Recent Sale

I don’t sell stocks often. Any regular readers of this blog know that. I don’t try to time the market and I don’t trade in and out of positions. Ever since I firmly adopted a dividend growth strategy for the long-term I have planned on holding every position forever unless dividends are cut or held static, or if fundamentals drastically change.

However, there was a small period of about four months when I was actively investing in the stock market before I fully committed to the dividend growth strategy. This was in early 2010. The good thing is that it didn’t take me very long to realize that DG investing is a solid long-term strategy and I didn’t make too many mistakes before using this strategy as the foundation for my long-term wealth building plan.

One of my earlier non-DG strategy purchases was buying 45 shares of Total S.A. (TOT) on 6/9/10 for $46.25 per share. This is not actually a dividend growth stock, and that’s my primary reason for selling it. At the time I didn’t fully know what I was doing. I did know that the Deepwater Horizon disaster in the Gulf was upon us at that time and oil stocks were cheap. So, I purchased both XOM and TOT at that time. I have since sold my XOM holdings.

TOT has held its dividend static since 2008, paying out an annual dividend of 2.28 Euros per share. This really goes against the dividend growth strategy. In hindsight, I should have sold this stock a while ago. However, it’s been cheap for a long time and hasn’t really appreciated much, except for some spikes here and there, since I purchased it. It currently sports a 7.95 P/E ratio, one of the lowest in the industry. But, I have to stick to my guns and I finally unloaded what is a stock that doesn’t truly belong in my portfolio.

I sold all 45 shares of TOT on 10/9/12 for $49.40 per share. You can make an argument that I sold an undervalued stock in a heated stock market, and that’s probably true. Certainly, I wasn’t short on cash or in need of capital. The stock just doesn’t fit my strategy and it’s really as simple as that.

I received a total of $275.46 in dividends from my investment in Total S.A. (TOT) during my ownership period. I’ll also receive a dividend from TOT on 10/18/12, but I’m not sure of the exact amount based on exchange rates. It should be approximately $32.00, before factoring in foreign taxes withheld. So, factoring in everything my total return on my TOT investment was 20.8%. Not bad considering I wasn’t fully involved in my current strategy. I’ll take the money and run, and I’m reinvesting that capital into companies I have a firmer commitment and conviction on. My return factors in all transaction costs and ADR fees, but does not factor in taxes.

This purchase will reduce my annual dividend total by $131.85 based on the current exchange rates.

I now have 28 positions in my portfolio after this transaction.

I’ll update my Freedom Fund in early November to reflect the sale.

I’ve already used the capital from this sale to make a purchase into a dividend growth stock. I’ll be talking about that purchase in the near future! Stay tuned.

Full disclosure: None.

Thanks for reading.

Photo Credit: jannoon028

Comments

  1. says

    If you’re holding a stock that doesn’t fit with your investing strategy, then it makes sense to sell it. That’s what I did late last year to finish converting my portfolio to 100% dividend growth stocks.

    I look forward to reading about what you bought with the proceeds from the sale. I’ve noticed that some of the stocks on my watch list are getting close to my target prices, so I might also make a purchase soon.

    • says

      DGM,

      I agree with you. If it doesn’t make sense, one must be compelled to sell.

      I actually was pretty busy today, and am likely done for the month. I sold TOT and actually made two purchases with this capital along with fresh capital from my day job. Unless there is a major sale, I’ll sit on the sidelines until October.

      I agree with you on some stocks coming down. INTC was down heavy today and is very cheap. JNJ took a hit in mid-day and was down about 2% if I remember right. Not bad.

      Best wishes!

    • says

      The Executioner,

      Foreign taxes that are withheld from your foreign sourced dividends are eligible for a tax credit when you file. So you don’t receive the full dividend upfront but you can reclaim it when you file. This is done on a fairly simple form and is easily handled by TurboTax.

      Hope that helps.

      Best regards.

    • says

      Executioner,

      Even better is to invest in countries that have tax treaties with us, like the U.K. In those cases, no foreign taxes are withheld and you receive 100% of the dividend, minus any ADR fees.

      Best wishes!

  2. says

    If you go to bed thinking about the company then it’s not worth owning. I sold my XOM share recently since I didn’t feel comfortable owning any energy companies. I can’t really picture how oil companies will growth. They can produce more oil, but their profits will be dependent on the price of oil. I’m sure you’ll find a better company to replace TOT with!

    • says

      Henry,

      I concur completely. If you’re not comfortable owning a certain company, or owning anything in a certain sector, then it’s just not worth it. There are so many fantastic companies to choose from there is no sense in being uncomfortable or doubtful.

      Personally, I’m okay with oil companies. Just not with oil companies that aren’t returning value to shareholders like TOT.

      Take care!

  3. says

    Makes sense. Personally I don’t mind if there are dividend freezes from time to time, but it depends on the company we’re talking about. A freeze since 2008 seems a bit excessive. I don’t think my patience could last that long!

    I’m guessing you bought some Lorillard? I currently have an open limit order with that one! Maybe INTC?

    • says

      CI,

      I should have sold TOT a long, long time ago. I just kept overlooking it and holding it due to the fact that I continued to think it was cheap. I was hopeful that the market wouldn’t keep discounting it, but alas it was not to be. So, it was time to part ways and now my portfolio is 100% the way I want it right now and that makes me feel good.

      Static/cut dividends are just against my policy. It’s the main reason I haven’t purchased EXC like many others have.

      You guessed right! I’ll be talking about the LO purchase, along with another one, today or tomorrow.

      Best wishes!

    • says

      Haha, sick! I too am a happy LO owner, ever since the menthol business passed. You probably bought better than me, I paid around 122.5 in February. Looking forward to reading your next piece.

    • says

      Joe,

      I’m glad to be in fine company then.

      I really took my time with LO. With large, familiar companies I can usually figure out pretty quickly if I want to invest and at what price.

      With LO I was concerned about possible FDA regulation surrounding menthol and whether LO’s growth was here to stay. But, I’m really excited about the possible growth in the e-cig space and I’m confident menthol will still be around for quite some time.

      While MO dominates the smokeless tobacco department, I think e-cigs could be a boon to LO’s bottom line. We’ll see where this segment is 10 years from now, but based on my own very limited experience it looks promising. I actually interviewed people at work concerning their experience with e-cigs and they’re all very happy so far. 3 out of 5 have actually been off cigarettes for at least 3 months. This could be a positive or negative, but if LO can grow this segment, they can at least retain a large share of consumers weaning off their main product.

      Best wishes!

    • says

      Anonymous,

      Thanks for bringing that to light. I actually was semi-committed to selling TOT before that raise. However, a ~3% raise after 4 years is really not even a raise, in my opinion. Annualized, that’s almost nothing.

      Best wishes!

  4. says

    I had to trim the fat earlier this year in my portfolio as well. It was pretty much the same as you, I purchased the stock while not really having a investment style in mind but since adopting DGI the position had to go. I’m interested in finding out your new purchase.

    • says

      PIP,

      Once you “see the light” and adapt a certain strategy that you believe best fits your goals, it’s hard to look at things any other way.

      Good job committing yourself and giving yourself your best opportunity to succeed!

      Take care!

  5. Bo says

    I’m actually trying to sell a stock too right now, NLY. After it went ex-div on the 27th of september I put in a sell order @ 17$. I bought this stock too when I didn’t have a real strategy, back in october 2011. When I get rid of this one, my portfolio consist of 100% dividend growth stocks.

    Dividend growth stock are consistent with their pay-outs, that gives me piece of mind. The mReit NLY gives me too much worries.I bought it because I was yield chasing.

    I’m not saying NLY is a bad company, it just doesn’t fit my investing profile. ;)

    Take care.

    • says

      Bo,

      Thanks for stopping by and offering that.

      I agree 100%. I’ve been asked many times why I don’t invest in mREIT’s like NLY and the like. It’s simply because, like you said, it simply doesn’t fit my investing profile. It’s not part of the strategy. Whether I reach my goals or not, nobody will be able to claim that I didn’t stay committed completely to the dividend growth strategy.

      Hope the sale works out best for you!

      Take care.

  6. says

    There is absolutely no justification needed to sell a stock that doesn’t fit into your investing strategy. If it doesn’t make sense to hold, then sell without looking back. It is always the best deicision in the long run. ;)

    A great company that is undervalued is one thing, but an undervalued company that has only potential and nothing else is another. An undervalued company is not always a great investment.

    I consider taxation as critically important. One reason I haven’t been able to load up more on U.S. equities this last year is simply that I cannot shelter the taxes unless I’m investing in my RRSP. Unless you place foreign equities into a tax-sheltered plan, it makes no sense to hold them in the first place IMO.

    Now you can move onto a high quality company or add to a current position, with a big smile on your face. :)

    Cheers
    The Dividend Ninja

    • says

      Ninja,

      Thanks for adding that. In the end, one has to sleep well at night. That’s the primary reason I invest in high quality dividend growth stocks. If I’m going to be so heavily invested in equities, then it makes sense to pick the safest and highest quality equities. TOT just doesn’t fit my strategy. A fine investment for some, and not so much for others.

      I’ve already invested the capital into LO and also invested fresh capital into another holding I’ll be discussing tomorrow. It feels good to move on from one of my earliest purchases. I’m now firmly a dividend growth investor and I’m proud! :)

      Hope all is well north of the border.

      Best wishes!

    • says

      Dividend Ninja,

      I’m with you on tax sheltering foreign equities. I have three separate investment accounts that hold all of my investments, and all are tax free.

      One is the TFSA (safe to assume you know all about this one), the second is the RRSP(ditto) but the third is one that applies to some people, but not others, a LIRA (Locked In Retirement Account). Really only valid if you had a pension with a company in Canada, but it’s an awesome tool if it’s available to you. When my pension plan vested and I left the company I was with, I was able to either take the earned pension, or transfer it to a LIRA. The LIRA functions in all ways like an RRSP plan, except you can’t withdraw the funds at all, not even if you pay a tax penalty. Definitely a forced savings situation, but nothing in it is taxed. It does have to be used to purchase an annuity when you retire, but given the long time frame and what can be in it, the growth potential is outstanding, and best of all, you can hold US denominated stocks in it. My US LIRA is up 48.1% since I opened it (39.1% annualized), and I couldn’t be happier.

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