Monday, February 8, 2016

Another Home Run With DivGro

It has been a while since I celebrated my first home run with DivGro.

I call it a home run when an investment crosses the 100% profit mark. When that happens, you could sell half your shares and play with the house's money. Of course, that kind of thinking is a remnant of my days as a speculator. Selling half of a doubler ensures that you'll likely end up in the black. It also lets your winners ride.

Dividend growth investing is a bit different. The strategy is to invest in companies that pay and regularly increase dividends and trade at or below fair value. In theory, a company that increases its dividend every year can do so sustainably only if it grows earnings sufficiently. If that happens, the market should reward the company by bidding up the share price.

If you sell half of a dividend growth doubler, you sacrifice half of your dividends. That doesn't sound too appealing. On the other hand, you could redeploy the cash by buying a higher yielding stock and decreasing your portfolio risk to boot.

My first home run stock, General Dynamics Corporation (NYSE:GD), crossed the 100% profit mark
on 29 October 2014. I bought 35 shares of GD in March 2013 at $67.61 per share. The stock is trading for about $134 now, which is just below the 100% profit mark. With dividends, however, the total return is easily in home run territory.

Following is a chart showing a 3-year price history of GD, along with my buy price and indicating when the home run occurred. It is very clear that GD's share price no longer is growing at the pace it did in 2013 and 2014.
However, GD is doing the job as far as dividends and dividend growth are concerned. The stock has paid back 10% of my original investment in the form of dividends. After increases of 9.8% in 2013, 10.7% in 2014 and 11.3% in 2015, yield on cost (YoC) is 4.08%. Compare that with my initial YoC of 3.02% and GD's current yield of 2.06%.

As I write this, GD's total return is 105%, or 36% annualized.

Home Run #2


Recently, another DivGro holding doubled-up on buy price. I bought 110 shares of Nippon Telegraph and Telephone Corp (NYSE:NTT) in February 2013 at $22.43 a share. A few days ago, NTT hit a new 52-week high of $45.78 and so NTT became my second home run stock!

Here is the 3-year price history chart of NTT. Interestingly, much of NTT's growth came in 2015 when the overall market struggled to make any significant gains.
I am very happy with NTT's overall performance. As a foreign stock trading on the NYSE as an ADR (American Depository Receipt), NTT's dividend has suffered from exchange rate fluctuations. It is not a dividend growth stock when measured in dollar terms. For example, my initial YoC was 4.1%, whereas YoC is now 3.25%. However, much like GD, NTT has paid back 10.5% of my original investment in the form of dividends.

NTT's total return is 108%, or 36% annualized.

Concluding Remarks


It is exciting to get home runs.

As a dividend growth investor, getting a home run means that the stock in question is performing well! If dividends grow at a good rate, as is the case with GD, I see no reason to sell any shares.
Of course, buying more shares is trickier because you have to make sure that you're not paying a premium price. Also, a rising stock price pushes yield down and you'll probably find more attractive candidates elsewhere.

Along with celebrating my second home run with DivGro, this is the 300th article I've posted since founding DivGro in January 2013 – certainly another reason to celebrate! I'd like to thank you, my readers, for your encouragement and support. It has been quite a journey!

Here's to the next 300 articles (and the next home runs!)

Do you have home run stocks in your portfolio? What, if anything, do you do when a stock you own doubles in price? Please let me know below in the comments section...

10 comments :

  1. Congrats on your second investment to reach that 100% return number.

    R2R

    ReplyDelete
  2. Nice going FerdiS! Feels good when that happens. I have only one (MO) 111%

    ReplyDelete
    Replies
    1. That's great, Mike A -- 111% is fantastic. Keep up the good work!

      Delete
  3. Congrats on both fronts FeridS! Homeruns with your stock picks are both good and bad. It's great because it means the company is doing well but it's also kind of annoying because it means the value proposition is likely not as attractive. Great job!

    ReplyDelete
    Replies
    1. Thanks, PIP -- I'll never complain about home runs! I feel there are many worthy stocks out there, so if I have to work a little harder to find an alternative, I'll do it.

      Take care!
      FerdiS

      Delete
  4. Wow, that's some good luck there. My best gain has been MO, but 'only' 81% at the moment.

    ReplyDelete
    Replies
    1. 81% is great -- won't be long and you'll have a home run, too! Keep up the good work and thanks for visiting and commenting!

      Delete
  5. Not a dividend stock, but Facebook has been an amazing buy for me. I bought at $28, and as of close today it was $101, with a 52-week high of $117. That's a grand slam in my book.

    ReplyDelete
    Replies
    1. I agree -- that IS a grand slam! Congratulations!

      I have a few speculative, non dividend growth stocks, but none that matches that performance...

      Delete

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