The Brexit fiasco hit the market pretty hard over the span of two trading sessions, especially taking down the Financial sector, as the threat of low interest rates for a longer period of time took its toll. The beating was bad enough to move some of the big names close to their 52-week low, with some even making new lows.
A true DGI investor can always find that silver lining in the dark cloud. When the noise has ceased and the dust has settled, what you have left are great names trading at discounted prices…and I could not sit idle and watch.
On June 29, I sold
15 shares of Realty Income Corporation (O). Proceeds from the sale, less commission and fees of $14.92, totaled 1,002.79. With the proceeds from the sales of Realty Income Corp. I purchased 22 shares of Wells Fargo $46.06 per share, plus commission of $4.95, for a cost basis of $1,018.27.
This was a tough sale to explain, so let me begin. Towards the end of 2015, WMT was purchased with a cost basis of about $707. In May 2016, I sold it and received proceeds of $836 and immediately used the newly acquired funds to purchase Realty Income Corp. with a cost basis of $889. Well, Realty Income has made a lot of money for a lot of investors, to say the least. While holding this company for only a month, the share price increased 15%! Can’t ask for much more from a stock! I ended up selling the position and realized a gain of about $113, after commissions. With the proceeds of a little over $1,000, I initiated a position in Wells Fargo, which is now the largest position in the New Life Portfolio.
As mentioned, Brexit took its toll on the Financial sector, causing Wells Fargo to sink to a new 52-week low. However, it appeared Realty Income couldn’t care less about Brexit, as it soared to a new 52-week high on both days. Realty, in my opinion as well as others, is ridiculously overvalued. The yield, at about 3.5% is the lowest it’s ever been and the 5-year dividend yield average is 4.8% – clear sell signs.
So I sold Realty near its 52-week high and purchased Wells Fargo near its Brexit-induced 52-week low.
I did learn a valuable lesson in this transaction – DO NOT TRADE AFTER-HOURS. You may have noticed the commission costs of $14.92. This is higher than normal due to having to pay commission and fees three times due to the After-Hours order being split up into two sales of two shares each before the session expired. It turned out to be not quite so bad; when the market opened up the next day, I was able to sell the remaining shares at a higher price than what they went for in After-Hours ($66.99 and $67.48), allowing me to earn some of that commission back.
The quarterly dividend for Wells Fargo currently stands at $0.38 per share, which was recently increased this past May from $0.375 per share. Dividend income is only $1.74, on an annual basis, less than what I was receiving from Realty Income. However, there is talk that Wells Fargo may raise the dividend in the coming quarter after the Fed “stress tests” are over. Wells Fargo is expected to pass these tests of “financial health during economic crisis” with no problems.
In closing, this sale is special because it shows how capturing and realizing unusually large gains in short periods of time can build a portfolio up. I started with $707 cost basis in Wal-Mart and ended up with a $1,018 cost basis in Wells Fargo (none of these amounts include dividends paid!). That’s over $300 added to the portfolio and very little of that came out of pocket. Wells Fargo is coming off of its yearly low, so there is a lot of upside to the stock price.
I do believe both Wal-Mart and Realty Income are great long-term holdings and will gladly initiate a new position on any price correction.