August Acquisitions

IMG_20141020_091103August started off as one of those months that finally would bring a positive swing to the Portfolio after the great start that I have enjoyed at the beginning of the year.

Well, I was wrong. right when I had to start the second major cleanup procedure (selling stocks to reduce my stock count) China decided to start the most boring and schoolbook financial manoeuvre to boost exports: currency devaluation.

Of course since the market is very sensible, another tsunami of sales hit the markets. Some companies are heavily exposed to China and are taking a hit, some are simply in the same market and get dragged down by “market sentiment”… Oh well, nothing new under the August sun I guess.

In practical terms I have decided to postpone the portfolio cleanup because there is no real hurry to sell off stocks that have been dragged down by this correction, I’ll just take more losses and this is not a great idea.

On the buy side these are the movements that I have perfected before the start of this Chinese crisis:

SELL – Land Securities (LON:LAND)

This is again a “poor homework” example, REITs get a special taxation in the UK and effectively I get a double taxation on dividends. This reduced the yield far too low and I had to let it go. Now I am on the look of other REITs in Europe mostly for diversification purposes, but it’s not an easy task.

BUY – Chevron (CVX) + Nestlè (NESR)

Nestlè is an addition that I wanted to do in a long time, even though I am effectively buying at an higher price, but the company is rock solid and it’s one of my core stocks. Yield is not great, but close enough to 2% net. (18 @ 69 EUR)

Chevron was a minor addition, mostly because of the plunge that energy stocks took. Clearly the company is suffering a very hard patch with oil prices so low, but they have a solid structure, a lot of new investments that will go to regime soon, and operated a very fierce cost cut that hopefully is going to help them consolidate earnings. Q2 was quite bad, but the diversification that they have in terms of operation gives them an hedge on other players in the same market. Will not add more stocks after this time, but the price was really interesting. (6 @ 85 USD)

New Holding – Legal & General (LON:LGEN)

Been looking at this stock for quite some time, LGEN is an insurance business based in the UK with subsidiaries in other countries too. They are well equipped with cash (a key aspect in the insurance business), their P/E is in the mid teens, after they cut dividends some years ago the management decided to have a more dividend investor friendly policy and are sticking to it with rising dividends every year. Their payout ratio is 1.5, a bit low, especially compared to other insurers.YOC is 4.21%, well within my 2% net target.  A marvellous coverage of this stock can be found here (Thanks to Dividend Drive). (390 @ 2.61 GBP)

New Holding – Carillon (LON:CLLN)

Carillion is one of those companies that you really never hear of… It’s not because they operate in some secret activities, but it’s because they are a service company to many different sectors, ranging from railways, constructions, roads and general infrastructures. It’s again one of those boring businesses that “gets the job done”, and therefore is quite interesting to me. Carillon has operations in the UK but also abroad, another positive point. A P/E of 13 coupled with a YOC of 5.25% are all positive numbers, the negatives lie in a high level of debt that the company is slowly paying off. Their recent years performance has not been stellar, but it was neither negative, the company is profitable, and covers dividend adequately (1.5 last year). (330@ 3.42 GBP)

New Holding – ENI (BIT:ENI)

ENI is the first “home” stock that I add to the portfolio, it’s a no brainer choice for a dividend investor as they are the former monopolist in Italy and have a lot of overseas businesses especially in those areas where the American companies cannot operate (see IRAN/IRAQ and regions that are not American friendly). They are also a Utility group, but I have listed them under the Energy sector. ENI has got a lot of debts issues, and also scandals with corrupted officials and so on. The first part is not a shocker, the second is very subjective, some people find it hard to accept others live with it. I am part of the second group. ENI has cut dividends in 2015, as their policy is to have dividends go together with earnings trying not to break the payout ratio. This is a common policy in Europe, many companies try to preserve the payout ratio and although I am not loving it, I will live with this system. The YOC is 6% in my case, so it’s very good in any case. Country diversification and tax efficiency are among the main drives into buying ENI. (65 @ 16 EUR)

New Holding – SNAM (BIT:SRG)

Pretty much in the same light as the ENI acquisition, SNAM adds a Utility in the Italian territory. The company is the major player for gas in Italy. With a P/E of 13 and a YOC of 5.54% it’s one of those stocks that need to be considered. Here we also have issues with debts, and dividend policy is pretty much like ENI’s one, instead of looking at increases I tent to look at the prolonged streak of payments, and in this case SNAM does a good job. As I own National Grid, Red Electrica and Enagas with this acquisition I complete my very own “Financial Risk” of Utilities in Europe.

New Holding – PETROBRAS 2023 Bond

This is something that I have had to research for a while. I am, at heart, a bond investor. I used to manage bond ladders in my first portfolios many years ago, and only recently moved to the stock market, dividend approach.  In a way adding a company bond is like adding a dividend stock, the only difference lies in the certainty of returns, as if the bond is bought to maturity returns are certain in a way (always if the company doesn’t go bankrupt, but that’s a problem that you have with stocks too). So in the end after much research, I have found this equity. Petrobras is effectively owned by the Brazilian government, this offsets the issues with corruption and poor management that Petrobras has had recently. The price dropped sharply because many foreign investors (institutional) cannot keep equity that is not “ethically sound”, and apparently this bond was in many portfolios among big american funds. As a results I moved in when it was around 87 USD (now it’s even more down) for an annual return of 6.2%. It’s not a bed of roses though, major risk of course is price of oil, and macroeconomic issues that might affect the Brazilian economy even more (it’s not going through a great spell at the time of writing).

All for now, as you can see I have been a busy bee, as a matter of fact I have deployed almost all of the cash amount that I started off with in December 2014, I have some serious cleanup to do in order to get closer to the 40 stocks mark that I gave myself.

Any thoughts, comments, ideas are welcomed as usual!

Long: ENI, SRG, CLLN, LGEN, NESR, CVX

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3 thoughts on “August Acquisitions

    1. Ciao ATL,
      Right now I am adding new stuff only… I want to sell at least 3 stocks (they are all on my radar), but when I get up to do it, market starts going down and I really hate to sell in loss, so I start biding my time to wait for them to have more reasonable exit points. After all they are good companies, I am selling them because yield is not satisfatcory in terms of dividends, not because they are bad firms, so keeping them a little longer doesn’t make too much difference… But will get there sooner or later! Thanks for posting!

      Like

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