I bought some shares in May after a long time of not purchasing any. Here’s a summary of my May stock purchases plus the stock that I sold at the same time.
As part of my general simplification strategy in my portfolio, I aim to hold around 10% of the portfolio in individual stocks. I also favor holding fewer individual stocks for easier management. I can rely on the 428 companies in VHDYX and 931 companies in VIHAX to provide diversification since those two funds make up the bulk of my portfolio.
I reduced the target allocation of individual stocks in my portfolio down to 10% a couple of years ago. I’m still slightly above that target with a 12% allocation at the moment. Since the investments are in taxable there’s no point to immediately rebalance since selling incurs capital gains. So I usually rebalance by adding to the other asset classes instead of selling stocks.
Buying stocks moves my allocation needle the ‘wrong’ way however. So I’m quite reluctant to buy new individual stocks at this time. In this case, I sold one holding and bought more of an existing holding. And I threw in a small second purchase just for ‘fun’.
So let’s take a look and see if any method lies behind my madness.
Sold: Verizon (VZ)
I sold 14.7137 shares of VZ on May 1st for a total of $671.06 after a $6.95 commission. The cost basis was $725 resulting in a capital loss of $53.94.
Since I’ve owned VZ shares from October 2014, they’ve paid a total of $78.01 in dividends which was invested in other companies. So overall there was a small gain in this investment of $24.07, ignoring taxes.
My reasons for selling
- Yahoo. Emotional reasons here but I don’t like Yahoo, and I’m not sure how this acquisition will help contribute to VZ’s long term success. Yahoo’s email service is horrible and I’ve stopped using it. The only good service of theirs is Yahoo Finance and even that has changed for the worse of late.
- Between VZ and AT&T, I prefer AT&T – both companies are trying to re-invent themselves, but T’s acquisitions look better to me.
- Simplification. I own individual shares in both AT&T (T) and VZ. Since my main holding VHDYX holds both, I would rather concentrate my individual shares in one of those companies.
- This is a small position of less than $1,000.
Reasons not to sell
- I can’t predict the future and Yahoo may well turn out to be a great investment.
I’m not selling VZ because the financials / fundamentals look bad. Once again, my decision to sell this stock centers around a desire to focus my individual shares in only a few companies and to let the mutual funds do the heavy lifting of diversification.
Despite the sale, I still own a small amount of VZ indirectly as they’re a large part of VHDYX, comprising about 2% of the fund. This equates to about $3,163 based on the number of VHDYX shares I own.
Bought: AT&T (T)
My reasons for buying
- Reasonably valued with a P/E of 19 at the time of purchase.
- Long-term dividend payer with a good ratio of payouts to free cash flow (73% for FY16)
- Wireless connectivity is set for future growth with the introduction of 5G technologies and more devices being connected.
Five-year growth forecasts for T range from 7.25% at Finviz to 5.5% at Morningstar. Who knows how accurate they are but AT&T has been diversifying by acquiring Time Warner along with previous additions of DirecTV. Their rollout of subscription service DirecTV Now was less than stellar and really needs DVR to become a great offering. But the new service shows they’re adjusting to disruption in the traditional cable market caused by Hulu and Amazon’s streaming services.
Bought: Delta (DAL)
I bought 5 shares of DAL shares at $48.73 on May 8th for a total $245.65. This includes a $2 commission at my Vanguard brokerage.
It’s been a while since I owned DAL – I sold DAL back in 2014 because I don’t think the airline industry is well suited for dividend growth investing. I still don’t. But I don’t really consider myself a dividend growth investor now, so I’m not limited by that restriction. Of course I sold the previous shares for around $35 a share so I would have done better just to keep holding them.
For more discussion on Delta please take a look at the Dividend Diplomats’ Delta stock analysis article. This was posted after my purchase but it’s worth a read.
My reasons for buying
- Reasonably valued with a P/E of 9 at the time of purchase.
- I believe the company is well-managed and operates at a good margin compared to competitors United and American Airlines.
- They have lots of positive reviews at Glassdoor which speaks well to company management and culture.
- I spend a fair amount on Delta each year in travel to the UK, am happy with their services and I like to own (parts of) companies I use frequently.
Reasons I shouldn’t buy
- Low dividend yield < 2% below my minimum dividend yield target.
- The airline industry is very competitive with low cost carriers disrupting the more traditional larger carriers.
I decided to put a little money into DAL as a ‘fun’ purchase since I use their services a fair amount. I’ll likely add more as and when I have some spare money, but it’s not a priority.
With these transactions, I remain at 30 individual stocks in my portfolio for a total of around $43,809. This is 12% of my Income Fund. The new stocks purchased were a very small percentage of the total value and won’t have much impact on overall allocation.
The transactions also consolidate more assets at Vanguard and reduce my holdings at Capital One.
Quote of the Day
I think it all comes down to motivation. If you really want to do something, you will work hard for it.