This was a very interesting week again. Probably the most volatile that I have ever seen in my life! That’s great, but it didn’t distract me from staying focused on reaching my longer term goal.
Having said that, enjoy the read!
#OilDividends #RecentPurchase #COVID_19 #Dashboard #BailoutOrBankruptcy
5-Bullet Sunday is a weekly blog post with 5 topics that were on my mind this week related to Financial Independence and Dividend Growth Investing or something that just fed my curiosity. An overview of other earlier posts can be found here
The question to many dividend growth investors currently is: are my dividends safe? I believe that this is especially the case when we talk about oil dividends due to the severe drop in the oil prices and this applies to me as well.
I quickly experienced my first oil crisis after I started investing back in the fall of 2014. The oil companies got really hit hard by a drop in oil prices in early 2016. At the time I loaded up quite a bit in Royal Dutch Shell and to lesser extent in Exxon Mobil. My thinking was simple: I can lay the foundation in dividend income and have those oil dividends already doing the heavy-lifting in compounding under my portfolio.
This was a conscious decision which I don’t regret. I think that oil is here to stay for a significant while and the oil dividends already allowed me to buy stocks from other sectors. At the same time, I am not really investing anymore in oil companies in the upcoming years. I already reached full portfolio-sizes for both $XOM and $RDSA.
I also wanted to mention the following: market dominance and balance sheet strength are two really important factors in my decision making process. Both $XOM and $RDSA are strong market leaders in the Oil & Gas sector. At the same time they have some of the best balance sheets in the industry.
Within the supply chain, they are the asset owners. This means that they dictate the market and they get to set the conditions under which they operate. Therefore I believe that they will be one of the last companies to cut the dividend.
I can’t predict the future and I think that the dividends won’t be safe if these low oil prices last for longer than a year. I am still optimistic though but it would be a big bummer if they cut the dividend!
However, that’s why I diversify. For me this would be the same as having been a bit overweight in banks back in 2007. Avoiding being overweight in a certain sector is quite hard when being in an accumulating phase. In my case I am going from opportunity to opportunity with the long-term goal of diversification in mind.
A well-diversified portfolio provides protection. Something that I am using the current crisis for: strengthen my portfolio with stocks that were just too expensive over the past few years.
🌟 Recent purchase
Nice bridge 😉
I explained last week what my crisis investment strategy is and this week was the first week to put it in action. Instead of making many small purchases, I invested the weekly 1% of my war chest into Johnson & Johnson.
On 24 March I purchased $JNJ at $115.75 per share. This means a 20.56 P/E based on GAAP earnings and 13.34 P/E based on JNJ’s adjusted earnings. The main explanation for this big difference are the 5 billion litigation expenses and the amortization of intangible assets incurred during 2019.
Johnson & Johnson paid $0.95 per share for the fourth quarter in a row which means a yield on cost of 3.28%. I expect the next dividend increase to be announced on April 14th during their Q1 earnings call. I estimate that the dividend will be increased to $4.00 per share, annualized.
All in all I am satisfied with this purchase. It is a tier-1 stock and it strengthens the quality of my portfolio.
🌟 COVID-19 live-updates
I saw an interactive web-based dashboard from Johns Hopkins university passing by. I think that this is a great tool, also for the investors under us. Many investors talk about the fact that we need to see a flattening curve, but unfortunately we are definitely not there yet. Is there more stock-market downturn to come?
🌟 Bailout vs Bankruptcy
My video recommendation for this week is an interview on CNBC with Carly Fiorina. She explains pretty well my feeling about corporate bailouts vs the support of small businesses. She gets challenged quite a bit and I loved how she responded to that by explaining how bankruptcy law works.
I always assess the balance sheet on new purchases. I might not always get it right and I do realize that I have some risk in my portfolio. However, I fully agree with her that we shouldn’t straightaway bailout corporations that have been showering with cash and share buybacks. Instead they could have created a cushion for a rainy day.
🌟 Hosting change
I hope that you haven’t, but if you noticed some changes or issues with the blog, then please let me know. Last week I decided to change my hosting from wordpress.com, because it was no fun anymore.
I was a customer of the premium plan and it comes with a lot of limitations. As an example, I couldn’t just install plugins that I wanted in support of the blog. Having said that, it means that I had 3 options:
- accept it and do nothing
- upgrade to a business plan
- change hosting
The first option was something that I did already for the last 2 months and it started to bother me. The second option was just too expensive for me. This is a small blog and I expect it to stay like that. I don’t feel like paying 25 Euro per month when there are much cheaper alternatives.
I decided to go for the 3rd option, because this blog is just a hobby for me.
Having said that, I found a new hosting provider and I have migrated everything on Monday. It took me several hours of work, but so far it seems to have worked out well.
Please stay safe everyone! COVID-19 is a nasty disease and we all have a responsibility to kill this ugly virus asap.
I hope that you enjoyed this week’s 5-Bullet Sunday. If so, feel free to hit the like button.
For now, have a great remainder of the Sunday!
— European Dividend Growth Investor
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I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.