To conclude the first half of 2015, I made my seventh scheduled purchase of the year.
Before pulling the trigger, I tried to see whether there were other buying opportunities out there. To no avail. I believe there are always pockets of value in the stock market. Currently however, not many stocks appear undervalued.
So, for this seventh purchase, I decided to increase my stake in IBM.
The Details
For this purchase, I bought 5 additional shares of IBM for about CA$1050. With these new shares, I now own 21 shares of IBM which represent 4.05% of my dividend portfolio (based on acquisition costs).
Basically, I decided to buy IBM because it was still the stock having the highest normalized intrinsic value in my watchlist. IBM was closely followed by Telus which I purchased last time.
Since I last purchased IBM, the share price has remained fairly stable, even declining a bit. IBM now yields about 3.20%, which is even better. And in addition to the enticing yield, IBM’s payout ratio is still under 30%. So, in my view, IBM is still offering extremely good value given its dividend prospects.
Looking Back at the First Half of 2015
So far, in 2015, I’ve bought Baxter, Chevron, IBM, and Telus.
The main reason behind my purchase of Baxter was the upcoming spin off. For Chevron, it was to take advantage of the drop in oil prices which was pulling down all oil stocks. So, basically, for Baxter and Chevron, the purchases were opportunistic.
But for IBM and Telus, the purchases were entirely based on their valuation which I calculate to be the present worth of their future dividends. Based on my calculations, both IBM and Telus were the stocks offering the best value.
Looking Ahead at the Second Half of 2015
Dividend investing is about buying dividend stocks paying growing dividends. Preferably, you buy these stocks for less than the present value of their future dividends.
This is why, I think, the underlying principle of value-based dollar cost averaging – regularly buying stocks which provide the best value – is extremely valuable as an approach to building a portfolio of dividend stocks.
As an aside, I previously coined the expression dollar cost averaging with a twist to describe my investing methodology. Well, I don’t like that expression very much. I prefer an expression that highlights the fact that the methodology implies something more than blind dollar cost averaging. I’m trying value-based dollar cost averaging but if you have a better idea, please share!
It remains that value-based dollar cost averaging forces us to look for pockets of value in the stock market and then systematically buy stocks hidden in these pockets.
If you systematically purchase the stocks that provide the best value, meaning that the present value of the future dividends is worth more, and ideally much more, than the current share price, you will most likely end up with a great dividend portfolio.
So, what can we expect for the second half of 2015?
Well, to begin with, I intend to continue investing using value-based dollar cost averaging. I remain convinced that this approach is a sure way to build a great portfolio of dividend stocks.
That being said, you’re probably wondering what stocks I have on my watchlist for upcoming purchases.
If prices remain at their current levels, I will most likely increase my stakes in both IBM and Telus. However, since I’m already close to my 5% limit for both IBM and Telus, I will need to find other stocks. So, besides IBM and Telus, I have my eyes on some Canadian banks, more particularly TD Bank (NYSE: TD), and on Caterpillar (NYSE: CAT).
In the end however, I don’t know what cards the stock market has hidden in its sleeves. If opportunity knocks, I will open the door. In the meantime, I’ll keep looking for value.
