Tuesday, June 25, 2013
The Light At The End Of The Tunnel
One of the stocks my father left me in his portfolio is Duke Energy (DUK). Every strong portfolio needs a foundation and after doing my due diligence I decided I would keep the DUK shares I received and in fact continue to add more of them to my portfolio. Since my shares of DUK are held by DUK and not in my trading portfolio, I opted to leave them there instead of moving them over. I also elected to have the company re-invest the dividends and I add a little bit of money each month to the account through direct withdrawal from my checking account. Re-investing dividends is a nice benefit if you are planning on holding shares for an extended length of time. By extended time I mean years if not decades. (And in the For-What-It's-Worth Column, I am adding VERY little every month. Have you seen a teacher's pay check lately?)
So on that note, I am going to add 100 shares of DUK to the Magic Money Portfolio.
This move may seem incredibly out of character for me since I typically select my stock purchases and sales based on my tried and true model. My model really does work and has always out performed the SP 500 in the long run. Right now my model rates DUK as Hold/Accumulate but not an outright buy. I'm not second guessing my model here but I am using DUK as the backbone of my portfolio and while over the short run it may not perform as well as the rest of my portfolio in the long run it will do just fine particularly in the light of total return. (Side note here: Total return is the future value of the investment taking into account both share price growth and dividends. My model is a growth model only and does not take dividends into account.)
Okay, so what do I like about Duke Energy?
First and foremost DUK is one of the largest regulated utilities in the country. Big is not always better but in this case it is. If you add to the size of DUK, the fact that it serves the Middle Atlantic States which in terms of the rest of the country is a growth region DUK has an expanding customer base. They recently acquired Progressive Energy to meet that regional growth and the synergies of the two companies should start to become evident later this year. On the political scene, DUK asked and received permission from the regulatory agency for a 5% rate increase within the last month.
Going by the numbers. . .
DUK is paying an annual $3.06 dividend paid quarter. That is roughly 4.7% annually which is a nice return on the current price per share, $65.58 per share.
DUK has a long track record of both consistent dividend payments and increases.
The current book value per share is about $34.25 making the price less 2x the BV and that does not appear to factor in the acquisition of Progressive.
DUK earnings growth is projected between 4 & 6% for the upcoming 12 months.
The recent correction in the stock market has presented an opportunity to pick shares of DUK at a very reasonable price.
6-Month Chart of Duke Energy (DUK)
07 June 13 - 1000 shrs IAG @ $5.29 per share. (BUY)
13 June 13 - 500 shrs AA @ $8.20 per share. (BUY)
21 June 13 - 100 shrs DUK @ $65.58 per share. (BUY)
Magic Money Machine Portfolio (21 June 13)
Cash: $ 34,062.00
1000 shares IAG- $4.36 $ 4,360.00
500 shares AA - $7.98 $ 3,990.00
100 share DUK - $65.58 $ 6,558.00
Total $ 48,970.00
(2.06%)
Yes, I know that after two weeks the portfolio is down 2.06%. You have to remember the stock market went through some wild gyrations last week. I really expect that to continue for a little while longer as the market shakes itself out. In the same time frame, this how the major indices have faired...
NASDAQ - down 3.23%
SP 500 - down 3.10%
Dow Jones Ind. - down 2.94%
So while the portfolio is down it has faired a lot better than the market as a whole. Of course, that is because the bulk of the portfolio is in cash. I will preach patience right now because this is not a get rich quick game. The portfolio still is cash heavy but I want to pick and choose quality companies not go all in right away.
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