As dividend growth investors, we seek to continually add to our income-producing portfolios in an effort to generate an ever increasing passive income stream. Central to this occurring is finding the perfect balance of high enough yield that is sustainable versus the lower-yielding dividend stocks that exist. While yield cannot be the only focus a dividend investor pays attention to, it is the butter to our bread as all distributions come from that yield. But what happens when a portfolio starts to contain an increasing number of lower-yielding or no yielding stocks as a result of spin-offs, mergers or buyouts? This is the question I'd like to pose to you, my readers. Do you keep or sell these positions?
As many of you already know, my portfolio is probably one of the more conservative that you have seen online. I still do not own one energy stock, including MLPs nor do I have one technology stock either. I have added health REITs less than a year ago to my IRA, but the bulk of my overall portfolio rests within the conservative "standard" consumer staples and industrial plays.
Recently, when looking at my portfolio holdings, I began to wonder about potentially selling a number of my positions that yield under 2% in favor of stocks already in my portfolio that yield over 3%, thereby juicing my future passive income stream. In each case I'll outline, I am up via capital appreciation plus dividends over the years, but seeing minuscule yields makes me wonder if I'm putting my investment dollars to best use as my main focus is dividend income. These names include:
- Allegion Plc (NYSE:ALLE) yielding 0.75% a spin-off of Ingersoll-Rand Plc (NYSE:IR), up 204.04% or $1,194.66
- C.R. Bard Inc. (NYSE:BCR) yielding 0.47%, up 138.95% or $472.08
- Becton, Dickinson and Company (NYSE:BDX) yielding 1.71%, up 99.06% or $1,566.04
- Halyard Health, Inc. (NYSE:HYH) yielding 0% a spin-off of Kimberly-Clark Corporation (NYSE:KMB), up 35.27% or $32.17
- Mondelez International, Inc. (NASDAQ:MDLZ) yielding 1.61% a spin-off of Kraft Heinz (NASDAQ:KHC), up 111.97% or $709.52
As you can see from the names above, while collectively up around $4,000 in capital appreciation, barely yield 1% together. This is where my potential sell consideration comes from. Ever since I became a dedicated dividend growth investor, I have not sold one share of any stock. I held strong during the great recession and more recently through every less drastic market swoon that occurred. It can be inferred that I do not like to sell, especially when companies continue to grow their dividends and provide a nice capital appreciation as well. I just take issue when several of my holdings collectively yield around 1%.
What would you do if you held stocks that were yielding small distributions? Do you think that money is best invested elsewhere? I would love to read your opinions on the matter below.
Disclosure: Long ALLE, IR, BCR, BDX, HYH, KMB, MDLZ, KHC