Recent Buy PRU

11 Jul 2018 22:42

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Picked up another small position in Prudential Financial (PRU) at a price of $95.89/share and a dividend yield of 3.75% while adding $36 annually to my income. This purchase was made in thanks to the recent massive dividend resulting from the Keurig & Dr. Pepper/Snapple (DPS) merger.

My original intention was to buy three stocks with the DPS distribution but all of my watched stocks with the exception of PRU decided to increase in price after I got the distribution. One that I was really interested in was Fastenal (FAST) who dipped into my target buy price a day before but quickly rose back above and then reported a positive quarter only to see its share price escalate even further placing FAST well outside of my buy zone. Pepsico (PEP) was another possible replacement but they also reported a positive quarter and their shares moved well above my buy price.

I still intend to buy two more positions and just need to be patient. Like any investor I prefer opportunistic buys and will just have to wait and see what the market offers up in the future.

PRU has 10 straight years of dividend growth with its most recent increase of 20% announced back in February 2018. The recent dividend increase places their payout ratio at a low 32% of earnings. While the payout ratio allows for dividend growth it is not the primary feature that I like about PRU (but it does help). There are two aspects of PRU I find more attractive for long term potential of continued dividend growth; increasing rates and global aging populations.

The Federal Reserve just increased rates again and announced their stance on future rate increases. For the insurance side of the business this is good news. Insurance companies keep a significant amount of cash and short term investments on hand for claims and risk reduction, with increased rates this will increase the interest earned on those funds. Subsequently, the European Central Bank just announced an end to their Quantitative Easing (QE) program and while they have no immediate plans to increase rates I am assuming they will begin gradually increasing rates 12-18 months after the end of the QE. So globally we will see rising rates and better interest returns for short term investments.

The largest attraction of PRU I saved for last. The United States is not the only country facing an aging population issue and it is becoming a global issue. The map below is forecasted population growth by 2030 where 20% of the population will be 65 or older. The good news for PRU is that they are positioned in all of the major markets with the exception of Oceania countries like Australia and New Zealand. PRU global foot print include the America’s, Europe and Asia. It is no coincidence that their three main services of life insurance, retirement solutions and investment management services are all targeted to an aging population positioning them to capitalize on the global aging phenomenon. Considering there are forecasts that the aging crisis will peak in 2050 to 2055 before declining PRU has the potential to grow dividends for another 30 years.



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