Tuesday, January 21, 2014
Weekly Purchase - TGT / FRIP - LEG
4 shares TGT, 2.91% yield, $6.88 annual income
I added a few Target shares today. Price of this stock is currently under pressure from the widely publicized data breach, a slower than expected start to Canadian expansion, and lowered earnings guidance. It seems to me that all retailers, not just Target, have potential security vulnerabilities. Yet it is TGT that will have to deal the mess and it doesn't look pretty. It might have to replace credit card terminals, pay legal fees, and face sluggish sales in light of all the negative publicity. One analyst downgraded the stock and even thinks TGT will have to cancel its stock buyback program. To me, this sounds like the proverbial "blood in the streets."
On the flip side, $59 is a nice price for this company since all the negatives listed above seem short term in nature. Long term I think the company will be fine, I see no reason for any drastic actions like a dividend cut. However I do expect dividend growth to be much lower than normal this year. My plan is to nibble a little bit here and there, but stay diversified. Target is a high quality company trading at an attractive price, but it will remain a small part of my portfolio.
If TGT stays in the 50's I'll likely buy some more next week, but I must admit WMT looks attractive too.
1 share LEG, 3.98% yield, $1.20 annual income
This is my first ever FRIP purchase. Kind of exciting! I only had about 38 bucks to FRIP so I decided to pick a company with a low stock price rather than wait another quarter. I believe LEG is undervalued at $30, but to be honest it's not my top choice at these levels. My Scottrade account is still young, you can expect to see a lot of FRIPing in my future.
All in all I like FRIP a lot better than DRIP. The only thing I don't like is that dividend reinvestment discounts do not apply. I'll have to make sure companies that offer those discounts are placed in my other brokerage.