Wednesday, March 25, 2015

Recent Sale - Buy, March 2015

Investor Gremlin here to talk about a recent buy.  First, I should talk to a sale that fueled this purchase.


Recently in my Roth account I sold 16 shares of Dupont (DD).  When I first bought DD it was hovering around $66 / share last summer.  I still like the companies products, the basic materials sector, and its dedication to science.  However, I don't like the pace of growth and the intrusion of activist investors trying to change the company.  Activist investors might be right in some ways to force a company to change and adapt, but there is something stupid and or sinister about them too.  For instance, I've tried home brewing, but you will not see me going in and tell a professional brewer how to make a better product.


The sale generated $1235, a profit of approximately $169.  This money coupled with some new cash allowed me to purchase slightly more than 15 shares of Deere and Company (DE) at a cost of $1366 less commission ($88.50/share).  In total my forward annual dividend income went from $30.16 with DD to $36.36 with DE.  That increase is nice in many ways; DE has a lower payout ratio, a higher current dividend yield, a longer history of raising dividends, better dividend raises, and a better balance sheet.  This sort of change is what I want for my Roth - higher growth.  I understand it is swell to have big dividend payers, but in my Roth I want the majority to be growth stocks - as Dividend Mantra calls them Stage 2 and Stage 3.

Leading up to this purchase I was torn between two industries, Heavy Equipment/Machinery and Railroads.  For the first I was looking at Caterpillar (CAT) and DE.  For the second it was CSX, Norfolk Southern (NSC), and Union Pacific (UNP).  Each of these companies has a low payout ratio, wide moat, and large room to grow.  However, the Railroads are a little above CAT and DE in terms of metrics I wanted, especially P/E ratio.  So my attention shifted to CAT and DE.

CAT and DE both sport remarkably low P/E ratios, but DE's is lower along with a lower payout ratio.  CAT has a higher yield and a good amount of room to grow, but DE is really the leader in offering growth potential in terms of that ratio.  Morningstar rates both to be 3/5 stars in a cyclical industry.  So I made my mind up for growth.  Looking at the balance sheets and data I could find on both only helped to solidify my position on DE.  I know DE and CAT have both been making the rounds on various DGI blogs as well, and in reading those posts it made it even more clear to go with DE.  In the future though, I would like to own CAT along with all of the above railroads.

Full Disclosure - Long DE.

- Dividend Gremlin

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