At the time of my last Portfolio Thoughts post, the market had just peaked. A 10% drop swiftly ensued, followed by a fairly brisk recovery of over half of the declines. Luckily, the market volatility we faced earlier this month has subsided a bit. Thus, now might be a good time to check the status of my Portfolio stocks. Perhaps a purchase opportunity or two has appeared as a result of some stocks being unduly punished.
What also stood out to me over this past month is the unexpected dividend raises. The tax reform package signed into law late last year has corporations assessing its impact on their businesses. Some companies are sharing the tax savings with their employees, others with their shareholders, and some are fortifying their businesses. Some are doing all of this. For those companies rewarding shareholders, the rewards often come in the form of dividend raises, and there have been plenty of unexpected ones announced in 2018. For my Portfolio alone, I saw 2 unexpected dividend raises in January, and already 4 in February. These boost my forward dividend income significantly, and should help me to potentially meet or surpass the goal I had for 2018.
Regardless of what’s going on though, I always find it useful to check in on the Portfolio regularly, and my monthly Portfolio Thoughts post is my chance to do it.
So, let’s get to it…. I’ll review some recent purchases, see what’s been moving with regard to price, and discuss what stocks I’m watching as possible new additions to the Portfolio.
Transactions
I was fairly active with regard to purchases this past month… 4 purchases in all.
Two of the purchases were earlier in February, just a couple of days apart, in the throws of the market decline. I added 32 shares of Realty Income (O) and 20 shares of Exxon Mobil (XOM). Both were additions to existing Portfolio positions. Check out these posts for more details: Recent Buy – O and Recent Buy -XOM. The purchase of O was outlined as a possibility in last month’s Portfolio Thoughts post, and when the stock slid below $50, I made my purchase as suggested.
The other two purchases came from a couple of put options being assigned last week. I added 100 shares of HanesBrands (HBI), giving me 300 shares total. I also added 100 shares of utility Southern Co (SO). SO is new to the Portfolio, and only the 2nd utility stock. You can read my Monthly Options Income (Feb. 2018) post for additional information on these.
I invested a good chunk of capital with these purchases, in excess of $9,500. This puts me well ahead of pace with regards to the minimal amount of capital I wanted to deploy in 2018. It also sets me up to collect most of the annual dividend they’ll pay in 2018.
Price Movement
The number of Portfolio stocks on the rise this past month were few and far between thanks to the market decline. However, a couple of technology names and a healthcare name bucked the downward trend.
Semiconductor maker Skyworks Solutions (SWKS) rose from $97 to $108.
Meanwhile, IT services provider Cognizant Technology Solutions (CTSH) climbed a smaller percentage, from $78 to $82.
Finally, Ensign Group (ENSG), a healthcare services provider, moved up nicely from $23 to $27. ENSG is right along side Visa (V) as the lowest yielding company in my Portfolio, so I expect to see share price out-performance in order to compensate. ENSG hasn’t disappointed since I picked them up at $18.50 late last March. I hope the stock continues its move upward. A handful of other names managed to essentially break even for the past month, which has to be considered a success given the environment.
On the other hand, I had plenty of companies suffer 8%-10% price drops over the past month, so many I can’t list them all without wiping away a tear or two. However, I will mention a few that were at the very back of the pack.
The worst laggards this past month were CVS Healthcare (CVS), falling from $83 to $68. CVS gave back all of its gains from last month, and then some. The pending merger with health insurer Aetna, and possible competition from Amazon weigh on the stock.
Exxon Mobil (XOM) sank from $89 to $77. As noted above, I added a few shares to my existing holdings as a result of this drop.
Finally, I had Hershey (HSY) as a significant decliner this past month, tumbling from $111 to $97. I’m not sure what to make of HSY at this point. I’ve done fine with HSY, but I suspect most of those gains came from some of the merger discussion surrounding them about a year ago. I could consider adding some if it declines further (say to the low $90s), but I’m not sure if there are great growth prospects here, and the dividend growth for HSY has been on the decline. It could be time to scout for an alternative stock to replace HSY.
Watch List
If I decide to add to my existing Portfolio positions in the near term, a few stocks are currently at the front of the list. It starts with pharmacy benefits manager, Cardinal Health (CAH). The stock is currently sitting a bit above $69. I’d like to add 10-30 shares below $65. I’ll wait and see what transpires.
I’m watching Texas Instruments (TXN) for another fall below $100 as well. This is a stock position that I’d like to build up. I’d average down with another 25 shares if it dips into my target range. TXN dropped to about $97 about 2 weeks ago, but I was focused on increasing other positions at the time.
The last current holding that I might add to is Starbucks (SBUX). SBUX is currently trading a tad above $56, but I could see adding about 25 shares should it dip below $53.
As for non-portfolio stocks that I’m watching, Comcast (CMCSA) is still on my list. CMCSA got very close to my $37-$38 range recently, but I’m still holding out.
I’m watching biotech Celgene (CELG), too, even though it’s not a dividend-paying stock. I’ve actually written a put option against the stock for the 3rd straight month, this last time with a $90 strike price. I’m tempted to buy it outright, but am trying to save the $$$ I have for dividend-paying stocks. However, I’d be happy with a purchase below $89, which is what I’d get if the option is assigned and I factor in the premium I got for writing the put. Should CELG never see $90/share by mid March, I’ll happily realize the premium.
Lastly, there’s KAR Auction Services (KAR), a small-cap company that’s a provider of vehicle auction services. KAR has had a nice run over the past 5 years, with many improving metrics, including rising pre-tax profit on sales, and rising return on equity. I think sales growth can be in the 7%-8% range, with earnings growth in the area of 12%. Dividend growth in the past few years has been in the 8%-10% range. The stock currently yields about 2.7%. I’d consider a purchase below $50.
Thoughts?
Did you scoop up any stocks on the recent dip? Are you waiting for further declines? What stood out to you during the recent market volatility? Please share your thoughts!
Nice thought process ED. So far this year I have added to O, D and SO. REITs and utilities have been harder hit with concerns over rising interest rates. I think that’s reflected in some of your purchases too. Tom
Thanks, Tom. Yes, my O, SO and XOM purchases were certainly “buy them while they are down” additions. I could even consider that to be the case with HBI, despite my cost basis going up in that instance. As for the TXN purchase, that was just me wanting to establish a position. I started small, trying to leave myself room for averaging down if the price continued to drop.
That’s a great chunk of cash to be putting to work in February ED, nice work. I like your pre-determined share price targets for your watchlist – takes some guesswork out of the purchase decision.
I’m slowly getting more familiar with a few of these US stocks, but Starbucks is one I know well. From my perspective it seems to be pretty good value around these prices. Australia seems to be one of the very few places they initially ‘failed’ when rolling out stores, but they seem to be re-establishing a better presence here.
Cheers, Frankie
Hey Frankie. It’s a big chunk alright… I won’t be able to keep that up every month!
Once a stock gets to a price point where I’m interested, I’ll establish a lower price at which I’d strongly consider a purchase. Of course, things change over time, so I re-evaluate the possible purchase once my price target is reached. However, if I’m still convinced it’s a good buy at that point, I often commit to the purchase.
As for SBUX, I think it’s fairly valued here, too. However, I’m targeting a lower price… just below the level I made my last addition. I know SBUX is making a big push in China, but it’s interesting to hear how they are viewed and progressing in Australia. Thanks for the good insight.
Thanks for sharing your thought process on the markets and your portfolio, Mr. Engineering Dividends! I have been scooping up a few shares during some of the recent dips. I typically buy every two weeks so I would have bought anyways though. What stood out to me during the recent market volatility was the decline of my utilities positions like Fortis and Enbridge. But I guess that’s to be expected with interest rates on the rise. Thanks for sharing your watch list. It’s a reminder for me to diversify more. SBUX is a stock I am interested in owning. Should be a great long term dividend growth story. Thanks for sharing your price target.
Happy to share, RTC. I find it interesting to see what others in the community are doing with their portfolios, so it stands to reason that I’d share my thoughts/actions when it comes to my portfolio.
Your investments at regular intervals is a good strategy to have implemented, and it will pay off in the long run. Keep targeting good companies that may be temporarily out of favor.