Recent Sell: Microsoft

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	Bought 60 shares of MSFT at $27.80 per share:	$	1,668.00
2013-06-13	Dividend on 60 shares at 23¢ per share:	$	13.80
2013-09-12	Dividend on 60 shares at 23¢ per share:	$	13.80
2013-12-12	Dividend on 60 shares at 28¢ per share:	$	16.80
2014-03-13	Dividend on 60 shares at 28¢ per share:	$	16.80
2014-06-12	Dividend on 60 shares at 28¢ per share:	$	16.80
2014-09-11	Dividend on 60 shares at 28¢ per share:	$	16.80
2014-12-11	Dividend on 60 shares at 31¢ per share:	$	18.60
2015-03-12	Dividend on 60 shares at 31¢ per share:	$	18.60
2015-06-11	Dividend on 60 shares at 31¢ per share:	$	18.60
2015-09-10	Dividend on 60 shares at 31¢ per share:	$	18.60
2015-12-10	Dividend on 60 shares at 36¢ per share:	$	21.60
2016-03-10	Dividend on 60 shares at 36¢ per share:	$	21.60
2016-06-09	Dividend on 60 shares at 36¢ per share:	$	21.60
2016-09-08	Dividend on 60 shares at 36¢ per share:	$	21.60
2016-12-08	Dividend on 60 shares at 39¢ per share:	$	23.40
2017-03-09	Dividend on 60 shares at 39¢ per share:	$	23.40
2017-06-08	Dividend on 60 shares at 39¢ per share:	$	23.40
2017-09-14	Dividend on 60 shares at 39¢ per share:	$	23.40
2017-12-14	Dividend on 60 shares at 42¢ per share:	$	25.20
2018-03-08	Dividend on 60 shares at 42¢ per share:	$	25.20
2018-06-14	Dividend on 60 shares at 42¢ per share:	$	25.20
2018-07-30	Sold 60 shares of MSFT at $105.83 per share:	$	6,349.73
	Capital Gain:	$	4,681.73
	Dividends Received:	$	424.80
	Commissions/Fees/Taxes:	$	0.00
	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

I'm very happy with MSFT's performance and the fact that my investment has returned 57% on an annualized basis. Trimming my position from 140 to 100 shares will allow me to deploy some reclaimed capital and possibly increase DivGro's yield to boot.

Of course, the total returns that the 60 shares of MSFT delivered over just more than 5 years will be hard to beat!

What do you think of this sell? Do you think basing sell decisions on yield channels is a sound investment strategy? Please share your thoughts in the comments section below.