Normally, I am excited to make trades in my portfolio. As much as I hate selling stocks, it usually allows me to sell companies that I don’t like or don’t suit my investment objectives. With the proceeds, I get to purchase something much better, thereby accelerating my path to FIRE. A classic example was my sale of NUE due to terrible dividend growth; I replaced it with CL, XOM, and GWW. However, when I feel the companies I’m getting rid of are actually pretty good, it gets a bit sadder. But sometimes, you gotta do what you gotta do.
I sold all 27.039 shares of Enterprise Products Partners (EPD) at $32.09 per share. I also sold all 25.06 shares of Alliance Resource Partners (ARLP) at $35.62 a share. All told, this lowers my dividend income by ~$101.89 per annum. Why would I sell two perfectly good companies like this? Simple: taxes. I really don’t want to go into details, but owning two MLPs like this really messed up my taxes this year. It took a very long time for the K-1s I needed to be sent to me, which delayed my ability to get my taxes set up and paid. This is not the first year I’ve had to deal with related issues with MLPs, and it’s really frustrating for me. The worst part is, they’re not bad companies. I think EPD is a best-of-breed pipeline company. And ARLP is as good as they come for coal, even if I am long-term bearish on coal. I just got sick of the hassle, and don’t want to deal with it anymore. And even worse, I’ve now had to remove Brookfield Infrastructure Partners (BIP) from my watchlist. Now that was a really interesting and diversified company, owning toll roads, cell towers, and railroads. If you want to own MLPs, I’d really look into buying it.
So what did I buy with the proceeds? Not TROW, as I hinted in my comparison of asset managers. And nope, not GILD, as I suggested yesterday. I chose to pick up 40 shares of BHP Billiton (BBL) at $44.18 a share. Total cost came to $1,776.20. My annual income increased by $99.20.
We all know who BBL is, and I already own it, so I’ll skip all analysis except the criteria.
- Pays a dividend: Yes
- Has 5+ years of dividend increases: Yes (12 years)
- Has not frozen dividend for over 8 quarters: Yes
- Has a Chowder number of 12 or more: Yes (13.0)
- Has am EPS payout ratio of less than 70%: Yes (47.88%)
- Pays a dividend monthly, quarterly, or semi-annually: Yes (Semi-annually: March, September)
- Don’t forget, BBL is a foreign company, and therefore falls under my exemption for this
- Has an S&P Quality Ranking of ‘A-‘ or better: Unknown (Not Rated)
- This isn’t uncommon for ADRs
- Has generally increasing earnings over the past 10+ years: No
- Is fairly valued/undervalued according to the Normal P/E ratio (blue line): Yes
- Is fairly valued/undervalued according to the Intrinsic P/E ratio (orange line): Yes
So yep. It still counts under my criteria at this point. I am a bit concerned how BBL will weather this commodities downturn. However, it’s been made very clear that BBL’s management view the dividend as a top priority, which I really appreciate. I have my doubts due to that earnings trend, but I trust management will do what they need to and will get through this just fine. I am also interested in the spinoff. There was a really interesting SeekingAlpha article, published here, regarding the details. But the short of it is this: investors will get 0.4 ADR shares of South32 for each ADR owned. Further, South32 expects to pay a dividend of 40% of earnings within a year of going public. BBL itself will not rescale the dividend, so no cuts are in the future as of yet. I’m looking forward to it, and since BBL is my core holding in the basic materials sector, I will most likely hold regardless of cuts. BBL (and now South32) is like instant diversification in materials, with a wide variety of operations in a wide variety of places. I personally doubt I will be adding more BBL any time soon, since there are so many other companies to look at. But I am happy with my position size at this point.
How do you view BBL’s spinoff of South32?
Disclosure: Long BBL, CL, GWW, XOM. Company logos belong to their respective companies.
10 Comments
Who knew MLPs are so much of a hassle. Will be watchin your next moves
Asset Grinder recently posted…$2,893,298 My Net Worth Update March 2015
They were more hassle than I was willing to deal with. But that was just me. See you around!
DD, I’ve read on forbes that South32 will be priced at 15 billion when all said is done. There have been talk of two private investors looking to buy South32 whole. If this is true, we could be looking at 1) a nice dividend paying company or 2) a pricing war. Either way I’m loving this spinoff
Really? I didn’t hear that about the private investor interest. Really interesting, if true. Just makes it even more appealing!
Thanks for the update DD,I know tax time can really be a pain in the neck. The trouble for me this year was that I only made 1 sale this year (INTC) and that meant I needed to get a Schedule D form. I can’t remember the last time I didn’t fill out one of those but this year I nearly got away with it. Anyway I always use Turbotax and this year Turbotax moved that form and a few others to the premium version which costs over $80. I’m not going to pay that so I made the switch to H&R Block’s tax software. Sigh, did I mention I hate tax time ? 😮
Looks like BBL could be a winner, I haven’t heard any other bloggers buying BBL since the dip in December but it’s looking a better here after coming down from $50 levels. You do plan on keeping your South32 shares then ?
Captain Dividend recently posted…Recent Purchase – Piedmont Natural Gas (PNY)
Oh wow, glad to hear I’m not the only one who suffered! Sucks regardless, naturally. At least it’s almost over! Yep, the dip was appealing. Got to lower my cost basis by a small amount, which is always nice. And yep, I intend to keep both BBL and South32. I don’t think I will add to either until they’ve proved by action that they won’t mess with the dividend. One thing to say it, another to do it, you know? We shall see!
BBL is a solid choice that is currently undervalued. I am thinking of selling my VTI and use the proceeds to strengthen my positions in oil & gas companies lately as they are obviously undervalued at the time.
Cheers!
BSR
BeSmartRich recently posted…Recent Buy- Canadian Imperial Bank of Commerce, CIBC (CM) +$102 annual dividend
Sounds like a good plan. Most O&Gs are decent values.
Nice purchase. I think you will be happy with BBL.
Dividend Dreams recently posted…Reliance Steel And My Heavy Metal Portfolio
I have been, that’s why I’m happy to add!