Friday, January 22, 2016

Recent Buy #2 January, 2016

Ready For Snow Gremlin here to talk about another recent buy!  As a huge snowstorm barrels its way up the East Coast of the USA, I sit confidently in my knowledge the my Roth IRA will continue to grow and kick butt.  And that my house will stay warm and the power on, fingers crossed.  Today I added another new position to the account.  This comes after today I sold by shares in Ace Limited / Chubb Corp. (CB) after they reached the limit I wanted.  I sold approximately 7.2 shares of CB for $111.15 each.  This capital combined with extra I had saved up and received from the prior ACE / CB action allowed me to make this purchase.  My prior CB purchase has been an overwhelmingly successful one in that it has spawned two positions for the price of one.  Honestly, I had hoped to hold CB for a long time, but I will roll with the punches and it does not hurt to get some Gremlin-style multiplication.

Anyways, today I added shares of Discover Financial Services (DFS).  I bought 26 shares at $48.55 / share, plus a $6.95 commission.  The current P/E* ratio is approximately 9.99 and yield is 2.29% (on current cost).  Looking at past dividend payouts, DFS has managed a 5 year DGR of 62.2% while keeping an approximate payout ratio of 21.2%.  DFS has a five (5) year history of dividend growth, and sports Tweed and Chowder factors of 59.3 and 70.4, respectively.  This purchase adds $29.12 to my forward 12-month dividend income.

DFS represents only my third Financial sector stock across all accounts.  That sector, along with Industrial and Healthcare, is one that I am very interested in building.  DFS operates in similar fashion to Visa (V), MasterCard (MA), and American Express (AXP).  As the world continues to modernize and banking becomes more decentralized, we will see these companies become more important.  These act as pass through money pipelines (damn you KMI!), though the streams of finance and customers are more numerous and stronger.  Plus they do not deal directly with commodity prices.  The complex web these companies serve is astounding.  Also DFS provides some of the best credit card services; many of my friends and family use the DFS credit cards because they are simply known for providing some of the best benefits.  So it is nice to know that they get and keep customers due to excellent products.

I like also DFS because of their low payout ratio and potential for growth.  The payout ratio has been low for several years, sitting currently at just about 20%!  Of those companies mentioned above only AXP and DFS are the most generously valued at the moment, with DFS currently being 21% below its 52 week high.  Another interesting fact is that DFS carries very little debt compared to other companies their size.  They are not worried about default or running in the red like some unnamed pipeline companies clearly were of late.

DFS does have risks of course, all companies do.  The most glaring was that in 2008 the dividend was cut by two thirds (2/3).  It was maintained the same until 2010, when it began getting raised again.  It appears leadership has either changed their mentality or ways.  Times certainly have changed since the last financial disaster, and it appears that DFS has put themselves on a successful track.  I look forward to riding this wave, and am confident it will be a nice ride.

What do you think of DFS?

I will update my portfolio page at the end of the month.  Enjoy the snow and stay safe, East Coast!

- Gremlin
- Long KMI (sadly) and newly long DFS

* This reflects trailing P/E unless noted.


  1. I kept my CB shares after the ACE buyout. It was one of my top performers and now I have some shares in ACE along with cash deposited as a result of the buyout. Interesting buy with DFS. You don't really come across that name among the DGI blogs in the financial space. Looks like it's trading at a good value and yield but I'd like a little longer history of dividend raises. Thanks for bringing this stock to my attention.

    1. DH,
      I would have kept my shares of CB if they were held in a taxable account, but mine were in a Roth account. No point in sacrificing money for taxes on a post-tax account. DFS, along with similar companies, is in an industry that I believe will only grow in importance. I do wish the history is longer, that was my biggest hang up. However, in the long run I want to own AXP, MA, and V as well. Cover the whole CC market.

      Thanks for the comment,