When I made my Suncor purchase a few weeks ago, I thought that would to be my only purchase in December and therefore the last purchase of 2014. I was quite content with the purchases I've made the last few months and believed that we have made excellent progress with our dividend income stream. With 2015 just around the corner, I have been making preparation so we can transfer $11,000 to our TFSA's on January 2nd and start buying more dividend paying stocks in early January.
Turned out Sunsor wasn't the last purchase of the year. Oops!
Although the markets seem to be on the road to recovery lately, volatility remains due to the low crude oil price and investors' general low confidence for 2015. As mentioned in my December stock consideration post, I have been monitoring energy stocks closely. Since most oil stocks are still far from their 52 weeks highs and have very attractive dividend yield, it's tough not to take a serious look at them. I love volatility because they provide great buying opportunities. With some freed up cash on hand, I made the following purchases:
19 shares of BP PLC (BP)
14 shares of ConocoPhillips (COP)
36 shares of Unilever PLC (UL)
BP is an integrated oil and gas company. The company operates in two business segments - exploration and production, and refining and marketing. Due to the Gulf of Mexico oil spill, BP stopped its dividend payment in late 20010 for 2 quarters but started paying dividends again in 2011. The dividend payments have been increasing year over year since 2011 at an average 3 year growth rate of 11.77%. BP currently trades at a PE ratio of 12.88 and a PEG ratio of 1.16. Compared to other oil stocks, BP has a relatively high dividend yield of 5.94%.
High yield stocks usually comes with some associated risks and BP certainly brings some. First, the high payout ratio is a little concerning, especially considering the low crude price. It's uncertain whether BP can continue to increasing dividends at 10% rate. However since the yield is already high, naturally a lower dividend growth rate is expected. My rationale for making this purchase is to average down our cost as we already own a small position of BP in our dividend portfolio. I am limiting our exposure to BP by adding only a small amount of capital. BP remains a very small portion of the total dividend portfolio.
ConocoPhillips explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) and natural gas liquids on a worldwide basis. The Company manages its operations through six operating segments, which include Alaska, Lower 48 and Latin America, Canada, Europe, Asia Pacific and Middle East, and Other International.
COP currently trades at a PE ratio of 11.97 and a PEG ratio of 1.43. The stock yields at 4.18% which is quite attractive compared to other oil & gas stocks. ConocoPhillips is a US dividend contender, having increased dividend for 14 straight years. It has an impressive dividend growth rate as well, with a 5 year annualized rate of 13.5% and a 10 year annualized rate of 15.83%. At 50% payout ratio, I expect the dividend growth to continue at an attractive rate.
I initially wanted to use the capital to purchase Cheveron (CVX) to add to our existing position but decided to go with ConocoPhillips (COP) as a way to diversify our holdings in the energy sector. COP not only has a slightly better dividend growth rate than CVX but it also has a lower break-even price. According to my research, COP has a break-even price of about $40 per barrel. This piece of information ultimately made the purchase decision for me. At break-even price of about $40 per barrel, it means the company has a bit of cushion on margin and can continue making money at the current low crude oil price.
I am convinced that our need for oil and gas are not going away anytime soon. With the low crude oil price, investing in energy like COP and BP simply makes sense.
Unilever PLC is a supplier of fast moving consumer goods. The two parent companies, Unilever N.V. (NV) and PLC, together with their group companies, operate as the Unilever Group (Unilever). Its products are grouped into four principal areas: Personal Care, Home Care, Foods and Refreshment. The Company’s four product areas are: Personal Care, which includes sales of skincare and haircare products, deodorants and oral care products; Foods, which includes sales of soups, bouillons, sauces, snacks, mayonnaise, salad dressings, margarines and spreads; Refreshment, which includes sales of ice cream, tea-based beverages, weight-management products and nutritionally enhanced staples sold in developing markets; Home Care, which includes sales of home care products, such as laundry tablets, powders and liquids, soap bars and a range of cleaning products. Unilever products are everywhere. I'm sure you've heard brand names like Dove, Lipton, Vaseline, Ben & Jerry's, and Knorr. When I look around in our home I can find many UL products.
UL currently trades at a PE ratio of 18.7 and a PEG ratio of 5.09. The stock has a 3.70% dividend yield and a conservative payout ratio of 68.8%. UL has grown its dividends at 8.48% annualized over the last 10 years.
Considering we already own another consumer goods giant, Procter & Gamble (PG), owning Unilever gives us a bigger pie of the overall consumer sector. Like Dividend Mantra whom just purchased UL recently, UL is an extremely long term holding for us. I plan to continue adding to our UL shares in the future so we can DRIP. Considering that 2 billion consumers worldwide use a UL product each day and 57% of the sales are made in the emergent markets, UL should continue growing its revenues.
I'm very happy to be able to make these 3 purchases before end of 2014. I'm pleased to finally own a piece of ConocoPhillips and Unilever.
These three purchases add $138.13 to our annual dividend income. I have updated our dividend portfolio. to reflect the addition of COP and UL.
What do you think about these purchases?