Earlier this week I talked about the push and pull of deciding when to make a new purchase in a stock market soaring to new all-time highs on a seemingly daily basis. Everyone’s situation is a little different, and in my specific scenario, I had accumulated enough funds for multiple purchases if the right opportunity or opportunities came along.
The great thing about the stock market is not all companies are viewed as a golden goose at the same time. Markets can catch fire, but that doesn’t mean every single company in the S&P 500, Dow, Nasdaq or Russell 2000 was able to board the train before it left the station.
While the markets climbed throughout this week — and continue to climb — I looked at dividend growth champions trading near the bottom of their 52-week range. The energy sector continues to struggle as the price of oil drops, and I FRIPed nearly $500 into BP, XOM and CVX late last week. Considering my heavy concentration in energy already, I wasn’t quite ready to increase my investment in that sector.
Another stock in my radar was IBM, a divisive technology company that some people hate to love and others love to hate. IBM has been trading down near its 52-week lows following a unimpressive earnings report and another in a long string of share buybacks to help buoy EPS.
At the end of the day, I saw potential for IBM to get its act together and evolve the “dinosaur” management style many critics often refer to, despite declining growth. So, after much deliberation, I added IBM as a small new position to my portfolio with no name. Here are the specifics:
- Purchase date: November 5, 2014
- Ticker: IBM
- Shares: 9
- Cost per share: $161.81
- Cost w/$7 commission: $1,463.29
- Yield at Purchase: 2.7%
- P/E: 10.2
- 12-month forward dividends added: $39.60
- Portfolio weight: 0.76%
Without getting into too much detail due to time constraints, what sold me on IBM was their 17.1% dividend growth rate over the past five years (despite half of that total coming from share buybacks) and their aggressive movement into cloud computing, analytics with companies like Twitter, and computing security. They may be late to the game, but I’m seeing the initiative being taken to right the ship and grow earnings over the next five to ten years.
IBM is also a stock whose dividend yield rarely touches 2.7%. In fact, the last time IBM’s yield was this high was way back in 2008.
I also noted that Warren Buffet loaded up on IBM back in 2011 at around $170 per share. I love the idea of owning a piece of a company that he’s heavily invested in, and at a lower cost basis, to boot!
IBM has proven themselves to be an extremely shareholder friendly company over their many years of existence. They kept increasing dividends throughout the financial crisis of 2007-08 and will be due to issue another raise in spring, 2015. I like having that kind of stability in my portfolio, even if it’s only a small percentage of my portfolio’s total, and would consider adding 9 or 10 shares to my position if IBM’s share price continues to chart new 52-week lows.
Thanks for stopping by, and please bear with me while I try to figure out the best format to present my stock buys.
Full disclosure: long IBM, BP, XOM and CVX