Another stock sale

I sold two more stocks today as I continue to re-align my Income Fund. Read on for more details.

Rationale

I decided to adjust my investment strategy after comparing the performance of my stock selections to a dividend income fund. Over time I’ll limit my individual stock holdings to about 10% of the total value of my Income Fund. As a longer term goal I’ll be reducing the number of individual stocks to less than 10; the dividend income funds take care of diversification and I will concentrate on larger individual positions in a smaller set of companies that I like. I’ll also be limiting them to US-based stocks as all international stocks will be represented by a index fund.

I’ve not yet determined the shortlist of companies I’ll keep or invest in, but I’ve identified a couple that I no longer want to hold.

Both are good companies to hold on to though and I’m not selling because of any identified weakness in the companies. Their stock price just about regained their cost basis this week and so I decided to sell as part of my portfolio realignment. The holdings are fairly small in size which was another factor in my decision.

Diageo plc

With a £47B market cap, Diageo plc (DEO) is the world’s largest producer of alcoholic spirits with some famous brands including Smirnoff (vodka), Johnnie Walker (scotch whiskey), Baileys (liqueur) and Guinness (stout). It was formed in 1997 from a merger between Guinness and Grand Metropolitan, and for a period of time the company owned Pillsbury and Burger King. It reports in 5 regions: North America (47% FY15 Profit), Western Europe (27%), Asia Pacific (9%), Latin America (10%) and Africa / Eastern Europe (11%).

Diageo plc is a UK listed company with the symbol DGE in the UK – the US ADR is listed on the NYSE with the symbol DEO. The company has a 6-year US dividend history which has been affected by exchange rates; in the UK it is a 27-Year Dividend Champion with the enviable history shown below.

Diageo plc (LSE:DGE) dividend history showing 27 years of growth.
Diageo plc (LSE:DGE) dividend history based on financial year (currency is in UK pence)

I originally bought 1.7489 shares of Diageo in April last year and an additional 7 shares a couple of months ago in January this year, for a total cost basis of $955.67.  I received dividends for $3.74 while holding the stock and after the $7 trading fee I received $930.67. This is a loss of 2.2% mostly from the trading commission.

WPP plc

WPP plc (LSE:WPP) was originally founded in 1971 as a manufacturer of wire shopping baskets before being acquired by Martin Sorrell who transformed the company. Today they’re the world’s largest advertising company at £20B and a 22-year UK Dividend Contender. In the US they trade as an ADR with the symbol WPPGY and have a 6-year dividend growth.

WPP plc (LSE:WPP) dividend history showing a 5-year increase
WPP plc (LSE:WPP) dividend history based on financial year showing a 5-year increase (currency is UK pence)

I bought 1.352 shares of WPPGY in February 2015 and another 1.352 shares in March 2015. The small quantities resulted from a Sharebuilder automatic purchase program that I was using at the time to periodically invest. My total cost basis was $250 and I received $7.24 in dividends and $239.94 from the sale after the $7 trading fee for a net loss of $3.

What I’m buying

I’m exchanging the proceeds into additional shares of the Vanguard International High Dividend Yield Index Fund (VIHAX) which follows the FTSE All-World (ex-US) High Dividend Yield index. This is just in time for the fund’s dividend declaration later this week on the 17th.

This is a new fund and the portfolio holding information is not yet fully published. As of 2/29 the fund currently holds 725 dividend paying stocks taken from Developed Markets (Canada 7%, Europe 60%, Pacific 18%) and Emerging Markets (14.5%). The top-ten holdings are

  1. Nestle SA
  2. Roche Holding AG
  3. Novartis AG
  4. HSBC Holdings plc
  5. British American Tobacco plc
  6. Royal Dutch Shell plc
  7. GlaxoSmithKline plc
  8. Total SA
  9. Sanofi
  10. BP plc

Quote of the Day

Life is 10% what happens to you and 90% how you react to it.

9 thoughts on “Another stock sale”

  1. Hi! It’s not clear to me what you find appealing about Vanguard International High Dividend Yield Index Fund (VIHAX). What dividend yield do you expect to receive? Regards,

    1. Hi Helen,

      Prior to holding VIHAX, I held Total International (VTIAX) for non-US diversification which paid about a 3% yield. In the US markets, if I compare US Total Stock Market (VTSAX) (~2%) with US High Dividend Yield (VHDYX) (~3%) there’s about a 1% increase for being ‘High Yield’. So I would expect VIHAX to be somewhere around 4% or higher.

      I couldn’t find data on the exact index that VIHAX uses but the FTSE All World High Dividend Yield Index has paid out in the 4% to 5.5% range since 2011. This particular index includes the US whereas the VIHAX is ex-US so not entirely the same.

      For Total Return, I think VTIAX and VTSAX are still better choices than the High Yield funds but I’m interested in the higher income.

      I hope that answers your question – thanks for stopping by!

      Best wishes,
      -DL

      1. Thank you for the reply. I did go to the Vanguard International High Dividend Yield Index Fund (VIHAX) web site and could not see any information about the yield, or which index is tracks. Hence my question to you.

        1. Hi Helen,

          You’re welcome. The index it follows is the “FTSE All-World ex-US High Dividend Yield Index” but I’ve not seen an exact definition of that. There should be more information available on the Vanguard site at the end of the month. The first distribution was also declared but was a lower $0.041. I think this is because the fund was only created in March so income from January and February wasn’t included.

          Best wishes,
          -DL

    1. Hi DFG,
      Yes I’ve quite a few stocks with less than $1000 value where the fees are a big percentage; some I want to keep, the others I’m reviewing.
      Best wishes,
      -DL

  2. So how do you know that you are not selling low, and buying high in this approach? Shouldn’t you stick to an approach, rather than bail out at the first sign of “trouble”?

    For example, if you bought MCD in late 2013, and it went nowhere for an year and half, it would have been a mistake to sell because it did worse than S&P 500 in the preceding 2 years.

    What happens if 3 years from now, you realize that international stocks do better than S&P 500? Would you then sell to buy international stocks? ( you see what I am saying there)

    Either way, good luck in your investing.

    Dividend Growth Investor

    1. Hi DGI,

      I enjoying reading your article on comparing results to the S&P 500. I thought it was well written and that you made some good points. I’ve come to the conclusion that the DGI vs Total Return debate borders on religion.

      One additional point against comparing to the S&P returns is that if an investor is in an accumulation phase, the individual’s return will be quite different from the index’s return because of when each additional purchase is made. So even though they’re invested in an S&P fund, they shouldn’t expect to obtain the published returns if they’re making regular purchases each month.

      The only ‘trouble’ I’ve found myself in is that it’s not a productive use of my time in managing 50-60 individual stocks when I can obtain better dividend growth and income from buying a dividend focused index (not the S&P). So I’m adjusting my asset allocation over time and keeping individual stocks to around 10% of my portfolio whereas previously I had planned for 30%. As long as my portfolio provides the income I need, then I consider that I’ve succeeded and I can achieve it with less work via regular periodic investing.

      As far as International vs US; my asset allocation will take care of any over/under-performance. If the international fund (VIHAX) over-performs in comparison to the US holdings (VHDYX + individual stocks) I’ll target more new money towards US holdings to rebalance. I typically prefer to rebalance via new purchases than exchanges to avoid capital gains taxes.

      Best wishes,
      -DL

      1. That makes sense. I totally understand that for a busy person, they may not have the time to maintain their portfolio. Plus, we all develop different priorities along the way. I didn’t try to be rude or anything, just tried to be a devil’s advocate. I remembered someone questioning my holding of MCD in 2014/2015, since it hadn’t gone anywhere for a couple of years. I am glad I didn’t listen and replace with something else, because it would have been a mistake.

        I personally hold individual DGI stocks, but I am also maxing out my 401K retirement plan with index funds. The 401k helps a lot with saving on taxes. Most money is in DGI, and a portion in 401k.

        The more I think about it, the more I think that DGI vs indexing is a bad comparison. I think both DGI and indexing share a lot of common traits – buy and hold for decades, avoid market timing, make regular DCA contributions, keep costs low and turnover low etc. Mostly the “covers” are different. Indexes like S&P 500 pay dividends too.. And growing as well..

        Good discussion.

        DGI

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