As I like to think I worked long and hard with due diligence to get a stock into my portfolio, I hate to think of selling it. Some stocks are just plain core holdings and Do Not Sell runs through my head. I do write- DNS on the Index card held within the wooden box set next to my computer. I do that just in case someday I don't remember it is core.
However, when it really comes down to it, I believe purely and simply like the weather changes so can the climate for a stock and it's operating environment.
That is why companies have management and I want my companies to have good managers.
But things happen and so management might need to make changes and I hope they do it well.
Just in case they don't, I do have reasons for trimming or selling.
TRIM and or SELL:
1. Unusual Management changes- It happens all the time, but sudden or weird gets my attention.
2. Bad News affecting the company which could include a credit rating or Value Line downgrade. An analyst or two may downgrade, but they usually come late after other news. I do try to determine if it is meaningful.
As I own some low yield or also called high growth stocks, I can say low yield is NOT a reason in itself to sell nor are any of the following in No. 3 ALONE enough to cause a stock to be sold or trimmed.
The key is usually a LOWER yield than normal or:
3. A lower Yield occurring in tandem with the following:
a. Price Overvaluation to cause a lower yield for a prolonged time frame.
b. Low dividend growth rate continuing lower
c. Current flat earnings with future earnings projected lower.
d. Stagnant Stock price.
4. Position size within the portfolio is overwhelmingly too large by value or income.
5. A better replacement for quality, yield, growth or safety
6. Cash needed for daily living or personal needs
7. I want to...just kidding, but not really. It's my portfolio and I can do as I please.
However, if I get to no. 7, I return to the beginning and start my thinking over.
Now let's take a look at why I sold Hasbro- the toy maker.
I purchased it in 2012 with 4.2 % yield.
The price has advanced nicely during this time and I have trimmed shares slowly over the years as the price became over valued and the yield has declined and today only 2%.
Fast Graph "FG"-18 years
Black Line is the price.
Red line is the dividend yield.
Orange line is a P/E of 15.
Blue line is Normal P/E 16.7 and projected price of $92.44 for 2019 for that P/E.
Current P/E is 22.2
DGR was heading lower in the 5 years prior to this last earnings report: From 20% down now to 7%.
A signal to me, actually red flag, that the yield would remain low.
This stock price has grown enormously, but only in my opinion. I also felt I could write a call option on it to try and trim some at this high price. I successfully had done so earlier in the year @ the $87.50 level and therefore did it again for $89 to end early March.
The shorter term 4 years chart as shown below shows the P/E as 18.4 (blue box). Hasbro surprised on many levels after I had sold my options. It had nice big increased earnings and raising the dividend 11%: The price went up $11+ in one day and stayed there.
Too late to exit that option even if I wanted to. This indeed is one of the gambles of writing options. I was not too upset as I did want to sell and I would get my price and easily. I then sold the remainder of my shares for $98, and the price continues to climb. I don't understand where all the enthusiasm is coming from, as I was getting 2.5% yield at $80 and now @ $100 the yield will be 2.28% with that new dividend. The price would be $91 for a 2.5% yield at the new dividend, and then maybe it would have my consideration.
Perhaps I sold Hasbro a bit short, but I think many are buying it too high.
This is is paying for a low yield but yes a decent BBB toy company. Not really what I want to do at that price. You can see the price has a nice choppy saw tooth action, I do not see it going much higher, odds say lower, but then the Trump bump may continue and take it higher. We can watch it together, because I am not buying it.
I can improve my portfolio by purchasing or adding on to something I already own in this sector.
My selling of Hasbro fell into 3. a, b and 5 for my criteria to trim or sell.
I decided not to chase Hasbro and added on to my position in VFC.
Here is some information about it.
Clothing and Brand Apparel Retailer-Includes North Face, Lee, Wrangler, Nautica, Vans, Eagle Creek and Reef to name a few. Here is the website if you care to peek.
Credit rating of A
Normal P/E 18.3
Current P/E 17.4 which even now is good value. It improves the portfolio for quality.
5 year DGR of 18.6 %
See the 7 year FG chart below, with the price (black line) of VFC heading lower while upward goes the dividend yield (red line). Black down, red up, that's when I prefer to buy.
By the way, all the dark green in the chart is earnings and the white line shows where the dividend runs within the earnings. I really love that about FG. It shows the dividend Pay Out is about 60% of earnings. Hasbro has that same earnings look, but just the opposite with price and dividend yield.
I added to my VFC @ a nice 3.1% yield @ $49.
Now let's look at First Energy, the utility.
The was purchased years and years ago under the name Allegheny Power or AYE.
First Energy came in supposedly to save it. For me it is a very small holding in value and income.
You can see from the FG below this is one sick company and I should have sold it last year or even before that. I kept hearing good reports and I admit not paying too much attention to it as the yield just isn't too bad even if it is frozen. 4.5% or so, and hard to say bye-bye to that.
As it also will be a taxable occurrence, I also hesitated in selling. It was sold last month and I must say, it didn't hurt at all. I now must figure out the tax consequences and it could possibly be a loss, which I might even welcome.
First Energy fell into 1, 2, 3 b, c, d and 5 to trim or sell.
Good Grief. Those reasons were right in my face for some time and I finally took action to sell.
The cash from the sale stayed in the taxable account. Being I like round numbers, I rounded up some shares in Target, TEVA and RDS/A. This was not a lot of money, but Rose spent it already.
Here is my current stock listing and by sectors with those stocks gone and those other stocks rounded up.
The prices and all values were from stock market close Friday, March 17th.
|Company Name||$pr 3/19||% Value||%Inc||divi/ yr|
|P & Gamble||(NYSE:PG)||91||1.3%||1.0%||2.71|
|T. Rowe Price||(NASDAQ:TROW)||69.36||0.6%||0.5%||2.28|
|Johnson & J||(NYSE:JNJ)||128.06||3.6%||2.2%||3.2|
|A Data Proc||(NASDAQ:ADP)||105.11||1.1%||0.6%||2.28|
|REAL ESTATE||H-CARE (5)|
|MISC REIT (9)|
I have also retained my defensive stance with the sectors as you can see in the chart below.
Those sectors are in black bold %. I want to maintain those as a total to be 50% by value of the portfolio as a minimum.
|Real Estate||H-CARE 5||4.7%||8.5%|
|Real Estate||MISC REIT 9||8.3%||12.2%|
You must decide your own criteria, I hope these examples help in you making your own choices.
But always try to Buy Low and Sell High.
Disclosure: I am/we are long 86 STOCKS IN CHART.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.