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

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:

 

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Compounding IncomeFI FighterDividend MantraDividend Growth MachineJC @ PassiveIncomePursuit Recent comment authors
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JC @ PassiveIncomePursuit
Guest

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.

Dividend Growth Machine
Guest

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.

Dividend Mantra
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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!

Compounding Income
Guest

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.

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