Portfolio Update: New Addition (APD and ABT; October 19, 2012)

by FI Fighter on October 19, 2012

in Stock Portfolio Updates

Print Friendly, PDF & Email

Today was a busy day. As I mentioned in yesterday’s watchlist, I was eyeing Abbott Laboratories (ABT). Although the original plan was to not make any more purchases this month, I did go ahead and transfer more funds to my brokerage account, just in case. I thought I would put in a feeler for ABT today, using a limit order. I knew I would be busy in meetings all day today, so I placed a limit order last night, in the event ABT dropped some more. What little did I know! The market was in freefall, sending Wall Street down to its biggest one day drop in four months.

With the limit order fulfilled, I initiated a position with ABT and purchased 21 shares for $66.23/share. I wouldn’t say I got in at a bargain basement price, but this is a company that I have been wanting to add since the beginning of the year. Since I am investing for the long haul, I am not too concerned with the initial entry price. The 7% pullback from earlier this week certainly helps from a valuation standpoint.

I know Abbott plans on splitting into two companies come January 2013, but I feel comfortable owning both, especially after Abbott confirmed its future dividend plan for both companies. AbbVie will pay an annual dividend rate of $1.60/share. The new Abbott will pay $0.56/share. The combined annual dividend of both companies is $2.16. Since the current annual dividend is $2.04, this represents an increase of 5.9%. Not too bad. Factoring the new yield, this investment will add $45.36/year in passive income.

Here is how ABT’s dividend has fared in the past 10 years:

After the ABT order was fulfilled, I had a few minutes during lunch to sneak out of the meeting so that I could browse the web. The next purchase I made was one that was almost completely based on impulse. In retrospect, I don’t even think I spent more than five minutes before making up my mind to buy. I knew I had to get back to the meeting, so I just went with my instincts.

This next company I added was one that came swooping in from underneath the radar. I must confess, I haven’t spent much time conducting any kind of research on it. This company has never even appeared on my Watchlist, or Wishlist.

All I know is that Air Products and Chemical (APD) is a company that is a dividend aristocrat, having increased its dividend for over 30 years straight. They sell atmospheric gases (oxygen, nitrogen, etc.) and other specialty gases for industrial use. They are the world’s largest supplier of hydrogen and helium (inert gas used in MRI machines, silicon wafer production, etc.). APD shares dropped over 6% today after they released FY 2013 guidance.

I used the drop as my signal to buy. I purchased 20 shares at $80.50/share. At the current dividend payout of $0.64, this will add $51.20/year to the passive income stream.

ABT and APD both payout on the same month, and the next distribution is in November (although I missed both ex-dividend dates). This is a nice bonus, since it helps spread out my dividend income (most of my holdings are in the December rotation).

Here are the technicals for APD over the past 10 years. The dividend has been growing quite nicely:

 

{ 10 comments… read them below or add one }

1 JC @ PassiveIncomePursuitNo Gravatar October 20, 2012 at 4:59 am

I had a write up on APD in July, coincidentally it was trading at pretty much the same price you purchased it for. I calculated it to be fairly valued at the time. I couldn’t buy in with no margin of safety. But the dividend growth was very tempting because it’s been on a nice tear the last decade. Nice pickup of ABT too.

Reply

2 FI FighterNo Gravatar October 21, 2012 at 11:42 am

JC,

APD looks to be fairly valued at this time. It may drop lower and provide a better margin of safety, but I felt confident enough in getting in at the current price, which is close to the 52 week low.

I really like the dividend growth, and wanted to diversify into a new industry, materials/chemicals.

For ABT, the 7% drop made it attractively valued. I’ve wanted this one for awhile, and am happy to have secured it before the split.

Cheers!

Reply

3 Dividend Growth MachineNo Gravatar October 20, 2012 at 9:16 am

Nice purchases! I already have a sizable position in ABT (it’s the 6th largest position in my portfolio), so I probably won’t consider adding to it until after the split. I also noticed the drop in APD, which I don’t own but is on my watch list. Hopefully some good opportunities will still be around at the start of November, when I’ll have new capital.

Reply

4 FI FighterNo Gravatar October 21, 2012 at 11:47 am

DGM,

ABT is a staple in many dividend investment portfolios, with a long history of steady dividend growth. It’s been on my shopping list from day 1. So, after watching it run up for most of the year, it was hard for me to sit on the sidelines after seeing it tumble 7%.

Looks like you got in at a great time, as your cost basis is much lower than the current market price.

I can’t wait until November either, when more reinforcements arrive 😉

Happy hunting!

Reply

5 Dividend MantraNo Gravatar October 21, 2012 at 11:07 am

FI Fighter,

Great stuff. You’ve been on a tear. Good to see you staying so consistent and picking up attractive companies for the long-term. That’s the name of the game.

ABT is solid and it’s one of my larger positions. I plan on holding both companies after the split, although AbbVie is the more attractive of the two in my opinion.

APD is one that is on my watch list, but I don’t look at it as often as other stocks for one reason or another. Long history of rising dividends and a pretty solid entry yield there. Very nice! Buy on dips, and buy you did.

Best wishes!

Reply

6 FI FighterNo Gravatar October 21, 2012 at 11:55 am

DM,

Thanks! I’m doing my best to be consistent. The bigger challenge atm seems to be in not running out of funds too soon. For myself, I have to wait two weeks between paychecks, which can seem like an eternity… Especially when the market looks attractive.

I’m also planning on holding onto both Abbott and AbbVie. AbbVie looks like a long term winner, and it will also take the lion’s share of the dividend payout.

After COP split, I decided to hold on to both PSX and COP. Looks like both are doing well, with PSX really taking off. Hoping for similar results after the Abbott split.

Happy hunting!

Reply

7 Compounding IncomeNo Gravatar October 22, 2012 at 4:04 am

Very nice. I’ve been a happy ABT shareholder and want to own APD at some point. There were a couple times earlier this year where I almost snatched up Air Products. I’m looking at it again right now!

It appears you guys think highly of Abbvie, I must confess that I do not. I need to look at it again but what I remember thinking to myself is that Abbvie is dependant on Humira. Humira’s patent will expire in 2017 I think it was. IMO it could do great medium term, but could be a total disaster long term. ABT will continue being diversified while Abbvie will be more of a pure pharma. ABT supposedly has superior growth opportunities but lower margins.

I almost get the feeling ABT wants to get rid of Humira before it blows up, I don’t know… I need more information and will start with the latest conference call which I haven’t listened to yet. I might end up changing my mind, just thinking out loud here.

Reply

8 FI FighterNo Gravatar October 22, 2012 at 10:47 pm

CI,

Thanks for the comment. You make a very good point, and I would agree that AbbVie is definitely the higher risk/reward of the two.

Humira has been the workhorse for the pharmaceutical division, generating 8 billion/year in revenue. With the recent halting of the promising chronic kidney disease drug, Bardoxolone, it appears that AbbVie will be even more dependent on Humira, which can’t be a good thing. Like you mentioned, the patent is set to expire in December 2016.

Ultimately, the success of AbbVie will depend on its pipeline. Depending on your source, there are said to be ~ 20 or so compounds in phase II and phase III. This number could very well be exaggerated, and in reality, much less.

It would be prudent to keep a watchful eye on this stock post-split. My initial plan is to hold, but it won’t be a “set it and forget it” stock like KO, for sure.

Best wishes!

Reply

9 Compounding IncomeNo Gravatar October 24, 2012 at 3:01 am

Hey man,

I reread what I wrote and was not trying to criticize your purchase, I ended up sounding kind of harsh I think. I’m a huge fan of ABT and liked the purchase. Not many dividend growth stocks are better IMO plus you get portfolio diversification. Good move!

I’m still trying to figure out Abbvie though. I typically don’t buy pure pharmaceutical companies. I listened to the conference call and would be comfortable holding ABBV short term at least. I want to hear what the plans are when Humira loses the patent. It’s not like the revenue will evaporate overnight. What they do then will determine its fate unless another blockbuster drug comes along.

Reply

10 FI FighterNo Gravatar October 24, 2012 at 11:09 pm

CI,

No worries! You raised some very valid concerns which are worth paying attention to. This is my first exposure to pharmaceuticals, so I’m also going to have to study up more on AbbVie before the split.

More specifically, I want to know what’s coming down the pipeline. You can’t always hit home runs (Humira), but you need a fair share of doubles, triples, to compete. The recent news on Bardoxolone is a big blow that they will need to overcome.

Take care!

Reply

Leave a Comment

 

Previous post:

Next post:

Copyright © 2012 FI Fighter