During the course of Dividend Growth investing, I have learned the market can wildly overreact to news on certain stocks, causing short-term swings and opportunities that can prove very beneficial to an investor. Part of my investing strategy is initiating positions in reliable, dividend paying companies. Ideally, I prefer starting positions near 52-week lows or when the share prices tumbles on negative news, as long as that news doesn’t include cuts to the dividend or lowered guidance.
I was lucky enough to initiate a position in Wal-Mart in October 2015 when shares tumbled on news of higher wages and Wal-Mart’s reporting of large investments into its e-commerce potential. After two purchases, my averaged cost basis was $58.94.
On May 20, 2016 I sold 12 shares of Wal-Mart (WMT) at $70.09, proceeds totaling $836.10 after commission. With proceeds from this transaction, I purchased 15 shares of Realty Income (O) for $58.98 per share, plus $4.95 commission, total cost was $889.65.
As previously mentioned, I initiated the Wal-Mart position on October 30, 2015 at $57.32 per share (not including commission) and bought again on December 1, 2015 at $58.91 per share (not including commission), leaving my cost basis at $58.94 ($707.28 basis, including commission). I sold all shares at $70.09, total proceeds after commission was $836.10. I realized a capital gain of $128.82 and collected 3 dividend payments totaling $17.88, the third to be paid out on the next pay date of June 6.
The total gain of $146.70 (20.7% gain) is the largest profit I’ve ever realized on a completed trade. I’m glad I had the opportunity to immediately re-invest the proceeds into another great dividend company and keep my dividend train moving. The cap gains alone allowed me to purchase an additional 2 shares of Realty Income, and still have funds left over.
As I mentioned in an earlier post, I previously owned and sold Realty Income during a much earlier part of its share price run-up, selling shares at $55.34 in January after purchasing in September 2015 at $47.27 a share.
Selling shares out of the New Life Portfolio is a bit gut-wrenching; however, I am thankful for the opportunity to put the proceeds to work immediately, without a stoppage in dividend income related to selling Wal-Mart.
Realty Income was down from its recent 52-week high of $64.55 on May 12th to $58.98 per share when we made our purchase on May 20th, partly due to hints of interest rate hikes (my OHI and HCP positions are getting hammered because of this!) and a recent secondary offering of its shares. This presented a great opportunity to add this great company back into the portfolio.
This Sell/Buy transaction resulted in a boost to the Forward 12-month dividend income. On an annual basis, the 12 shares of Wal-Mart at $0.50 added $2.00 to the monthly dividend income; the new addition of 15 shares of Realty Income, at $0.199 a month dividend, adds about $3.00 a month to our monthly income. The difference, albeit an extra $1, increased our dividend monthly income by 3.5%.
This is a starter position in Realty Income, and we will add to it on any share dips. I still believe Wal-Mart, as well as Realty Income is a SWAN (Sleep Well At Night) stock and I will strongly consider adding it back to the portfolio during any share price correction.