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Dividend growth investing, independent research, long-term horizon
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I have been quiet since the beginning of the year with regards to my portfolio. Back in January, I had some shares of Apple (AAPL) and had put a hold on my stocks. Like many other investors, I wasn’t sure about where the market was heading. As it has been surging since then, each day was another one telling us that we are closer to a market correction. This is why I am sitting with roughly 10% of my portfolio in cash for four months. Last week, I made three trades: 1 sale and 2 buys ...

Guess Which Stocks I Sold ...

Here were my positions before I made my trades:

  • 5N Plus (VNP.TO)
  • Apple
  • ScotiaBank (BNS)
  • Chevron (CVX)
  • Coca-Cola (KO)
  • Husky Energy (OTCQB:HUSKF)
  • Intel (INTC)
  • Johnson & Johnson (JNJ)
  • Seagate Technology (STX)
  • Telus (TU)
  • National Bank (NA.TO)
  • Altamira US Index Fund (NBC846)

Nope … I didn’t sell VNP (not yet!). A few weeks ago, I published an extensive review of Seagate Technology over at Seeking Alpha (you can read it here). I explained how the company is at a crossroads and absolutely needs new technology development. The stock seems to be closer to a value trap than anything else. When I bought it a year ago, it was a huge bargain. Today, I’m not sure I would buy the stock again now that it has risen greatly over the past 2 years. This is why decided at the beginning of May to put a stop sell on the stock. A stop sell is a great way to protect your profit as it triggers the transaction only when the stock is on a slump and hits your “stop price”. The stock was hovering around $42 when I put a stop sell at $40. It quickly dipped to $40 and then when back up during the month. This is how I got rid of a great stock at $40 while it seems that I could have kept it and continued to cash its dividend.

I don’t really mind as I would rather cash out the money and run than wait longer and miss another buying opportunity. It always sucks when you sell a winner in your portfolio, but the most important thing is to know why you bought it in the first place. I bought STX at the beginning because the valuation was ridiculously low. I knew that with such cash in their bank account, STX would increase its dividend and the stock would benefit from the overall market swing to show some profit. I was right. But this stock is quite volatile and it could probably end up at $35 if things turn sour or jump to $50 by the end of the year if the next two quarters are showing some growth. But here’s the problem; revenue guidance for 2013-2014 is going down. What’s the point of buying a company where sales are slowing down? This is why I pulled the trigger.

Who Are My Lucky Ladies?

If you read my Disney stock analysis from last week, you probably have an idea that I’ve ignored one of my dividend growth model rules to buy an incredible stock paying less than 3%. In fact, Disney is not even paying 2% in dividend (stock yield is about 1.15%). So why sell STX with a yield on cost of purchase at 6% to buy a stock yielding 1%??? The answer lies in three words:

  1. Sales
  2. Growth
  3. Potential

Disney as an incredible business model, the most amazing brand for children and families and they just bought the licence for the next Star Wars Movies. After seeing what they have done with their rights on Marvel Super Heroes and their incredible success at the box office (please don’t forget the billion derived products), it’s a no brainer that DIS will show huge growth in the upcoming years. ESPN is protected by the “cable invasion” as I call it as there is no point of seeing sports events a week, a month after it happens. People want to see their sports live and this is why ESPN will be around even if several cable channels will suffer in the future. The current P/E ratio is relatively high but the forward P/E ratio is reasonable. I have a crush for growth stocks … I just can’t ignore one when I see it. Even if it means reducing my dividend yield!

My second buy is another great company that I intend to hold forever. Even though I’m not a big consumer of their products, this company is definitely among the most solid in the world. Since I don’t even drink Coke (nor Pepsi), I thought I could still buy Mcdonald’s (MCD). I’ve done an analysis of this great company last year (here’s the analysis). At that time, I wanted to buy the stock at $89 but didn’t have any cash lying in my account. When I did my RRSP contribution back in February, the stock was close to $100 and I didn’t want to dive in at that price.

Now that I had more cash to invest, I had a second thought about MCD; the company is awesome and I want to hold it forever. What’s the point of waiting to buy it then? This is why I ignored the relatively high price I paid and proceeded with the transaction. Over time, MCD will continue to grow regardless of what will be happening with the stock in the next 12 months.

Three Lessons Learned From These Transactions

There are three things to remember about these transactions. They are the basics of investing:

#1 Sell when you make money and when the stock no longer shows the reason why you bought in the first place. Most importantly, never look back once it’s sold.

#2 A great stock can be bought even if it doesn’t meet all your investing criterion. If the company has something to compensate for its weakness (dividend yield in this case), it mean it could be a good investment.

#3 Market timing for a stock is meaningless. You should buy dividend stocks with the intention of holding them forever. Therefore, the buying price doesn’t matter that much. Buy a great company when you have cash in your account. Period.

What do you think of my trades?

Source: 1 Sale 2 Buys