The trades have been configured and the cash is ready. They will go live at around 11am Eastern Time on Tuesday (10/4) morning. This week a larger order will be placed as I finish re-balancing my portfolio and collecting tax loss harvesting for 2016.
In today's world, high yield names are very over valued due to the low interest rate environment. Many blue chip high yielders have ridiculously high P/Es when they have slow to non-existent growth. Just look at Kimberly-Clark, Procter & Gamble, 3M, ADP, Colgate Palmolive... I felt that
if I have to "pay up" for such high P/E in slow growth why not just pickup the ridiculously high growing companies (growing earnings, growing revenues, growing dividends) with the same P/E. The downside is that the fast growers have a lower yield as their payout ratios are usually lower to sustain their expansion.
Summary:
The purchase this week was primarily funded by re-balanced funds from slow high yielding names. I
wanted to pursue more growth in my portfolio since my portfolio was heavily defensive and I feel that for my age (26) this was too conservative. My purchases recently emphasize potentially higher share price growth, higher dividend growth, higher earnings growth, and lower yield. I still try to maintain a decent yield by purchasing some higher yielding names like Altria. Altria has done historically extremely well (last 60 years) and has been able to maintain a high dividend while doing so.
I also purchased a $9100 stake in Home Depot last week and HD yields decently around 2.2% and is also expected to have high growth in revenue, earnings and dividends.
I really like companies that have high yields and still grow the bottom line which leads to share price growth. You get the best of both worlds (growth and periodic dividend payments for waiting) but they are hard to find. I still want to try and maintain a overall portfolio yield of around 2.5-2.6% going forward so my Altria and Home Depot purchases helped move the yield needle up while still ensuring I get good growth.
This week I purchased hyper growth companies such as Nike, Ross Stores, TJX, Starbucks, MasterCard, and Visa. Their yields are around 1-1.5% and the dividend growth is over 15-20%. Around $14,600 this week will go to these very low yielding companies. These companies have rapidly growing earnings and revenue. The downside is that many of these companies have P/Es over 20 so they may experience P/E compression which will drive shares down even if the business is still growing. This can be seen with Nike and Starbucks recently as their P/Es have shrunk despite still growing the top and bottom line nicely. I am taking this opportunity to add to Nike and Starbucks. If they decrease further it will be more incentive to add.
I added a large stake in Altria since it has been a stable performer for the last 50 years while maintaining a high dividend. Altria has pulled back and now it's close to a 4% yield. They grow the dividend at a huge 8% rate while keeping a very steady 80% payout ratio. Cigarettes is extremely anti-cyclical and the user base is very loyal. Even if the US crashes in to a recession, tobacco usage will remain steady.