For those new to the blog, I like to keep my readers up to date on portfolio changes. One of the reasons I started this blog was to educate others, but also to improve my own investing. By keeping an open book of my portfolio and changes to it, I hope to generate discussion so others can see how I put my investing philosophy into practice. My main goal is financial freedom. I plan to achieve this goal by investing in quality dividend growth stocks and using the dividend payments to cover my expenses.
Today (January 15, 2014), I sold my shares of Sun Life Financial (Trend Analysis) for $38.15. With the $5 commission my average selling price was $38.10. I first purchased these shares on September 12, 2011 for an average price of $24.01. The total gain without dividends works out to 58.7% and my annual return without dividends is 21.9% CAGR. When you consider that my yield on cost was 6% this is a pretty decent return. Overall I’m happy with the investment.
Why did I sell?
I’m a dividend growth investor and Sun Life Financial hasn’t increased their dividend in 6 years. Before selling I tried to figure out if dividend growth was expected soon. I came to the conclusion that it’s unlikely that Sun Life Financial will increase their dividend over the next few years.
Related Article: Hey Sun Life, Where’s My Dividend Growth?
I’m trying to achieve 8% annual dividend growth over the long term, so a stock like Sun Life doesn’t really belong in my portfolio. With its stalled dividend growth likely to continue and the recent run up in price I took this as a good opportunity to sell.
I’ve gone over the conditions in which I’d sell a stock before, and one of those considerations was stalled dividend growth. Hence, the main reason I’m selling.
Related Article: In What Conditions Would I Consider Selling A Stock?
Another reason that I decided to sell, was the recently run up price. My selling price is 0.5% off of the 52 week high of $38.35. If you look at the stock price over the past 5 years it is very close to the 5 year high stock price too. Just because you have a stock close to a 52 week high isn’t a reason to sell a stock, but it was an indication to me that the shares are getting overvalued. This was confirmed by Morningstar’s 2 out of 5 star rating and their fair value estimate of $31. At today’s prices Sun Life is over 20% above Morningstar’s estimated fair value. With the markets heating up recently I took it as a good time to unload a company that didn’t really fit my investing strategy. When markets are up it can be a good time to sell stocks that no longer fit with your overall plan.
I had a look at the trend analysis report for Sun Life and it indicated a strong uptrend, which would suggest I’m leaving some money on the table. While this may be the case I believe that Sun Life is over valued and I put more weight in the fundamental analysis versus a trend analysis.
When I bought Sun Life Financial in 2011 my dividend growth strategy wasn’t as honed as it is now. I bought shares because I was enticed by the high yield (6% at the time) and what I thought was a cheap price. The investment has turned out well, but if I could go back in time, I don’t think I would have purchased Sun Life knowing what I know now. My strategy has evolved since then, and I’m more focused on dividend growth. This strategy will serve me better especially when you consider that I’m relatively young (mid to late 20s) and I’m in the accumulation stage of my investing life. Dividend growth stocks have compounding effects over a long period of time. If you are invested in stocks that aren’t increasing their dividend you can miss out on these powerful effects.
If I look back at when I purchased Sun Life I would say that yes the shares were undervalued, being that they increased 58.7%, but there were other better dividend growth candidates out there that I could have purchased. I find as the more time passes the number of companies that I’m willing to invest in decreases. This is because I’m looking to buy companies that once I purchase, I won’t have to sell. I want to invest in companies that have a sustainable competitive advantage that allows them to pay increasing dividends over a long period of time. This only leaves you with a limited number of great companies to pick from. Add to the fact that I want a cheap valuation, and it gets difficult to find a company to invest in.
Waiting for a great company to go out of favor can take years. Patience; therefore, is a key part of my investing strategy. I like buying stocks; I get a euphoric rush from investing similar to the rush a gambler gets. This makes patience even more difficult, as I’m always resisting the urge to buy more stocks. I’ve found over time it’s become easier to resist this urge. I’m making better more informed decisions. Developing my watch list with target buy prices really helped as it takes a lot of the emotion out of the decision.
It usually takes losing some money to learn valuable lessons. This time around I was able to learn from my mistakes and make some money.
Readers: Do you have any hard lessons learned?
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