I hadn’t really made a large purchase for the month of September but decided to split some funds with two different companies that I already own.
The first company is a 52-billion dollar consumer products behemoth, UL. They yield a very nice 3.7%. I buy UL instead of UN to avoid any withholding taxes due to the treaty the U.S has with the UK. I’ve been consistently adding to UL and decided I’d go ahead and bring it up to at least a full weight in my portfolio. UL is also a little below my cost basis which is even more of a reason I decided to add more shares.
So I bought 100 UL @ $41.85/share.
For my second purchase I turned to the energy sector. This stock is caught up in a perfect storm of bad conditions. These include lower gas prices, smaller CAPEX spending and a larger supply of rigs in the market. These three factors are wreaking havoc on the entire drilling industry. To me, ESV stands out. They have the lowest debt ratio (D/E) among peers and have one of the youngest average fleet ages, just behind Seadrill (SDRL). I see weakness into mid next year at least but this stock is trading at a forward P/E of only 6.8 based on a projected EPS of 5.56 by S&P Capital IQ below. This could be a good value play.
So I bought 76 Shares of ESV @ $38.92/share which reduced my basis down several dollars per share.
My short-term plan is to build up to a 500 share position as long as I can keep averaging down. I do have some puts I sold which are way in the red. I hope to be able to roll at least the Dec. expiration forward before the end of the year. I’ve even thought of possibly buying a put to hedge my bets in case the price keeps going lower. I’ll let you know if I decide on doing that.
Here’s a look at ESV versus some of their competitors. I think they have held up quite well considering how bad the whole sector is getting hit.
At this point, buying any more ESV is considered speculative. They don’t make up a giant part of my portfolio at a 4.55% weight but that’s still well overweight from an average position size of 2.5%. If you look at the dividend weight, it’s even more skewed. ESV now makes up a whopping 9.13% of my dividend income! A cut in their dividend could be a huge hit to my forward income and that’s obviously something I need to consider going forward. I still believe in the management of the company and believe this company will rebound by 2016. I don’t mind collecting the large dividend while I wait and sitting on an unrealized loss.
My Dividend Pipeline says
I like the ESV move. I too am down quite a bit and plan to average down some more. Right now the yield is close to 8% so even a 50% cut still leaves close to a 4 % yield. I plan on adding more shares of ESV and also to my Shell, Exxon, and Chevron positions. No one wants to add to positions when prices are believed to be “overvalued” so there should be no need to be fearful when positions become more attractive.
Good job adding some serious amounts of capital!
My Dividend Pipeline recently posted…September 2014 Passive Income
All About Interest says
An 8% yield is crazy for a regular company. I don’t see a cut but it wouldn’t be the end of the world. A dividend drop from a cut wouldn’t bother me as much as management’s misdirection. The last dividend raise was huge and a cut would cause me to lose some confidence. I don’t see any danger of that happening currently though. As long as oil prices don’t go much lower I think we’re O.K. Eventually I’m confident oil prices will be much higher along with the price of this driller.
You’re right, about not being too fearful. My overall view of the company hasn’t changed, only the market’s view. I think this has presented a good opportunity. I could be wrong but I’m putting my money where my mouth is.
I’m not close to the capital you are putting to work but I’m hoping I can increase my contributions these last few months of the year. You are killing it on your end!
A Frugal Family's Journey says
We have also been picking up shares of ESV too…They’ve taken a beating lately. Although ESV may still experience some rough waters ahead but a forward P/E of 6.8 sounds too juicy to pass up! We don’t really buy in large quantities so we plan to average down if the stock continues to fall.
Also nice pick up of UL. These two purchases should really boost your future dividend payouts!
A Frugal Family’s Journey recently posted…Dividend Stocks Portfolio (Update) – October 2014
All About Interest says
These prices could be looking very good in a few years, I hope I’m right. The whole sector has been hit hard but my position has gotten fairly large.
Thanks, I love the UL product lineup. The combines purchases yield over 5% so it’s definitely a big boost to my dividend income. I’m closing in on the $12k yearly level and hope to hit that soon.
Thanks for stopping by!
Howard Lindsey says
I am surprised no one, nor the author has touted RIG.It is possibly the giant among the drillers and is currently having a fire sale on its price.
All About Interest says
There’s a few other companies I could have mentioned including RIG and DO. I was just making a point that the drillers have been hit hard. My money is going to ESV with lower debt and one of the newest fleets. SDRL currently has a larger market cap than RIG by the way with ESV not far behind. Hopefully all of these drillers will be in a much better place a couple years from now.