purchase plan. This week I added to my existing positions in three companies.

Emerson Electric Co

I used to work at Emerson Electric (EMR) – it’s a $40B diverse industrial 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 3.2% 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% and the 5-year average dividend yield is below the current yield at 2.9%.

Its P/E of 18.7 is higher than the S&P Average of 17.9. 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.

Free Cash Flow has been positive over the last 10 years, with a low of $1.7B in FY2005 and a high of $2.9B in FY2014. The TTM Free Cash Flow is a little lower than last year at $2.8B.

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

Recent News

Emerson posted its Q1 FY2015 results earlier this month with first quarter EPS of $0.75, beating the average analyst estimates and also last year’s $0.65 results. Net sales were flat however and total revenue was down 0.3% being impacted by currency rates and the sale of its Connectivity Solutions business unit.

Coca-Cola

Coca Cola (KO) really shouldn’t need any introduction – it’s one of the world’s most valuable brands; number 3 as rated by Forbes after Apple and Microsoft. KO has a market cap of $183B and Forbes values the Coca-Cola brand name as being worth $54B. In case you’ve recently arrived from another planet, Coca-Cola is the world’s largest producer of soft drinks and juice. From its namesake Coca-Cola to Sprite, Fanta, Powerade, Minute Maid and Dasani, it also markets Schweppes, Canada Dry and Dr. Pepper brands outside the US.

KO has increased its dividend every year for the last 52 years and like PG, it has increased them consistently, every March; this year being no exception. Its dividend of $0.305 provides a current yield of 2.9%. Payout Ratio has been increasing over the last 4 years and is currently 76%; the highest level of the last 10 years. Annualized Dividend growth over the last 5 years is 8.3% and the 5-year average dividend yield is 2.8%, below the current level.

KO’s P/E is higher than the S&P’s average of 17.9 at 23.6. Over the last ten years, KO’s P/E has always been higher than the S&P except for 2010 although the S&P average has been catching up over the last 3 years. Its projected EPS growth over the next 5 years is 3.6%.

Free Cash Flow has been positive over the last 10 years, with a low of $4.5B in FY2006 and a high of $7.9B in FY2013. The TTM Free Cash Flow for FY2014 is currently even higher at $8.3B.

KO contributes 1.6% of my projected annual dividends, well below my 5% limit for an individual stock.

Recent News

KO beat analyst expectations in their 4Q earnings report this week with $0.44 EPS for the quarter beating last year’s $0.39. Net revenue decreased 2% in the quarter due to impacts of currency and structural changes.

Johnson & Johnson

JNJ is a $278B diversified healthcare company which operates in three segments: Pharmaceutical (39% FY13 Sales), Medical Devices (40%) & Diagnostics and Consumer (21%). It was formed in New Jersey by three Johnson brothers back in 1886.

JNJ has increased its dividend every year for the last 52 years, currently giving $0.70 a share for a yield of 2.8%. It’s likewise a very stable and consistent dividend growth stock, with dividend increases usually declared in April each year. Payout ratio is currently on a downward trend over the last 3 years and is at 45%, down from its all-time high of 64.6% in 2011. Annualized dividend growth over the last 5 years is 7.4%. The 5-year average dividend yield is 3.2%, above today’s level.

Its P/E of 16.8 is lower than the S&P’s average of 17.9. This value is lower than prior years 2011 through 2013 where JNJ’s P/E was higher than the S&P average. Analysts project an 5-year EPS growth of 5.8%.

Free Cash Flow has been positive for each of the last ten years with a low of $8.9B in FY2004 and a high of $14.2B in FY2009. TTM Free Cash Flow is $14.6B, higher than 2013’s $13.8B.

My JNJ shares currently contribute a total of 3.6% of my forward dividend income, well within my 5% limit.

Recent News

JNJ’s 2014 annual results were published last month. While 4th quarter sales were down 0.6% (organic growth of 3.9% but currency rates had a 4.5% negative impact), the overall year represented an increase of 4.2% of sales over 2013. Earnings guidance from the company for full-year 2015 is $6.12 to $6.27 per share, a projected increase of 3.7%.

Rationale

I chose JNJ to increase my allocation to the Healthcare sector. While it’s not an especially cheap stock, I think the price is reasonable especially considering the diversity and strength of JNJ. KO is likewise not a great bargain but I think it’s a reasonable price at the current dividend yield. EMR looks good value to me below $60 and the current price is below my average cost basis.

February Stock Purchase

So my purchase this week was

1.7454 shares of EMR @ $57.29 ($100)
2.3560 shares of KO @ $42.44 ($100)
1.0008 shares of JNJ @ $99.9 ($100)

With a average yield of 3%, this purchase adds $9 to my projected annual dividend income.

 

Quote of the day

Coming together is a beginning; keeping together is progress; working together is success.

0 thoughts on “February Stock Purchase #2”

  1. DL
    I like all 3 purchases and I might also pick up some KO this month. It’s not entirely cheap here but I am having a hard time trying to figure out where to put my money. I also like MSFT right now in the low 40’s. Good luck!

    1. Hi DividendMongrel,

      I like MSFT too, although I’m not adding to my position right now because they pay a lot of my dividends, so I’d prefer to pick something else. QCOM looks interesting in the Tech sector and I’m thinking about that for later in the month.

      I look forward to reading about your next purchase! I like your L3 buys and your general strategy to spread your purchases across a range of stocks.

      Best wishes,
      – DL

  2. Lovely purchases here DL, although that payout ratio of KO is looking a little high for my liking. I’m also looking at MSFT and QCOM, however even with the last week’s slight weakening of the US $, the rate is still pretty low for me to consider buying US stocks again… for the time being at least.

    I hope to either have a lot of spare capital coming up soon, or the exchange rate to improve dramatically!

    Cheers

    1. Hi M,

      Yes I’m showing 75% but I think the data on Yahoo is likely out of date and of course that’s what I used. They list KO’s EPS as $1.6 so I calculated Payout Ratio as DPS ($1.22) / EPS ($1.6) which is 75%. I believe the real value is closer to Morningstar’s 67%, but even their number doesn’t reflect the Q4 results announced this week. Hopefully the values will correct in a couple of days.

      I’m hoping to book our flights to the UK this month, as we’re planning to visit over the summer…so the dollar can drop for now as long as it goes back up for the summer! 😉

      I liked the stock watchlist you posted – I’ve been busy with work this week so I’m behind with everything.

      Best wishes,
      -DL

  3. Wow, it seems like almost every dividend blogger has been buying into JNJ and EMR in recent weeks. No problem with that as I own both and plan to keep both for the very long term as well. Solid buys all around. I guess JNJ just under $100 is a magic number for many. Thanks for sharing.

    1. Hi DivHut,

      Yes they’re solid companies for the long term as you mention. JNJ starts this week below $100 so maybe there’ll be more purchases in the DGI community. DGJ and I both went with EMR and JNJ this week which quite a coincidence!

      Thanks for stopping by!
      Best wishes,
      -DL

  4. To me, the less attractive of your buys is EMR. Growth rate is fine, nothing less, nothing more… at least for my personal liking. Sure its a company that you know well so that’s something to consider. JNJ fan club is getting bigger and bigger. Soon dividend bloggers will own the entire company! 😛 Just kidding!

    1. Hi DivGuy,
      Those are fair points – EMR is a pretty boring stock like a utility and hasn’t done well against the S&P. It has been cranking out the dividends though. JNJ is definitely popular these days…it’d certainly make for interesting meetings if the DGI community joined the JNJ board as board members!

      Thanks for your comments, they’re always appreciated.

      Best wishes,
      -DL

    1. Hi DGJ,

      I noticed you bought KO and JNJ too – great minds think alike! 🙂

      EMR is essentially a holding company that invests in / buys other companies – most of their products are aimed at industrial customers, not consumers so they’re not very ‘sexy’ in that sense. They have a long dividend history so it’s worth keeping an eye on them in my opinion.

      Best wishes,
      -DL

        1. Hi DGJ,

          I like both purchases – I’m actually averaging up into KO and JNJ when I buy at these levels but I still think they’re worth it. I bought my original JNJ position back in 2012 (JNJ was $60-$70 back then).

          Best wishes,
          -DL

  5. Love all 3 of these purchases. I plan to pick up some JNJ in the near future to add to our JNJ positions. Would love to accumulate enough JNJ shares so we can enroll in DRIP.

    1. Hi Tawcan,

      I can definitely understand the attraction to DRIP (and SPP) plans – I used them too for my first stock purchases and they’re a great way to build a portfolio. I think the JNJ plan needs just 1 share for registration though I’ve no experience in transferring shares like that.

      I look forward to reading about your future purchase!

      Best wishes,
      -DL

    1. Hi My Dividend Pipeline,

      DGJ had the same thoughts too this week from his comment above, so you’re in good company there!

      I like both companies for the long term and while I didn’t go with them for my purchase this week which I’ll post shortly, I am interested in adding more KO. One of my purchases this week is on your watchlist too 🙂

      I see you bought WM as well – that’s on my watchlist but I’ve not had time to dig into their high payout ratio yet, so I’ve shied away so far. it seems like a good industry to be in though as there’ll always be a need for waste disposal.

      Best wishes,
      -DL

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