Recent sell & buys – POT, WMT, VXC

When I evaluated our dividend growth for 2015, I learned that we need to put more focus on high growth dividend stocks. One of the short term goals I have is to slightly re-construct our dividend portfolio by selling some high dividend yield stocks that doesn’t offer much dividend growth and focus on high growth dividend stocks, or stocks on the dividend aristocrats list.

With that idea in mind, I went through our dividend portfolio to see which high yield stocks might be the ideal candidate to sell. This is when I came across Chorus Aviation (CHR.B).

From Google Finance:

Chorus Aviation is a Canada-based dividend-paying holding company with various aviation interests, including Jazz Aviation Holdings Inc. (JAH) and Chorus Aviation Holdings Inc. (CAH). JAH holds all of Chorus’ business interests associated with a capacity purchase agreement (CPA) with Air Canada, which includes Jazz Aviation LP (Jazz Aviation), Jazz Aircraft Financing Inc. (JAFI), and Jazz Leasing Inc. (JLI). JAFI and JLI were established for the sole purpose of acquiring and financing Q400 aircraft and related equipment, and leasing them to Jazz for use in the CPA. CAH is a holding company to facilitate diversification of Chorus’ business, such as the establishment of Chorus Airport Services Inc., which provides airport handling services.

Sounds like a complicated company structure. The stock has a yield of 9% with payout ratio above 100%. CHR.B had cut its dividends in 2013 due to dispute with Air Canada. Considering the unstable dividend numbers and the company greatly relies on different purchasing agreements with Air Canada, I decided to sell all of our Chorus Aviation shares and take a gain of about 45% and use the cash to purchase other dividend stocks.

With the money from the sell and dividends that we’ve been collecting for the last few months, we purchased the following stocks:

22 shares of Wal-Mart
28 shares of Potash
23 shares of VXC

Both Wal-Mart and Potash are facing perspective challenges. Wal-Mart’s price has trended lower following a disappointing guidance issued by the company in mid-October. The guidance sent the price from around $67 down to around $60, nearly a 10% drop. Most people seemed to be extremely pessimistic about Wal-Mart’s guidance and believe that the Amazon’s online model will evaporate Wal-Mart’s revenue. Wal-Mart is spending money to improve their online sales operation. The online sales will remain slow for the next few quarters but I believe we’ll start seeing results in a couple of years. Furthermore, I don’t think the brick-and-mortar store concept is going anywhere. Wal-Mart has many physical stores that will continue selling products to consumers and generate profits. I’ve been wanting to add Wal-Mart to our portfolio for a long time and at a PE ratio of 12 and a dividend yield of 3.3%, I think this is the right time to pull the buy trigger. Wal-Mart has a history of 40 years of increasing its dividends. The dividend increase for the next couple of years may slow down slightly as the company works on overall profit efficiency. Long term though, both the company revenues and the dividends should continue trending upward. The stock price should trend upward too as a result of improving fundamentals.

I also purchased more shares of Potash to average down our cost basis. Similar to Wal-Mart, Potash stock has been hammered by a bunch of bad news. First the potash pricing weakness and the potential pricey takeover of K+S Potash. Just recently Potash cut its outlook and production amid rough market conditions. The fertilizer sector is very cyclical. What doesn’t change is the fact that we all need food. What’s needed to grow plants? You guessed it, fertilizer products that Potash produces. The world population isn’t decreasing any time soon so the need for fertilizer will only increase over time. The only concern with Potash is whether the current 7% dividend yield is safe and sustainable. At a payout ratio of 83%, the dividends should be pretty safe but perhaps we won’t be see the 10+% dividend growth rate in the short term. At such high yield rate, we can afford to sit around and wait for the market condition to recover. Potash has recently withdrawn the $8.6 billion bid to purchase German K+S Potash company. This means the money can go toward expanding the company in a different way and that Potash wouldn’t need to take on more debt. Potash will be a very long term hold for us.

I also purchased VXC, Vanguard Golbal Ex Canada Index ETF. This ETF has about 50% exposure to US, 8% to Japan, 7% to UK, and 3% to France and Switzerland. Utilizing a low cost ETF is a way to diversify our portfolio outside of the usual Canadian dividend stocks.

The sell and purchases will add approximately $70.31 in our annual dividend income.

Readers, what do you think about our decision to sell Chorus Aviation and purchasing Wal-Mart, Potash, and VXC?

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30 Comments

  • Reply
    Income Surfer
    November 4, 2015 at 4:24 pm

    It all sounds like a good idea to me. I like Potash and Walmart’s prospects….with the disclaimer that Walmart likely has more pain ahead. As an industry, I’ve never been a fan of airlines and airplanes…..the recent rally no withstanding. Your best move might have been the ex Canada ETF you mentioned. Global/emerging market stocks are the second best opportunities I’m finding today….after agricultural commodities.

    I hope you finish out your week well. Take care buddy
    -Bryan

    • Reply
      Tawcan
      November 5, 2015 at 8:06 am

      Hi Bryan,

      I think there will be more pain ahead for Walmart but the long term view should be OK. Diversifying globally is something we wanted to do for a long time now. Glad to finally purchased that ETF.

  • Reply
    Kapitalust
    November 4, 2015 at 4:59 pm

    Was giddy buying a fisfuls of VXC at the end of September in the low $28 range but been sitting on my hands ever since it started going back up in price.

    • Reply
      Tawcan
      November 5, 2015 at 8:06 am

      Hopefully the price will go down again.

  • Reply
    Dividend Hustler
    November 4, 2015 at 5:22 pm

    Nice purchases Tawcan. Like the play. I added more pot today. I like it and will continue to add more of POT. I’d like to get Agrium too but it’s run up. Thanks for sharing and keep up the hustle. Cheers buddy.

    • Reply
      Tawcan
      November 5, 2015 at 8:11 am

      Hi Tyler,

      I would love to continue adding POT and possibly Agrium too. These stocks should be good long term holds.

  • Reply
    JC @ Passive-Income-Pursuit
    November 4, 2015 at 6:03 pm

    Looks pretty good especially with the likely unsustainable payout from Chorus. If you look back through history generally the airlines are pretty poor long term investments and much better suited as trading vehicles. A similar industry is the automakers. You were able to diversify away into companies with better long term prospects which is a win as far as I’m concerned.

    • Reply
      Tawcan
      November 5, 2015 at 8:13 am

      Airline industry is tough. I think investing in WestJet is a more stable investment than Chorus. I don’t want too much exposure in that sector, even though the dollar amount invested is pretty small. Adding Walmart and Potash seem like a better idea to me. We’ll see if this is the right decision years down the road.

  • Reply
    Jason Fieber
    November 4, 2015 at 9:20 pm

    Tawcan,

    Well, seeing as how I recently bought shares in both WMT and POT, I can only say that I’m on the same page. 🙂

    Cheers!

    • Reply
      Tawcan
      November 5, 2015 at 8:13 am

      Hi Jason,

      I guess we think alike! 😀

  • Reply
    Vivianne
    November 5, 2015 at 8:12 am

    Giving up a 9% yield is hard, but running away with ~50% is sweet!!

    I picked up POT, too in October, I’ll probably add some more Walmart, and it will probably make my payout in September next year >$1000 with so many Walmart share I’m owning right now. LOL 🙂 will see how it will go.

  • Reply
    SamtheMan
    November 5, 2015 at 8:16 am

    WMT are building their online business and will offer home delivery. I’m waiting for WMT to go below $55 before averaging down.

    As for POT, I will be starting my position with them soon. Dividend maybe cut but this is a very long-term hold.

    • Reply
      Tawcan
      November 5, 2015 at 10:43 am

      If WMT goes down to that level we’ll probably buy more.

  • Reply
    pastorash1
    November 5, 2015 at 8:36 am

    As a dividend stock buying newbie I’m glad to see others doing what I’ve done. I made two small purchases of POT recently, and may do another soon as I accumulate money. Since I’m from Saskatchewan, thanx for supporting our industry! 😉

    • Reply
      Tawcan
      November 5, 2015 at 10:43 am

      Congrats on starting your dividend growth investing journey!

  • Reply
    DivGuy
    November 5, 2015 at 9:27 am

    Good decision! I’m with you! Recently wrote about WMT and POT (and AGU) as opportunities for dividend investors! So… can’t argue with you on that! hehe

    Cheers,

    Mike

    • Reply
      Tawcan
      November 5, 2015 at 10:44 am

      Hi Mike,

      Wish I have more cash around to deploy. 🙂

  • Reply
    Dividend Gremlin
    November 5, 2015 at 11:17 am

    Tawcan,

    I’ve added some WMT as well, I like the entry point though you’re spot on with their challenges. Nice move on the long term investment goals, it always feels weird to me to sell a stock, but sometimes you just get the feeling and have to do it.

    – Gremlin

    • Reply
      Tawcan
      November 6, 2015 at 10:33 am

      Hi Gremlin,

      WMT is a long term hold, the short term pains will go away eventually.

  • Reply
    Dividend Diplomats
    November 5, 2015 at 7:06 pm

    Tawcan,

    Sounds like you made a smart, educated decision to sell. Selling is not always the easiest decision to make, but it was great that you were able to put your bias behind you and move on. It isn’t anything personal, it is business. You transitioned into three much stronger companies. I definitely like those names!

    Keep up the great work and keep on grinding towards financial freedom.

    Bert

    • Reply
      Tawcan
      November 6, 2015 at 10:34 am

      Hi Bert,

      Thanks, we plan to continue buying strong companies moving forward.

  • Reply
    Roadmap2Retire
    November 5, 2015 at 9:27 pm

    Interesting purchases. Ive been digging into POT lately and found that there is quite a bit of risk involved. Of course the reward is there too – with that 7% yield. They need to figure something out as the current situation will simply not do, going forward.

    R2R

    • Reply
      Tawcan
      November 6, 2015 at 10:35 am

      Hi R2R,

      I think the 7% yield may come down or the growth may slow down. I do think POT will recover in the long run. AGU is another good stock to invest too.

  • Reply
    FreewillFinance
    November 6, 2015 at 1:48 pm

    Nice buys Tawcan! For a while I had a buy order for WMT @ $56 that didn’t get filled. Maybe I’ll get lucky and catch it on a dip. Maybe I’m just being too greedy 🙂

    • Reply
      Tawcan
      November 8, 2015 at 6:12 pm

      I think the price may drop down to $56. If that happens we’ll probably purchase more shares.

  • Reply
    Jayson @ Monster Piggy Bank
    November 7, 2015 at 8:04 pm

    Tawcan, I think you made a good decision. POT and WMT are good buys. Congrats to you.

    • Reply
      Tawcan
      November 8, 2015 at 6:14 pm

      Thanks Jayson.

  • Reply
    Dividends @ Affinity4investing.com
    November 17, 2015 at 11:38 am

    Walmart is really getting a boost today! Up 4% on stronger than expected numbers in the quarterly report. Like you, I believe they can keep eeking out a decent return, but it won’t be a major winner. Still, it is a Dividend Aristocrat and it’ll see up thru tough times.

  • Reply
    helen7777
    April 28, 2016 at 7:22 am

    I am stuck with POT and unsure of what to do. I have a 43% unrealized capital loss as of yesterday. Is it best to just sit and wait for potash prices to turn around? I somehow missed the news of the dividend cut, but I should have anticiated it would come some time soon.

    • Reply
      Tawcan
      April 28, 2016 at 3:45 pm

      Hi Helen,

      We have some unrealized capital loss for POT as well. But it’s unrealized loss until we sell. For now we plan to continue to hold and wait it out.

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