In my last Pulse article, I looked at a yield channel chart of Microsoft (MSFT) that clearly shows that the stock is trading at an overvalued yield when looking at historical yield patterns.MSFT is DivGro's seventh home-run and one of my top performers with annualized total returns of about 55%. It is tough to sell a home-run stock when it is performing so well, but my yield channel chart suggests it is a good time to do so.
I think MSFT has more room to grow, so I decided to sell a portion of my shares and ride the upward trend as long as it lasts. This article presents a short summary of the trades and dividends received as well as a net profit analysis.
Yield Channel Analysis
Yield Channel Charts provide a tool for dividend growth investors to assess market valuation relative to historical yield patterns.
Yield channels can be seen as safety zones for stock prices. As long as the stock price stays in the yield channel, the stock is fairly valued. If the stock price moves outside the yield channel to the upside, the stock is overvalued and the yield is low, historically.
The following yield channel chart shows that MSFT is trading at overvalued yield levels:
It is pretty evident that MSFT is trading at overvalued yield levels. The stock yields 1.53% at $109.67 per share. I think the capital I'm freeing up by closing my MSFT position can be invested more effectively elsewhere.
Other Considerations
The 140 MSFT shares I owned were spread over two portfolios, one lot of 60 shares and one lot of 80 shares. I decided to close the 60-share lot and to add 20 shares to round out my MSFT position to 100 shares. That way, I can sell covered calls on MSFT to add some premium income to DivGro.
So, effectively I'm selling 40 of the 140 shares. Selling 60 and then immediately buying 20 shares is not the best way to go about managing one's portfolio, but the end justifies the means, as the saying goes...
Trade Summary
I transferred 60 shares of MSFT to DivGro in January 2017 as part of a consolidation process.
Here is a summary of trades and dividends, along with a net profit analysis:
2013-02-28
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Bought 60 shares of MSFT at $27.80 per share:
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$
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1,668.00
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2013-06-13
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Dividend on 60 shares at 23¢ per share:
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$
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13.80
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2013-09-12
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Dividend on 60 shares at 23¢ per share:
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$
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13.80
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2013-12-12
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Dividend on 60 shares at 28¢ per share:
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$
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16.80
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2014-03-13
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Dividend on 60 shares at 28¢ per share:
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$
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16.80
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2014-06-12
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Dividend on 60 shares at 28¢ per share:
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$
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16.80
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2014-09-11
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Dividend on 60 shares at 28¢ per share:
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$
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16.80
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2014-12-11
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Dividend on 60 shares at 31¢ per share:
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$
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18.60
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2015-03-12
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Dividend on 60 shares at 31¢ per share:
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$
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18.60
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2015-06-11
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Dividend on 60 shares at 31¢ per share:
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$
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18.60
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2015-09-10
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Dividend on 60 shares at 31¢ per share:
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$
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18.60
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2015-12-10
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Dividend on 60 shares at 36¢ per share:
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$
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21.60
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2016-03-10
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Dividend on 60 shares at 36¢ per share:
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$
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21.60
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2016-06-09
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Dividend on 60 shares at 36¢ per share:
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$
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21.60
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2016-09-08
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Dividend on 60 shares at 36¢ per share:
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$
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21.60
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2016-12-08
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Dividend on 60 shares at 39¢ per share:
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$
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23.40
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2017-03-09
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Dividend on 60 shares at 39¢ per share:
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$
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23.40
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2017-06-08
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Dividend on 60 shares at 39¢ per share:
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$
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23.40
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2017-09-14
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Dividend on 60 shares at 39¢ per share:
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$
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23.40
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2017-12-14
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Dividend on 60 shares at 42¢ per share:
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$
|
25.20
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2018-03-08
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Dividend on 60 shares at 42¢ per share:
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$
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25.20
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2018-06-14
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Dividend on 60 shares at 42¢ per share:
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$
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25.20
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| 2018-07-30 | Sold 60 shares of MSFT at $105.83 per share: | $ | 6,349.73 |
Capital Gain:
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$
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4,681.73
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Dividends Received:
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$
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424.80
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Commissions/Fees/Taxes:
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$
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0.00
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| Net Gain: | $ | 5,106.52 |
I made a net gain of 306% on the original amount invested, which is a gain of 57% annualized.
Selling these shares reduced DivGro's projected annual dividend income by $100.80.
Concluding Remarks
Of course, the total returns that the 60 shares of MSFT delivered over just more than 5 years will be hard to beat!
That must have been hard to sell something you have held for so long. At least you know a price you can buy back in. Overall a very nice profit. Keep up the great work.
ReplyDeleteYes, though I'm effectively selling "only" 40 shares. I think it is possible for MSFT to go higher yet, but taking some profits now allows me to invest in higher yielding stocks and increase DivGro's portfolio yield. Thanks and happy investing!
DeleteHi Ferdi,
Deletesound decision. Especially regarding your overall investment strategy.
CU!
Thanks, Torsten -- redeploying the capital should at a higher yield should help my portfolio in the long-run. Happy investing!
DeleteI'm thinking of selling part of my position in one of my IRA holdings because I might not be able to consistently add cash to it every year depending on what our MAGI is like. As such that's the only way for me to diversify within that account. I like the yield channel charts and I think it's a pretty good tool. I haven't checked out your SA article on it yet but how you determine the bounds for the channel. Is it statistically based or does it use like a rolling period to determine the bounds? I only ask because that seems like a huge range for MSFT to be considered fairly valued between between say ~$55-$100. Definitely like the idea though and I'll be checking out your SA article some time next week when I get some more time.
ReplyDeleteHi, Passive IncomePursuit -- I guess I should have mentioned that the 40 shares I sold were in one of my IRAs, so no capital gains taxes due at this time! As for yield channel charts, I simply sort all available daily yields within a period (say 9 years) and cull a certain percentage of the top and bottom yields to define the upper and lower bounds. Presently, I cull 10% on either side. Culling more would tighten the channel, but I want a liberal channel so stocks I own have "sufficient" room to move in.
DeleteLooks like a really good sell at that point. Holding onto some is a good idea too. Hopefully it can drop a little bit for a nice entry point again. Well done and keep up the great trades.
ReplyDeleteThanks, MPW -- sometimes I close out my entire position, but in the case of MSFT I feel the stock could run higher yet. The new CEO is doing some impressive things and the company has some great prospects going forward.
Delete