Friday, March 20, 2015

New Buys: Initiating a $10,000 Chemicals Position

I've been on the hunt for bargains (or even relative bargains) out in the stock market lately. It's been tough! The typical list of dividend-payers trades at crazy valuations for the likely return. Sure, buying such quality companies is likely to turn out as a good idea over time regardless of valuation, but I'm trying to stack the odds of earning great returns in my favor.
The oil & gas sector has been hammered lately with the decline in crude - and looks very attractive. However, I'm not convinced oil has bottomed and making a call on short-term commodity prices isn't my game. What's an investor to do?

I took a hard look at adding to existing positions, but nothing is screamingly cheap and I'm on a diversification kick.

I looked really hard at National Oilwell Varco (NOV). It's been a popular choice out in the blogosphere and looks attractively priced. It's a derivative play on oil - but more on the production side than the price side. I decided that since the dividend is fairly new (initiated in 2009), and investor presentations don't stress dividend growth, I'd keep it on my watch list for now.

My hunt then lead me to the chemicals sector after reading an article on Kodak - and thinking about their spinoff Eastman Chemical (EMN). A bit of digging and I see Eastman Chemical has a decent yield (~2.3%) and trades at just under 10x earnings. Their investor presentations highlight key buckets for using cash such as debt reduction, dividends, and funding growth. Music to my ears. I also took a look around the competitive landscape and saw that a few other companies look pretty good (though not as good as EMN) and have similar profiles. I decided to buy Dow Chemical (DOW) as well.

I bought 75 shares of EMN for $69.50, a total of $5,212.50, and 100 shares of DOW for $47.50, a total of $4,750. The two purchases will add $288 to my annual dividend income. The yield on these purchases is 2.89%.

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