Thursday, December 31, 2015

Out With The Old

Earlier, I reported closing a tax harvest trade on Qualcomm Inc (NASDAQ:QCOM). Because I still like QCOM, I decided to double down in November and wait 31 days before selling my original shares. In doing so, I took a loss on QCOM for the sake of tax-loss harvesting, but I also grabbed a larger dividend in December and managed to reduce QCOM's cost basis!

In November, I wrote about some big changes coming to DivGro. One change I mentioned was selling stocks I no longer believe should be in my portfolio. I sold PennyMac Mortgage Investment Trust (NYSE:PMT) and Textainer Group Holdings Limited (NYSE:TGH) after both companies cut their dividends. I also mentioned that several other stocks were in my crosshairs but that I'm waiting for one last dividend payment before selling my shares.

With this post, I'm reporting on these trades. I've decided to reduce DivGro's exposure to Energy sector stocks and to get rid of all master limited partnership (MLP) holdings. The losses I'm booking with these trades hurt a lot. On the bright side, though, I've learned a valuable lesson and renewal is liberating!

Energy Sector Woes


The Energy sector performed poorly in 2015. In fact, the Energy sector is the worst-performing sector in 2015 with a loss of about 24%. Plunging energy stocks weighed down the S&P 500's overall performance, which ended the year in negative territory by 0.7%. The market would have been up about 2% if it were not for the Energy sector losses!

The crude oil price fell 3.4% yesterday and triggered a decline in Energy sector stocks. The decline was the result of Saudi Arabia's insistence on keeping oil production at unrestrained levels and a report showing US stockpiles have increased by 2.6 billion barrels over the last week.

Although DivGro's Energy sector allocation is where I would like it to be, my portfolio was overweight in Energy sector stocks for the majority of 2015. As a result, DivGro's performance was less than satisfactory in 2015. I want to reduce my exposure to the Energy sector somewhat until the price of crude oil recovers.

Master Limited Partnerships


I developed special selection criteria for MLPs shortly after I started DivGro. The main advantage that MLPs offer to dividend growth investors is higher-than-usual yields. 

Unfortunately, owners of MLPs have to deal with somewhat complicated tax treatment of their MLP holdings. I don't like dealing with the special tax form, called a Schedule K-1, which often arrives rather late and sometimes repeatedly, with corrections. The worst is when a corrected form arrives after the tax-due date!

I'm not in a particularly good mood when I'm filing taxes, so dealing with obscure details and slight variations in filing requirements is not my idea of fun. So, I've decided to get rid of my MLP holdings!

Bye-bye VNR


I bought 180 units of Vanguard Natural Resources, LLC (NYSE:VNR) in October 2013 at a starting Yield on Cost (YoC) of 8.84%. At the time, VNR was paying monthly dividends of 20.75¢ per unit. Unfortunately, VNR cut its dividend twice this year, first by 44% in February and then by 75% in December. My investment has been decimated and I've learned a valuable lesson: 
If a company cuts my dividend, I will cut its shares from my portfolio!
My mistake was not immediately cutting VNR when the company first cut its dividend in February. The ride from about $17 down to about $3 per share has been my "reward"...

TRADING SUMMARY
2013-10-21
 Bought: 180 shares of VNR at $28.15 per share:
$
5,066.98
2013-11-14
 Dividend on 180 shares at 20.75¢ per share:
$
37.35
2013-12-13
 Dividend on 180 shares at 20.75¢ per share:
$
37.35
2014-01-15
 Dividend on 180 shares at 20.75¢ per share:
$
37.35
2014-02-14
 Dividend on 180 shares at 20.75¢ per share:
$
37.35
2014-03-17
 Dividend on 180 shares at 20.75¢ per share:
$
37.35
2014-04-14
 Dividend on 180 shares at 21.00¢ per share:
$
37.80
2014-05-15
 Dividend on 180 shares at 21.00¢ per share:
$
37.80
2014-06-13
 Dividend on 180 shares at 21.00¢ per share:
$
37.80
2014-07-15
 Dividend on 180 shares at 21.00¢ per share:
$
37.80
2014-08-14
 Dividend on 180 shares at 21.00¢ per share:
$
37.80
2014-09-14
 Dividend on 180 shares at 21.00¢ per share:
$
37.80
2014-10-15
 Dividend on 180 shares at 21.00¢ per share:
$
37.80
2014-11-14
 Dividend on 180 shares at 21.00¢ per share:
$
37.80
2014-12-15
 Dividend on 180 shares at 21.00¢ per share:
$
37.80
2015-01-14
 Dividend on 180 shares at 21.00¢ per share:
$
37.80
2015-02-13
 Dividend on 180 shares at 21.00¢ per share:
$
37.80
2015-03-17
 Dividend on 180 shares at 11.75¢ per share:
$
21.15
2015-04-14
 Dividend on 180 shares at 11.75¢ per share:
$
21.15
2015-05-15
 Dividend on 180 shares at 11.75¢ per share:
$
21.15
2015-06-12
 Dividend on 180 shares at 11.75¢ per share:
$
21.15
2015-07-15
 Dividend on 180 shares at 11.75¢ per share:
$
21.15
2015-08-14
 Dividend on 180 shares at 11.75¢ per share:
$
21.15
2015-09-14
 Dividend on 180 shares at 11.75¢ per share:
$
21.15
2015-10-15
 Dividend on 180 shares at 11.75¢ per share:
$
21.15
2015-11-13
 Dividend on 180 shares at 11.75¢ per share:
$
21.15
2015-12-15
 Dividend on 180 shares at 11.75¢ per share:
$
21.15
2015-12-29
  Sold: 180 shares of VNR at $3.04 per share:
$
547.11
Capital loss:
$
4,519.87

Total dividends received:
$
814.05

Commissions/fees:
$
8.94


Net loss:
$
3,714.76


The net loss is 73.3% on the original amount invested, or 33% annualized. For tax purposes, this is a long-term loss and I should be able to offset it against any long-term capital gains booked in 2015.

Farewell ETP


I bought 100 units of Energy Transfer Partners, LP (NYSE:ETP) in January 2013 at a starting Yield on Cost (YoC) of 7.54%. Unlike VNR, ETP has not cut its distribution. In fact, the partnership has steadily increased its distribution.

So why would I want to sell my ETP units?

In this case, my motivation for selling is primarily due the fact that ETP is an MLP with exposure in many states, making the tax-treatment particularly difficult. Being in the Energy sector is another reason. As mentioned, I want to reduce my exposure to the Energy sector.

TRADING SUMMARY
2013-01-18
 Bought: 100 units of ETP at $47.39 per unit:
$
4,738.99
2013-02-05
  Return of capital on 100 units at   89.38¢ per unit:
$
89.38
2013-05-02
Return of capital on 100 units at   89.38¢ per unit:
$
89.38
2013-08-01
Return of capital on 100 units at   89.38¢ per unit:
$
89.38
2013-10-31
Return of capital on 100 units at   90.50¢ per unit:
$
90.50
2014-02-05
 Return of capital on 100 units at   92.00¢ per unit:
$
92.00
2014-05-01
Return of capital on 100 units at   93.50¢ per unit:
$
93.50
2014-07-31
 Return of capital on 100 units at   95.50¢ per unit:
$
95.50
2014-10-30
 Return of capital on 100 units at   97.50¢ per unit:
$
97.50
2015-02-04
 Return of capital on 100 units at   99.50¢ per unit:
$
99.50
2015-05-15
Return of capital on 100 units at 101.50¢ per unit:
$
101.50
2015-08-14
 Return of capital on 100 units at 103.50¢ per unit:
$
103.50
2015-11-16
Return of capital on 100 units at 105.50¢ per unit:
$
105.50
2015-12-29
  Sold: 100 units of ETP at $33.22 per unit:
$
3,321.95
Capital loss:
$
1,417.04

Total capital returned:
$
1,147.14

Commissions/fees:
$
6.00


Net loss:
$
275.90


The net loss is 5.82% on the original amount invested, or about 2% annualized. As before, this is a long-term loss that can be offset against any long-term capital gains booked in 2015.

Adios APU


The final MLP I sold is AmeriGas Partners, LP (NYSE:APU). I bought 120 units of APU in March 2014 at a starting Yield on Cost (YoC) of 7.95%. APU is an MLP in the Utility sector rather than in the Energy sector. As mentioned, I no longer want to own MLPs, which is the only reason for selling my APU units.

TRADING SUMMARY
2014-03-14
 Bought: 120 units of APU at $42.25 per unit:
$
5,069.99
2014-05-07
 Return of capital on 120 units at 88¢ per unit:
$
105.60
2014-08-07
Return of capital on 120 units at 88¢ per unit:
$
105.60
2014-11-06
 Return of capital on 120 units at 88¢ per unit:
$
105.60
2015-02-06
 Return of capital on 120 units at 88¢ per unit:
$
105.60
2015-05-18
 Return of capital on 120 units at 92¢ per unit:
$
110.40
2015-08-18
Return of capital on 120 units at 92¢ per unit:
$
110.40
2015-11-18
 Return of capital on 120 units at 92¢ per unit:
$
110.40
2015-12-29
  Sold: 120 units of APU at $33.90 per unit:
$
4,067.94
Capital loss:
$
1,002.05

Total capital returned:
$
753.60

Commissions/fees:
$
6.00


Net loss:
$
254.45



The net loss is 5.03% on the original amount invested, or about 2% annualized. Again, this is a long-term loss that can be offset against any long-term capital gains booked in 2015.


Conclusion


By selling these MLPs, I'm reducing DivGro's projected annual dividend income by $1,117.40.


Taking losses are very unpleasant, but I'm happy to be rid of these MLPs. I'll have to deal with one more set of Schedule K-1's in April 2016, but then never again! I'm also happy to reduce my Energy Sector exposure.


Since this is my last post of 2015, I'd like to wish my readers a very happy, successful and prosperous new year! Thank you for your readership and support.


Thanks for reading! Do you have any thoughts on MLP's and dealing with them at tax time? Please comment below!

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