Saturday, February 18, 2017

Recent Sell: PennantPark Investment

I bought 215 shares of PennantPark Investment Corp (PNNT) in September 2013 when I was a rookie dividend growth investor. One can easily argue that I made the classic mistake of chasing yield. The company paid dividends of 28¢ per quarter, so my initial yield on cost (YoC) was a whopping 9.63%. Unfortunately, PNNT froze its dividend right when I bought those shares. Rather than sell the shares, I argued that I could afford to take on more risk for such a high yield.

Not long after buying those shares, PNNT's stock took a nosedive all the way down to $4.65:


I considered cutting my losses on several occasions, but taking such a big loss would have been rather painful. Meanwhile, the share price started to recover and I'm glad that I'd stuck it out!

In August last year, I confessed to buying more shares of PNNT in hopes of accelerating my recovery:
18 July 2016: Bought 785 shares of PNNT at $7.22 per share
It looked like the trade would pay off well, especially when the stock price broke above $8 in September. Unfortunately, it pulled back from a new 52-week high of $8.16 shortly thereafter.

Dividend Cut


I've been expecting a dividend cut from PNNT for quite some time, and the company finally announced that it would be doing so in 2017. The announcement came just prior to releasing financial results for the fourth quarter and the fiscal year ended September 30, 2016.

PNNT said it would be paying a reduced quarterly dividend of 18¢ per share starting with their March 2017 payment. The cut represented a reduction of 36% from the previous quarterly payment of 28¢ per share. Post-announcement, the stock dropped to $7.26 and a new yield of 9.9%.

At the time, I decided to hold onto my shares just a little longer to see if I could exit at a better price. To be frank, I also wanted to collect the final 28¢ quarterly dividend. Fortunately, the stock recovered a little and I sold the original lot of 215 shares on 23 December 2016 for $7.76 per share, one day after the ex-dividend date:

Thanks to the dividends I collected over nearly 30 months of stock ownership, the trade showed a minuscule gain of $9.81.

Cheers PNNT!


When I sold the original lot of 215 shares, I also entered a trade alert to sell the second lot of 785 shares if the price should climb above $8.25. The alert triggered last week, so I closed my PNNT position on 9 February for a nice gain:


Trading Summary

2016-07-18Bought 785 shares of PNNT at $7.22 per share:$5,667.70
2016-10-03 Dividend on 785 shares at 28¢ per share: $219.80
2016-01-03 Dividend on 785 shares at 28¢ per share: $219.80
2017-02-09Sold 785 shares of PNNT at $8.27 per share:$6,491.81
Capital gain:
$
824.11

Dividends received:
$
439.60

Commissions/fees/taxes:
$
0.14

Net gain:
$
1,648.08

I made a net gain of 22.3% on the original amount invested, or 40% annualized.


Concluding Remarks


I'm happy to part ways with PNNT, even though I'm giving up a yield of about 9%. I'm especially happy that I could exit with some nice gains! I've paid for some of my rookie mistakes with other yield-chasing trades, but this one turned out alright!

Thanks for reading! Have you made risky buys for the sake of chasing high yields? Did those trades pay off for you, or did you end up selling at a loss? Please share your experiences below!

2 comments :

  1. Nice to see that you came out on top. I read an article about this adventure which you published when you bought the additional shares. I was afraid it would end up all wrong, but it seems you made a great move!

    ReplyDelete
    Replies
    1. Thanks, Pursuit 2 Freedom -- it is more luck than wisdom that got me on the positive side with this trade. It has been a fun ride but I'm happy to be out of PNNT!

      Delete

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