It's been a little while since I asked you readers "what are you buying?". I figured it would be a good time to find out what everyone is looking at. With the market blistering higher since the beginning of the year it's become increasingly difficult for us value/dividend growth investors to find suitable equities at attractive long-term prices with a margin of safety to protect oneself in a market decline. I've been purchasing attractive dividend growth stocks every single month since I started my journey in early 2010. Major market slides and large upticks have both occurred in the last two years and I continue to purchase during both, relying less on my ability to time the market and more on the ability of time to compound my investments. I believe time is a much stronger force than my intuition, and an ally you surely would want on your side. Cash is king, except when inflation is eating away at it..which is pretty much all the time.
Although the market is showing no signs of a correction that many individual investors and talking heads have been looking for, I still continue to challenge myself to find quality businesses trading for fair or attractive long-term prices. As such, I'm considering the following three equities for purchase next month:
General Mills, Inc. (GIS, Financial)
General Mills is a formidable company with solid brands in its stable, brands like Cheerios, Betty Crocker, Pillsbury, Yoplait and others. I love owning companies that produce products that I buy, and this would certainly fit the bill. GIS has underperformed the S&P 500 YTD by a wide margin, going -3.22% on the year, compared to the S&P 500 at a strong +12.32% so far in 2012. This difference of over 15 points makes GIS a bit more attractive, despite its strong valuation at a 16.68 P/E ratio and a 3.6 P/B. It has a solid entry yield at the current price of 3.12%. The 5-year dividend growth rate is fairly impressive at 11.1%. The payout ratio currently stands at 53%, which is fair but I would like to see it go below 50% with growing earnings. The balance sheet is a bit of a weakness here with a debt/equity ratio of 0.9, but it's manageable. I think with the strong lineup of brands and possibility of strong growth overseas, GIS should be a solid long-term holding. However, I wish the balance sheet was a bit stronger and the payout ratio is just a tad high.
Medtronic, Inc. (MDT, Financial)
Medtronic is one of the largest medical device makers in the world. They have a wide range of products which include defibrillators, heart valves and pacemakers among others. With an aging population here and abroad, MDT should see plenty of demand for its products. It's currently sporting an entry yield of 2.45% with a 5-year DGR of 17.8%. The P/E ratio is 12.79, which is fairly attractive in this market. The balance sheet is fairly strong and their ability to grow earnings appears to be in no danger of abating. The payout ratio is a very comfortable 31%, which leaves plenty of room for dividend growth. MDT is up 3.45% YTD, which is well under the S&P 500's performance so far this year. I think MDT is attractive at current prices, and although I already have a position with this company I would be interested in increasing it.
Raytheon Company (RTN, Financial)
Raytheon is an interesting pick. I've written about my desire to own a piece of this company multiple times on this blog, but always found different directions with which to take my investment capital. I regret that a little, as I really missed an opportunity to invest with RTN when it was trading for around $40/share. It's now over $52 per share. The entry yield is strong with this stock, coming in at over 3.78%. This company could be a controversial investment in the current climate of reducing the defense budget. RTN manufactures missiles and intelligence systems, so I believe they will be a little less sensitive to budget cuts than companies that manufacture large-scale products like ships and tanks. The 5-year DGR for RTN is at 12.1%, and the dividend was recently increased by 16%, going from $0.43 quarterly per share to $0.50 quarterly per share. This shows management is committed to increasing the dividend and is confident about the business. The current P/E ratio is at 10, with a P/B of 2.2. The balance sheet is solid, with a debt/equity ratio of 0.4. The payout ratio currently stands at 37.8%, which leaves plenty of room for management to continue to grow that dividend like they did this year. I think the low payout ratio, solid balance sheet and product lineup shields RTN a bit from DOD budget cuts and leaves the dividend relatively safe. Of course, this could change at any time in this industry. RTN is up almost 10% YTD, but is still trading at an attractive price.
These are just three stocks I'm considering purchasing in April. Market conditions change daily, so I may or may not purchase one or more of the stocks listed above. I think there are other attractive equities available, especially in the health care and transportation sectors.
What are you buying?
Full Disclosure: Long MDT.
Although the market is showing no signs of a correction that many individual investors and talking heads have been looking for, I still continue to challenge myself to find quality businesses trading for fair or attractive long-term prices. As such, I'm considering the following three equities for purchase next month:
General Mills, Inc. (GIS, Financial)
General Mills is a formidable company with solid brands in its stable, brands like Cheerios, Betty Crocker, Pillsbury, Yoplait and others. I love owning companies that produce products that I buy, and this would certainly fit the bill. GIS has underperformed the S&P 500 YTD by a wide margin, going -3.22% on the year, compared to the S&P 500 at a strong +12.32% so far in 2012. This difference of over 15 points makes GIS a bit more attractive, despite its strong valuation at a 16.68 P/E ratio and a 3.6 P/B. It has a solid entry yield at the current price of 3.12%. The 5-year dividend growth rate is fairly impressive at 11.1%. The payout ratio currently stands at 53%, which is fair but I would like to see it go below 50% with growing earnings. The balance sheet is a bit of a weakness here with a debt/equity ratio of 0.9, but it's manageable. I think with the strong lineup of brands and possibility of strong growth overseas, GIS should be a solid long-term holding. However, I wish the balance sheet was a bit stronger and the payout ratio is just a tad high.
Medtronic, Inc. (MDT, Financial)
Medtronic is one of the largest medical device makers in the world. They have a wide range of products which include defibrillators, heart valves and pacemakers among others. With an aging population here and abroad, MDT should see plenty of demand for its products. It's currently sporting an entry yield of 2.45% with a 5-year DGR of 17.8%. The P/E ratio is 12.79, which is fairly attractive in this market. The balance sheet is fairly strong and their ability to grow earnings appears to be in no danger of abating. The payout ratio is a very comfortable 31%, which leaves plenty of room for dividend growth. MDT is up 3.45% YTD, which is well under the S&P 500's performance so far this year. I think MDT is attractive at current prices, and although I already have a position with this company I would be interested in increasing it.
Raytheon Company (RTN, Financial)
Raytheon is an interesting pick. I've written about my desire to own a piece of this company multiple times on this blog, but always found different directions with which to take my investment capital. I regret that a little, as I really missed an opportunity to invest with RTN when it was trading for around $40/share. It's now over $52 per share. The entry yield is strong with this stock, coming in at over 3.78%. This company could be a controversial investment in the current climate of reducing the defense budget. RTN manufactures missiles and intelligence systems, so I believe they will be a little less sensitive to budget cuts than companies that manufacture large-scale products like ships and tanks. The 5-year DGR for RTN is at 12.1%, and the dividend was recently increased by 16%, going from $0.43 quarterly per share to $0.50 quarterly per share. This shows management is committed to increasing the dividend and is confident about the business. The current P/E ratio is at 10, with a P/B of 2.2. The balance sheet is solid, with a debt/equity ratio of 0.4. The payout ratio currently stands at 37.8%, which leaves plenty of room for management to continue to grow that dividend like they did this year. I think the low payout ratio, solid balance sheet and product lineup shields RTN a bit from DOD budget cuts and leaves the dividend relatively safe. Of course, this could change at any time in this industry. RTN is up almost 10% YTD, but is still trading at an attractive price.
These are just three stocks I'm considering purchasing in April. Market conditions change daily, so I may or may not purchase one or more of the stocks listed above. I think there are other attractive equities available, especially in the health care and transportation sectors.
What are you buying?
Full Disclosure: Long MDT.
