Happy Saturday.  This post marks my first post of monthly dividends received at InvestorPeek.  What better way to start it off by posting about a primary key focus of my investment objectives:  cash flowing dividend income.  I’ve been following the early retirement and dividend growth investing community for years, and I’ve decided to get off the sidelines and share my progress to the world.  I’m compounding my wealth one month at a time.  After years of failures, studies, forecasts, and assessments, I’m 100% convinced this is the correct approach for me and is the path to achieve my wealth creating goals.  It’s definitely not a get rich quick scheme, but once momentum sets in, compounding will accelerate beyond your wildest forecasts for sure.

The dividend income from May was more than double than the income I received in May of 2015. This was primarily due to my American Express position I began accumulating aggressively this past February when I noticed how obscenely mispriced AXP was in the low $50’s relative to the huge cash flow this company produces. Just to give a perspective of where I’m coming from, AXP earned over $9 Billion in cash flow for 2014 and 2015 and has a market value as of today of just over $62 Billion.  Back in February the market cap was in the mid $50 Billion range.  

It’s no secret that AXP has been in the news for losing the Sam’s Club contract and such, but that’s what gives me the opportunity to accumulate at grossly mispriced valuations.  If it’s not really apparent how grossly mispriced this really is, let me help by highlighting that Coca-Cola’s annual cash flow is less than this, at just shy of $8 billion, and has a market capitalization of a whopping $194 Billion.  Heck BHP Billiton that is in the beaten down oil and commodities industry earned $7.3 billion and has a market cap of over $70 Billion and I believe they’re grossly mispriced too.  If we compare to one of AXPs peers; well Visa earned over $6 Billion for their fiscal 2015 and currently has a market value of over $192 Billion.  For those of you that are billionaires out there, what would you choose if someone offered the following choice: spend over $192B for the rights to receive $6B each year, or spend $62B for the rights to receive $9B each year.  The AXP investor receives their money back in a little over six years and all gravy there after.  The Visa investor receives their money back in 32 years assuming no growth. Obviously, the no growth scenario isn’t exactly how the real world works, but if the mystery Billionaire investor was considering the choice between the two then Visa would need to grow cash flow at 69% per annum to achieve the same result of the 6 year payback that AXP would provide with ease.  I agree that Visa has a higher growth opportunity, but I’m not willing to bet on them at this price.  In my view, there is plenty of margin of safety built into the price of AXP the market place is currently offering and that’s why I began accumulating them back in February.

My average cost basis for AXP is $53.04 and based on the current dividend of $1.16, my dividend yield on cost is currently 2.189%.  This doesn’t exactly translate into high yield territory but I lean towards the value investor side of the spectrum more than the dividend growth side.  Besides, AXP is still one of Warren Buffett’s largest positions comprising of 151,610,700 shares or 14.82% of the Berkshire portfolio, and I tend to think it’s because AXP produces significant amount of cash for its investors.  In Warren’s case, that translates to 151,610,700 shares x’s $1.16 = $175,868,412 every year and growing!!

This was supposed to be a post about the progress of my dividends received for May and not necessarily a post about the current valuation of American Express.  What you’ll see below is a list of every dividend I collected for the prior month.  

 

 

I’ll update my Dividend Income page to reflect May’s dividends.

Full Disclosure: Long all stocks owned above, especially American Express.