Thursday, August 13, 2015

Purchase plans for next week

The energy sector:
The current environment for oil and gas is providing us with depressed share prices in many large companies such as XOM, CVX, COP and even pipelines such as EPD and KMI. I am however quite cautious about many of these companies in the current environment. If the price per barrel were to remain low for an extended amount of time, I can foresee companies such as COP or CVX having to pause or cut their dividends.

At the moment I am overloaded in KMI so I cannot add more. I am also hesitant to add more because of KMI's debt levels. If I were to add another pipeline it will either be MMP or EPD but both are not low enough for me. My desired buy range will be 50% drop from the top.

Out of all of the oil giants, the only one I am willing to dollar cost average is XOM. The other company I hold is CVX. Both are dividend aristocrats and have survived numerous oil busts. XOM is definitely the stronger company at this moment and CVX has many huge megaprojects that are very expensive. CVX is definitely betting on the rise of oil prices in the future and will benefit more from rising share prices than XOM if oil prices rise.

I am not a fan of chasing yield. I prefer looking at the overall market environment. At the moment XOM I believe is capable of covering the dividend with sufficient margin. XOM's latest earnings were much better than CVX's despicable $0.3 per share (a -73% surprise!). XOM was also able to increase their dividend at a very nice rate this year too. At the moment I would prefer CVX to hold their dividends flat for as long as they see fit to be financially secure. If the price of oil continues to be depressed below $50 I will start to become worried about CVX's dividend coverage. I am dripping dividends on both XOM and CVX, but will only reinvest new capital into XOM at the moment. I need to see an uptrend in oil prices before considering CVX.

Credit Cards:
I want to add another company into my portfolio that is in the credit card business. Currently I have a holding in Visa. I plan to buy some MasterCard next week with new funds. I believe MasterCard and Visa will both profit healthily from the move to cashless spending in developing countries. Growth internationally will increase profits for both companies and I want to be part of that. MasterCard is smaller than Visa in market cap so they have more room to grow. At the moment, S&P and Morningstar are placing MA undervalued 9% to 20% while Visa is fair valued. Since I hold too much Visa I might as well buy some more MA to diversify.

Both V and MA have very low dividends but high dividend growth. I am not buying either of these companies for their dividends. They are growth plays but I consider them less speculative than my other growth companies such as SBUX or AAPL. I see V and MA as essentials in modern society just like consumer staple stocks. We have to use them in our everyday lives to function. I myself never use cash anymore since carrying cash and going to the ATM for cash is just so inconvenient. I also use credit cards exclusively for their cash back and benefits. Consumers in developing nations will see the light and eventually convert to cashless spending..

Industrials:
Depressed oil prices and the drama over coal shipments have sent shares of my favorite railroad UNP lower. Other railroads such as CSX and NSC are lower as well. UNP in my opinion is the strongest railroad and the one I want to own most. I want to build up my position in UNP first before buying other railroads. However I need UNP to drop further into the 80s range before buying more since I bought some a couple weeks ago.

I will be adding more to my position in UTX. UTX has one of the most consistent earnings and cashflow out of the industrials I survey. My favorite industrials are MMM and UTX. I prefer MMM more for their history and diverse portfolio. The market has started hating UTX in the last couple of weeks for selling their Sikorsky Aircraft unit to LMT. It has dropped by over 17% so I plan to take advantage of the sale!

MMM has dropped in value by around 12%. It's not a noticeable drop to be excited about but I always am looking for a chance to drip more into MMM. MMM is a dividend king with many decades of dividend increases. MMM has a solid moat and steady earnings & cashflow even during cyclical times. MMM is my favorite industrial company to hold and I will be moderately dripping as it falls.

For pictures of UTX and MMM's historical earnings and dividends graphs, look at my favorite dividend stocks page: http://www.youngdividend.com/p/favorite-stocks.html

Misc:
Since I have 12 trades to use in a month I may add additional small buys to various core staple companies such as WMT, JNJ, CL, etc. I am always open to buy these core companies that are in the consumer staples business even if shares are not at a noticeable discount since my holding timeframe is forever.

For reference, I DRIP all of my investments. Dividends are immediately reinvested in the company that paid the shares.

2 comments:

  1. I'm pretty much in the same spot as you. I already have full positions in CVX and KMI and if I had to add somewhere it would likely be to my fairly small XOM position. Oil is under $40 now with no signs of slowing so I'm really looking in other areas at the moment.

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    1. Oops, meant to say it's almost under $40

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