Sunday, January 27, 2013
This is a tough article to write. I don't like to sell stocks too often. I look at each stock in my portfolio as valuable branches to my dividend growth tree, ultimately providing me bountiful dividends with which to pay my expenses. Every time I cut a branch from my tree, my tree produces less dividends. However, if it's the occasional pruning to make the tree stronger and better over the long haul, then it is a chore I must perform and ultimately will be better off for it.
I talked recently about my discomfort and disagreement regarding the recent split up of Abbott Laboratories (ABT) by spinning off its branded pharmaceutical business, now an independent company called AbbVie, Inc. (ABBV). I personally am not a fan of this move, as it negates some of the reasons I originally invested in ABT. Although I applaud management's concern of shareholder value (this move has propelled the value of the shares significantly), it comes at the cost of my desire to remain a shareholder as the fundamentals of the company have changed.
I wrote a while back of the reasons I would consider selling a dividend growth stock, and my #1 reason would be that the fundamentals have changed. And in this case, by splitting the company in two separate pieces, the fundamentals have unfortunately changed and I had to reassess my position on it. I have decided after a couple weeks of careful consideration that I must unfortunately part ways with one of my oldest and most appreciated holdings.
I sold 71 shares of Abbott Laboratories (ABT) and 71 shares of the new spin-off Abbvie, Inc. (ABBV) on 1/25/12. I sold my ABT shares for $32.78 a share and I sold the ABBV shares for $37.55 per share. The ABT shares have a current yield, at 1.71%, that is just a little low for my comfort level. ABBV relies too heavily on one drug (Humira) for their revenue. I had truly planned on keeping my ABT shares theoretically forever, but it's with sadness that I must move on.
I purchased the shares in the original ABT on three separate occasions. I bought 21 shares at $47.66 per share on 7/13/10 (before this blog was formed), 20 shares on 11/4/10 for $51.47 per share and finally 30 shares for $45.38 on 2/1/11. My total cost basis is $48.07 (factoring in $7 commission per transaction) per share in the original ABT (pre-split). Although I'll be using separate cost basis numbers for the two companies for tax purposes, I'm going to use the pre-split cost basis and factor this in as one company for this post.
Selling both full ABT and ABBV positions resulted in $4,979.32 hitting my brokerage account, after commissions. I also received a total of $310.57 of dividends during my ownership of ABT. This also includes the upcoming dividends of the new ABT and ABBV, since both stocks went ex-dividend on 1/11/13. That means I received a total profit of $1,877.23 from owning these shares. That's a total return of 55% from my ABT and ABBV holdings. This return factors in all commissions, but not taxes. I'm certainly grateful for it, but still wish the company would have stayed whole as one entity as I'd continue to own it.
So there you have it. I've sold one of my oldest holdings, and one I was most loyal to. It truly pains me to write about this, but I felt selling was the right decision in the long-term. I'll take the profits and reinvest them into an appropriate opportunity soon. I would be interested in initiating a position with the new ABT at a future date if the yield is brought up dramatically. I'll be watching their dividend policy to see if aggressive dividend raises makes this an attractive opportunity in the future.
I'm currently sitting on just under $7k in cash in my brokerage account after selling these shares. That's probably the highest my cash position has ever been. I hope to use this cash soon, and I'll be scanning the market for attractively priced dividend growth stocks. If we receive a slight pullback in the near term I'll be ready to make some moves.
These sales will reduce my total annual dividend income by $153.36 based on current quarterly payouts.
I now have 28 positions in my portfolio after these transactions.
I'll update my Freedom Fund in early February to reflect the sales.
Full Disclosure: None
Thanks for reading.
Photo Credit: jannoon028