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October Portfolio Update

|Includes: AbbVie Inc. (ABBV), AMD, AOS, BHC, ITW, SBUX, T
Summary

Trades made.

Dividends received.

Selling Starbucks.

Trades and Dividends Received

October was a busy month for me trading-wise. I may have made more trades than in any other month this year. I also had a lot of activity in February but I believe I did more selling in October.

Trading Activity:

  • 10/2 - Bought Abbvie (ABBV) at $93.93. This gave me a full ABBV position
  • 10/5 - Bought Illinois Toolworks (ITW) at $142.00
  • 10/9 - Bought ITW at $137.00
  • 10/10 - Sold Ultra Clean Technologies (UCTT) at $11.20. This closed my position.
  • 10/10 - Sold Applied Materials (AMAT) at $34.50. This closed my position.
  • 10/11 - Bought ITW at $130. This was a larger buy than I usually make but I skipped a $133 price target I had. This gave me a full ITW position.
  • 10/12 - Sold Micron (MU) at $43.17
  • 10/22 - Bought AO Smith (AOS) at $45.56. This opened a position in a new company.
  • 10/23 - Sold Starbucks (SBUX) at $59.17. This closed my position.
  • 10/25 - Sold MU at $36.86. This closed my position.
  • 10/29 - Bought AOS at $42.00

Dividends received - all reinvested through an automatic DRIP, Dividend Reinvestment Plan:

  • 10/9 - ITW
  • 10/11 - Medical Properties Trust (MPW)
  • 10/11 - Hannon Armstrong Sustainable Infrastructure (HASI)
  • 10/15 - Uniti Group (UNIT)
  • 10/26 - New Residential Investment (NRZ)
  • 10/29 - Two Harbors Investment Corporation (TWO)

Busy month, right? The market was moving and I made moves too. You can read why I made the trades I did through October 12 in my post, How I played the Dip. Of course the dip wasn't done on October 12 and neither was I.

The Starbucks Sale:

I think I spelled out my reasoning for buying AOS fairly well in the article I linked above. The valuation was becoming reasonable as the price dropped and while China and higher input costs will, I expect, weigh on the stock in the near term, this is a solid, growing company with a good balance sheet and payout ratio and outstanding recent dividend growth. The 2% yield is near the bottom of what I want for a DGI at time of purchase but the recent dividend growth made it attractive. I've never thought about calculating any sort of "ideal" ratio of 2% yielding high dividend growth stocks vs 5-6% yielding companies which grow the dividend more slowly. But I'm OK with a mix. And in this case my 2% payer replaced growth companies that paid zero.

Selling MU was an easy decision. I wanted to have cash on hand in case other companies reached my purchase prices. As with AMAT, I like the company and think it will take off sometime. I just don't think this will be soon. I've traded in and out of MU several times and it has been good to me. Not so much this time - I made a small profit from the October 12 sale and took a small loss on the October 25 sale. It was pretty close to break even.

And then we have Starbucks. Selling it was the one hard decision I made. I contemplated making a post when I sold and decided I could cover it here.

I bought SBUX on June 27 at $50, a small, introductory position. While I owned it, it gave me one dividend payment. I have been looking at SBUX ever since I bought it. I like the company. It's going through some transitional pains right now but that was why I was able to buy it at that level. The balance sheet and payout ratio are in good shape. Despite recent struggles, the five year earnings and dividend growth rates are both excellent. Every month I'd look it over - I usually build DGI positions with about one buy a month, so long as the price doesn't get crazy. And every month I'd tell myself, "No, not right now." I just wasn't ready to call it a hold forever DGI company.

I did the same thing the evening of October 22. I'd just made my first AOS buy, a tickle above my target price of $44.00 (2% yield) and was thinking about my next target price - I settled on $42. But I was now out of cash and a lot of companies were becoming attractively priced. I thought about selling Advanced Micro Devices (AMD) but my last AMD buy was on October 27, 2017 at $11.62 and I didn't want to pay the difference as income rather than capital gains so I wanted to hold off a few days. Plus I hate trading that company around earnings, it does strange things sometimes. And yes, I called that one wrong (the price dropped from around $25 to around $18) but would probably make the same decision again.

So I looked hard at SBUX one last time, ran some numbers, and decided I still didn't think of it as a "never sell" company. So I sold it. Not complaining about a nearly 20% gain but it was one of my tougher decisions. 

The final deciding factor is that it has nine consecutive years of increasing dividends. Nine years is pretty good, right? The problem is that SBUX hasn't shown it can continue to grow its dividend during a recession. It hasn't shown it can't either - the first dividend was in 2010 and it has never cut it. But in the end I just didn't feel comfortable committing to it for that reason.

The good thing? Looking back I'm comfortable with that decision and now, even after my last AOS buy, I have some cash left and still have AMD if I need more. I also have Bausch Health (BHC) but I feel that it has more run left in it. I may change my mind after the ER on November 8 but right now I think the only thing keeping it from trading over $50 is the debt. Every time the balance sheet improves the price responds.

Summary

October was a red number month and the total value of my portfolio declined by 5.99%. However I also sold a bunch of growth stocks and used the proceeds to buy DGI companies. I have moved much further along in my transition from growth to DGIs. This transition was not driven by any urge to sell growth but because some solid companies were reaching good valuations and I wanted to buy them when the opportunity presented itself. I needed cash and was not about to add new money to the market so selling growth stocks was the only way I could pick them up.

I had relatively few dividend payments but those mainly came from my REITs and were pretty large. The total dollar value of dividends received was just about at my monthly average for 2018. One interesting factoid is that while my overall investments declined by nearly 6% my Roth actually increased by .5%. Keep in mind my Roth is entirely made up of REITs. As a group REITs had a better month than many other stocks but a major reason it outperformed my taxable account was because of the dividends. For just this one month my dividend yield on my Roth (based on end of month value) was 1.62%. You can't relax your guard with REITs but they sure do pay.

Going forward I continue to have price targets on several companies. If AOS drops to $39 I'll buy more, if it's trading around $44 after Thanksgiving I'll look to make another buy around then. But if ABBV drops to $76 I'll go overweight on it. That will be over 5% yield and that company is too solid to be available at that price for long. I'd also go overweight in ATT (T) at 28 - another price I consider very cheap. Whatever happens, October was a big month in my continuing transition from a growth to a DGI portfolio.

Disclosure: I am/we are long ABBV, AMD, AOS, BHC, HASI, ITW, MPW, NRZ, T, TWO, UNIT.

Additional disclosure: I am not a professional investor. Please perform your own due diligence when making investment decisions.