The big news over the past three weeks, of course, is that the stock market has been crashing. As I write this on Wednesday, March 11, the S&P 500 is down 17% from its all-time high reached on February 19.
What is a dividend growth investor to do? As I wrote just days ago, I believe you should stay the course.
In my case, that means reinvesting my dividends when they accumulate to $1000 in my Dividend Growth Portfolio (DGP). That happened overnight, so today I made a purchase.
What I Bought
I do not attempt to equal-weight the portfolio, but on the other hand I do like it to have a bit of balance.
That brought my attention to the smallest positions I own, so that I could increase the size of one of them.
Then I decided to go for quality using my Quality Snapshot scoring system. That narrowed my focus down to three companies with nearly perfect QS scores (24 points out of 25).
I simply picked the smallest of these positions. Texas Instruments (TXN) comprises just 1.6% of the portfolio, so that’s the one I decided to buy.
I did a quick assessment of TXN’s valuation. Not surprisingly, with the market crash, many more stocks are well-valued than a month ago. Simply Safe Dividends has a nice feature in their Portfolio function where they highlight your stocks that may be undervalued using their relative-yield analysis.
Texas Instruments is selling at a current yield of 3.3%, which is 27% higher than its five-year average. I checked other valuation metrics as well, and TXN jumped over the valuation hurdle.
This marks my second investment in TXN this year. I also bought some in January, the last time I had $1000 in dividends to reinvest (see this article).
Given the volatile market conditions, I entered a limit order for about $0.50 less than TXN’s price at the time I placed the order. It executed in about 10 minutes.
I paid $108.30 per share for 9 shares. I looked back at January’s purchase and discovered that I paid $128.95 per share and got one less share then, even though I spent about $57 more in total.
That’s a silver lining in a market crash for the dividend growth investor: I got more income added to my portfolio for less money.
Portfolio Before and After
These graphics from Simply Safe Dividends show the portfolio’s annual rate of dividend income before and after the addition of the 9 new shares of TXN.
As you can see, the DGP’s income increased by $33 per year, or a little under 1%. The number of positions in the portfolio stays at 25, since I already owned TXN. The size of the position grew to 2.3% from 1.6%.
The new income amount brings the DGP’s yield on cost (YOC) to 9.98%. That rounds to 10%, which is a long-standing goal of mine – to have a yield on cost of 10%. But for this milestone, I’m not going to round up. I’ll wait patiently until a dividend increase or two brings the YOC to a true 10%+.
This addition of Texas Instruments builds on an increased emphasis on quality that I have been pursuing for a few years. My Quality Snapshots have proved to be a quick way to ascertain quality, and that makes the goal easier to go after.
As I said in January, the dividend reinvestment into Texas Instruments is nearly a no-brainer. Its yield, with the recent price drop, has become more than adequate at 3.3%. Its dividend growth record is stellar, with a 5-year dividend growth rate of 21% per year. Its increase for 2020 should take effect in November (it has not been announced yet).
Texas Instruments pulls up the quality – and reduces the risk – of the whole portfolio. I am glad to welcome more shares to the portfolio.
— Dave Van Knapp
Other Reading Resources
I Just Bought These Two Stocks for My Dividend Growth Portfolio — And Kicked One Out! (Covers January’s purchase of TXN) (Dave Van Knapp, January 2020)
The Highest Quality Stock to Buy Today: Texas Instruments (Money Morning Staff, May 2019)
This Stock Has Paid Uninterrupted Dividends Since 1962 (Brian Bollinger, March 2019)Urgent Stock Market Warning: Move your money before 2021 [sponsor]
According to a former hedge fund manager with 500,000 followers around the world, the next three months could determine who will become fabulously wealthy in 2021 – and who won’t. It has nothing to do with the COVID-19 crisis. Instead, it’s a huge stock market trend that was already creating millionaires before the pandemic hit. Now, it’s been accelerated. Here’s how to take advantage.