My 2013 Roth IRA experiment continued on, with the purchase of nine additional dividend paying stocks. With this experiment, I am trying to prove that it is possible to create a diversified dividend portfolio even if you only had a few thousand dollars to invest, by holding great businesses for the long term. I am also proving a point that almost anyone can start investing in dividend paying stocks, and not have to pay high commissions in the process.
With my Sharebuilder account, I am going to essentially end up paying slightly less than 0.50% of total contributions. ($24 in commissions to invest $5,500). Another goal for this experiment is that investors who are just starting out should not be discouraged from investing and should not despise the days of small beginnings.
While the original ten securities were purchased in one transaction in early September, for the second month I tried to space it out a few times a week. The goal of building a portfolio is to build it over time and slowly. It should not matter if you are investing $5.5 million or $5,500 – the principle of accumulating attractive dividend paying stocks over time, and building a portfolio of quality companies is the same in both situations.
The companies I invested in over the past month include:
Kinder Morgan, Inc. (KMI) owns and operates energy transportation and storage assets in the United States and Canada. The company was beaten down by negative comments from an analyst whose motives seem highly questionable. I viewed this as an opportunity to acquire shares in a business that owns general partner interests and holds units in two master limited partnerships – Kinder Morgan Energy Partners (KMP) and El Paso Pipeline Partners (EPB). Because of the general partner arrangement, I expect Kinder Morgan Inc to be able to grow dividends by 9% to 10% per year for the foreseeable future. Add in to that the high current yield of 4.60% and the fact that its CEO has almost all of their net worth in the stock, and I think I have a winner.
Altria Group (MO), through its subsidiaries, engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. I found this domestic tobacco stocks to be cheap at 16.60 times earnings and yielding 5.40%. The company has been able to grow dividends by 10.60% per year since it spun-off Phillip Morris International (PM) in 2008. While number of smokers declines every year, the prices per pack increase. This leads to growing profits in an industry that squeezes out efficiencies and cannot spend money to advertise its products. Hence it is tough for new entrants into the market, leading to hefty returns for shareholders. Check my analysis of Altria for more details.
International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. The company was much cheaper at times earnings than competitors like Accenture (ACN) although its yield is low at about 2%. This dividend achiever has managed to boost distributions for years in a row. The good client relationships are generating rising profits, which are expected to reach $20 per share by 2015. I bought the stock twice for the ROTH portfolio. In addition, I also added to my existing IBM position in taxable accounts. One was before the dip two weeks ago, and the other time was after it. Check my analysis of IBM for more details.
BP p.l.c. (BP) provides fuel for transportation, energy for heat and light, lubricants to engines, and petrochemicals products. is one of the most underloved oil companies out there. It is trading at a forward P/E of 9.70 and with one of the highest current yields of 5%. The company has only raised dividends since the cut in 2010, and everyone is scared that the Gulf of Mexico incident in 2010 might bankrupt it. I think those fears are irrational, and I also initiated a position in my taxable accounts as well.
Vodafone (VOD) provides mobile telecommunication services worldwide. Vodafone is selling its 45% stake in Verizon Wireless to Verizon (VZ) for $130 billion. Currently, Vodafone’s entire market capitalization is approximately $170 billion. While investors will receive some cash consideration and stock in Verizon wireless after the sale is completed in 2014, I believe that the remaining business for Vodafone is still very undervalued. Given the status of a dividend achiever, attractive valuation at 14.50 times earnings, and the high yield of 5.60%, I like the company. I also believe that the company has a lot of potential. Once Europe gets it mess together, Vodafone might really shine in your portfolio. Check my analysis of Vodafone.
General Mills (GIS) produces and markets branded consumer foods in the United States and internationally. I initiated a position in General Mills, which had good valuation at the time. I like the revenue and earnings stability of food companies, and the almost complete lack of exposure to the cyclical whims of the economy. Companies like General Mills have strong brands that consumers purchase repeatedly throughout the course of the year. It is not surprising that even if the economy does not do well, people still need to eat. This dividend achiever has raised distributions for a decade, yields 3.10% and trades at 17.20 forward earnings. Check my analysis of General Mills.