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):

• 40 shares of SOUHY for a net loss of $53
• 27 shares of PRE for a net gain of $1,437
• 37 shares of BAX and 37 shares of BXLT for a net gain of $496

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?