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.
What about you? Booking any gains?
Full Disclosure: Long TOT, CVX, COP.
Thanks for reading.
Photo Credit: jannoon028