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Friday, July 22, 2016

Last Week's Purchase

Okay so my portfolio is a little over 800 dollars. So clearly anything posted by me is clearly for entertainment purposes and not investment advice. I'm just a social studies teacher trying to build some passive income. I normally wouldn't go near a stock trading so low. Frontier Communications trading at $5.17 is practically a penny stock. But for several reasons I started a small position (even by my small time standards) The fact that I'm paying zero brokerage fees on my Robinhood account allows me to do it. The reason I like $FTR is:

1. It has the interest of the big banks.
2. Has a huge dividend yield
3. It is dirt cheap.
4. Lots of growth potential.

There is a lot of momentum around this stock and it has a dividend yield of 8.1 percent. There is a consensus price target of $6 with Merrill Lynch posting a $9 price target. This is a relatively tiny stock that is 69% institutionally owned by the big banks. A look at their financials does show some signifiant concerns. The company doesn't produce enough income to cover its dividends. But they appear to have plenty of cashflow. They've just acquired billions assets that will assist them with their growth. The risk is that the telecom industry is highly competitive and they are going to have compete to keep their newly acquired customers. Overall I've tried to avoid risk. That's why in a portfolio as tiny as mine I own a share of Disney and a couple of shares of Pepsi. I'm still very new to stocks and maybe I will learn a lesson about these type of stocks with this buy. But given where the market is now with so many stocks trading so close to their all-time highs, I thought this stock was worth the risk on its dividend and growth potential.

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