Tuesday, November 3, 2015

Recent Sell: PennyMac Mortgage Investment Trust

Nov 2, 2015: Sold 120 shares of PMT at $14.81 per share.

Yesterday, I sold all my shares of PennyMac Mortgage Investment Trust (NYSE:PMT) because the mortgage REIT (real estate investment trust) cut its dividend from 61¢ per share to 47¢ per share. In announcing the cut, PMT's chairman and CEO, Stanford L. Kurland said: "PMT's objective is to distribute its income through quarterly dividends that reflect the earnings per share we expect from the present investment portfolio.” 

While PMT's reduced dividend still represents a 12.63% yield, I no longer believe the investment should be in my portfolio. This sell removes $292.80 from DivGro's projected annual dividend income.

While the rejection criteria I use to manage DivGro provide reasons not to buy a stock, a dividend cut spurs me to revisit my original investment thesis.

In the case of PMT, my bet on the company's ability to sustain its dividend didn't pay off. I chased the double digit yield and got burned! Since buying my shares the stock price has dropped by 29%, which is the only reason that PMT still offers a double digit yield.

Here is a chart showing the dividend yield and stock price history for the duration of my investment in PMT. Initially, it seemed, my investment looked like a good one as the stock price increased to about $23. In 2015, however, things turned around and the stock price started a prolonged downward trend:
     Source: Dividend.com

As a dividend growth investor, my objective is to generate a growing dividend income stream. PMT no longer supports that objective and I'm moving on.

So far this year, I've sold all my shares of South32 Ltd ADR (OTCPK:SOUHY), PartnerRe Ltd (NYSE:PRE), Baxter International (NYSE:BAX) and Baxalta (NYSE:BXLT):
Effectively, I have capital gains of $1,880 in DivGro in 2015. Selling losing positions such as PMT would help to offset some of those gains and reduce our tax liability.



Trading Summary


I bought 120 shares of PMT in May 2014 at $20.94 per share, securing a starting YoC (yield on cost) of 11.27%. In September 2014, PMT increased its quarterly dividend by 2¢ per share, resulting in a YoC of 11.65%.

2014-05-09
 Bought: 120 shares of PMT at $20.94 per share:
 $
2,512.79
2015-11-02
  Sold: 120 shares of PMT at $14.81 per share:
$
1,777.18
Capital loss:
$
735.61

Dividends received:
$
420.00

Commissions/fees:
$
0.00

Net loss:
$
315.61


The net loss is 12.56% on the original amount invested, or 8.46% annualized.

Before the dividend cut, 120 shares of PMT yielded $292.80 of annual dividend income. Consequently, I'm reducing DivGro's projected annual dividend income by that amount to $6,821.29.

Have you sold shares this year? Did you have a capital gain? Do you think of selling holdings to offset capital gains and so reducing your tax liability?

4 comments :

  1. Sometimes you have to make difficult decisions that are best for the future of the portfolio.. I think this is one of those choices. It's never easy to sell a losing position, but recovering from this dividend cut could take several years.

    Thanks for sharing!
    Best wishes, DfS

    ReplyDelete
    Replies
    1. Thanks for your comment, DfS!

      I agree with you. This was a difficult decision but the right one to make for DivGro. The most important, though, is the learning associated with this position. I chased yield and got burned. Perhaps there are similar positions lurking in my portfolio that I should get rid of over time.

      Take care!
      FerdiS

      Delete
  2. Well done on staying disciplined and keeping consistent with your strategy. In the long run it will pay off. I agree with DfS, its not easy selling a losing position, but when your looking at a 22.95% dividend cut, that definitely sends off red flags for a dividend growth strategy.

    ReplyDelete
    Replies
    1. Thanks, Derek! I don't like selling losing positions, but it is better to cut your losses and move on when the company cuts its dividend...

      Delete

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