Recent Sale

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

Comments

    • says

      Headed Home,

      This was definitely a tough call. I didn’t want to sell, but I feel the company polarized some of the shareholders by splitting up like this. I booked a nice profit and I still feel ABT is a great company. I’ll revisit it in the future if results are favorable and the dividend growth makes up for the low yield.

      Best regards.

  1. says

    I will continue to hold and monitor both companies, but I completely understand your reasons for selling.

    In the case of ABT, I agree that the low yield is disappointing, but I have a few other stocks with yields near 2%, so that’s not a deal-breaker for me.

    In the case of ABBV, the reliance on Humira sales is a major concern. Even though they can milk that cash cow until patent expiration in 2016, and probably to a lesser extent thereafter, they need to strengthen their pipeline. The most likely course of action is to acquire a small company or two with promising Phase III candidates.

    I will also be focused on their dividend growth as separate companies. The combined post-split dividend is about 6% higher than the pre-split dividend, so the next increases would probably occur in early 2014. If dividend growth is lackluster, then I might decide to sell.

    For the time being, provided there are no negative developments this year, my plan is to hold and re-assess in early 2014.

    • says

      DGM,

      I understand your reasoning for holding just as well. I was on the fence about it, and although I’m confident about my decision…I could have just as easily continued to hold.

      I’ll be happy to own ABT again if the dividend growth is outstanding enough (over 15%) to make up for the yield. I still think it’s a fantastic company with great assets and outstanding management. It’s really a shame I had to sell it. The original ABT shares from 7/10 is one of my first purchases.

      The 6% dividend growth before the split was a bit disappointing, in my view. I can understand it being a bit low though due to the fact that the split was occurring and management had resources focused on that.

      We’ll see what happens. In the mean time I’m okay with a 55% total gain on my investment and will hold the cash. With a market that’s a bit hot, having cash may not work out too badly here.

      Best wishes!

  2. says

    Sometimes you’ve got to cut a stock loose. I think I would have held onto them if I was in your position. But I’m prone to holding onto things longer than I should.

    I wouldn’t look at selling these stocks as a reduction in dividend income, because you’ll probably reallocate your capital quickly and recoup most of the dividends that you lost.

    • says

      Journey,

      Thanks for stopping by.

      It was a tough call, no doubt about it. I went back and forth for weeks. What ultimately worried me was all the consternation the decision was causing me. Any time something is causing me that much uncertainty and stress it’s probably best to let it go. I’m actually a bit relieved just to have the decision over and done with. I’m confident about my decision moving forward, but I’ll still monitor ABT and to a lesser extent ABBV going forward.

      The reduction in dividend income is noted because it is there. I’ll likely actually gain dividend income in the end as I reinvest the capital in higher yielding securities, but for now it’s all cash and not producing any income so I feel it’s prudent to note the reduction.

      Take care!

  3. says

    DM I decided to make the same sales a few weeks ago, its just too early to tell how the companies will perform being split. The good capital gains provided a great way for me to enter new positions.

    • says

      Investing Early,

      Well it’s good to know I’m not alone. I don’t know about you, but for me it was one of the hardest investing decisions I’ve made yet. We’ll see how it shakes out. The profit is certainly nice, but I didn’t really want to unlock that capital if I didn’t have to. I’d rather just let it compound over decades and decades without triggering a tax bill.

      I’ll be anxious to see what other positions you enter with your newfound capital.

      Best wishes.

  4. says

    DM – Although in your case you sold an entire position, it does raise the question of when does one trim a position. Like you, when I buy a stock it is with the intention of holding it for the long-term (with any luck for decades). However, I also prefer to keep my portfolio as equal weighted as possible, which for me is approximately 3% to 4%.

    Fortunately, since moving over to dividend investing a year ago I have not had many stocks significantly underperform/outperform , and therefore my portfolio has remained relatively equally weighted. However, I have been contemplating if I would trim a position if it began to outperform (for example doubled to become greater than 6% of my portfolio). My thought at this point is that I would trim it, and try to allocate the capital to stocks in my portfolio which are trading at a more reasonable value at that time.

    • says

      Dining on Dividends,

      I think trimming positions and keeping a certain weight is all an individualistic decision. I try to keep certain weights in line, but also with the reminder that I’m still building my portfolio and as such weightings will be constantly changing every time I make a purchase.

      Rebalancing can be triggered in many different ways. I try to trim or sell positions only when it meets certain criteria, namely: changing fundamentals, static or cut dividends and extreme overvaluation. The first to are pretty cut and dry, while the third is a bit more dicey and subjective. Either way, I don’t rebalance just for weighting purposes, but rather because an individual equity requires “special attention”.

      Hope that helps.

      Best regards!

  5. says

    Mantra, I left you the same reply over on the Ninja. ;)

    I think it was a tough choice with ABT. I would have sold ABBV without any hesitation becuase of the smaller capitilization and inherent risk in the pharmecutical and patent industry. It’s had its post-split bounce and there is much risk with ABBV not having the ABT core behind it. No regrets on that one.

    For ABT I also would have been 50/50 on it. I don’t think there really is any right or wrong decision here. I may have sold it also, part of it, or put a stop-loss on it. But at least you are selling ABT after it has had a good run up – so you are walking away with a nice profit. I think ABT will probably be OK, but not the company it was when you bought it.

    One rule of thumb that has served me well, is if a stock causes you grief or anxiety, no matter how long you have held it, or for whatever reason – let it go. There is probably a good unerlying reason why. :)

    Cheers!

    • says

      Ninja,

      Thanks for stopping by. I appreciate your thoughts.

      I agree with your logic. ABBV was definitely inherently risky for some of the reasons you touched on, and because of that it was definitely the easier of the two to sell.

      ABT, on the other hand, was causing me a bit more grief. It’s definitely a fine company, but as you say: “not the company it was when I bought it”. It’s because of that it had to go. I’ll continue to watch it from the sidelines with fondness.

      I especially agree with that last paragraph. That was something I touched on in earlier comments. The consternation the decision was causing me made me realize that I was stressing unnecessarily and had to move on. I actually feel a lot better now with the cash in my pocket and opportunities on the horizon.

      Congratulations again on your speaking engagement. That’s particularly exciting as that could lead to a whole new life for you. Hope it goes well.

      Best wishes.

  6. says

    As I said previously, I sold abt and abbv the day of the split.

    Just to give you some ideas I’m currently looking at afl, vfc, and oxy as my next purchases all of which I find attractive in current market conditions.

    • says

      Took2Summit,

      Nice to know I’m in good company by selling off the two pieces.

      Nice picks there. AFL is currently high on my watch list. Although it’s run up quite a bit, I still see quite a bit of value in that name. I bought originally in the mid-$30′s and wish I would have picked up more there or even in the low $40′s. Great value there.

      I haven’t looked much at VFC or OXY. I looked at OXY a few months back and generally liked what I saw. I’ll have to take another look.

      I’m currently looking at JNJ, KO, WFC, GE, AFL, BBL, TD, SO and a few others. Nothing screaming at me, but I’m enjoying the screening process right now.

      Thanks for stopping by!

      Best wishes.

    • says

      Ya afl has had good run up, interestingly its still single digit pe with good 5 year growth prospects, all your names look good as well. Can’t go wrong with those

    • says

      Al Green,

      It was definitely a tough move. However, I’m glad to have it behind me. I feel like a ton of bricks have been lifted from my shoulders.

      I’m definitely going to be selective and choosy about what to do with the newfound capital. We’ll see what kind of opportunities Mr. Market gives us.

      Take care!

  7. says

    It’s always a tough decision to sell but I agree with your move. Like you mentioned before, you have to evaluate each piece now as two separate companies. You’ve pointed out good reasons not to invest in either one right now.

    I look forward to seeing what you buy with the proceeds.

    • says

      AAI,

      Yeah, it was a tough call but one I had to sit down and make.

      I’m looking forward to reinvesting the proceeds as well. Nothing screaming “buy” right now, but I see some interesting opportunities out there.

      Best regards!

  8. says

    Hey Dividend Mantra,

    How about some Canadian Stocks? Go international man! ;-) Check out POW for instance who’s a Canadian conglomerate. It’s trading fairly low at the moment. It has takes in some major companies such as Gaz de Suez, Pernod Ricard, etc. This is the ultimate diversified and low key financial company. It owns Great West, Power Financial, medias and so on. I have already a huge position in POW, otherwise I would buy some more. It has currently a 4.30% yield.

    And there is also Barrick Gold… But the yield is low.

    Other than that, like you say, the market is quite expensive. Take care DM.

    • says

      JohnnyCa$h,

      Thanks for the ideas! I definitely like international exposure when it’s prudent and think I have a decent exposure right now.

      I don’t believe POW trades on a U.S. exchange, or at least I was unable to locate the ticker. For TSE, it’s POW.

      I do like the Canadian banks in general, but I’m concerned about consumer debt and a potential housing bubble in Canada. The Canadian banks fared significantly better than our banks during the last recession, so the proof is in the pudding.

      Take care!

  9. Anonymous says

    I guess the next post we will see is what you plan on buying with all that cash burning a whole in your pocket, or brokerage account.

    • says

      Anonymous,

      Haha! I can’t wait to write about some purchases. I’m definitely going to stay patient and continue scanning for attractively priced opportunities. I see a few on the horizon and I’m still working through some numbers. We’ll see what the market brings us.

      Best wishes!

  10. says

    As a rule “you aren’t married to your stock” is a good one.

    Even if you like the company, when it’s time to sell it’s better to do it.

    Good post DM as usual :) It’s really interesting

    • says

      JF Baconnet,

      Thanks for stopping by.

      Absolutely. We aren’t married to our stocks. In the end, we must remember we own them as long they continue to benefit us as investors…and as long as said benefit is greater than other opportunities would provide us.

      Yeah, I have the largest amount of cash in my brokerage account since I first started this journey. I’m not a market timer, but I suppose now could be a good time to have a large amount of cash seeing as how the market has been on fire lately.

      Take care!

  11. says

    DM,

    It’s always a tough call to sell a holding, especially one that’s been around for a long time and served us well in the past. I think you made the right move, though. It would be even harder to stick to a holding, knowing that you no longer believe in its basic fundamentals.

    You know this point better than most, how important it is to treat an investment as such, and not get emotionally attached. By selling now, you booked 55% returns, so you of course came out ahead. Plus you get to remove all the uncertainty/concerns from the equation. Sounds like the right move to me.

    I’ll be interested to see what stocks you purchase next. You have quite a bit of ammo at your disposal now!

    Happy hunting!

    • says

      FI Fighter,

      Yeah, it was a nice gain on this one. I’ve held it a while and I thought it was an attractively priced opportunity on the occasions I purchased it. So it is nice to come away with some reassurance that I made the right choice. What can I say; ABT management treated me right. It’s because of that I’m sad to let it go. But it was the right choice.

      I definitely have some ammo now, so that’s awesome. I always compare my ammo to Warren Buffett’s elephant gun. I’d say I have a 9 mm pistol right now instead of the usual BB gun I use.

      Best wishes!

  12. says

    DM,

    There’s sometimes where I don’t like the splitting up of companies. This is one of them because the devices operations smoothed out the drug operations results. But it is what it is and all you can do is what’s best for you. It’ll be interesting to follow along to see how the 2 companies fare from here on out.

    Hopefully you get some buying opportunities now that you have more free cash. Plus that would give me a chance to purchase some more shares.

    • says

      Pursuit,

      I agree with you. I didn’t like the split up because it was a nicely diversified healthcare company before, and the pharma side was definitely helped by the relatively stable revenue of the devices and consumer side of the business. A certain synergy is lost there and I just don’t agree with the split.

      We’ll see what kind of opportunities the market presents. The DOW is currently a hair under 14,000. It’s crazy right now.

      Best regards.

  13. says

    Hi DM. You definitely struck a chord with many dividend investors with your decision to sell ABT and ABBV. In any case, your post struck a chord with me as I too is an owner of ABT and now ABBV shares. Though I fully understand your logic to sell both stocks, I’ve decided to keep them and take the “wait and see” approach. The fundamentals of both companies taken together have not changed dramatically and they both continue to pay dividends. The big test however will be the next dividend raise, if any… In any event, the goal of dividend investing is not to be right, it’s to make money with dividend paying stocks! Cheers! TDE

    • says

      Dividend Engineer,

      Thanks for stopping by.

      Nothing wrong with waiting and seeing. Both pieces could perform brilliantly as they continue to operate independently, but I just felt the concerns outweighed the benefits right now. We’ll see what happens. I anticipate better performance from ABT going forward and I’ll continue to watch both pieces as I’m certainly not afraid to jump in later if the opportunity warrants.

      I hope they work out for you!

      Take care.

  14. says

    I did the same. At first I thought this would be a great result for the investors, having two strong companies with nice dividend yield and growth, so my original intent was to be buying both companies, however after the spinoff I realized that it no longer is the same old Abbott as we knew it. The yield dropped and there is no clue (at least I couldn’t find it) which would propel the yield back up, lack of information and different fundamental data (one of the biggest question I couldn’t find an answer to was where is the dividend growth now after the spinoff and what is the dividend history now, when Humira is gone?) So I decided to sell as well some time ago.

    • says

      Martin,

      Well, the yield with ABT dropped because they are paying out a smaller portion of the pre-split $0.54 quarterly dividend at only $0.14. ABBV is paying out the lion’s share at $0.40 quarterly.

      I think, fundamentally, ABT will still do well. I didn’t sell it because I don’t think it will grow and do well as a business. I sold because the yield is too low for me right now and there is no way to know how much the dividend growth will be. They would have to have a pretty large amount of growth to make up for the low yield for it to fit my portfolio. I sold ABBV because of the over-reliance on one product (Humira).

      We’ll see what happens. I don’t blame you for selling over the uncertainty of it all. Uncertainty causes fear, and we all need less of that in our lives and portfolios.

      Best regards.

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