Recent Small Buys – October 2019

This post is going to look very similar to my previous post about recent buys. That’s because I added to the same companies as a month ago. Without further ado, let’s review the purchases.

JOHNSON & JOHNSON (JNJ)

First up is a healthcare giant which is one of the foundation stocks in many portfolios of dividend growth investors.

Shortly about the company from Reuters:

Johnson & Johnson is a holding company, which is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. It operates through three segments: Consumer, Pharmaceutical and Medical Devices. Its primary focus is products related to human health and well-being. The Consumer segment includes a range of products used in the baby care, oral care, skin care, over-the-counter pharmaceutical, women’s health and wound care markets. The Pharmaceutical segment is focused on five therapeutic areas, including immunology, infectious diseases, neuroscience, oncology, and cardiovascular and metabolic diseases. The Medical Devices segment includes a range of products used in the orthopedic, surgery, cardiovascular, diabetes care and vision care fields.

Lately, JNJ share price is going downwards due to a number of lawsuits against the company. This includes cases of baby powder including asbestos, involvement in US opioid crisis and the latest case over their antipsychotic drug Risperdal to cause men growing breasts.

I think Johnson & Johnson is an easy target for lawsuits for a couple of reasons. Firstly, it has a lot of consumer health products, pharmaceuticals and medical devices which is a common target of lawsuits. Furthermore, company has a lot of money which encourages lawyers to try “milking” it. Even though legal expenses increased lately, they have been high already since at least 2012, so I don’t think that company is not ready to handle the situation.

Let’s see how the main ratios of the company stand at the purchase price:

  • P/E (TTM): 20.58
  • Forward P/E: 15.58
  • Dividend Yield: 2.88%
  • Payout Ratio: 59%
  • Net Debt/EBITDA: 0.54
  • Market Cap: $355B

On the 11th of November, I bought one share for $131.72 + $1.10 in commissions:

At the time of purchase I didn’t notice that I am out of free trades on my Revolut account for the month. It turns out that I have 3 free trades every 30 days, not when the calendar month changes. Now I know 🙂

This purchase adds $3.23 to net forward annual dividend income. I now own 2 shares of Johnson & Johnson. My plan is to increase my position during the upcoming months, especially if price stays at these levels.

ALTRIA GROUP (MO)

Next, I added to the other position that I started building last month – Altria Group. This company is also a frequent name in portfolios of dividend investors. Shortly about the company from Yahoo Finance:

Altria Group, Inc., through its subsidiaries, manufactures and sells cigarettes, smokeless products, and wine in the United States. It offers cigarettes primarily under the Marlboro brand; cigars principally under the Black & Mild brand; and moist smokeless tobacco products under the Copenhagen, Skoal, Red Seal, and Husky brands. The company also produces and sells varietal and blended table wines, and sparkling wines under the Chateau Ste. Michelle, Columbia Crest, and 14 Hands names; and imports and markets Antinori, Torres, and Villa Maria Estate wines, as well as Champagne Nicolas Feuillatte in the United States. In addition, it provides finance leasing services primarily in transportation, aircraft, power generation, real estate, and manufacturing industries. The company sells its tobacco products primarily to wholesalers, including distributors; large retail organizations, such as chain stores; and the armed services. Altria Group, Inc. was founded in 1919 and is headquartered in Richmond, Virginia.

Altria Group’s share price is in a downward trend for the last few years for a number of reasons:

  • Cigarette sales are slowing. It is somewhat offset by increasing prices of cigarettes but the revenue was declining slightly for the last few years;
  • Regulation and prohibitions on nicotine and vaping products is increasing in the U.S;
  • Recent acquisitions of 45% stake in Cronos Group and 35% stake in Juul labs significantly increased company’s debt levels. On the other hand, those acquisitions should provide some sales growth;
  • Recent surge of ESG investing shows a trend of many funds avoiding investing to sin stocks.

There are quite a few things I like about the company, though. First of all, it is a dividend aristocrat, having raised their dividend for 50 years in a row (CORRECTION: Different sources show different information. It seems that MO actually raised their dividends for 21 years, if we exclude the split from Phillip Morris in 2008 when the dividend was also reduced). Furthermore, their current dividend yield of more than 7% is very attractive. Also, company has a modest stake (near-10%) in alcohol giant Anheuser-Busch InBev. Finally, Altria has a big moat in many industries in the US:

  • ~50% share of cigarettes market;
  • The Copenhagen and Skoal brands of smokeless tobacco control half of their market;
  • Juul Labs has a 75% share of the electronic cigarette market and MO controls a third of the company;
  • It recently began selling the top-selling heated tobacco device, IQOS (Phillip Morris (PMI) is currently licensing the IQOS technology to Altria).

These are company’s fundamentals at my purchase price:

  • P/E (TTM): 49.33 (was 13.93 last month)
  • Forward P/E: 11.39 (was 11.18)
  • Dividend Yield: 7.25% (was 7.19%)
  • Payout Ratio: 357(was 100%)
  • Net Debt/EBITDA: 2.44
  • Market Cap: $90.3B

Since my latest purchase, there were some news with Altria and the ratios are quite different, compared to how they looked last month.

In short, Altria purchased a 35% stake in e-cigarette maker Juul last year for $12.8 billion. During their latest quarterly report, they wrote down its investment by $4.5 billion. This in paper created a loss for the company for the first time since at least 1993. This investment is not turning out well for Altria, as I keep hearing in the news that Juul is being sued by various jurisdictions in US.

On the 11th of November, I bought two shares of the company at $46.37/share for a total of $92.74:

This purchase adds $5.71 to my net forward annual dividend income. I now own 4 shares of Altria Group. As with JNJ, I am planning to build up this position in my portfolio, if the price stays attractive.

Summary

To sum up, those small buys added $8.94 to my forward annual dividend income. My investments slowed down recently but I am trying to add when I can because every dollar counts in this journey.

These purchases and some market appreciation means that my stocks portfolio also reached a symbolic milestone but that’s a topic for another post, so stay tuned and thanks for reading! 🙂

10 thoughts on “Recent Small Buys – October 2019

  1. Altria has worked out well over the last two months. And hopefully increasing your stake at a higher price works out. I also have a position in MO and hope to hold on for many years. Hopefully the big dividend keeps on coming.

    1. Thanks for the comment! Actually, it was alreayd up when I purchased it last month, so this month the price was even slightly lower. Hopefully, it stays at these levels for some more time, as I would like it to get closer to my other positions in size.

  2. 2 solid companies there TBI! I DCA’d some more MO this afternoon and added another share of JNJ last week. If we get another dip to ~$130 or less on JNJ I’ll pick up a couple more shares again.

    1. Thanks JC! Happy to hear that we share those companies as investors. I am definitely hoping for the price to dip a little, as I am planning to increase my positions in both companies 🙂

    1. Sveikas Crash,
      Dėkui už komentarą ir pastabą, pataisysiu straipsnį! Tikrai matau, kad sumažinti dividendai pagal tą grafiką. Greičiausiai tai bus susiję su išsiskyrimu su Phillip Morris, kas įvyko 2008 metais (https://www.investopedia.com/why-philip-morris-and-altria-broke-up-and-what-s-changed-4768696). Tikriausiai Altria akcininkai gavo PMI akcijų, o dividendus reikėtu perskaičiuoti dėl akcijų atskyrimo, bet sunku paaiškinti, kokia ten matematika 🙂 Kituose šaltiniuose vis dar rašo, kad paskutinis pakėlimas buvo 50-tas iš eilės (https://www.fool.com/investing/2019/09/03/altria-is-investment-royalty-after-50th-straight-y.aspx), bet panašu, kad tai netiesa 😀 SeekingAlpha rodo 21 metus dividend growth, tai sunkoka susigaudyti 🙂
      Anyway, smagu matyti, kad abu turime šitos kompanijos, o dar smagiau matyti, kad pradėjai dalintis ir savo istorija bloge! Bus įdomu sekti dar vieno lietuvio istoriją, ačiū, kad daliniesi 🙂

      1. Mane Tavo blog’as labai motyvavo pradėti rašyti. Nors turiu mažai patirties ir investicinis portfelis labai mažas, bet blog’as kažkaip teigiamai skatina tobulėti 🙂

        1. Ačiū Crash, labai malonu girdėti!
          Visiškai sutinku dėl to, kad blog’as padeda pačiam tobulėti. Ir gilintis į kompanijų analizę, ir labiau stengtis pasiekti tikslus, kai viešai esi juos užsibrėžęs. O dėl portfelio dydžio, tai aš pradėjęs rašyti turėjau mažiau nei 4k EUR. Asmeniškai dažnai būna net įdomiau sekti pradedančius investuotojus ir stebėti augimą 🙂

  3. Nice additions, BI. I own both. I think I’m good with my current MO position, but could see adding a bit to JNJ.
    As you said, keep adding as you can… it will pay off down the road, for sure.
    Looking forward to hearing about your milestone soon.

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