March Stock Purchase #1

It’s a new month and with it comes the first of my 4 weekly stock purchases via Sharebuilder’s automatic purchase plan. This week I added to existing positions in three companies as I continue to adjust my portfolio’s sector weighting.

WPP plc

WPP plc (WPPGY) remains the world’s largest advertising company at $31B after Omnicon (OMG) and Publicis (PUB) agreed to disagree on their proposed merger last year. The company was originally founded in 1971 as a manufacturer of wire shopping baskets and I’ve written about it previously in an earlier UK Dividend List post where they’re a 22-year dividend Contender – the WPPGY symbol here refers to their US listed ADR.

Here on the US exchanges, WPPGY has increased its dividend every year for the last 5 years and shows its UK heritage with a bi-annual dividend schedule where payments arrive in July and November each year. Because of this, projected yield is hard to determine – last year’s DPS of $2.90 gives a current yield of 2.5%. Payout Ratio has been in the 30-50% range over the last 10 years and is currently around 50% based on an EPS of $5.73. Annualized Dividend growth over the last 5 years is 20% and the 5-year average dividend yield is 1.9%, below the current level.

WPP’s P/E is higher than the S&P’s average of 19.5 at 20.4. Over the last ten years, the P/E tracks the S&P fairly closely although the stock has gained on the S&P this year compared to last year’s P/E of 17.8. Its projected EPS growth over the next 5 years is 9%.

Free Cash Flow has been positive for each of the last 10 years, with a low of £412M in FY2011 and a high of £1.1B in FY2010. The TTM Free Cash Flow for FY2014 is currently at £952M.

WPPGY currently pays 0.4% towards my annually projected dividends as I only started a small position in them last month.

Recent News

WPP haven’t released their 4Q results yet – their preliminary FY14 annual results are due next week on March 9th. Last month, Kantar, WPP’s research division agreed to purchase 15% of comScore (SCOR) who measure and calculate metrics of online / mobile sites.

Qualcomm

Qualcomm (QCOM) is a $119B semiconductor company which operates in three segments: CDMA Technologies (QCT) (70% of FY14 Revenue), Technology Licensing (QTL) (29%) and Strategic Initiatives (QSI). They own a large number of patents in the area of CDMA technology used in 3G cellular connections as well as the Snapdragon processors used in smartphones. The company was founded in 1985.

QCOM has increased its dividend every year for the last 12 years, and currently pays $0.42 a share for a yield of 2.3%. Its dividend schedule is stable with dividend increases pay in May/June each year. Payout ratio is a low 35% and it’s been staying in the 30-40% range since 2009. Annualized dividend growth over the last 5 years is 19%. The 5-year average dividend yield is 1.9%, below today’s level.

Its P/E of 15 is lower than the S&P’s average of 19.5. The company’s P/E has been lower than the S&P for the last year; previously it’s always been higher than the S&P by a fair amount (at least 20%). Analysts project an 5-year EPS growth of 10%.

Free Cash Flow has been positive for each of the last ten years with a low of $2.1B in FY2005 and a high of $7.7B in FY2013. TTM Free Cash Flow is $7.2B.

QCOM currently pay 0.2% towards my projected dividends – this is another company that I first purchased last month so its contribution is small.

Recent News

After a setback from Samsung who declined to use the high-end Snapdragon 810 in their smartphones, QCOM announced next generation 620 and 618 processors last month that incorporate some of the high-end features from the 800 series.

QCOM have also resolved their China anti-trust lawsuit at the cost of a $1B fine and reduced royalty payments. This resolution was inline with expectations and should help with enforcement of royalty payments going forward. The company raised their forecast after the settlement.

QCOM’s 2015 Q1 results were posted last month and beat analyst expectations by $0.10 ($1.21 vs. $1.11).

Emerson Electric Co

I used to work at Emerson Electric (EMR) – it’s a $39B 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 18.5 is lower than the S&P Average of 19.5. 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 over the next 5 years is 8.3%.

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 4.4% of my projected annual dividend income, still below my 5% limit.

Recent News

Emerson posted its Q1 FY2015 results last 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.

Rationale

For both WPPGY and QCOM I wanted to build on the small position from last month – their valuation isn’t a bargain but it’s reasonable enough for me to add more with small purchases. EMR looks good value to me below $60 and the current price is below my average cost basis, so I took the opportunity to buy some more.

March Stock Purchase

So my purchase this week was

1.3903 shares of QCOM @ $71.93 ($100)
0.8559 shares of WPPGY @ $116.83 ($100)
1.7198 shares of EMR @ $58.146 ($100)

With a average yield of 3.1%, this purchase adds $9 to my projected annual dividend income.

 

Quote of the day

Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones.

0 thoughts on “March Stock Purchase #1”

    1. Hi DFG,

      Do you mean the matrix I included at the end that compared the different stocks with red / green indications?

      If so then I’ll look into adding that back. The reason I haven’t included it of late was because I’ve been buying companies across different sectors in one purchase and I didn’t think it was good to compare dis-similar stocks in such a way. It also saved a bit of time in writing posts but I suppose I should take a few minutes and write the code to generate the html table from my watchlist file.

      Best wishes,
      -DL

  1. QCOM and EMR are good choices. I don’t have position in either of these stocks, but need to look into these more closely. QCOM definitely looks good with a decent yield and low payout ratio. And the mobile market is a stable revenue driver for the company. I need to look more closely at QCOM.

  2. Yes, I miss it too! Understand why you took it away, but it’s a helpful visual aid, if we diregard comparing non like for like companies across various sectors

    1. Hi M,

      Yes I can appreciate that the current post reads like a wall of numbers, and I do like being able to compare companies that I don’t end up buying. I’ll see what I can improve for next week.

      Best wishes,
      -DL

    1. Hi Tawcan,

      A fellow shareholder – that’s great! I’m certainly considering to add more later this month.

      Good job on the improvements to your blog!

      Best wishes,
      – DL

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