Saturday, March 16, 2013

Dividend Mantra's Recent Sale

This is a tough article to write. I don't like to sell stocks too often. I look at each stock in my portfolio as valuable branches to my dividend growth tree, ultimately providing me bountiful dividends with which to pay my expenses. Every time I cut a branch from my tree, my tree produces less dividends. However, if it's the occasional pruning to make the tree stronger and better over the long haul, then it is a chore I must perform and ultimately will be better off for it.

You can view over to the right hand side of my blog I have 38 articles filed under theRecent Buy category, while I only have 4 articles filed under Recent Sale. That's almost a 10-1 ratio, which goes to show how rarely I decide to sell holdings from my portfolio. I consider myself a long-term buy and hold (monitor) investor, but unfortunately sometimes situations require me to reconsider my investments in certain companies. I found myself in one of those exact situations very recently and decided to part ways with a certain company.

I sold all 40 shares of UNS Energy Corp. (UNS) on 3/6/13 for $47.635 per share. This liquidates my entire position.

UNS shares are richly valued here. It's currently trading for a P/E ratio of 21.57, which is a bit strong for a slow growing utility. Accordingly, the yield has dropped down to a level that is also low for a utility. Currently, UNS shares have an entry yield of 3.65%. Certainly not outstanding for accepting a lower growing dividend. UNS recently raised its dividend by only 1.2%, paying out a new rate of $0.435 per quarter per share over the old rate of $0.43 per share. This was after last year's dividend increase of only 2.4%.

Obviously, not what I'm looking for in a utility holding. I'd prefer a yield of 4-5% with 4-5% growth from a utility holding. Overall, however, I'm not huge fans of utilities as dividend growth investments. The growth is limited with these stocks, but I do like the fairly consistent revenue streams. I plan on targeting around 5% of my portfolio allocated to utilities over the long-term.

Not all is bad with this investment. It actually worked out quite well. As I wrote about here, I purchased all 40 shares of UNS at $37.24 per share. This is a total return of31%, after factoring in a total of $68.80 received in dividends and commission fees. This is a pre-tax return. Not bad for just over one year of tying up my capital, and especially from a typically stodgy business like a utility. I could have held for a couple more weeks to collect March's dividend, but I don't really want to hold a business I'm not enamored with just for $17.40 in dividends.

So, unfortunately that's my second sale already of 2013 and we've only just begun. A bit uncharacteristic of me, but one should always be mindful of their investments and whether they still fit in the portfolio. After looking at this stock's valuation, yield, growth rate and expected future returns I feel confident that I'll be able to better allocate my capital. And that's really what it's all about.

This sale reduces my annual dividend income by $69.60. I expect to fully replace this lost income very quickly, and actually hope to increase it by investing in a stock that's yielding slightly higher.

I now have 30 positions in my portfolio after this transaction.

I'll update my Freedom Fund in early April to reflect the sale.

 Full Disclosure: None

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