Due to the general (good) craziness in my life right now, I haven’t been able to add to my dividend growth portfolio as much as I would have liked. My only purchases in 2015 so far have been 20 shares of Halliburton (HAL)….and that’s it. I am pleased to see that HAL price per share have been slowly creeping back up since I bought in though. Even though dividend income is the goal, it’s always nice to time a purchase well and see some capital growth.
Recent Buy: Verizon Communications (VZ)
Now that all of that is out of the way, let’s go ahead and discuss my latest purchase.
On 5/13/2015 I opened a position of 15 shares in Verizon Communications Inc (VZ) at a purchase price of $49.69 bringing the order size to a total of $745.35.
Beyond being profitable, a market leader in their industry and sound fundamentals, my reasons for selecting VZ were two fold.
- Announced AOL Buyout
- Hedging My Risk
On 5/13, VZ announced they would be acquiring AOL for a price of $4.4 billion. I know what you’re thinking…AOL still exists? Well, they do, and they have been doing quite well the past few years.
Over the past few years, AOL has redefined its core business. They’ve morphed from an internet service provider into a content creator/ad delivery platform generating revenue of $625.1 million in Q1 of this year (2015). This beat analyst expectations and represents a 7% year-over-year growth. $280 million were attributed to their automated advertising platform while $193 million came from their media sites.
In reality though, when it comes to AOL’s business, the media sites aren’t even that important. AOL does owns a few of the world’s largest content publishers (ex: TMZ and Huffington Post), but the more valuable aspect of their business is the ad technology. By acquiring AOL, Verizon will be able to internalize the distribution of ads across all of the different Verizon driven platforms their customers currently use.
This all comes down to Verizon reinventing themselves in the midst of an extremely competitive telecommunications industry. Verizon’s core business of selling devices and data is not able to grow at a higher rate. Most cell phone carriers provide essentially the same service, so there is low brand loyalty and customers usually only stay around if it’s the lowest price or if they’re locked into a contract. By acquiring AOL, Verizon will have new areas to grow revenue as we’ll as use AOL’s technology to further monetize their existing customer base.
As for number 2, I also own shares of Sprint in my non dividend account. Sprint is one of my high risk/high reward position that I really like in the long run. I believe their acquisition of Clearwire (CLWR) last year was a great long term move and should help them grow their network infrastructure in order to start playing catch up with Verizon and AT&T. Plus, since Sprint is owned by SoftBank, they have great management and a decent financial runway to hold off T-Mobile as they reinvent themselves.
I believe the telecommunications industry is poised for long term growth in general, but owning Verizon let’s me hedge my bet on Sprint. If the worst were to happen to Sprint in 10 years and they close shop, their customers have to go somewhere…which I hope will be Verizon 🙂
It’s been a crazy few months, so I’m not really sure when I’ll be opening up my next position. At this point, I would rather sit on cash than invest my money in stocks that don’t fit into my overall investment strategy. However, there are a few stocks I’m keeping an eye on moving forward. In particular, Discover Financial (DFS) and Seagate (STX). Definitely check them out and let me know what you think!
Full Disclosure: Long VZ, S, HAL