**Shares purchased 12/07/2016**
I recently made a purchase of 14 shares of NextEra Energy (NEE) in my wife’s 401(k). Shares were purchased at a price of $116.55 for a total investment of $1,641.69. At this price NEE yields right at 3% and this purchase immediately adds $48.72 to our yearly dividends total.
When funds became available in the account, I knew that I wanted to add our 2nd utility company to the portfolio; the other that we own is Southern Company (SO). A utility company? How boring, Chad, isn’t that for widows and orphans? Well yes, the same reason they make good investments for them is exactly the reason I want to own them, as well. Think about it. It is really easy to invest and look like a genius when everything is going up, and we are in a bull market that has run long for many years now. At some point we will have a large correction or recession…it will happen at some point…and what will people still do? Pay their utility bills, they might stop buying new cars, houses, clothes, lattes…but they’ll pay to keep the lights and heat on.
I’m still very early on in the portfolio construction phase, and I see it exactly like building a house. You have to have a plan and some blueprints, and then you start clearing the land to pour the foundation. You don’t start installing walls before you have your foundation built. So what do I consider to be foundation stocks…anything that is defensive in nature…utilities, staples, and healthcare. It doesn’t matter how bad it gets, I’m going to do everything I can to keep the lights on, buy food and soap for the kids, and get them the healthcare they need. Right now, I own Southern Company (SO), Johnson & Johnson (JNJ), Cardinal Health (CAH), Kraft Heinz (KHC), and Philip Morris (PM) that can be classified as defensive in nature. How many people have you seen that are getting their car repossessed, house foreclosed on, yet they still have a cigarette hanging out of their mouth? Defense will help keep you in line and on task when the world seems like it is ending again. There’s always something that scares people into making bad emotional decisions with their investments. It’s people that don’t have their blueprints in place that panic and make dumb decisions.
Remember that my objective is to build a highly predictable, steadily increasing, flow of dividends to eventually live off of. My next 2 utilities on my wish list are Dominion Resources (D) and NextEra Energy (NEE); I knew I was going to buy one now and will eventually purchase the other one.
So, I decided to have a little fun with it. I teach a personal finance class on Wednesdays and decided to let the group of students walk through the steps with me to help decide which one to purchase. Most really don’t have a clue what a “stock” is and how to go about buying it. After going over some basics, I presented both companies to them; they both have nice, little videos about them seen Here for Dominion and Here for NextEra.
We went over things like the current price, current dividend and yield, payout ratios, and expected growth rates. After a few hours of going over all of the details, I let them vote on it as a class. I could either buy one, or the other, or both. They unanimously chose to purchase NEE by itself and told me just to buy D at another time, haha. We then logged into my account and I let them walk through the steps of actually purchasing the stock in my account.
It was a lot of fun and I’m looking forward to doing it again sometime.
In the meantime, we are now proud owners of NextEra Energy and expect them to pay us a great income for years and years to come.
Thanks for reading! What do you own that is defensive?