After reading personal finance books like The Wealthy Barber, and Flipping Burgers to Flipping Millions, the idea of buying assets rather than buying depreciation things was imprinted in my brain. This is why I get more excited about buying dividend stocks than buying things like electronic gadgets. It’s also probably the reason why it would take me months to provide my birthday or Christmas wishlist to Mrs. T. 🙂
The recent market volatility has made me wanting to buy as many dividend stocks as we can. Whenever I don’t pull the buy trigger for a while, I get this weird feeling inside. A part of me don’t believe in market timing, but a part of me always want to wait for a market down day before pulling the buy trigger. I suppose, it is more satisfying to buy dividend stocks on a day when the market is down; buying things on sale is always better than buying things not on sale.
The last few weeks we saw a few huge one day drops in the worldwide stock markets and a few big rallies the very next day. Mr. Market just can’t make up his mind and is being very irrational lately. This is just fine for dividend growth investors like us, because we will receive dividends nonetheless. Furthermore, a drop in the market provides great buying opportunities. We are still accumulating shares for our portfolio, so it’s always excellent to be able to squeeze in an extra share or two with the same amount of cash due to the stock price drop.
With that in mind we recently purchased the following stocks:
13 shares of Chevron (CVX)
55 shares of Canadian Natural Resources (CNQ.TO)
67 shares of Enbridge (ENB.TO)
20 shares of Canadian National Railway (CNR.TO)
25 shares of Procter & Gamble (PG)
The theme of these purchases is to take advantage of the recent market drops. The oil & energy sector has taken a large beating the last half year due to the price of crude oil. It’s shocking to see CVX at mid $70 and having dividend yield of more than 5%. There are many discussions among dividend investors on whether Chevron has sufficient cash from earnings to continue paying dividends and whether Chevron can continue raising dividend payout while facing headwinds caused by the low crude oil price. Considering the long dividend history, I believe Chevron will continue paying dividends to reward its investors. It will simply be very detrimental for Chevron to cut its dividends since investors will take this move very poorly, resulting them selling their Chevron shares and causing the stock price to drop further. If challenged by the low crude oil price, the Chevron board may decide to hold dividend payout at the same amount for a few quarters without raising it. Considering a high dividend yield to begin with in our latest purchase, we can afford to wait for the oil price to recover. This purchase also allowed us to average down our cost basis.
Similar to Chevron, Canadian Natural Resources, Enbridge, and Canadian National Railway all have seen their price drops in recent months. All three of these companies have very solid dividend histories and have consistently raised dividend payout for a number of years. Purchasing additional shares in CNQ and ENB will allow us to enroll in synthetic dividend reinvestment plans (DRIP) with our discount broker, Questrade. As we DRIP more shares over time, this will allow us to average our cost basis. We added more CNR shares as a way to bring down our cost average. Although CNR’s dividend yield is less than 2%, it has a 10 year annualized dividend growth rate of 17.8%. This kind of impressive growth rate means the yield on cost can be quite significant in a few years. We will probably continue adding more CNR shares to allow us to enroll in DRIP one day.
I struggled a little bit trying to decide whether to purchase Procter & Gamble or Johnson & Johnson with our remaining US cash. Ideally I’d love to purchase both PG and JNJ as I think both are slightly undervalued right now. I ended up going with PG because I wanted to allocate more money within our dividend portfolio to the consumer staple sector. PG is fighting a bit of headwind lately and there are worries about its future earnings growth. Despite all these concerns, I believe PG is a very solid long term holding. Like the rest of the world population, we use PG products on a daily basis and will continue spending money day in and day out to purchase more PG products. We don’t have enough PG shares to enroll in DRIP but we’re getting very close.
As you can probably have guessed by now, our goal is to eventually DRIP most of our positions in our dividend portfolio. Reinvesting dividends will allow us to take full advantage of the power of compound interest. DRIP will also allow us to take advantage of dollar cost averaging. Once we’re DRIPing positions, we could simple leave them on auto-pilot and keep buying additional shares each quarter (or month if dividend is paid out monthly). When we eventually need the dividend to cover our monthly expenses, we will stop DRIPing and use the money. It’s a straight forward strategy.
These purchases add $323 in our annual dividend income.
What do you think about our recent shopping spreed?