Another purchase is in the books. This one is a bit out of the normal for me. To be perfectly honest, I have been looking to initiate a position in this company for a while now but: 1) Never had the capital and 2) It always seemed over-priced. However, this purchase was made with a 'trade' mentality in mind. Against most Dividend Growth Investors rules, the timing of this purchase was made for a short term gain with the idea of long term hold in the background.
Universal took a substantial nose dive on the 17th of November which is the same day I bought the stock. The stock fell because of an analyst that came out saying it could represent one of the greatest shorts of his life. Few shares, a CEO's son in trouble with the law (which is same name as CEO) and a sell first, think later mentality I believe led to a catastrophic fall of over 30% in one day!
I purchased 100 shares of Universal (UVE) at $20.07. This purchase adds $48.00 of annual dividends to our account.
With that being said, I had a sell order in at $27.00 (and still do) to capture a 35% gain but unfortunately the stock only bounced back to $24.50ish and has since leveled off around $20.00. I've heard the saying don't turn a trade into a investment but I'm hoping this works out for the good.
The company purchased almost $10 million dollars worth of stock the day of the 30+% drop and initiated another $10 million dollar buyback a few days later good through 2016. The company has over $200 million in cash and has a Price to Book of 2.49 (a common insurance valuation metric). Normal Price to Book values for big time insurance companies are usually around 1.50. This might still make UVE a bit expensive but this is a small cap insurance company that is expanding rapidly into new markets/states.
The major concern that the "big time" short seller stated was the fact that most of the companies customers are in Florida and it will take just one major hurricane to destroy the company. This is suspect timing to say the least since Florida is at minimum 6 months away from hurricane season and the "potential" for one of these major hurricanes. UVE brought in roughly $30 million net income last quarter. Another 2 quarters without a major hurricane and that $200 million in cash turns into $250+ million. The company is rapidly expanding into new states which further diversifies their portfolio so a major hurricane will not destroy them. No one can predict the weather but Florida could go another 10 years without seeing a major hurricane, although doubtful, I'd expect UVE to be a massive company in that time if no hurricanes occur.
I have been looking to diversify into a smaller market cap company with significant growth and this stock fits the bill. They have a short time frame with regards to dividend growth of just two years but the most recent increase was 20% and have paid out a special dividend of .15 cents the last two years. This stock adds a little bit more risk to the portfolio but I'm still young and all it could take is just one homerun to really knock my investment returns out of the park. I'd call this my fifth really risky/speculative stock right behind: SAM, PSEC, SN & UA.
If you jump over to our Portfolio page, you can see the rest of what we are working with. Notice that we almost have basically an entire month of expenses taken care of if we choose to quit our day jobs and that's another reason I'm okay picking up a risky company. At age 28, we are significantly ahead of most of our peers and if this investment fails, we have time to make up for the stumble. If it takes off, we might look back in 20 years and say that was the best decision of our lives. Using Aflac as a proxy, investing $2000 in 1995, you'd end up with over a 1200% return or $26,000 today. Going back to a higher growth stage for Aflac in 1985, investing that same $2000, you would have over $140,000 today! A 7,000% return! Not saying UVE will be the next Aflac, but I'll take my chances right now.
Universal took a substantial nose dive on the 17th of November which is the same day I bought the stock. The stock fell because of an analyst that came out saying it could represent one of the greatest shorts of his life. Few shares, a CEO's son in trouble with the law (which is same name as CEO) and a sell first, think later mentality I believe led to a catastrophic fall of over 30% in one day!
I purchased 100 shares of Universal (UVE) at $20.07. This purchase adds $48.00 of annual dividends to our account.
With that being said, I had a sell order in at $27.00 (and still do) to capture a 35% gain but unfortunately the stock only bounced back to $24.50ish and has since leveled off around $20.00. I've heard the saying don't turn a trade into a investment but I'm hoping this works out for the good.
The company purchased almost $10 million dollars worth of stock the day of the 30+% drop and initiated another $10 million dollar buyback a few days later good through 2016. The company has over $200 million in cash and has a Price to Book of 2.49 (a common insurance valuation metric). Normal Price to Book values for big time insurance companies are usually around 1.50. This might still make UVE a bit expensive but this is a small cap insurance company that is expanding rapidly into new markets/states.
The major concern that the "big time" short seller stated was the fact that most of the companies customers are in Florida and it will take just one major hurricane to destroy the company. This is suspect timing to say the least since Florida is at minimum 6 months away from hurricane season and the "potential" for one of these major hurricanes. UVE brought in roughly $30 million net income last quarter. Another 2 quarters without a major hurricane and that $200 million in cash turns into $250+ million. The company is rapidly expanding into new states which further diversifies their portfolio so a major hurricane will not destroy them. No one can predict the weather but Florida could go another 10 years without seeing a major hurricane, although doubtful, I'd expect UVE to be a massive company in that time if no hurricanes occur.
I have been looking to diversify into a smaller market cap company with significant growth and this stock fits the bill. They have a short time frame with regards to dividend growth of just two years but the most recent increase was 20% and have paid out a special dividend of .15 cents the last two years. This stock adds a little bit more risk to the portfolio but I'm still young and all it could take is just one homerun to really knock my investment returns out of the park. I'd call this my fifth really risky/speculative stock right behind: SAM, PSEC, SN & UA.
If you jump over to our Portfolio page, you can see the rest of what we are working with. Notice that we almost have basically an entire month of expenses taken care of if we choose to quit our day jobs and that's another reason I'm okay picking up a risky company. At age 28, we are significantly ahead of most of our peers and if this investment fails, we have time to make up for the stumble. If it takes off, we might look back in 20 years and say that was the best decision of our lives. Using Aflac as a proxy, investing $2000 in 1995, you'd end up with over a 1200% return or $26,000 today. Going back to a higher growth stage for Aflac in 1985, investing that same $2000, you would have over $140,000 today! A 7,000% return! Not saying UVE will be the next Aflac, but I'll take my chances right now.
You can check out all the other purchases we have made for the year on my Stock Purchases and Sells page.
So there you have it, the next building block on the path to the American Dividend Dream! What do you think, good purchase, bad purchase? What are you looking to buy next?
ADD
Bought this company when price was in the low 7's, sold half when price was 30+
ReplyDeleteLove the dividend, Currently some activist involvement. Not sure what to think.
Thanks for commenting Ron! I'm not sure what to really think either. It's a bit of a gamble but who knows... it could work out big time in the future! Their expansion into multiple states over the past year will decrease their risk to Florida and hurricanes which is critical. Hopefully they get through this year and next with no hurricanes to hit Florida and I think this stock doubles.
DeleteSwing for the fences!
ReplyDeleteNice blog and content
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