Friday, February 27, 2015

Should you buy COP?

This post discusses Conoco Phillips, symbol COP.  

I am long COP and it has been a Dividend Machine multiple times in the past.  Should you buy COP for the income producing portion of your portfolio?

COP Dividend Machine History


On May 6, 2011, COP was the 26th Dividend Machine I profiled for the 2011 Dividend Machine model portfolio.  Had you bought then, you would have paid $71.43.  Your dividend income would have been $2.64 on earnings of $8.30.  Dividend yield was 3.695%.  Debt to equity ratio was .33 and earnings (EPS) were $8.30.


On May 1, 2012 COP spun off PSX the refining portion of the business.  You would now own 100 shares of PSX and 100 shares of COP. 


On April 9, 2013 Conoco Philips was again picked to be included in a Dividend Machine Portfolio.  COP’s price at that time was $59.84.  Dividend was $2.64 on earnings of $6.69 for a yield of 4.41%.   D/E ratio was .45.


On March 27, 2014 Conoco Philips made the grade again and was added to the 2014 Dividend Machine model portfolio at a price of $80.35.  Earnings were $7.38, dividends $2.73 for a yields of 3.92%.  D/E was .4156.

Discussion of COP Dividend Machine History

The 2011 investment of $7,143 is now worth COP 100 shares times $65.66 plus 100 shares of PSX at $79.56 or $14,522.   Nice capital gain!  Moreover, Dividend income of $264 per year has now increased to $292 from COP plus $200 from PSX for a total of $492.   Nice income increase!

The 2013 investment has done well but not as well as 2011.   But then nearly every stock bought in 2011 has delivered good gains.   The 2013 investment of $5,984 in COP would be worth $6,566 today.  The dividend would have increased from $2.64 to $2.92; an increase of 10.6%.   Do you have another investment you made in 2013 just 22 months ago that increased your income by 10.6%?  

The 2014 investment in COP is losing money.   While COP met all the Dividend Machine criteria when I wrote about it, the price of oil has killed this sector. Your investment of $80.35 would be worth only $65.66 or a loss of 18.28%: ouch!.     Your dividend of $273 would have increased to $292 for an increase of 6.959% in less than a year.

Should you buy COP today?

I write about the stocks I buy for the income producing portion of my portfolio and when those stocks meet all four of my Dividend Machine criteria, I add that stock to the current year’s model portfolio.  I will add COP to the 2015 Dividend Machine model portfolio.

Sale is one of my favorite words when I shop and COP is on sale while it meets all the Dividend Machine criteria for 2015.   I will be adding to my COP holdings but I will use the volatility of the energy market to also sell calls on the new shares.    This additional income will help salve my wounds from the 2014 buy.

The tables below present COP’s Dividend Machine Fundamentals and the covered call I will sell today.

Dividend Machine Fundamentals:


Covered Call Option

Yes, I think you should consider COP for income producing portion of your portfolio.


Disclosure:   Long COP  + May, 2015 calls

Monday, February 23, 2015

Noble, NE Bond at a Discount

A Bond for Income Investors

Historically, bonds have been a major portion of an income investor’s portfolio.  But the 30 plus year bull market in bonds have rendered most bonds so expensive, yielding so poorly, that the average income investor cannot afford bonds.

Those high yield bonds that are available are hardly worth the risk.

With all that in mind, I occasionally find the bond of a stock that has decent fundamentals but has gotten hammered because of some outside influence.   In this case, the outside influence is the price of oil and gas.   

Buy at a Discount

When you buy at a discount and your bond matures, you get back more money to then reinvest.  Often times, a bond will improve so much that you can sell it early at a premium.   I do not think that will happen with this bond, yet just two years ago the bond profiled here traded at over $110.    I will be very happy to get back my principle and receive the coupon twice a year.

Noble Holding 4.9% 2020 Senior Debt

Noble Holding Company, symbol NE, is an oil and gas drilling company.  Trading at About $18.61 today. D/E ratio of .64 is within the industry standard of .64.  Interest coverage ratio is 9.62 which is comforting.

Noble has several bonds available in the 5 – 7 year maturity range. The bond I bought has a coupon of 4.49%, matures August 1, 2020.   Selling at a discount to par of $95.60 (price from for a Yield to maturity (YTM) of 5.857%.

This bond is considered investment grade with a rating of Baa3 and BBB by two agencies.  It is continuously callable with no survivor option.  At the very minimum you will receive par when called and remember with bonds you receive interest income for every day you own the bond.

CUSIP # is 65504LAC1

Consider this NE senior, investment grade, discount bond for the income investing portion of your portfolio.

Disclosure:  Long CUSIP 65504LAC1