I don’t like selling. I really don’t like selling companies that pay me high dividends. But sometimes I feel it’s necessary. That money is only worth it if I feel comfortable with what I own. And despite my best efforts to choose stocks, I sometimes choose wrong. Definitely not intentionally, but sometimes the world – or really, a specific company’s prospects in that world – changes in a way I didn’t account for. Today is one of those situations, and I’m going to correct it.
My Sales
What: Sold 62.621 shares of BHP Billiton PLC (BBL) @ $42.13 (-$155.30 annual income)
Why: Here’s the FAST Graph:
My problems here are threefold.
1) The company has cyclic earnings. That’s not a problem in and of itself. Several companies in my portfolio are. However, I think the boom years of BBL are over. China experienced an incredible growth spurt, where BBL could barely mine the iron or fast enough to satiate demand. I really don’t think that trend will ever come back.
2) A stronger focus on iron ore. With the divestiture of SOUHY, a lot of assets that helped diversify the company are now gone. Although BBL is still a bit diversified with North American shale operations (which are shitty), the primary focus is on iron ore. I didn’t want a primary focus on iron ore; that’s why I didn’t buy RIO or VALE. But now, here we are.
3) Why didn’t they rebase the dividend after the spinoff? I’m concerned. The FAST Graph shows us that the dividend won’t be covered by earnings next year, at least. They had a perfect reason to, but it didn’t happen. Without the cash flow that the assets in SOUHY provide, is it sustainable, considering their payout ratio was already close to my danger zone level of 70%? I have my doubts, despite management’s promises. And honestly, it’s a risk I don’t want to take.
Simply put, my reasons for investing in the company, upon inspection, aren’t really valid anymore. As a result, BBL is bye-bye.
What: Sold 25.000 shares of South32 Ltd (SOUHY) @ $7.28 a share (-$0.00 annual income)
Why: Honestly, to me the basics of a spinoff are like this: if I wasn’t “given” these shares in a spinoff, would I still feel comfortable buying this company? The answer for SOUHY is “not really, no”. The way I see it, SOUHY is a second-tier miner. The only two assets I like are (1) the manganese deposits and (2) Cannington. The rest, and where SOUHY gets most revenue from are coal, copper, and aluminum. None of these assets are really impressive or exemplary in any way. Cannington will eventually run out, then what? And manganese doesn’t really outweigh the rest of the sub-par stuff.
You see, that’s the fundamental issue with miners. They are commodity producers, no matter which way you slice it. They dig shit out of the ground and sell it to people who actually add value to it. Sure, they may be different grades or qualities, and there may be cost advantages. But those run out, always. Mines don’t last forever. I don’t ever see a miner having a wide moat for an extended period. Combine that with massive capital outlays and cyclic earnings, and I don’t think any miner is a sleep-well-at-night stock. Even the competitive advantages that make Compass Minerals (CMP – the one miner I really like) an interesting stock idea can’t last forever. I won’t be placing my money into miners any longer. I’ll just get my mining exposure through my emerald collection 
My Buys
What: Bought 9 shares of Disney (DIS) @ $114.87 (+$11.88 in annual income)
Why: Star Wars. Star Wars will kill it in the box office. Quote me on that.
Beyond that, DIS a great company. I won’t waste your time with all the details; many bloggers have summarized it better than I ever could. I will say it passed all my criteria except for valuation. It is overvalued, but not by much:
Beyond that, the company just raised the dividend by 14.8%, as well as switched to a semi-annual payout. The new date of record is July 6th, and I wants me some of that dividend, yo. I’m happy, and expect to hold onto this stock forever.
What: Bought 12 shares of Hershey (HSY) @ $88.20 (+$25.68 in annual income)
Why: Got a chance to lower my cost basis by a little bit, as well as double my position size. It passes all my criteria except a valuation one. Can’t complain.
What: Bought 1 share of Precision Castparts (PCP) @ $205.00 (+$0.12 in annual income)
Why: Got another chance to lower my cost basis slightly. The company passes all my growth stock criteria.
What: Bought 6 shares of JPMorgan Chase (JPM) @ $68.99 (+$10.56 in annual income)
Why: JPM passed all but one of my criteria (the quality ranking). It’s my third oldest position, and one that I’ve wanted to add to for a while. I can’t argue it’s the best bank out there; it is more of a “speculative” play for me. I do feel that a lot of changes were made in the wake of the recession, and JPM knows that they better behave themselves or the government will never get off their back. I believe that they’ve cleaned themselves up, at least in terms of operations, and expect them to do well in the future. However, I officially have a full position, which for me is $5,500.00 or more, so I don’t expect to add to my stake for a while.
Total loss of income: $107.06. Peace of mind: gained. I’m happy with that trade.
What’s your opinion on BBL/SOUHY? Did I make a mistake in selling?
Disclosure: Long DIS, HSY, JPM, PCP. My portfolio page will be updated in early July.
14 Comments
That was fast!
I like your DIS buy. They are really building their momentum leading up to Star Wars at the end of the year as you stated.
Adam – IWTRS recently posted…Recent Buys : June 22, 2015
Yeah, that’s exactly why I like them. I think that momentum will continue at least until December. Looking forward to see what the Star Wars trilogy (plus merchandising, plus video games, plus theme parks …) will do to the stock in the coming years.
JPM is a great buy, the financial sector as a whole is still undervalue, as they haven’t fully recovered from the recession. BAC is only worth 1/4 of what it was. JPM worth 1/2 of 2006 high. PE is wayyy below S and P average. The only thing that would crash the party is Greece exit, but it looks like nobody would win in that situation, so I expect a deal would come. That would give the fed the confident to increase rate. The market as a whole will go down,but financial sector will rejoice.
Best of luck with your future buys.
Yep, I love financials right now too. It came close between JPM and WFC, but I just wanted to get a full position in JPM before building up WFC. I expect that I’ll be buying WFC too before long. USB also looks kind of appealing, and if I was more speculative, BAC and GS should see some good returns in the coming years. If only I had room in my portfolio … Good luck to you too!
You commented so on my blog and you did it! Can’t fault your argument about SOUHY, since I sold mine, too. However, I’ll have to mull over the BBL decision a little more.
Love the DIS buy!
FerdiS recently posted…Recent Sell: South32 Ltd
Heh, yes I did. Like I said in my reply to you there, I’ve been mulling over it for a while, and my eventual decision was simple. If I actually had to take more than a day to think about it, it wasn’t a good investment for me deep down. I mean, if someone were to come up to you and ask if you wanted to sell JNJ, CL, MO, or DIS, would your require more than a few seconds to say “No”? Highly doubt it. So if I had to think about it, my answer was a given, really.
I like the Swap Mark. Uncomfortable holdings to more Solid Companies. I like it. Keep it up hustling hard and glad to be a part of your journey. Cheers to us.
Dividend Hustler recently posted…Recent Buys. June 25 2015.
Cheers, Tyler!
Really like the DIS buy, just wish they would become better valued. Of course that’s what we always want. Great future for them and I want to build up my stake there since I own just a small bit in one of my side portfolios.
Yep. They aren’t the best value, but I definitely think they have a lot of room to grow further. Sometimes you just have to bite the bullet and buy. Dollar cost average in if we have to.
Dude I was SO stoked about Disney’s announcement of the divi raise and semi-annual payout! I feel so bullish about the company. Like you, I think Star Wars will be a mega hit. I would have loved to buy up more shares before the upcoming ex-date but alas, I won’t have enough capital in time. Definitely looking to add more shares soon tho, and I think it was a great buy for you here.
I’m also unsure of what to do with BBL. I too sold my shares of SOUHY, and now I’m left wondering if I should sell off BBL as well. Still pondering it. Bleh.
Anyway, great post and great buys, you’re killing it dude.
Cheers!
Zero to Zeros recently posted…New Stock Purchase: Starwood Property Trust
Yeah, me too. I knew I had to buy some once I heard, and with the capital from BBL, there we go. Gotta do what’s best for ya; good luck!
Thanks for sharing your recent sell and buys with us. It’s true that the ‘sell’ posts are very, very rare among the dividend growth blogs yet I can understand your reasoning behind the BBL sale. You seem to have traded a highly commoditized play for long term stable growth. Thanks for bringing PCP to my attention. I have looked at that one a long time ago along with CMI but never pulled the trigger on either.
DivHut recently posted…Building A Financial Safety Net: My Real World Experience
No problem. That’s exactly what I did. Don’t really feel that BBL is a bad company per se, but I feel better not owning it. Glad to remind you of PCP. Thanks for reading!