Monday, December 7, 2015

Adding COST and DEO

Shares of Costco Wholesale Corp and Diageo PLC have been added to the portfolio.  I have a quick synopsis of each below.

Costco Wholesale Corp(COST) -  Sadly I've been personally eyeing this stock when it was $100 a share. Just never pulled the trigger. I even watched it as it came back from the fall swoon.   Sigh. Well I'm proud to say its finally here to stay.

COST has delivered exceptional returns to shareholders.  First of all the company has increased its dividend the last 10 years at an average of 13%. That doesn't even include the special dividends its paid. The dividend has been increased by 248% the last ten years. That's an amazing pay raise if you are a dividend growth investor. The company has a ROE of 20%, ROA of 7%, and ROI of 13%. Very respectable measures across the board. The net income and operating percentages are 2.07% and 3.12% which are expected in this industry.  I'm not crazy about the total stock yield(EPS+Dividend) of 4.30% that I calculated. However when a stock starts hitting new highs before the market does I've learned from other stocks I followed it's a sign of a truly great stock that's destined to outpace the broader market.

Why is Costco worthy of standing the test of time? For one it offers a unique shopping experience all while competing in one of the most competitive landscapes. You can't order bulk sizes of many products it sells online from competitors or at other local stores.  They are one of the largest sellers of organic food.  You have to pay them to even shop at their locations.  Plus a large chunk of their transactions are processed with cash or debit cards which reduces their transaction costs compared to other retailers.  Their online shopping allows members to realize big savings with modern convenience.

Diageo PLC (DEO) - I've been eyeing alcohol stocks lately and I'm pleased with the addition of DEO at this level. The stocks sports a current yield of 3.70%, and has grown an average of 4.80% for the ADR shares the last ten years. Management has stated its committed to raising the dividend mid-single digits as they've hit the outer limits for their payout ratio. So I'm not expecting any 10%+ dividend raises anytime soon. What I like most is the last three years net income profit percentage is over 20%. Basically for every dollar in revenue twenty cents falls right to investors pockets. Not many companies can boast that kind of return.   The stock offers a total yield of 8.68% which is in the range I prefer.

Why would we own this company? The company has a 26% share of the global spirit market and owns some of the worlds premier whisky and scotch brands. The company owns Guinness beer which has only been around since 1759. Also the company took full control over the Don Julio Tequila brand this year. Tequila has been one of the strongest growing spirits the last few years and the company recognizes it's potential.  I have tried many of their products over the years and a couple of their brands are my personal favorites. My hope is the stock will become a personal favorite also!

I'll be on the lookout to make additional buys if the prices drop far enough for either stock. Offer up any comments or thoughts. It's always great to see what others are thinking. Also follow on Twitter at @LngHaulInvestor.

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