May 2014 – Stock Purchase (2)

It’s that time again. I came across an interesting article yesterday which compared two hypothetical investors who both started invested $1000 in the S&P index in 1983 and continued investing $1000 each year for the next 30 years. One bought stocks at the end of each year, the other bought stocks at the highest point of the S&P for that year. Guess who came out ahead?

OK, so it’s no surprise that the first investor came out ahead with $177,176 but more surprisingly, the second investor still had $169,153 and managed a 9.5% annualized yearly return vs. the 9.9% of the first. Obviously a perfect investor who bought at the lowest point of the S&P each year would have made significantly more money but that’s pretty much impossible [1].

I mention this because the stocks I’ll be buying this week are quite highly priced compared to their 52 week history. But I’m adding to my existing positions and I’m confident that the stocks I’m buying will continue paying dividends for the long term. Since I am buying for the long term, chances are that the next time I buy these stocks they’ll be cheaper so I’m not as worried by their absolute price.

Here’s my portfolio by sector as of May 16.


This is a screenshot from my portfolio excel file which groups my stocks into 10 sectors. It shows their value relative to each other, the target value needed for equal weighting and highlights the lowest performing sectors in nice warm colors – red for 10th place, and orange for runners up in 8th & 9th place.

Individual Stock Purchases

Since my last purchase, my lowest valued sector has fluctuated between Financial and Consumer Defensive, but the biggest loser currently is Consumer Defensive. Within that sector I hold PG, KO, KMB, GIS and TAP.

I’m purchasing $180 of dividend stock this week; so I’ll be buying the lowest three positions namely KMB, KO and TAP in proportional amounts to balance them out.

Kimberly-Clark [KMB] makes household products that you probably use every day. The company is a dividend aristocrat, having increased its dividend for the last 47 years and its dividend is $0.84 a share with a yield of 3.05%. Its dividend payout ratio decreased to 58.6% from 67% last year. Its P/E ratio of 19.9 is better than the industry average (22.1) but higher than the S&P index (18).

Coca Cola [KO] should need no introduction as it’s one of the world’s most valuable brands. The company has increased its dividend for the last 51 years, and its dividend is $0.31 a share with a yield of 3.0%. Its P/E ratio of 21.7 is higher than both the industry average (20.7) and the S&P. KO’s payout ratio is currently 60.1% and has been steadily increasing since 2009.

Molson Coors Brewing [TAP] is one of my ‘mad’ stock positions which is not based on any real analysis of the company but simply on my belief that beer will remain popular and that with distribution and retail networks well established, it’s hard for newcomers to enter the market. It simply allows me to give a silent toast to my dividend income when I enjoy a Miller Lite [2].

Their dividend yield is about 2% with a payout ratio of about 35% (down from last year’s 41%) and its P/E ratio of 17.1 is higher than the industry average of 13.4.

My purchases

In summary, here’s what I’ll be buying this week.

$250 Vanguard High-Yield Dividend Fund (VHDYX)
$125 Vanguard High-Yield Corporate Fund (VWHEX)
$180 Individual Stocks (KO, KMB, TAP)

What are you buying this month?

There is no dignity quite so impressive, and no one independence quite so important, as living within your means.

[1] There are about 251 banking days per year; the odds of buying on the cheapest day of the year is 1/251 or 0.39%. The odds of doing that 30 years in a row is 1/251^30 or 0.0000000000000000000000000000000000000000000000000000000000000000000000102%
[2] Which happens a lot less frequently than it did when I was younger.

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