Since the beginning of 2016, the market has been really “creating some value” when it comes to big name dividend payers. I use the term “creating some value” to describe what others may describe as pure terror as the stock market bleeds red. On January 4, 2016, the first day of trading in the new year, the Dow Jones opened at $17,405.48 and on January 13, closed at $16,151.41, losing $1,254,07 off the DOW JONES industrial average, or 7.2%
For Dividend Growth Investor’s, down markets produce value in stocks, and an uptick in markets produces value in our portfolio values. On January 11, we saw a great opportunity to purchase a dividend-generating giant at a bargain of a deal.
We purchased 10 shares of MetLife for $41.61 and share, with $4.95 commission fee.
The purchase price was only 74 cents off its 52 week low. Anytime you get the opportunity to purchase a great company near its 52-week low, jump on it if you’re able. You won’t be sorry!
There were several factors considered before initiating a position with this company.
- Share Price – as state earlier, the price was near its 52-week low. In my opinion, that is the opportune time to initiate a position. At the time of purchase, it had an RSI (Relative Strength Index) score in the low 20’s, which means it was oversold. As a matter of fact, the entire sector had been oversold for a while.
- Free Cash Flow – Cash is King, and dividends are paid from cash, not net earnings. When looking at the Cash Flow Statements for the past two quarters for MetLife, Net Operating Activities more than covers the dividend paid out for those two same quarters. You could go farther back and see the massive amount of FCF this company is creating. MetLife showed no Capital Expenditures, therefore, all of Operating Activities cash flow is available to pay dividends now and increase them in the future with no problems.
- Industry – There are two industries I admire the most, Healthcare and Insurance. These are industries I feel are almost recession-proof. They do not sell luxuries or trendy, fad items. They sell necessities. Everyone and every business need some kind of insurance, just like everyone will need some kind of healthcare.
This purchase adds $15.00 to our forward 12-month dividend forecast, increasing the total by approximately 9.3%, to $175.26. We are pleased with this purchase and look forward to adding to it in the future.
It’s worth noting, the very next morning in the premarket, it spiked up 10% off news it would be separating its U.S. retail operations in response to government regulations. To sum it up, we could have turned around and sold it for a 10% gain in less than 24 hours! However, we are long-term investors, and look to accumulate more shares where opportunity presents itself.
See here for more details of the potential spinoff.