Saturday, July 9, 2016

Selling Three More Winners

sold three winners recently and today I'm reporting on selling three more.

So, why am I selling stocks that are performing well and continue to pay increasing dividends? The main reason is that I'd like to trim the number of positions in DivGro and increase the size of some of my core holdings.

As mentioned earlier, I'm hoping to boost my dividend income by selling options against some of my DivGro positions. Covered call writing is a safe way to earn extra income on stocks you own. Typically, you sell one contract for every 100 shares you own and collect an option premium in return. Currently, many of my DivGro positions involve fewer than 100 shares, so by increasing those positions, I'll have more opportunities to execute options trades.

In the summaries below, I'm listing a few reasons for selling these particular stocks. I'l keep these stocks on my watch list and will consider buying them again in future, but only if they trade below fair value and comply with my other stock selection criteria.

Recent Sell: Toronto-Dominion Bank (TD)

Since first initiating a position in TD (green circle), the stock has gone way up, then way down, just to return to a level just above my original entry price.

Trading Summary

2012-08-31
 Bought 42 shares of TD at $41.18 per share:
 $
1,729.49
2012-11-01
 Cash dividend on 42 shares:
$
13.74
2013-02-03
 Cash dividend on 42 shares:
 $
13.77
2013-05-01
 Cash dividend on 42 shares:
$
14.33
2013-08-01
 Cash dividend on 42 shares:
 $
14.04
2013-11-01
 Cash dividend on 42 shares:
$
14.50
2014-02-03
 Cash dividend on 42 shares:
 $
13.77
2014-05-01
 Cash dividend on 42 shares:
$
15.30
2014-08-01
 Cash dividend on 42 shares:
$
15.41
2014-11-01
 Cash dividend on 42 shares:
 $
14.83
2015-02-03
 Cash dividend on 42 shares:
$
13.34
2015-05-01
 Cash dividend on 42 shares:
 $
15.03
2015-07-07
Bought 18 shares of TD at $41.44 per share:
$
745.92
2015-08-03
 Cash dividend on 42 shares:
 $
13.97
2015-11-02
 Cash dividend on 60 shares:
$
19.80
2016-02-01
 Cash dividend on 60 shares:
$
21.70
2016-05-03
 Cash dividend on 60 shares:
$
26.31
2016-07-08
  Sold 60  shares of  TD at $42.50 per share:
$
2,550.00
2016-08-03
  Cash dividend on 60 shares:
$
25.25
Capital gain:
$
74.59

Dividends received:
$
265.09

Commissions/fees/taxes:
$
32.01

Net gain:
$
307.67

The net gain is 12.4% on the original amount invested, or 4.2% annualized.

TD is trading below fair value, so that is not the reason I'm selling the stock. (Morningstar's fair value estimate is $54, while S&P Capital has a fair value calculation of $51.80).

The reason I'm closing my position in TD is that the company's dividend is not paid in US$, so it suffers from exchange rate fluctuations.  Even though the dividend has not decreased in Canadian dollar terms, the stock has been removed from the CCC list. I use the spreadsheet accompanying the CCC list extensively when analyzing stocks, so it is pretty inconvenient that TD is not on that list.

I realize this is not a compelling reason for selling TD, but I've decided to do so anyway.

Recent Sell: W.P. Carey, Inc (WPC)

WPC is trading at just about the same level as my original entry. Along the way, though, I bought more shares at a lower base (blue circle), so overall my investment in WPC is cash positive.

Trading Summary

2014-08-14
 Bought 30 shares of WPC at $68.48 per share:
 $
2,054.40
2014-10-15
 Cash dividend on 30 shares:
$
28.20
2015-01-15
  Cash dividend on 30 shares:
 $
28.50
2015-04-15
 Cash dividend on 30 shares:
$
28.58
2015-07-15
 Cash dividend on 30 shares:
 $
28.62
2015-07-07
 Bought 10 shares of WPC at $60.48 per share:
 $
604.77
2015-10-15
 Cash dividend on 40 shares:
$
38.20
2016-01-15
  Cash dividend on 40 shares:
 $
38.58
2016-04-15
 Cash dividend on 40 shares:
$
38.97
2016-07-08  Sold 40 shares of WPC at $68.69 per share: $2,747.78
2016-07-15
 Cash dividend on 40 shares:
 $
39.20
   Capital gain: $88.61
   Dividends received: $268.55
   Commissions/fees: $21.05
   Net gain: $357.16

The net gain is 13.4% on the original amount invested, or 7.9% annualized.

Finbox.io has a fair value estimate of $43.70, which means the REIT is trading at a premium of over 35%. Furthermore, the stock has an S&P Credit Rating of BBB and an S&P Capital IQ Quality Ranking of B+. I don't see any Value Line ratings for WPC.

Recent Sell: Avista Corporation (AVA)

The final sell I'm reporting is AVA with its spectacular recent performance:

Trading Summary

2014-10-22
 Bought 75 shares of AVA at $34.12 per share:
 $
2,558.99
2014-12-15
 Cash dividend on 75 shares:
$
23.81
2015-03-13
 Cash dividend on 75 shares:
 $
24.75
2015-06-15
 Cash Dividend:
$
24.75
2015-09-15
 Cash Dividend:
 $
24.75
2015-12-15
 Cash Dividend:
$
24.75
2016-03-15
 Cash Dividend:
 $
25.69
2016-06-15
 Cash Dividend:
$
25.69
2016-07-08
  Sold 75  shares of  AVA at $43.86 per share:
$
3,289.44
Capital gain:
$
730.45

Dividends received:
$
174.19

Commissions/fees:
$
0.00

Net gain:
$
904.64

The net gain is 35.4% on the original amount invested, or 20.7% annualized.

Finbox.io has a fair value estimate of $30.76, which means the stock is trading at a premium of about 30%. My own fair value estimate is a little higher at $37.44, but that still means a downside of about 17%. 

AVA has an S&P Credit Rating of BBB and an S&P Capital IQ Quality Ranking of A-. I don't see any Value Line ratings for AVA, but SafetyNet Pro, a dividend grading tool I'm a subscriber of, rates the stock a D, meaning there's a high risk of a dividend cut.
 
By selling TD, WPC and AVA, I'm reducing DivGro's projected annual dividend income by $364.80 to $11,030.28.
 
Thanks for reading! What do you think about these sales? What's your strategy for selling dividend growth stocks? Do you ever sell shares that are trading well above fair value, or do you "let your winners run?"

10 comments :

  1. Thanks for sharing DG. We've been selling some of our portfolio because of valuation. Parts of this market are too rich for our blood. We'll get our chance to reinvest in better opportunities.

    Have a great weekend
    -Bryan

    ReplyDelete
    Replies
    1. Hi Bryan -- I've noticed some sales from several DGI bloggers. The market is pretty hot right now and approaching all time high territory again. I agree, we'll get a chance to reinvest at better levels. Thanks for visiting and commenting!

      Delete
  2. Disagree with your reasoning to partially destroying your work :) and disagree with selling!

    ReplyDelete
    Replies
    1. Hi Martin -- that's a weird comment, but, OK...

      I guess you didn't see my motivation for selling. See the paragraph boosting my income through options.

      Cheers!

      Delete
    2. Ehm, maybe I missed the paragraph about options. Didn't miss your reasoning that you are selling because the stocks are overvalued. Or am I misinterpreting? You are saying that you would buy back if they trade below fair value. What if they never get there?

      Delete
    3. No, you're not misinterpreting, but I'm not selling only because these stocks are overvalued. I give additional reasons. In each case, I'd say the stocks I'm selling are weaker holdings when compared to others in my portfolio.

      The main reason for selling some stocks is to prepare for options trading, which require multiples of 100 shares. Most of my positions are below 100 shares, so I need so shift things around a bit. I'm targeting stocks that I feel have less upside.

      Never is a long time :-).

      Nevertheless, I see the stocks I'm selling as weaker than ones I'm holding. For example, AVA has a BBB credit rating and a D safety rating. So, IF they never trade below fair value again, I'll buy something else at a discount, with stronger fundamentals.

      I appreciate your challenging questions -- thanks for nudging me to (try to) clarify!

      Delete
  3. Hey Ferdi,

    I'm looking into writing covered call options myself.
    One of the first things I have to look into is: what happens when you do not have 100 shares?

    If your covered call strikes and you would own only 60 shares, would you have to buy the other 40 shares at the current price level?

    Obviously this is very basic knowledge, so I'm not executing any covered calls as of yet. :)

    Good luck. Curious to see what you are going to buy with all that capital!

    Best wishes, DfS

    ReplyDelete
    Replies
    1. Hi DfS --

      "Covered" means you already hold 100 shares for every call option you write (sell).

      The alternative is "Naked Call Writing". Unless you're a naturist, the name should scare you!

      The naked strategy is a more aggressive, having a lot more risk, but it can be used to generate income as part of a diversified portfolio. If not used properly, however, a naked call position can have disastrous consequences since a stock can theoretically rise to infinity. All of this and more is our focus in this article.

      Read more: Naked Call Writing: A Risky Options Strategy | Investopedia http://www.investopedia.com/articles/optioninvestor/122701.asp#ixzz4E729BEGS

      Delete
  4. I'm curious why SafetyNet Pro feels that AVA is in danger of a dividend cut. Maybe they are seeing something I'm not.

    ReplyDelete
    Replies
    1. Hi Captain -- I'm not sure. Just speculating here, but I notice the EPS-based payout ratio is 67% and the most recent increase was just 3.8%. Plus AVA has missed on revenue the past few quarters.

      Thanks
      FerdiS, DivGro

      Delete

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