Those of you who read my last post may have noticed that I was really unhappy with my holdings in Nucor, the steelmaker. I mentioned that I was selling it because it no longer fit with my investment plan, failing 5 criteria. Most importantly, the dividend growth is very subpar; NUE has a Chowder number of 4.1, barely keeping up with inflation. Welp, I’ve thought about it, and I sold all my NUE this morning. I sold 50.735 shares at $47.36/share. This results in a loss of $75.59 in annual dividend income. Slightly disappointing, as that 3.1% yield was the appealing part of the investment. However, there are better investments in the iron and steel subsector, like PCP. I also have iron ore exposure through BBL, which I think will suffice for now. So what did I buy with the proceeds?
W.W. Grainger (GWW)
What: Bought 3 shares @ $235.75/share. Added $12.96 to my annual dividend income.
Why: Optimistic about company restructuring and expansion. Dat Chowder number. Dip brought it into the top end of fairly-valued range.
*Note – as always, I’ll just provide a quick overview of the stock, not a full analysis.
From Scottrade:
W.W. Grainger, Inc. is a broad-line distributor of maintenance, repair and operating (MRO) supplies and other related products and services used by businesses and institutions in the United States and Canada, with a presence in Europe, Asia and Latin America. The Company’s two reportable segments are the United States and Canada. Other businesses include operations in Europe, Asia, Latin America and other U.S. operations. The Company serves more than 2 million customers worldwide through a network of integrated branches, distribution centers, websites and export services. The Company has centralized business support functions that provide coordination and guidance in the areas of accounting and finance, business development, communications and investor relations, compensation and benefits, information systems, health and safety, global supply chain functions, human resources, risk management, internal audit, legal, real estate, security, tax and treasury.
- Pays a dividend: Yes
- Has 5+ years of dividend increases: Yes (43 years)
- Has not frozen dividend for over 8 quarters: Yes
- Has a Chowder number of 12 or more: Yes (17.3)
- Has am EPS payout ratio of less than 70%: Yes (20.4%)
- Pays a dividend monthly or quarterly: Yes (Quarterly; March, June, September, December)
- Has an S&P Quality Ranking of ‘A-‘ or better: Yes (A+)
- 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): No
ExxonMobil (XOM)
What: Bought 12 shares @ $86.48/share. Added $33.12 to my annual dividend income.
Why: Presents good value after Warren Buffett sale. Passes all my criteria. Chemicals and refining exposure.
From Scottrade:
Exxon Mobil Corporation (ExxonMobil) is a manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a wide variety of specialty products. The Company engages in energy, involving exploration for, and production of, crude oil and natural gas, manufacture of petroleum products and transportation and sale of crude oil, natural gas and petroleum products. ExxonMobil has interests in electric power generation facilities. The Company has divisions and affiliates including ExxonMobil, Exxon, Esso, Mobil or XTO. The Company’s ongoing activities are in United States, Canada / South America, Europe, Africa, Asia and Australia / Oceania.
- Pays a dividend: Yes
- Has 5+ years of dividend increases: Yes (32 years)
- Has not frozen dividend for over 8 quarters: Yes
- Has a Chowder number of 12 or more: Yes (13.3)
- Has am EPS payout ratio of less than 70%: Yes (36.08%)
- Pays a dividend monthly or quarterly: Yes (Quarterly; March, June, September, December)
- Has an S&P Quality Ranking of ‘A-‘ or better: Yes (A)
- 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
Colgate-Palmolive (CL)
What: Bought 9 shares @ $69.99/share. Added $13.68 to my annual dividend income.
Why: Only very slightly overvalued. Starting with a small position, so I have time to add on dips and lower my cost basis. One of the strongest Dividend Aristocrats I know of.
From Scottrade:
Colgate-Palmolive Company is a consumer products company whose products are marketed in over 200 countries and territories throughout the world. The Company operates in two product segments: Oral, Personal and Home Care, and Pet Nutrition. The Company’s oral care products include Colgate Total, Colgate Sensitive Pro-Relief, Colgate Max Fresh, Colgate Optic White and Colgate Luminous White toothpastes, Colgate 360° and Colgate Slim Soft manual toothbrushes and Colgate Optic White, Colgate Total and Colgate Plax mouthwash. The Company’s personal care products also include Palmolive, Sanex and Softsoap brand shower gels, Palmolive, Irish Spring and Protex bar soaps and Speed Stick, Lady Speed Stick and Sanex deodorants and antiperspirants. The Company, through its Hill’s Pet Nutrition segment (Hill’s), manufactures pet nutrition products for dogs and cats with products marketed in over 95 countries worldwide.
- Pays a dividend: Yes
- Has 5+ years of dividend increases: Yes (52 years)
- Has not frozen dividend for over 8 quarters: Yes
- Has a Chowder number of 12 or more: Yes (12.7)
- Has am EPS payout ratio of less than 70%: Yes (64.41%)
- Pays a dividend monthly or quarterly: Yes (Quarterly; February, May, August, November)
- Has an S&P Quality Ranking of ‘A-‘ or better: Yes (A+)
- Has generally increasing earnings over the past 10+ years: Yes
- Is fairly valued/undervalued according to the Normal P/E ratio (blue line): No
- Is fairly valued/undervalued according to the Intrinsic P/E ratio (orange line): No
Well, that’s it! While I am sad to sell a Dividend Aristocrat, especially an older holding, I feel it had to be done. I am happy owning all three new companies, and hope they remain in my portfolio for years to come.
Disclosure: Long BBL, CL, GWW, XOM. Company logos belong to their respective companies.
6 Comments
I agree with the sell. There was no growth really. I like the GWW pick. It appears attractively valued. CL looks a bit expensive for me. I think the valuations in the 2000 period were excessively expensive. If you’re in CL for the long term I don’t think it will matter if you bought now instead of waiting for a drop. CL does have international exposure and the foreign exchange is not looking too good for the dollar.
Yeah, I had my eye on GWW for a long time. I was happy to see the dip, so I could take advantage of it. I am indeed in CL for the long haul, and I know it’s overvalued. I just got sick of waiting for 3+ years for a drop that maybe isn’t coming. And I’ve seen that even buying an “overvalued” stock can still be really profitable, in HSY and CLX. I figure just add on dips in the coming years, and any issues with overvaluation will correct over time.
Sometimes you gotta cut the bad one’s loose in order to propel the portfolio to new heights. It looks like you only lost $15 in annual income so that’s not too bad. With the dividend growth from the new investments, the compounding of those payouts should over take the $15 loss in no time.
Plus, you have diversified a bit more by spreading out the proceeds of the sale into 3 different companies.
Great work
American Dividend Dream recently posted…Dividend Income – February 2015 Update
Yeah, that’s the way I figured it. I don’t like a dividend “decrease”, but the combined DGR of my new investments is over triple that of NUE. Any discrepancy should work itself out in the intermediate term.
Hi, DividendDeveloper–
I’m with you on going long XOM. I’m guessing we’ll be in for quite a bit of volatility in the future (including some buying opportunities), but I don’t see myself selling any time soon.
Keep on saving,
Charles
Amen to that. It’ll probably be messy for a few more months, but at least the dividends should keep rolling in and buying more shares.