On Monday, I sold all my shares of PennyMac Mortgage Investment Trust (NYSE:PMT) because the company cut its dividend. Today, I'm announcing another sell: Textainer Group Holdings Limited (NYSE:TGH), which shocked investors with a dividend cut of nearly 50%.
On Tuesday, 3 November, TGH reported weak third-quarter results, with falling rental rates, lower utilization and significant weakness in container resale proceeds being the main culprits. The near-term future does not look good, either. CEO Phillip Brewer noted that factors such as weak demand and lower rental rates will continue to impact TGH.
Because of the weak outlook the company reduced its quarterly dividend from 47¢ per share to 24¢ per share, a dividend cut of 49%. Instead, TGH plans to return cash to investors by buying back shares after initiating a $100 million share repurchase program.
Just last quarter, TGH indicated that the dividend was safe despite a higher payout ratio. In fact, company officials prided themselves in the consistency of their dividend policy:
"Our board has demonstrated a commitment to a consistent dividend policy. We have paid a stable or increasing dividend since our IPO..." (Hilliard Terry – Executive VP and CFO).
"We have never cut or reduced our dividend since we've gone public... I think that's a very firm example that our board takes [...] the payment of our dividend very seriously." (Philip Brewer – President and CEO).So, the dividend cut can rightfully be seen as one that is blindsiding shareholders.
Following the earnings release and dividend cut, TGH's share price (unsurprisingly) plunged 25%. Of course, this hurts and selling now makes my investment in TGH look particularly bad! But I'm going to take the punch now rather than hang on and hope for an eventual turnaround.
Trading Summary
I bought 75 shares of TGH in June 2013 at $33.97 per share at an initial YoC (yield on cost) of 5.42%. In August 2013, TGH increased its quarterly dividend by 1c per share, resulting in a YoC of 5.53%.
2013-07-29
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Bought: 75 shares of TGH at $33.93 per share:
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$
|
2,544.75
|
2015-11-04
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Sold: 75 shares of TGH at $14.94 per share:
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$
|
1,120.49
|
Capital loss:
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$
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1,424.26
| |
Dividends received:
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$
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317.25
| |
Commissions/fees:
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$
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3.00
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Net loss:
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$
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1,107.01
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The net loss is 43.5% on the original amount invested, or 19.19% annualized.
Before the dividend cut, 75 shares of TGH yielded $141 of annual dividend income. Consequently, I'm reducing DivGro's projected annual dividend income by that amount to $6,680.29.
Do you own shares of TGH? Are you planning to sell your shares after the dividend cut? If a stock you own cuts its dividend, do you always sell the stock?
Been watching this one (& TAL) for a very long time. I have just been amazed at how it has just kept dropping over time. Talk about a falling knife! Luckily I stayed away, but it was high on my radar for a long time. I even did some DD on it, but just didn't feel good.
ReplyDeleteGood time to stock up on T & HCP. Dividend Champs that (for me) are as SWAN as can be. Not much growth, but the cash rolls in like clock work. I bought these two very early on so every time I look at my total return with dividends I smile. I am not looking to hit home runs just get steady income for when I retire. Good luck
Thanks for commenting and suggesting T & HCP. You're right about the falling knife! Good job not buying TGH after doing your due diligence. I already own shares of T, but I'll look into HCP.
DeleteTake care and best of luck with your investments!
Talk about a rough week. Two 50% dividend cuts leading to two sales. Of course that's why we invest in multiple companies. Sure the cuts and subsequent capital losses will hurt in the short term but you still have all the other companies in your portfolio paying and hopefully growing their dividends so you'll make up for the decline rather quickly. I agree with Mike A that T looks like a good idea if you're looking for a higher yield option. I'm contemplating adding a bit more T to my portfolio here and dividend growth could actually spike above the token $0.01 quarterly increases over the next few years.
ReplyDeleteYeah, a pretty rough week, I'd say. And, as you point out, exactly the reason to diversify! With almost three years of dividend growth investing behind me, I've learned a lot and recognize some of the mistakes I made in the beginning. Learning by doing is the best kind, in my view, as long as you learn from your mistakes and identify the things you do right...
DeleteThanks for reading and commenting!