Wow, three posts in one day?! I wasn’t expecting that. I got a bit lucky though. My paycheck hit my bank account today, and as always, I immediately transferred my monthly investment amount to my main brokerage. For some reason, it let me make purchases with that money today, as opposed to me having to wait an extra day for it to post. Eh, whatever, I’m not complaining.
So when catching up with the blogs I follow, I mentioned that I was interested in the energy sector. Companies like XOM, COP, HP, and NOV are at appealing valuations, and I could start a new position in one or more of them. I already own CVX, but it’s trading below my cost basis, which I always like to see. I also liked BBL, which is trading at screaming-buy valuations in my eyes, and PCP, which I analyzed earlier. Yet I can’t buy them all. I mentioned that my top two picks were NOV and BBL. So as what I’m sure is a complete shock to you, I have started new positions in each.
Today, I bought 15 shares of National Oilwell Varco (NYSE:NOV) at a cost of $65.33 a share. I also bought 22 shares of BHP Billiton plc (NYSE:BBL) at a cost of $46.91 per share.
National Oilwell Varco
I won’t cover this one in detail. I first heard of it when I saw Berkshire Hathaway owned it in their portfolio. Dividend Mantra picked up some shares recently, which caused me to look at it myself this past weekend. I really liked what I saw, and here we are.
Now, why NOV over some of the other energy names on my list? Well, CVX was out, since I have a bias to buying new positions as opposed to adding to old ones. I feel that the slide in the price of oil isn’t over yet. That means that XOM and COP should provide even better prices in the months ahead. So that leaves HP and NOV. Honestly, it was a tossup between these two. I like HP’s streak of dividend increases and total yield right now. Conversely, NOV has a prime competitive position. Honestly, I just chose NOV because the ex-dividend date is December 3rd, and I think my trade will settle by then. HP already paid its dividend in November, so I missed that. If my “gamble” pays off, I get an extra dividend. If not, who cares? NOV is a damn good company anyway. I intend to buy HP in time, hopefully even in January. We shall see!
BHP Billiton
I doubt most of you need an introduction to BBL. From what I’ve seen, a lot of you liked the valuations yourself and decided to add. Dividend Mantra added to his position twice. A Frugal Family’s Journey, DivGro, All About Interest, Lanny (of the Dividend Diplomats), Special Agent Dividend, Writing2Reality, and Frugality to Financial Freedom (and more I know I missed) picked up some shares for themselves as well (Goddamn, that’s a lot of people!). So obviously, I’m in good company! Feel free to check out each of their posts; there’s a lot of good content and background in each.
If you don’t know, BBL is a global mining company. It has operations in 9 segments: “Petroleum, Aluminium, Base Metals, Diamonds and Specialty Products, Stainless Steel Materials, Iron Ore, Manganese, Metallurgical Coal and Energy Coal”. (Source: Scottrade) The history of the company is actually really interesting, so I’d recommend checking it out if you have some free time.
Since I’ve never analyzed the company myself with my own personal criteria, let’s do it now:
- Pays a dividend: Yes
- Has 5+ years of dividend increases: Yes (12 years)
- Has not frozen dividend for over 8 quarters: Yes
- Has a Chowder number of 12 or more: Yes (15.9)
- Has am EPS payout ratio of less than 70%: Yes (47.88%)
- Pays a dividend more than annually: Yes (Semi-annually; March and September)
- Remember that I allow ADRs to pay dividends semi-annually
- Has an S&P Quality Ranking of ‘A-‘ or better: Unknown (Not Rated)
- This is common among ADRs
- Has generally increasing earnings over the past 10+ years: Yes
- Is fairly valued/undervalued according to the Normal P/E ratio (blue line): Yes
- Is fairly valued/undervalued according to the Intrinsic P/E ratio (orange line): Yes
This is actually a bit risky to me. Earnings are extremely volatile, and the decline since 2011 is concerning. I am a bit worried about the possibility of a dividend cut should commodity prices suffer. However, I think the moderate payout ratio and diversification of assets mitigate that risk. Honestly, even if a cut were to happen, I doubt that I would sell. There’s an awful lot to like about the company; it’s basically a mutual fund in the mining industry. Honestly, I suspect this will not be my last purchase of BBL.
So all being said, the purchase of NOV adds $27.60 to my annual dividend income, and the addition of BBL adds $54.56. Combined, the purchases will add $82.16 to my annual dividend income.
How have you been taking advantage of the stock market’s Black Friday sale?
Disclosure: Long BBL, CVX, NOV. My portfolio page and watchlist have been updated accordingly. Please read my disclaimer here before choosing to invest. Company logo image sources are available here and here.
18 Comments
DD,
Glad you like what you see here with both of these companies. I know I was the first to really bring NOV to the forefront, as I didn’t see anyone else really discussing it before. But I think the fundamentals are particularly strong. And they did well the last time oil was this volatile. So I’m confident about their future. But you got in at a great price. I wouldn’t mind averaging down a bit, though I don’t plan on NOV being a core position either.
“Honestly, I just chose NOV because the date of record is December 3rd, and I think my trade will settle by then. HP already paid its dividend in November, so I missed that. If my “gamble” pays off, I get an extra dividend. If not, who cares? ”
There’s actually no gamble at all. You have to buy in at least one business day before the ex-dividend date to collect the next scheduled dividend. NOV’s ex-dividend date is 12/3. So you’re good. You’ll collect the next dividend.
Glad to have you as a fellow shareholder in two great energy plays!
Best regards.
Dividend Mantra recently posted…Freedom Fund Update – December 2014
Yeah, I appreciate you doing so. Probably would have ignored it without your analysis. That’s interesting. My trade may not be settled by the 3rd, which is why I said that. This has happened before too – I thought I made my purchase of AOS before the ex-div date, but it wasn’t settled by then. As a result, I didn’t get that dividend. Guess we’ll have to wait and see.
DD,
Then there may be an issue with your broker. The ex-dividend date is the only date to worry about. If you buy in at least one business day before the ex-dividend date, you’ll get the dividend. But you may have had the dates mixed up, as I noticed you said:
“because the date of record is December 3rd”
Actually, the record date is 12/5. Not trying to nitpick or prove you wrong, but I want to make sure other investors are clear on that. Buying before the ex-dividend date ensures you receive the next scheduled dividend.
The SEC has a nice explanation on it:
http://www.sec.gov/answers/dividen.htm
“Once the company sets the record date, the ex-dividend date is set based on stock exchange rules. The ex-dividend date is usually set for stocks two business days before the record date. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend.”
Best regards!
Dividend Mantra recently posted…Freedom Fund Update – December 2014
I just checked via Scottrade, and you are correct. I fixed the article. If I don’t get the dividend (which it sounds like I should), I’ll give my primary broker a call to sort it out. Thanks for correcting me!
Thanks for sharing this recent buy with us. BBL has been the go to name in recent days. I can see why too. Mantra just picked up these two names last week as well. I never really looked into NOV in great detail but seems compelling especially after its recent drop.
DivHut recently posted…December Stock Considerations
Yeah, it is interesting. Kind of felt left out because I didn’t own it! Seriously, it is an extremely good value in my eyes, and I’ve wanted to own it for a long time. And I certainly owe DM thanks for making me look at NOV; it’s because of his purchase that I looked into it myself. Thanks for stopping by!
You dont like to waste no time DD! You forgot to mention me, I picked up some BBL as well, hahaha jk! Glad to be a fellow shareholder on BBL, NOV is on my watchlist as well.
Take care,
FFF
FrugalitytoFinancialFreedom recently posted…November 2014 Portfolio Update
Oops, so I did. Added you too
Hope it treats us both well!
LOL thanks for adding me. Seraph from Financial Unicorn added BBL as well.
FrugalitytoFinancialFreedom recently posted…November 2014 Portfolio Update
Dammit, did the entire community buy BBL?! Haha. Good to know.
The BBL train is rolling among us bloggers, with good reason. It’s hard to resist buying at these levels, especially when the greater market is soaring to all time highs. I almost bought again today lol for a third time in three weeks, but the conservative side of me shut it down. If I had an established portfolio, such as many of my fellow bloggers, I would have really stocked up. But, I need to build slowly and wanted to ensure I continue to diversify my holdings.
I’ve never really considered NOV until I read Dividend Mantra’s post. I think it will serve you well and it’s on my radar now as well. Best of luck with the new buys!
Special Agent Dividend recently posted…Weekly Investment Activity – Dividend Growth Investing
That’s a very smart way of doing things. There will always be another decline with with to stock up on BBL and energy companies. No need to get your portfolio way out of balance to take advantage of it. Gotta stay well-diversified and balanced for safety.
David Einhorn’s Greenlight Capital is long NOV as well. Personally, I found it interesting to note that Einhorn’s Greenlight sold shares in DNOW (spinoff company) but kept on adding aggressively on their NOV position. It’s always good to clone a position from the guru’s who’s screener process is likely to be more sophisticated than ours :).
Long NOV
Maikel van Leeuwen recently posted…Change in strategy!
That is certainly interesting to note. Wonder why they’re dumping DNOW though. Always encouraging to see when the pros’ bets align with mine. Makes me feel as if I’m on to something
Great Buys…Both very popular stocks lately. We picked up shares of BBL last week, as you mentioned (btw…thanks!), and just yesterday we picked up shares of NOV.
We both made it just in time for the next dividend payout from NOV…cheers to our first dividend payment and early Christmas gift from NOV!
AFFJ
A Frugal Family’s Journey recently posted…RECENT BUYS (NYSE: NOV & ESV)
No problem, and glad to join you as shareholders in both! Gotta love it; glad we got in just in time!
DD,
Another BHP lover! The mining giant has definitely been making rounds in the DGI community. I wish I had more capital available and my portfolio composition allowed me to purchase more energy and mining stocks.
In a few years time you’ll be extremely happy you picked up BHP at these levels.
Keep it up,
NMW
No More Waffles recently posted…Savings Rate for November 2014
For sure. Money will be tight this month, so I have more cash than normal. But if I didn’t need it, you can be sure it’d be in BBL. I can’t resist it at these prices!