Tuesday, June 23, 2015

Recent Sell: South32 Ltd

Jun 23, 2015: Sold 40 shares of SOUHY at $7.10 per share.

Today I sold all 40 shares of South32 Ltd ADR (OTCMKTS:SOUHY) that I received when the company spun-off from BHP Billiton plc (NYSE:BBL). The 40 shares represented a small portion (only about 11%) of my regular position size. Regular readers will know that I prefer to buy shares in lots of about $2,500, so dealing with an outlier like SOUHY would have been bothersome.

I bought 100 shares of BBL in two lots, on 4 June 2013 (43 shares at $58.39 per share) and on 20 November 2014 (57 shares at $50.20 per share). Currently, BBL is trading at about $43 per share. The company announced its demerger plans on 19 August 2014. The spin-off was completed in May, although I received my 40 spin-off shares of SOUHY on 9 June.

While SOUHY plans to issue semi-annual dividends like BBL does, expectations put the dividend yield well below BBL's current yield of 5.78% (at $43 per share). I'd much rather deploy the small amount of capital elsewhere.

Trading Summary


2015-06-09
 Spinoff In: 40 shares of SOUHY at $8.30 per share:
 $
332.00
2015-06-23
Sold 40 shares of SOUHY at $7.10 per share:
$
284.19
Capital loss:
$
-47.81

Dividends received:
$
0.00

Spinoff expense fees:
$
-5.00

Net loss:
$
-52.81

Since no dividends have been announced for SOUHY, DivGro's projected annual dividend income is unaffected by this sale. It currently stands at $6,328.29.

If you own BBL or BHP and received SOUHY shares in the spinoff, are you planning to hold onto your shares? Why, or why not?

10 comments :

  1. I have some SOUHY from the spin off as well. I'm planning to sell soon but I figure most folks will not be holding it so it might not be a good time to sell now.
    Any idea what the tax implication is going to be? In my account, the cost basic is showing as $9 for me though.

    ReplyDelete
    Replies
    1. I'm not sure what the tax treatment would be, but I believe its a taxable spin-off. All-in-all, I'll be losing on the deal. I just don't want to sit with an 11% position and I have no desire to throw more money at it. Good luck with your decision!

      Delete
  2. I have some spin off shares as well. The cost basis for my are also $9. I'll probably hold on to them for awhile and see how the dividends shape up. It is such a small amount that I don't see much harm in seeing how it does. Good luck to all of us!

    One thing that I'm still wondering about is if the cost basis of BBL will change as well. As of now, I don't think mine has updated that yet.

    ReplyDelete
    Replies
    1. I'm not sure if the cost basis of BBL will change. Perhaps readers with more experience about these things could chime in. For me, the spinoff of shares of another company is more like a special (non-cash) dividend. I do know that it is a taxable dividend, though.

      Thanks for commenting, and good luck!

      Delete
  3. Isn't this one of the worst time to sell commodity stocks? If anything one should be buying. I'll hold on to my SOUHY.

    ReplyDelete
    Replies
    1. I'm not selling BBL. SOUHY is a small (11%) position compared with my other holdings. I'd like to have somewhat equal-sized holdings (ignoring capital gains) in DivGro. So my choices were (1) sell (2) buy more SOUHY to make it a 100% position. SOUHY doesn't yet have a track record of increasing dividends (unless you consider BBL's track record as a proxy). In fact, it is still unclear what SOUHY would yield. It looks like it would be substantially less than BBL.

      Good luck!

      Delete
  4. I don't blame you. I really consider SOUHY to be a second-tier miner. Although I like the manganese deposits and Cannington, the rest gets a resounding "meh". I think the question we need to ask ourselves as holders is , if we didn't get shares in a spinoff, would we put our money into the company anyway? For me, I lean towards "no". I'm also a little scared of BBL now, and am personally probably going to sell that too. (1) it's a more concentrated play on iron ore, which I distinctly wanted to avoid; that's why I didn't buy RIO or VALE. Basically, the company isn't the same as when I bought it, and I don't like that. (2) the announcement that BBL will not be rebasing the dividend is negative to me. I don't view the dividend as sustainable long-term, especially without the assets spun out and with the bearish outlook on iron ore. I think the spike in earnings that we saw over the past decade will not be seen again for a while.

    At its heart, both BBL and SOUHY are commodity producers. There may be some differences in grade or quality, but they really just pull stuff out of the ground and sell it to those who actually add value. A BBL can easily be swapped out with a RIO, VALE, or a local producer. There's no true moat. Even cost advantages can change once the mines run out. Maybe SOUHY and BBL will be okay, but the more I think about it, the less confident in my investment I get.

    ReplyDelete
    Replies
    1. Hi Mike -- thanks for the comment. I just read your post in which you sold SOUHY and BBL... you acted quite quickly! I'm not sure about BBL yet... I'll have to think about that and look at the stocks prospects carefully. I do have a sense that you're right, though.

      Thanks again!

      Delete
    2. Heh, indeed it was. It's been something I was mulling over for a while. Figured if I actually had to think about whether to keep them, they're not stocks I am comfortable with deep down. I mean, would you ever even consider selling JNJ, MO, or DIS? Not likely. Because of that, I decided to sell.

      Delete
    3. Good point!

      Great about DIS now paying dividends semi-annually! With a nice 14% raise to boot...

      Delete

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