A couple of months ago, I sold my Exxon Mobil (XOM) position.  It put a big dent in my forward dividend income, too.  Since then I’ve been looking to replace most of that lost income.  It’s not an easy task given the big dividend yield XOM sported at the time of my sale (which is even higher these days).

Well, today I get to share that I went a long way toward replacing that income with a couple of purchases for my Portfolio.  The two purchases included an entirely new addition to my Portfolio, as well as an addition to an existing position.  Both purchases took place last week, but were split between late September and early October.

Interestingly, my new position ends up being larger than my existing one, even after the addition to it.  I’ll let you know where these two stocks lie within my Portfolio a bit later.

Let’s check out the details for these two Portfolio purchases.

 

Walgreens Boots Alliance (WBA)

WBA is a stock that I wasn’t necessarily looking to purchase at first.  Instead I’d been looking to add some CVS Health (CVS), which was already in my Portfolio.

However, in the process of comparing the valuation of CVS to some of it’s peers, I was surprised by WBA.

Both stocks look incredibly cheap these days from a P/E perspective.  WBA has not been as inexpensive over the past 2 decades as it is now, while CVS is practically in the same boat.

Granted both stocks are feeling some pain thanks to the pandemic affecting their businesses, plus both are dealing with some uncertainty surrounding the outcome of the U.S. presidential election and how that may impact healthcare in general.

The points that allowed me to lean toward WBA over CVS included:

• the P/E ratio of WBA (~7.63) was a tad lower than that of CVS (~8.13) – using current year earnings estimates
• the yield for WBA is approximately 1.75 percentage points higher than CVS (this goes a long way in helping me replace that dividend income)
• WBA does not currently have a frozen dividend
• EPS growth estimates for the next couple of years are about 1-2% better for WBA compared to CVS
• having WBA, as opposed to more CVS, allowed for additional diversification within my Portfolio

 

On 9/30/20, I purchased 150 shares of WBA at $35.95/sh, for a total of $5,392.50.

The stock yielded 5.20% at my purchase price (nearly double my current Portfolio average of 2.64%).

This purchase resulted in the addition of $280.50 in annual forward dividend income.

WBA is a new Portfolio position… my 48th to be exact.  While it seems that WBA is a Healthcare stock, GICS actually categorizes WBA in the Consumer Staples sector, so that’s where I’ll include it.

I consider this new WBA position to be a full position, so I won’t necessarily be looking to add to it, even if the price drops further from current levels.

WBA starts as the 36th largest position in my Portfolio, nestled in between Caterpillar (CAT) and Eastman Chemical (EMN).

 

As I usually do with new holdings, let’s take a quick look at the dividend growth history dating back to 2000…

 

 

It was a nice double-digit run of dividend growth from 2004 to 2014.  More recent growth has been in the mid-single digits, which is where I’d probably expect it to fall moving forward.

The most recent dividend increase was only 2.19% this past July.  Given the uncertainty of economic conditions during the pandemic, this was not unreasonable.  Any raise in 2020 is a good one.

The payout ratio is 40% based on this year’s earnings, so it would seem there’s room to accelerate the dividend growth a bit if desired.

WBA’s streak of consecutive annual dividend increases stands at 45 years… approaching Dividend King status… just a few more years!

 

Cisco Systems (CSCO)

This was my 2nd additional purchase of CSCO since initiating a position back in November 2019.  Each time I’ve lowered my cost basis.

CSCO fell onto my purchase radar after an August earnings report that came with some disappointing guidance.  The stock price sank quite a bit with the guidance… over 11%, and has proceeded to drift 9% lower from that post-earnings price over the ensuing weeks.

With the stock price cheaper than it was at the end of March, I decided to add some shares and move CSCO up my Portfolio rankings a couple of notches.   Increasing my Information Technology weighting is something I’ve been working on in 2020, and this also helps in that regard.

On 10/1/20, I purchased 20 shares of CSCO at $38.75/sh, for a total of $775.00.  The stock yielded 3.67% at my purchase price (a full percentage point above my current Portfolio average).

My CSCO share total has now climbed to 117.103 shares, and my cost basis has dropped to just under $43/sh.

This purchase resulted in the addition of $28.80 in annual forward dividend income.

Note, my purchase was the day the stock went ex-dividend, so I’ll have to wait until January before I see a boost in my CSCO dividend.

With this purchase, my CSCO position is now the 39th largest in my Portfolio, behind Realty Income (O) and ahead of Altria Group (MO).

 

Summary

I put the remainder of my XOM sale proceeds from August, and some new cash, to work into a new position in WBA.  I then followed that up with a smaller purchase of an existing holding (CSCO) just a couple of days later.  These additions helped me recoup a good chunk of the lost dividend income from my XOM sale.

Neither WBA or CSCO has a great near-term outlook, but I suspect a couple years from now I’ll be happy with the purchases.  With these two stocks I’m trying to be greedy when others are fearful.

The two purchases saw me put $6,167.50 of new capital to work in my Portfolio.  I’m now within $1K of the $10K I set out to invest as part of my 2020 goal.

My annual forward dividend income registered an increase of $309.30, with nearly 90% of that coming from the WBA purchase.

With 1 of the 2 positions being new, the number of stocks in my Portfolio increased to 48.

 

Are you a current shareholder of WBA or CSCO?  Are you inclined to add any new shares here, or wait for better days before investing?  Please share in the comments!