Recent Sell: Gap

I bought shares of Gap (GPS) in June 2019 due to an options assignment.

When I first looked at GPS, the company seemed to have good prospects on top of a generous dividend. Now, unfortunately, the prospects seem less favorable and, while the dividend is very generous, it is deemed Borderline Safe by Simply Safe Dividends. 

I've been using a new quality scoring system to assess the quality of my DivGro stocks. The system is simple and does a great job identifying high-quality stocks, and also lower quality positions that may be candidates for the chopping block. GPS has a quality score of only 9, which puts it in the Low-Quality category.


I decided to sell GPS and take the loss now. I've recorded ample capital gains in 2019 and offsetting some of it with this transaction will be beneficial at tax time. Taking is a loss is never fun, but holding onto a weak stock for a very long time with the hopes of an eventual recovery is even less fun!

Background

My portfolio contains mostly dividend growth [DG] stocks, but I also own so-called dividend stocks. These are stocks that pay dividends but have not increased those dividends for some time. My GPS position was one of six such stocks:



Recently, I closed my Ford Motor (F) position and now I'm doing the same with GPS.

The main reason for closing these positions is that I'm improving DivGro's overall risk profile, favoring stocks with higher safety ratings and quality scores.

Here is a table that presents a breakdown of quality scores for these dividend payers:

Ticker	Company	VL Safety Rank	VL Fin.  Stren.	M* Econ. Moat	S&P Credit Rating	SSD Divi. Safety	Qual	Yield	Recent Price
CVS	CVS Health	1	A++	Narrow	BBB	67	21	3.08%	65.10
F	Ford Motor	3	B+	None	BBB	47	11	6.98%	8.72
GPS	Gap	3	A	None	BB+	46	9	5.60%	17.33
NSRGY	Nestle SA	1	A++	Wide	AA–	99	25	2.31%	105.39
PSA	Public Storage	1	A+	None	A	96	18	3.31%	234.00
TSM	Taiwan Semiconductor Manufacturing	2	A+	Narrow	AA–	62	21	3.13%	51.13

Clearly, F and GPS are outliers with Medium-Quality and Low-Quality scores, respectively.

Trade Summary

Here is the trade summary of transactions and dividends related to my GPS investment:

2019-06-03	Bought 300 shares of GPS at $27.00 per share:	$	8,100.00
2019-07-31	Dividend on 300 shares at 24.25¢ per share:	$	72.75
2019-10-30	Dividend on 300 shares at 24.25¢ per share:	$	72.75
xxxx
2019-10-18	Sold 300 shares of GPS at $16.52 per share:	$	$4,956.00
	Capital Loss:	$	3,144.00
	Dividends Received:	$	145.50
	Commissions/Fees/Taxes:	$	1.65
	Net Loss:	$	3,000.15

I made a net loss of 37% on the original amount invested.

Selling these shares reduced DivGro's projected annual dividend income by $291.

Concluding Remarks

As mentioned, taking is a large loss on a trade is not fun, but holding onto a weak position for a very long time with the hopes of an eventual recovery is even less fun!

Removing this position from my DivGro portfolio certainly improves its overall risk profile, which is something I've been working on for the last few months. One fewer Borderline Safe stock to "worry" about...

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