I bought more of an existing stock this month; ironically because I was considering to sell out of another. Click on to see the why and what of my stock purchase…
I was very close to selling my holdings in BMS this week. Bemis Co is a solid company that’s been growing its dividend for the last 33 years (and paid them since 1922). Its core business is food and medical packaging, and it’s able to remain competitive due to economies of scale and the many years of experience it has.
I considered to sell mostly because I’m inclined to reduce my total number of stock holdings from the 41 stocks that I currently own. Bemis’ dividend growth, although steady, is low and its yield is at the low end of the scale I aim for.
However I decided not to sell at this time (the stock is up ~28% above the cost basis from my two purchases in Sept and Nov 2014) because It is still a solid company to own.
But in considering what stock to sell, I also considered what stock to buy with the proceeds and found one that looks good at the moment. So I compromised with a smaller purchase than I was initially considering since I wouldn’t be using any proceeds from a sale.
I prefer buying stocks with P/E values under 20 and I only hold a few companies whose P/E is below those levels right now. One of them is L Brands (LB) and I decided to buy $800 worth to add to my existing shares. I bought 12 shares at $67.24 which, with the $2 commission, came to $808.88. The purchase was made using some of the cash reserves in my Income Fund.
Together with my existing cost basis of $605.95, I now own 23.695 shares for a total cost basis of $1,414.83 with a market value of $1,581.40 (+11%). This purchase should increase yearly dividends by around $28.
My reasons for buying (in no particular order) were:
- Low P/E of 16
- Low Dividend Payout Ratio of 46%
- Good dividend yield of 3.6%
- Strong free cash-flow of $1.1B
- Meets my diversification criteria (under 5% dividend weight)
- Valuation looks reasonable based on historical values (for the last 5 years its P/E has been above the S&P average P/E, this year it’s below)
- Adding to existing position
- They have a good commitment to shareholders with special dividend payments
L Brands is the parent company which owns both Victoria’s Secret and Bath & Body Works which is why those stores are usually side by side at malls. The company has lost some favor recently; their April sales didn’t meet expectations and they’ve also been downgraded by UBS with a lower $74 price target. I think the market tends to overreact to bad news especially since analysts’ estimates have a margin of error to begin with.
But in the long-term, they have a strong brand name with room to grow their product lines within existing stores in the US plus opportunities for international expansion. Their youth brand, Pink, is popular and building a youth-oriented brand should help maintain sales of their main brands down the road.
Do you own L Brands? What stocks / companies have you been considering?
Quote of the Day
Happiness is that state of consciousness which proceeds from the achievement of one’s values.