Thursday, October 8, 2015

Weekly Purchase 5 - VZ


For this week's sharebuilder purchase, I added to my existing position in VZ. I am taking the opportunity to load/rebalance up my smaller holdings in my dividend stock portfolio. For VZ, I do not expect huge growth. I am treating VZ as a pseudo-Utility.

Currently, I am reinvesting all my dividends - so future gains from VZ will be from the relatively high yield and the effects of compounding.


As my dividend stock portfolio grows, my plan is to diversify my holdings with:
  • high yield, low growth,
  • low yield, high growth
  • And somewhere in between
As discussed earlier, VZ falls under the first bullet point.


Details of Purchase


On Tuesday, I bought 22.58 shares of Verizon (VZ).


Action
Security
Price
Quantity
Amount
Buy
VZ
$44.12
22.5785
$996


This purchase increases my forward annual dividends by $51.03. With this purchase, I have eclipsed the $3k forward annual dividends mark.


About Verizon Communications


Verizon Communications (NYSE: VZ) is a U.S. telecom company and provider of fixed-line, wireless, television, and data services.


Please see my criteria table below.


Area
Criteria
CheckList
Comment
Dividend Growth
>5 years
Yes
10 Years
ROE/Op Margin
Stable
Yes
Stable
Long term Avg Growth
Stable
Yes
Stable - Note1
FCF over Dividends
Yes
Yes
FCF covers Dividends
M* Moat
Wide Moat
No
Narrow
M* & S&P
Credit Rating
> BBB
Yes
BBB
Cash to Debt & Interest Coverage, Debt to Equity
Cash Debt >1 or Interest Coverage > 5
No
Cash to Debt 0.03
Interest Coverage 3.99
Debt to Equity 884.33- Note2
M* & S&P Stars
> 3 Stars for both
Yes
M* 4 Stars
S&P CapIQ 3 Stars
Payout Ratio
<60%
No
91%
Dividend Yield
>3%
Yes
5.14%
Dividend Growth
>5%
No
2.90%
Chowder
>8% for Util/Tel
Yes
8.04%
Yield/Avg Yield
>1.1
Yes
1.10
Dividend Yield Theory Mid Point
Below Mid Point
Yes
Mid Point 47.37
Low Point 38
P/E
Below Mid Point
Yes
Median 20.78 Current 18.3
DRRM
~10%
Yes
Assuming 3% growth; projected return=11.51%
M* Estimate
<M* est
Yes
M* 50
S&P Estimate
< S&P cap IQ est
Yes
S&P Cap IQ 52

Data from Gurufocus, Yahoo Finance, Google Finance, M*, S&P Capital

Note1: Earnings data during 2014 shows Vodafone transactopm
Note2: High Debt/Equity and Payout Ratio - but this is okay due to the Cash Cow nature of VZ


Fair Price Calculation


I use the dividend yield theory, PE analysis and DDRM for fair price calculation. Based on these methods, I estimate the fair price to be around 45. Therefore, I believe VZ is trading close to fair value - if not slightly under.


That's it for now! What do you think of VZ?
D4s

6 comments:

  1. Nice buy, I've been looking at VZ this week so I'm up to speed on it, I felt anything under $47 was good, I think $44.12 was a good buy.

    ReplyDelete
    Replies
    1. Chimp, I concur with your valuation. Based on the last 10 years, the yield bounced between 4% and 6% which means if you can get 5% yield or above (or 47 or below) you can't go wrong with this "pseudo utility".
      Thanks again for your support!
      D4s

      Delete
  2. Nice purchase. Would like to own VZ but will probably add more to T before I look into adding VZ to my portfolio.

    Best
    R2R

    ReplyDelete
    Replies
    1. R2R,
      My T position in my ROTH account is relatively full which is why I went for VZ this time. I will slowly build and reinvest my VZ and T positions. Definitely need to reinvest for now due to the low growth.
      D4s

      Delete
  3. Congrats on the buy D4s! I dont own T or VZ but both look pretty tempting. So many to buy, so little funds :(.

    -Adam

    ReplyDelete
    Replies
    1. Adam, I know exactly what you mean. I am running low on funds myself. I am scraping the bottom of the barrel to squeeze out whatever I could to invest.
      T and VZ have good yields, but the growth prospects are pretty low. I am countering this by reinvesting. I think you can put this into your recent spreadsheet to compare.
      D4s

      Delete