I didn’t make any stock purchases in August (excluding my usual fund investments anyway) – this was more about not making a decision on what to buy than any specific plan not to buy. I made two purchases in September to compensate; both added to existing positions and were made via my CapitalOne account.
Read on to see what my September stock purchases were and why.
Energy sector – Exxon Mobil (XOM)
It’s been a while since I last bought Exxon stock; 6 months in fact since my last purchase was in March. The energy sector is one sector that wasn’t meeting my planned dividend allocation, so I thought it was a reasonable time to pick up some more stock at prices below my original purchases.
Exxon Mobil (XOM) is the world’s fifth largest company valued by its market capitalization of $309B, beaten by Apple, Google, Microsoft and Berkshire Hathaway. It operates in three segments – Upstream (oil & gas extraction), Downstream (refining and processing) and Chemicals (manufacturing of a wide range of industrial chemicals). It has a major focus on oil, but it is expanding in liquid natural gas. It’s also undergoing a major stock repurchase strategy and is providing shareholders with a lot of money through both dividends and stock buybacks.
Exxon is a Dividend Champion having increased its dividend for the last 33 years and it currently pays $0.73 for a yield of 3.8%. Its current TTM payout ratio of 52% is above its typical range of 20-30%. The last 5 years’ annualized dividend growth from 2009 to 2015 is about 10%.
It has been consistent in dividend increases; increasing them in May each year since 2006. This year’s increase to $0.73 from $0.69 was 6%. XOM currently pays 3.7% of my total stock dividends, below my 5% limit.
Its P/E of 13 is below the S&P 500 average of 18.4. Over the last ten years, the P/E value has been consistently lower than the S&P average; and typically falling in a range from 9 to 15. The gap has decreased this year with XOM gaining on the index. XOM is a mature, low-growth company and its projected EPS growth over the next 5-years has been marked down to -7% with the low price of oil a large factor no doubt.
I own both Chevron (CVX) and Exxon (XOM) in my portfolio; however I think XOM are more diversified and less reliant on oil prices than CVX who froze their dividend this year. The energy sector as a whole pays 9.2% of my stock dividends; I’m aiming for around 10%.
Industrial sector – Emerson (EMR)
Emerson Electric’s stock (EMR) has been taking a beating recently and it’s down markedly from previous levels. Which makes for a great bargain for this Dividend Champion, in my opinion, as well as in a number of other bloggers’ views this month. The industrial sector was also below my target dividend income level at 9.3% vs 10% so I wanted to take advantage of the current lows giving some higher yields. My last EMR purchase was 5 months ago in April.
Emerson is a $31B company with 5 segments – Process Management, Industrial Automation, Climate Technologies, Commercial and Residential Solutions and Network Power. They are looking to spin off the former division where I worked, Emerson Network Power, which contributed about 20% of sales in 2014.
EMR is justifiably proud of its dividend history, having increased its dividend for the last 58 years. Its shares currently give a yield of 3.9% from a dividend of $0.47 per share. The payout ratio of 52% is in line with the 50-60% range held over the last few years. The dividend growth over the last 5 years has been 5.8%.
It has a consistent increase pattern, raising dividends each November and the stock currently plays 4.6% of my total stock dividends, below my 5% limit. The increase at the end of last year into this year was from $0.43 to $0.47 or 9%.
The current P/E of 12 is lower than the S&P average of 18.4 and this hasn’t occurred in any of the prior ten years; its P/E has always been higher than the S&P’s average for each year since 2004. Its projected EPS growth over the next 5 years is 4.6%
Emerson is a long term investment in my view; a slow and steady company. They have a solid commitment to their shareholders and are heavily focused on their financial targets.
+ 16 shares of EMR @ $43.85 for $708.55
+ 10 shares of XOM @ $73.24 for $739.35
Together these purchases should provide $59 total annual income.
Quote of the day
Never spend your money before you have earned it.