2015 Mid-Year Review: Part II

You can read Part I here.

This is the final segment to my Mid-Year Review. In this section I will give an overview of what has taken place with my U.S. stock portfolio.

U.S. Companies

The Coca-Cola Company (KO): KO is a core holding for my portfolio and has been for quite some years now. I have been DRiPing additional shares at the present time. I initiated my position in the mid-to-high $20s on a split-adjusted basis and have watched the dividend grow since. The share price has been stagnating of late which is fine for me as I have dripped some additional shares with KO yielding around 3%.

The most recent increase for the first payment of this year by 8.2% was more than I was expecting as KO has been under pressure as consumers opt for healthier choices. Nevertheless, KO has a huge assortment of beverages for virtually every taste. The bottom line for me is that no matter what happens between now and the rest of eternity, people are going to need something to drink. KO has an unrivalled distribution platform globally which will allow it to meet those needs.

PepsiCo, Inc. (PEP): PEP is known as the largest competitor to KO, though it does far more than sell beverages alone. It also owns a sizeable snack foods business including household brand names such as Tostitos, Doritos, and Frito-Lays. Surprising for some is the fact that PEP also owns the Quaker brand and Sabra which produces hummus and salsas.

Having initiated my position in PEP just this past April, I have only received one dividend. PEP has a long history of increasing dividends annually and I anticipate this to continue going forward; I would be happy with high single-digits, if not low double-digits. I will consider adding to this position subject to a price decline. Around $90 would represent additional value for me.

Johnson & Johnson (JNJ): One of the most storied brands in American business, I added JNJ several years ago in the low $60s. At that time the company was beleaguered by product recall issues and it seemed each day a new bearish article was being penned. I had faith that the company’s healthy dividend and its growth would continue and put my stake in the ground. Over the past five years, JNJ has provided dividend growth in the mid-to-high single-digit dividend growth, with the most recent boost amount to 7.14%.

With JNJ’s broad portfolio and the demographics of an aging population along with society’s general trend of medicating nearly everything, I believe JNJ has a growth trajectory that could very well extend long after I have left these shores. While I am satisfied with the size of my JNJ stake, I would consider adding to another healthcare-related company at some point in the future. Perhaps a large pharmaceutical would fit the bill.

Waste Management, Inc. (WM): On the basis of recurring business, I can think of no industry I like better than waste collection and removal. We live in a world of rampant consumption. Every soda beverage, cardboard box from online purchases, or thrown-away scrap of any sort needs to be handled by a waste collector. WM has managed also to turn the waste it collects into an energy source at various locations.

I have been receiving dividends from WM since 2011. Since then it has sported low levels of dividend growth which is what I expect going forward from the company. With a YOC of around 4% I am content to hold this position going forward.

I should also note that when I purchased my shares of WM I also sold a put option in the hopes to get an additional hundred shares at a lower price. Since the option was never exercised, I netted just over $500 in profit from the premium.

McDonald’s Corporation (MCD) and Yum! Brands, Inc. (YUM): I will discuss MCD and YUM together since I purchased them around the same time last year (2014). As you may recall, there was a Chinese meat supplier scandal in China which shook the confidence of consumers. A supplier for both companies was found to be selling expired meat. The event has had a last impact on the earnings of both companies as they have worked to repair their image. I picked up shares of each company in two tranches.

My MCD shares are up slightly since I purchased them while I have been collecting the healthy +3% dividend all the while. The dividend has also been raised one time for around 5%. I expect continued dividend increases from MCD despite the headwinds it faces in the form of a health-conscious consumer.

I own my YUM shares for a cost basis of around $73. The shares have advanced steadily to post a gain of around 20% on capital gains alone with the ~2% dividend bolstering returns as well. The dividend was increased last year by over 10% and I am hoping for such returns to continue in the years to come.

I was intending to make one last purchase of both companies if they had continued to fall last year to the mid-$80s for MCD or around $65 for YUM. I am planning to hold both companies going forward. While I didn’t know whether the companies would rebound quickly, but I viewed the meat supplier scandal as a short-term problem which represented a buying opportunity. Thus far it has proven to be the case and paid off handsomely. In the long run it would have been beneficial if shares had stayed low so I could have bought even more at economical prices.

Conclusion

My U.S. portfolio has done well through the first half of this year and generally speaking. I am hoping we find some more buying opportunities in the near future as the market has certainly been volatile of late.

Thank you for your interest in my portfolio.

– Ryan

How has your portfolio done over the first half of 2015?

Full Disclosure: Long KO, PEP, JNJ, WM, MCD, YUM

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