Monday, July 11, 2016

Recent buy: JNJ, RAI, MMM, KHC

I will be executing the following purchases tomorrow:

MMM3M CO$2,000.00

Yes I know, valuations are not great. But I'm optimistic about the USA's future in the long run. I'm referring to 30 years plus. So I am less concerned with making the once in a lifetime perfect timed buy and more with dollar cost averaging myself into higher dividend income. I will have roughly $25,000 in US dollars by the end of this week even after tomorrow morning's purchase, so I will still be looking for places to buy.

The yields of the stocks above are given below. I'm trying to maintain a portfolio 2.5% yield at the moment. I have revised that from my original 2014 target of 3% yield. The bond market has seen a dramatic shift to lower yield. This has pushed US stock prices up and many dividend paying stocks up a lot, reducing their yield. I have also noticed that many foreign investors have fled to US markets due to the Brexit and uncertainty in Japan and Europe. 

The reason I am revising my yield target down is because I feel that stocks that would help yield my portfolio over 3% are not stocks I want to be predominantly in. I would have to be buying stocks with yields over 3.5% ranging up to 5% to hit my desired target of 3.0% portfolio yield. I am finding that the majority of stocks that I consider the highest of quality are now yielding in the 2.5 - 3.0% range. Chasing higher yield to boost one's returns exposes an investor to additional risk. If I want high yielders I would have to risk purchasing compromised energy companies, overpriced REITs or REITs that are more risky (like OHI or HCP), MLPs (not a fan) such as EPD or MMP, telecom  like AT&T or Verizon which are rather overpriced, or companies in troubling periods like IBM or Qualcomm. I prefer to stick with the best. And the best of the best have yields under 3.0% at the moment. I am seeing the highest of quality "high yielders slower growers" range from around 2.2 to 2.8% yield and highest of quaity "low yielders high growth" range from around 1.2% to 2.0%. 

I am willing to pay up for quality.

JNJ - 2.6%
KHC - 2.56%
MMM - 2.49%
RAI - 3.16%

In terms of quality for the above purchases, JNJ gets the #1 seat. MMM second. Then KHC then RAI. KHC is still undergoing change from the Buffett and 3G acquisition. I believe there is strong growth ahead as margins improve and severe cost cutting happens to boost synergies between Heinz and Kraft. RAI gets the lower quality rating on my list due to its less established history, high debt, and lower market share compared to Philip Morris. I give PM and MO the highest quality for the tobacco sector, and RAI will always be behind MO and PM. RAI's acquisition of Lorillard will help increase EPS at the expense of some additional debt. Yields over 3% is great in today's environment and RAI is growing that dividend at a very decent rate.


  1. Love the attitude on this. In 30 years, it definitely won't matter that you paid extra for a couple JNJ shares. I've been wanting to start a (manual) DRIP for my best companies for awhile. You might have inspired me to start with this fresh outlook.

  2. Hi - one-month old dividend investor here and just wanted to comment that RAI was my most recent purchase from last Friday after I did a fairly exhaustive screen based on my thought process. I agree things are highly valued right now but RAI has solid yield and the debt level is manageable. One of my criteria that I look for is that long-term debt can be paid off in 4 years or less with annual net income. At this point, RAI is sitting right at 3 years which is OK in my book.

    I haven't posted about that purchase yet but when I do, it will be at my new blog I've just started so trying to catch up on my activity over the last few months.

  3. Good for you -- buying with a 30 year time horizon in mind!

    Like you, I have some cash on hand and looking for candidates to invest in. I have JNJ trading 13% above fair value ($109), MMM trading 15% above fair value ($155) and RAI trading 6% above fair value ($50). I'm long these stocks -- and I think they're great stocks for a DGI portfolio. (No analysis for KHC).

    Congratulations and thanks for sharing!