Trimming Apple And Some Buys

Summary

• Tax implications from earlier sales.
• Why Apple was my choice to trim.
• What I bought.

The Taxes - Oh The Taxes!

This fall, for the first time ever, I made some transactions almost purely for tax purposes. As I reviewed in my September portfolio update, I sold my VLO and about half of my XOM as tax loss sales. I've been able to pick up some good companies with the proceeds and may buy back some of the XOM in my Roth after January 1 so this has worked out fairly well.

What I didn't take into account was how much I'd end up in losses - note for future self. I had some solid gains from earlier sales, particularly from selling Dominion (D). But those didn't equal my losses. So I ended up with about $16,500 in capital losses for 2020. Unfortunately, you can only claim $3,000 as a loss for each year on your taxes. Now I could do a loss carry-forward but what if I decide to do this again and add to the tally? Plus there's tracking it. So I decided I'd trim some growth to make up the difference.

Why Apple?

Trimming Apple (AAPL) came down to these factors.

1. Recent dividend growth. AAPL's last two dividend increases have been tepid at best. I've been unhappy about it. Dividend growth of 5-6% is fine if something yields higher - and doesn't have monster cash flows that would easily support a 10% increase. Heck, cash flows would easily support a 20% hike. I use MSFT as my contrast - it's been hiking 10% each year so I don't have the ghost of a thought of selling.
2. Stock Price Performance. AAPL has had such huge gains that I didn't need to sell much - about 10% of what I own - to cancel out the losses. This meant I could sell enough to take care of the situation and still own a lot.
3. Portfolio Size. AAPL is far and away the largest holding I have at nearly 15% of my portfolio before selling, over 13% now.
4. Holding Alphabet (GOOGL). GOOGLE was the only alternative I considered but A) I don't own nearly as much B) while it's been a double for me it hasn't grown like AAPL (I'd have had to sell about 50% of it to get the same tax impact) and C) it has a clearly defined purpose of providing me a supplemental in-account cash fund in case my dividends are short of what I need once I retire.

But keep in mind the above are why I chose AAPL. If I didn't have losses to offset I wouldn't have sold anything.

The Buys

As usual, when I have cash I don't waste much time spending it. Here's a run-down of my transactions:

• 12/22/20 - Sold Apple (AAPL) at $132.00
• 12/22/20 - Bought General Dynamics (GD) at $146.50
• 12/23/20 - Bought Altria Group (MO) at $42.78
• 12/24/20 - Bought Pinnacle West (PNW) at $77.00

MO was the only market order, everything else was a limit order and as always, I could have gotten more/bought for less. I'm used to it.

The company I really wanted was Lockheed-Martin (LMT). But $346 is 3% yield which I've decided to use as my target price. While it got into the $347 and change range, it never reached my price and after market open the 24th it was pretty obvious it wouldn't before Christmas.

GD and MO are adds to existing positions and with MO I picked it up the day before the ex-div date. Nothing exciting but I got them paying about 3% and 8%, respectively.

Buying PNW: I mentioned in my post discussing my recent Roth transactions that I have been looking to add more utilities. PNW is a mid-cap utility located in the southwest, mainly Arizona. It has a 9-year streak of dividend growth and its five-year DGR is 5.84%, very respectable for a utility. The annual dividend is $3.32, a 4.31% yield at my price. I have been looking at it for some time. It has some decent growth numbers and solid debt figures for a utility. It has a blended source of electrical generation but has a growing renewable energy supply and a commitment to be carbon-neutral by 2050.

I am not a social investor myself - heck I own companies (including MO) that make products designed to help people kill themselves and other companies (including GD) that make products designed to kill people. But the tipping point has been reached where I believe energy companies should be thinking green - or at least give a good impression of this. There are too many state and local jurisdictions giving favorable treatment to these companies to ignore it. 

The funny thing is I went into Thursday morning thinking I would add more Pfizer (PFE) - I think the recent dip has been unmerited - but took my time and dug into my Watch list to go in another direction.

The Impact

The bottom line is I increased my dividend income by a CHUNK. I should have jotted down how much before starting but selling something with a .62% yield in exchange for companies yielding 3, 8, and 4.3% brought it up substantially. I am now very much ahead of my 12-month projected dividend income even from March 1 before I started receiving cuts. And I have more cash left.

When it comes to taxes, I now have $3,154 in capital losses for the year. Mission accomplished.

I still have some cash left. I could buy something next week but think I'll probably wait until after January 1 once I transfer $7,000 into my Roth. Might as well make several buys at once. Though if something I like drops enough . . .

Summary

My motivation for selling was taxes. Having $13,500 in capital gains to work with essentially tax-free provided me with an opportunity I decided to use. I want to be clear on this - I was not worried about how much Apple I owned (or own now). Selling Apple rather than something else was based on stock performance - particularly the last 2 dividend hikes. Yes, AAPL was a huge chunk of my portfolio but that didn't bother me. Taxes were the trigger.

I hope everyone has a safe and enjoyable holiday season

Happy investing everyone!

I am long: AAPL, ABBV, ADM, AOS, ARCC, BBY, CVS, DUK, GD, GILD, GOOGL, IRM, ITW, JNJ, LMT, LYB, MO, MSFT, MSM, NEE, NEWT, NRZ, OGE, OHI, PFE, PM, PNW, SKT, T, TWO, UNH, VZ, WSM, XEL, XOM.