Showing posts with label 2011 dividend machines. Show all posts
Showing posts with label 2011 dividend machines. Show all posts

Sunday, August 9, 2015

Lock in Gains and move to high yield?

Lock in gains and move the capital to higher yielding stocks. 

In this post I write about the 2011 Dividend Machine Portfolio.  

 The 2011 portfolio has done well by all my measures.

Several stocks have appreciated significantly and their yields are less than I require for income that comes from stocks.  These are obviously good stocks but I would not buy them today if I used only my Dividend Machine criteria.  Now it is time to determine what to do with the winners…Buy, Sell, Hold, Hedge with a call?

Buy, Sell, Hold or Hedge with a call.

Let’s cut to the chase.  Listed below and in the table below are the stocks from the 2011 Dividend Machine Portfolio that I would buy, sell or hold.   The stocks I analyzed have a gain of 60% and a yield of less than 3%.   I have not included any “spin off” stocks such as ABBV or PSX. 

Sell ATO due to an anemic dividend growth rate of 3.28%.   With a yield of 2.82% you need to supplement your income by about 1% per year by selling covered calls.  ATO calls are available but not plentiful.  These two income facts justify a sell on ATO.

Sell CAG anemic yield, anemic dividend growth and no calls to make up the difference.  Take your gains.

Hold ITW, dividend growth is good at 5.13%.   Yield is weak at 2.1% but calls are available to boost that yield.  ITW is a hold.

Hold MSA, good dividend growth at 5.6% but not stellar.  No calls to make up for 2.48% dividend yield.  Hold but watch the dividend growth.

Hold NOC, No calls to make up for a really weak dividend of 1.85% yet you cannot ignore a dividend growth of 14.04%.  NOC is a hold

Hold RPM no calls to make up for a yield of 2.22% the marginal dividend increases over five years of 5.36% make RPM a tepid hold.   Follow the dividend increases.

Hold TRV this stock is a solid hold.  Calls are available to augment the 2.30% yield but the dividend appreciation rate of 13.88% make TRV as solid hold.   You would have to invest in another stock that grows your income by nearly 14% per year to make it worthwhile to take gains.

Sell UTMD.  This is an overpriced stock with a low yield, a low dividend growth rate, and no calls.   Take the money.

Hold WSO is a hold it has no calls and yield is 2.18% but in a tax move, WSO pre-paid five years of dividends so the yield should continue to improve as the 6.9% dividend growth rate suggests.

My Buy Sell and Hold stocks are in the table below.

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Wednesday, July 8, 2015

Small Cap Dividend Machines

Small cap stocks are defined as having a market capitalization of less than $3 Billion.  Microcap stocks are defined as having a market capitalization less than $300 million.   Some stocks are even smaller.  Those with a market capitalization of less than $50 million are considered nano caps.  Of course most investors are more familiar with medium, large, and mega capitalized stocks.

When building a portfolio of income stocks, the smaller stocks have a place.  They have a big disadvantage and that is liquidity.   By liquidity I refer to the ability to sell your stake in the stock.  Mutual funds have restrictions on buying the shares of these stocks and therefore, your potential buyers are limited.  On the other hand, a well selected dividend producing stock can be cheap; it can provide reliable dividend increases and in some cases a nice capital gain.

I took a look at my 2011 portfolio to see how the smaller companies performed over the past five years.

2011 Small Cap stocks

Out of the 52 stocks I picked for the 2011 model portfolio, 13 qualified as small or microcap.  Small cap refers to stocks that have more than $300 Million and less than $3 Billion in market capitalization.    Microcap stocks are between $50 Million and $300 Million. 

I did not try to diversify the portfolio by market capitalization.   I simply analyzed the result of my using four criteria to pick stocks and then calculated their market capitalization. 

Comparison of Small Cap 2011 stocks with total portfolio.

Two tables are presented below.   One is the result of the stock in the 2011 portfolio that are small cap or smaller and the second table reports on the total 2011 portfolio.

Small Cap Goup

As compared with the total 2011 Dividend Machine portfolio, the small caps have underperformed.  The entire portfolio has gained 56.24% since inception.   These 13 stocks have gained only 38%.  The caveat is that two stocks were sold and those proceeds are not reinvested; they are held as cash with no chance for capital gain.

Dividend appreciation of the total portfolio is 24.71% whereas the small cap group has gained only 10.43%.  I measured this using the 11 stocks remaining in the small cap group after HGIC and MPR were sold.   

Two small stocks are poor performers.  Landauer, symbol LDR, has halved its dividend recently and the stock price reflects that negative event with a capital loss of 22%.  Espey Manufacturing, symbol ESP has barely increased the dividend over the past five years and its price is flat.

Two stocks were home runs.   HGIC was sold for a 92% gain.  In the real world, you would reinvest that money, but in my model portfolios, I carry that gain as cash.   The best capital gains performer that is still in the portfolio is Utah Medical, symbol UTMD up 114% over these five years.  

Westwood Holdings group, symbol WHG is the kind of stock we all want.  WHG provided a capital gain of 59% and a dividend increase of 42.86%.   Mine Safety Appliances, symbol MSA, provided a capital gain of 60% and a dividend increase of 28%.

When you buy small cap stocks you need to remember that these are not stocks that command covered call premiums so you have to be happy with the current dividend and with the dividend appreciation history.  


Disclosure:  Long UVV, NHI, ESP, YORW, WHG

Links to previous articles on this subject:

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