Over the last few months, I’ve been shifting my view of my entire portfolio from being a collection of “stocks” to a collection of “businesses”. This is also a point that fellow blogger Dividend Mantra pointed out, in his recent post, Warren Buffett’s Wise Words. Mantra’s recent post really hit home for me and I’m sure for many other dividend investors as well. A recent post on the Dividend Ninja by Dan Mac, Find Investment Success with a Business Point of View, also hit home along the same line of thought.
Last week, with this in mind, I made a couple of changes to my portfolio. I sold positions in one company and some of my bond holdings, in order to purchase “businesses” I wanted to own. I purchased 50 shares of McDonalds (MCD) and added 30 shares of Coca-Cola (KO). What did I sell? You’ll have to wait until next week of course to find out, but here is why I bought MCD and KO.
Back in March 2011, I purchased 20 shares of MCD at $75.00 per share – it was the only investing capital I had available. At the time many investors felt the price for McDonald’s (MCD) was overvalued at $75, and others like myself, felt MCD was a bargain. Had I more capital I would have certainly bought more shares. For the remainder of the year MCD rose up to $100 per share, and that was my sell-point for MCD. I wrote an article back in December 2011, Is McDonalds Overpriced Part-1?
In early January 2012, I sold MCD at $100 per share and took a $500 profit off the table. The question is was it worth taking profit, or simply holding and buying more? By chance McDonald’s declined from its $100 lofty price point, and has settled back to around a support level of $85 to $87 per share. I’ve now decided to re-enter my position in McDonald’s as a long-term buy-and-hold, and on Thursday purchased 50 shares @ $86.50 per share. I feel this is an excellent entry point for MCD, and I was able to purchase before the ex-dividend date on November 29th.
Hank Coleman recently discussed McDonald’s at the Dividend Pig, in Why McDonald’s Dividend Looks So Juicy. One interesting point that Hank made, is that MCD has funded its dividends from cash.
Another solid business to own is Coca-Cola (KO), and it’s also a favourite among dividend investors. Although it has a lower yield at 2.75%, it is one of those stocks that just keeps moving higher. Coca-Cola has had continuous and stable growth since March 2009, soaring from $19.55 per share (split adjusted) to a high of $40.42 on July 30th, 2012. In 3 ½ years, the price of KO had doubled, with its current price at $37.08 per share. Dan Mac recently wrote why he thinks KO is a good investment, in An Investment in Coca-Cola.
Back on August 13th 2012, Coca-Cola had a 2 for 1 stock split at $38 per share. The split was Coke’s 11th in its 92-year history and the first in 16 years. Although the split makes no difference in terms of return or yield for an investor, it does make the stock more affordable. This was a good opportunity for me to enter a position in KO, which I did back on August 20th, 2012 for $39 per share. I also wanted to top-up before the ex-dividend date on November 28th, and last week added another 30 shares at $37.00.
Many have viewed KO as being currently over-priced, with its continued run-up in price. In a recent article, Is Coke Being Valued Like a US Treasury?, Eddie Elfenbein asks if investors are over-paying to own Coke. Eddie writes, “The major mispricing in the market right now is that investors are vastly over-paying for security, and they are under-paying for risk.” Although a great article, I personally have no idea whether Coca-Cola is undervalued, overvalued, or priced just right. What I do know is that the market is the fair price of a stock, whether I believe it to be or not. I also know Coca-Cola is going to be around a lot longer than I am! Eight years from now in my early retirement, I’ll probably be glad I bought at an average price of $38. Coca-Cola is now one of my long-term buy and hold companies.
Just like real life, McDonald’s and Coca-Cola make a great combination! These are two companies that are going to provide a solid dividend foundation to my retirement. As another dividend blogger recently said to me, “I really get a kick out of drinking a Coke or eating at McDonald’s knowing I own a portion of the company.”
Readers, what’s your take? Do you own MCD and KO, and are you buying at these price points?