While the market continues its bullish run through March and bargains are becoming harder to find, I felt compelled to review the New Life Portfolio before making my next scheduled purchase. Overall, the portfolio is doing well, with an overall 3% capital gain, not including any dividends. Then it hit me…I have 12 stock positions, with a cost basis of $6,400. That averages out to about $533 per position; however, the portfolio is not properly allocated, as my largest position, in terms of cost basis, is Omega Healthcare Inc (OHI) stands at $1,000 basis and my smallest position, AT&T, stands at $64. I also noticed I am very overweight in the Financial sector, as it comprises over a third of my cost basis. This observation led me to decide to increase the positions that I already own.
On March 23, 2016, I purchased 13 shares of AT&T (T) at $38.62 per share, plus $4.95 commission, for a total basis of $507.01.
(T) has been on quite a run in 2016, up almost 15% since the beginning of the year. It recently has made new 52-week highs on March 19 at $39.26.
One of my purchase criteria is to purchase a stock when it trades close to it 52-week low, combined with a near-approaching ex-dividend date. I expect the ex-date for (T) to be around the 1st week of April, based on the ex-dates during this time in 2015 and 2014. However, I purchase at its HIGH instead of its LOW! The reason for this is very simple – the dividend. Even near its all-time highs it is still yielding right at 5%! I have no problems welcoming 5% yield to the portfolio, even if the equity trades at its highs. AT&T’s 5-year dividend average is about 5.4%, so I am missing that much by getting in at a yield a little lower than the 5-year average amount.
Another benefit of this purchase is better allocation. As it stood before the purchase, I was very overweight in the financial sector, with over a third of my portfolio allocated there. I believe in diversification. I believe in spreading risk out over various areas to minimize any adverse or negative action in one stock, sector or industry. My knowledge is growing, right along with the New Life Portfolio. When I started purchasing a year ago, I would purchase what was on sale. What a difference a year makes!
Another smaller, yet still important reason for this purchase is that it makes the overall AT&T holding look a little more respectable. Previously, I held a whopping 2 shares (at least I paid no commission on them)! I now own 15 shares total, with a $571 cost basis. I do plan on purchasing more shares to get to that round lot of 100 shares, which would enable me to sell Covered Calls, if I desire.
AT&T pays a quarterly dividend of $0.48 per share. The additional 13 shares purchased will add $24.96 ($28.80 total for all shares) to the TOL’s annual passive income amount. I expect (hope, lol) a market pullback and (T) to give up a little bit of its 2016 gains.
(T) will be one of our core holdings, as we like the future of (T) after several key acquisitions (DirecTV, among a few) that should add to its top-line revenues, bottom-line Earnings Per Share, and add more Free Cash Flow, all of which make the robust dividend sustainable for the long-term.