The first month is officially in the book. Lanny kicked off our round of purchase summaries by showing how he invested over $9,000 in the stock market in January! Amazing Lanny, just amazing. While we didn't add anywhere close to that, we were able to move a little cash off the sidelines and into the market. Here are our January dividend stock purchases!
We're all racing as hard as we can towards financial freedom. That's why each individual stock purchase is so important. With each purchase and each dollar invested in our portfolios, we increase our passive income stream by an additional dollar. Each purchase puts us one step closer to breaking the chains and leaving that mind-numbing "job" or "career" that causes more stress, anger, frustration than it's worth. We share our entire portfolio on our website and show each monthly dividend income summary, so you can see the progress we are making towards achieving our dreams.
The hard part is that undervalued dividend stocks are difficult to come by in 2020. That's why we use our Dividend Stock Screener to help us find any value that we can. Throughout the last decade, we've consistently applied the three metrics of our simple Dividend Stock Screener and tried to act as swiftly as possible when we identify a value. Here are the two stock purchases that my wife and I made in January 2020.
Dividend Stock #1 - Genuine Parts Company (GPC)
Why Purchase Genuine Parts Company?
I'm always on the lookout for a new Dividend Aristocrat to add to my portfolio. In particular, it is always nice to add a Dividend Aristocrat that represents a new industry and has a strong dividend yield. GPC dominates the automotive replacement parts industry. Know the name NAPA Automotive? That's one of Genuine Parts Company's flagship brands. And their brands and footprints expand further across the country.
I've pursued Genuine Parts Company for a long time; however, I never actually initiated a position. I always found kicking myself. However, I was pleasantly surprised to find Genuine Parts Company in the results section of a stock screener last month.
Using a forward EPS of $5.90 (per Yahoo! Finance) and my purchase price, GPC's P/E ratio was 16.3X. That isn't the cheapest stock out there, but that is a nice discount compared to the broader market. Their dividend yield and dividend payout ratio are 3.18% and 51.7%, respectively. From a metrics standpoint, they performed very well in the stock screener. So I thought it would be a great idea to initiate a position and start building it over time.
GPC Purchase Details
The purchase of Genuine Parts Company was actually in my wife's portfolio, not mine. I added GPC twice on the same day. In total, we purchased 13 shares for a cost basis of $1,247.15. This is an average purchase price of $95.93 per share.
In total, the 13 shares will add $39.65 in annual dividend income to my portfolio. Not bad, not bad!
While I won't receive my first dividend until Q2, there is one exciting thing about the purchase. GPC pays a dividend in the first month of the quarter. Thus, this purchase will boost the dividend income I will receive in an "off month." After reviewing my monthly dividend income summary totals over the last few years, it is clear that I need to spread my dividend income over each month of the year. Right now, the majority of my income is received in the third month of the quarter. Each purchase of GPC will help me achieve this goal!
Dividend Stock #2 - Royal Dutch Shell (RDS.A) (RDS.B)
Why Royal Dutch Shell?
Integrated oil has taken a beating of late. Quite frankly, it has kind of been a frustrating sector to follow over the years. The price of oil recovered after prices fell several years ago. Profitability, cash flow, and dividends increased as a result of the cleaned-up balance sheets of some of the major integrated oil companies. In fact, Shell even announced their plan to increase their dividend once again in the near future.
However, the oil market started acting up once again. The stock prices of major integrated oil companies have tumbled once again. Exxon (XOM) is now trading near $60 per share for example. Which is insane, considering I thought grabbing shares close to $70 per share was a steal.
Shell jumps out to me for many of the reasons listed in Lanny's last dividend stock watch list. The company is one of the major players in the industry and after their recent acquisitions, diversified their revenue stream to include more natural gas production.
Despite some of the good news, their stock price tumbled after their last earnings release. The earnings release disclosed lower earnings due to a drop in oil and gas prices, which had a major impact on their EPS. Unfortunately, this may continue to be a trend in the short term based on the constantly changing global economic environment. Just when things settle, there is some type of activity that causes tremors in the oil market and the price to fall.
To combat lower earnings, Shell is reducing their planned share repurchases during the year. This caught me by surprise; however, the graph below reminded me just how aggressive Shell's share repurchase program was last year and was going to be next year. Quite frankly, lowering share repurchases to previous levels may be the most prudent response to preserve their balance sheet strength and hopefully, future dividend increase.
With all things considered, despite the decrease in the price of oil, I am still happy with the company's current balance sheet, position in the marketplace, and their prudent plan to scale back capital outflows to combat negative changes in the economic environment. There may be some short-term bumps and bruises for Shell; however, in the long run, I think I will look back and be excited that I own the stock. Plus, don't forget, Lanny just did a write-up about Shell in his last watch list. That has inspired me to continue building my position as well.
RDS.A Purchase Details
The Shell purchase was made in my portfolio. Interestingly, Shell was one of the first dividend stocks I ever purchased. It has been years since I have added to my position. Finally, for the reasons mentioned above, it was finally time to continue adding to my position.
My purchase consisted of 8 shares with a cost basis of $470.44. With Shell's fat dividend yield, this purchase will add $30.08 to my annual dividend income. As you can see, this purchase packs quite the punch in terms of dividend income. I would not be shocked if we continue to build this position in February, as their stock price continues to slide.
Summary
Well, there we have it. Only two companies were purchased in January. Again, not the best month of stock purchases out there. In total, we added $1,717.50 in capital to our portfolio and $69.73 in forward dividend income. Overall, that is a 4.05% dividend yield on purchases. February will be a better month and I plan on being more aggressive in adding to my portfolio.
We always say it to everyone, but I truly believe it now more than ever. Let's continue to make every dollar count and relentlessly pursue financial freedom. Let's make 2020 count and a year to freaking remember.
What do you think of my stock purchases? Were you adding Shell and Genuine Parts Company? If not, what stock purchases did you make in January? What stocks are on your radar this month?
Bert
Source of Shell buyback chart: ft.com
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
