Thursday, February 23, 2012
Well, for the second time in three months I have sold out of a position. I'm a little surprised about it, because honestly I do buy stocks with the plan of holding on for the long-term. But, things change and as a small investor in a big market I have to stay nimble and open minded. I don't believe in holding on to stocks simply for the sake of holding. If the stock, and company behind the stock, keeps doing what I purchased it for then I generally hold until a reason to sell presents itself. I usually only sell a dividend growth stock if the fundamentals of the company change, the dividend is held static or cut or the stock has become grossly overvalued. Although the stock I sold didn't become grossly overvalued, I felt that a nice run-up occurred and the yield had fallen to a point that I felt was unattractive. I decided to book in my gain and I plan on using that capital for other opportunities.
I sold all 33 shares of my holdings with Exxon Mobil Corporation (XOM) on 2/22/12 for $86.85 per share. I originally purchased my entire lot of 33 shares on 6/9/10 for $60.69 per share. It was one of my first dividend growth stocks, being purchased shortly after I began my journey to financial independence through dividend growth investing in early 2010. Some investors might have a sentimental attachment to one of the first stocks they purchased, but I simply do not share that trait. I look at stocks qualitatively and quantitatively, but not emotionally (or at least try not to). I decided to book my 43% gain due to a couple of reasons.
First, oil, as a commodity and product, is riding multi-year highs right now. High gasoline prices can be seen and heard on every news program. I don't know where oil is going from here, and I'm bullish on oil long-term. However, I don't know how much upside XOM has from here, but I feel now is a good time to pull out of this position and use that capital for other opportunities.
Second, energy as a sector, in the form of oil majors, made up almost 20% of my portfolio until this sale. I felt that was just a tad high for one sector, as any major change in oil could have an overweight effect on my portfolio. Since I sold XOM, energy is now closer to 14%.
Third, and the biggest reason, is the fact that XOM is currently sporting a 2.16% yield. I asked myself if I would invest in XOM with the current yield being so low, and I decided that I would only invest if the dividend growth supported a large YOC within a short period of time. But, XOM actually has a fairly low dividend growth rate for sporting such a low yield. The 10-year DGR for XOM is a paltry 7.4%, and it's actually slowing down. I simply cannot make that work for me. I don't mind investing in a company with a yield below 2.5%, but generally do not. However, the DGR has to be high enough for me to warrant an investment. I felt the run-up in XOM shares, coupled of course with the low yield as a result, forced me to look in other directions. With a yield of under 2.5%, I would prefer a dividend growth rate in the mid-teens or higher.
I feel XOM is a solid company and a solid investment, but with such a low yield and also low DGR, I think my capital would be best used in other places. If XOM falls, and the DGR rises, it would then make a suitable investment once again. XOM has a rock-solid balance sheet, and is one of the best supermajors out there.
I plan on holding on to my other three oil stocks (TOT, CVX, COP) for now.
I'll update my Freedom Fund in early March to reflect the recent sale of XOM.
What about you? Booking any gains?
Full Disclosure: Long TOT, CVX, COP.
Thanks for reading.
Photo Credit: jannoon028