It is time to see how this first half of the year 2015 went by and what happened in my portfolio.
A recent update of the portfolio can be found here. So far this year I made mostly smaller purchases in stocks like: JNJ, GE, MSFT, NVIDIA, HSY and DIS. Next to stocks I added another ETF, the Vanguard Information Technology ETF (VGT) which has Apple, Microsoft and Google as largest positions.
Most of these buys were at reasonable valuations. Even though a company like Disney or Hershey is hard to find at a bargain I entered Hershey @ $91 which was about 20% below their high. Both were still however just above the comfortable 20PE level.
While building and taking care of my portfolio I found the most interesting part to track for me were the dividend raises. The year started out with an 8% raise in dividend by Coca Cola. In the second quarter I saw even higher raises like the 15% bump in dividend payments from both IBM and Disney! A raise in my annual income of more than 10% impresses me a lot, especially when you consider that a contiuation of thoses 10% increases means the amount will double in 7 years. If all goes well I expect to see dividend raises from Microsoft and Visa in the 4th quarter.
The second aspect in dividend investing that spikes my interest are the so-called “struggling companies“. Good examples of these companies are McDonalds and IBM. When you were to believe many of the Seekingalpha writers these companies are very close to bankruptcy. However in 2014 IBM for example made a $12B net profit, that does not sound like bankruptcy to me 🙂
At the same time things are not going great for IBM and MCD but that is why you can buy them at more reasonable prices right now. What will happen to the IBM stock once the company managed to grow profits for a few years? I would not be surprised to see EPS hit $18 after growing a couple quarters, when the PE ratio the market gives to the company then rises to 16 (still below MSFT) this suddenly becomes a $288 stock (an 80% increase!). It might take two or three years but I can wait (waiting by the way pays me over 3% in dividends).
I however limit myself to the companies that are struggling but have been proving their profitable business model for over 10 years. When companies like Micron Technology (MU) are seeing revenues go down I am not interested.