Portfolio Update: New Addition (CMI and KMI; October 11, 2012)

Today was a busy day. In between balancing work, and the playoffs (amazing comeback by the San Francisco Giants!), I managed to find time to scoop out the stock market and make two new purchases. As some readers may already know, I’ve been eyeing Cummins (CMI) for at least a month now. Earlier this month, I initiated a position with Caterpillar (CAT), but was strongly debating over which industrial giant to go with.

As it turns out, CMI continued its decline in price, and I felt now was a good time to initiate a position. I bought 17 shares of CMI at $86.50/share. Many other dividend investors have also been eyeing this stock, and Dividend Growth Machine recently published a nice quantitative analysis showing how CMI is currently undervalued:

http://dgmachine.blogspot.com/2012/10/stock-thoughts-cmi-vs-cat.html

Just like last month, I found more than one attractively priced stock to purchase. Kinder Morgan Inc. (KMI) is another one that I’ve been wanting to add to the portfolio for some time. Kinder Morgan is the largest midstream and third largest energy company in the US.

During this recent downturn in the market, I’ve been looking for opportunities to land discounts on quality companies upon hearing any “bad news”. This was the case with such recent purchases such as: NSC, INTC, CAT, CMI, etc. However, this was not the case when it came down to initiating a position with KMI today.

Instead of looking for “bad news”, I simply focused, instead, on finding a quality holding at fair market value. I purchased 43 shares of KMI at $35.10/share. Although I always want to find bargains and items on sale, sometimes you have to pay full price for high quality. This isn’t always a bad thing either; Coca Cola (KO), Abbott Laboratories (ABT), and AT&T (T) are just examples of Core Holding stocks that have been surging since the beginning of the year. If we only focused on adding stocks when they are heavily discounted or reach 52 week lows, then we just might never even have the chance to get in on these companies.

Frankly, I would rather pay fair price for KMI at these levels then to deem it too expensive and miss the boat completely. As many other dividend bloggers have pointed out, Richard Kinder has a history of being generous to shareholders – it’s probably best to side with him (he owns 23% of KMI). KMI has increased dividends in 4/5 quarters. Management has even communicated their plans to raise the dividend over 12.5% annually until 2015, and 10% long term:

http://kindermorgan.com/investor/presentations/0412_Salient.pdf

I definitely do not want to miss being a part of that!

***Update***: KMI dropped 2.54% after hours. Could this be due to Goldman Sachs releasing additional offerings which is depressing the stock price? If so, this seems like it would present another strong buying opportunity. I will check again tomorrow morning. In the meantime, I’m transferring additional funds, just in case. I may add to my position tomorrow morning.

 

 

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FI FighterDividend MantraDividend Growth MachineJC @ PassiveIncomePursuit Recent comment authors
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JC @ PassiveIncomePursuit
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Great buys there! I picked up some CMI yesterday as well. I need my paycheck to hit my account so I can start transferring funds over to my brokerage account. There’s some pretty good deals right now. I hadn’t seen the KMI pullback after-hours yesterday. I might be adding to that position this morning. It’s probably either KMI or INTC.

Dividend Growth Machine
Guest

Nice purchases and thanks for the mention! CMI and KMI are great additions to both of our portfolios. I would love to increase my positions on further pullbacks, but it will have to wait until the start of November when I have new capital. However, the delay will give me a chance to fully digest the earnings reports later this month, so it could work to my advantage if a new opportunity arises at the end of the month.

Dividend Mantra
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FI Fighter,

Great purchases here and glad to have you on board as a fellow KMI shareholder. I think Uncle Richard will treat us well!

You just grew your portfolio significantly all in one swoop with quality holdings. Feels great to see the Fund grow and see the compounding effect start to really take hold.

Best wishes!

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