Dividend Portfolio House Cleaning

Per our dividend portfolio page, we own 65 dividend stocks and 2 index ETFs. I will be the first one to tell you that 65 individual dividend stocks is too many to hold. I think the ideal range is anywhere from 30-50 stocks, depending on how many index ETFs you have.

For a while now, I have been considering doing a house cleaning of our dividend portfolio; basically, sell stocks that I do not see much of a future and invest the money somewhere else.

After some recent quarterly results and dividend cut announcements, I decided to bite the bullet and sell some stocks in our portfolio.

Dividend Portfolio House Cleaning

Over the course of the last few weeks I sold the following dividend stocks and closed out our positions entirely:

  • WestJet (WJA.TO)
  • Vodafone (VOD)
  • MCAN Mortgage Corp (MKP.TO)
  • High Liner Foods (HLF.TO)

Here are my rationale of selling these 4 stocks.

WestJet

On May 13, news came out that Onex will purchase WestJet for $5 billion with the plan to take the company private. Onex is offering $31 a share, a 67% premium over stock’s closing price on May 10 to shareholders. The deal is not closed yet as it needs shareholders’ approvals. However, it is expected that the shareholders will accept this deal when they vote in July. People also believe that the regulators will grant approval for this deal too.

We purchased WestJet back in June 2015. The evaluations looked attractive back then and I liked what the company had to offer compared to Air Canada. Since our purchase in 2015, WestJet had struggled and as a result, the company failed to raise dividends and share price stayed relatively flat.

Knowing that the shareholders’ vote isn’t until July and the deal probably won’t close out until later half of 2019, I didn’t want to wait. I figured I could take the money and invest it somewhere else for a better return – that’s exactly what I did.

Vodafone

Vodafone is telecommunication provider that operates networks in 25 countries and has partner networks in 47 countries. Its Vodafone Global Enterprise division provides telecommunications and IT services to corporate clients in 150 countries. As of 2018, Vodafone is ranked 4th in the number of mobile customers (313 million).

Needless to say, Vodafone is a telecommunication juggernaut.

But its stock price is a poor reflection of its global domination.

In fact, since the Vodafone and Verizon wireless deal in 2013, the Vodafone stock price performance has been lackluster. Although Vodafone has increased its dividends for almost 30 years, the dividend growth has slowed down to 2% a year in the last 5 years.

I have held onto Vodafone with hope that the company will figure it out and turn the ship around…

On May 14, Vodafone announced a 40% dividend cut for the first time. Rather than paying dividends to shareholders, the company plans to use the cash to invest in 5G and to complete its acquisition of Liberty Global assets.

The dividend cut was the final straw for me as a shareholder. Although I fully support Vodafone cutting its dividends in order to reinvest and grow, I am tired of waiting. It’s unclear to me when Vodafone will start increasing its dividend again after the recent cut and when we will see some stock price appreciation.

MCAN Mortgage Corp

MKP.TO was one of the first stocks that we purchased when we got serious about dividend growth investing back in 2010. Back then, I didn’t know too much about dividend growth investing, so I blindly purchased shares of MCAN Mortgage Corp based on an initial high dividend yield. While the company has grown dividends over the last few years, the annual growth rate isn’t that high.

Earlier this year, MCAN Mortgage Corp announced a 13.5% dividend cut where the dividends went from $0.37 per share to $0.32 per share. Ever since the dividend cut announcement, I have been looking for an exit point.

In the last 6 months or so, the Canadian REITs have been doing well when it comes to share price, MKP.TO included. Although the stock continues to have a very high dividend yield (+8%), I decided it was time to invest the money elsewhere.

High Liner Foods

We purchased High Liner Foods on two separate purchases about 10 months apart. After our initial purchase in April 2016, the stock price jumped, and we were happy to see a decent paper gain. In early 2017, the price dropped slightly, so I thought it would be a good opportunity to purchase more shares.

Boy, I was so very wrong!

The stock price went for a constant decline ever since.

The company managed to grow its dividends over the last 3 years, but at a very slow rate. I figured we’d continue to hold the stock and see if the price would recover. I was optimistic that the company would go back to growing its revenues soon.

During its Q1 2019 results announcement, High Liner Foods declared that the board had elected to reduce the quarterly dividend from $0.145 per share to $0.05 per share, or a 65.5% decrease! The company is reducing its dividend payouts as a way to improve cash flow and allow the company to continue to reduce its debt this year.

As a shareholder though, I was not ready to wait for the company to return to its former glory. I had enough, so I decided to sell all of our shares of HLF.TO and took a 50% loss.

Yup, that one hurts for sure. Luckily, it wasn’t a lot of money in the grand scheme of things and HLF.TO was only a small fraction of our overall portfolio.

When I look back at my original investment thesis, it was easy to conclude that I made the wrong assumptions. While people are buying High Liner Foods from grocery stores, most people prefer fresh seafood. Furthermore, there is not much product differentiation between frozen seafood items from High Liner Foods and cheaper alternatives. High Liner Foods had very little competitive edge in an already extremely competitive market.

Final Thoughts

It is always tough to sell a stock and close out a position entirely. With the liquidation of these 4 dividend stocks, we decreased our annual dividend income by $500 (calculated before the recent dividend cuts). If we were to hold onto these stocks, we would have seen our annual dividend income cut by roughly $180 anyway.

When we tally up the four transactions, we ended up with a loss of around 20%. Not ideal but if we were to hold onto these stocks, it’s unclear whether we could have minimized the loss.

I can’t predict the future, but I am a firm believer in opportunity cost. I believe by holding onto these 4 dividend stocks and not selling them, there is a significant opportunity cost. After evaluating all the options and knowing where we’re at on our financial independence journey, I figured we would be better off to take the loss and invest the cash somewhere else.

With some cash on hand from these sales and some fresh cash, I am hoping for market volatility, so we can purchase some discounted dividend paying stocks.

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18 Comments

  • Reply
    Divcome
    June 3, 2019 at 4:17 pm

    Great post, makes a lot of sense. My portfolio sits at around 50 posistions and it can sometimes be a handful.

    I agree that the best time for market volatility is when lots of cash is on hand! Interested to hear what companies you pick up.

    Best regards.

    • Reply
      Tawcan
      June 4, 2019 at 9:28 am

      Thank you, definitely good to have some cash on the side ready to deploy when the market is volatile.

  • Reply
    Passivecanadianincome
    June 3, 2019 at 5:42 pm

    nice moves Bob

    Congrats on the westjet deal, thats fantastic.

    I sold out of highliner before the cut but still got burnt on the stock price. Probably a good move selling and moving onto the next stock.

    Look forward to seeing where you allocate those funds.

    cheers Bob

    • Reply
      Tawcan
      June 4, 2019 at 9:29 am

      Yea High Liner was something my investment thesis was incorrect. Learn from your mistakes I suppose.

  • Reply
    Dividend Diplomats
    June 3, 2019 at 6:06 pm

    Tawcan –

    Thank you for sharing the sales. It’s always hard to hit the sell button, that I know. I am sure with doing it more, it becomes less emotional, however, still difficult. It’s interesting when you look back and notice that it may have been flawed from the get go, but that’s how we learn. Obviously, different times you see different things. I look even more at balance sheets these days, as I’ve been stung by dividend cuts due to debt levels. All of that came from past experiences.

    I do own around that 55 mark and feel it’s just at the right level for me. For my IRA accounts, I think about going straight ETF, to not even think/worry/review as much.

    All in all, you made the right choice for what you need/want in your portfolio. For that, I tip my hat to you!!

    -Lanny

    • Reply
      Tawcan
      June 4, 2019 at 9:29 am

      55 stocks is a good number IMO, I’d like to get to down to that level too. And yes, it’s always hard to sell but we need to learn to take our emotions out of these transactions.

  • Reply
    Doug
    June 3, 2019 at 8:38 pm

    I don’t own anywhere near 5O yet but I’m doing some strategic consolidation to help get better dividend growth. I hear you on VOD but I’m waiting till after ex dividend date so I get the payment from it

    • Reply
      Tawcan
      June 4, 2019 at 9:30 am

      Makes sense to wait for ex dividend date, for us we just figured the money can be invested somewhere else. 🙂

  • Reply
    Mr. Tako
    June 4, 2019 at 3:01 am

    Good to see you trimming the tree Bob. As I wrote in my guest post on your blog (https://www.tawcan.com/the-problem-with-dividend-investing-creating-a-dividend-scorecard/ ), it’s good to do this regularly. I use a scorecard.

    Personally, my belief is that waiting until a dividend cut, means you’ve probably waited too long. The damage is already done.

    I hope your new investments work out better, and the tree continues to grow.

    • Reply
      Tawcan
      June 4, 2019 at 9:31 am

      Thanks Mr. Tako, Yea waiting until a dividend cut is too late, ideally you want to sell before the dividend cuts.

  • Reply
    Snugfortune
    June 4, 2019 at 4:48 am

    Ha loved the heading of this post:)
    I think you touched a very important topic: selling. Personally, I ask myself the following questions: 1) Do I (still) like the business, resp. what the company is doing and 2) Do I feel comfortable of owning the stock and building it up in size. If both answers are “NO”, the stock goes out of the portfolio. I see little sense in owning a company when I don’t feel good about it. I also consider selling when a company cuts its dividend. My goal is to grow the cash flow. A dividend cut is simply not consistent with that goal.
    -SF

    • Reply
      Tawcan
      June 4, 2019 at 9:32 am

      I ask these questions regularly too. You certainly don’t want to own a stock when you no longer trust a copmany. 🙂

      • Reply
        German
        June 6, 2019 at 5:21 am

        Good job on portfolio clean up. Any more stocks you want to sell or consolidate in the future?

        • Reply
          Tawcan
          June 6, 2019 at 8:54 am

          I haven’t identified anything else yet. 🙂

  • Reply
    Frankie @ Fully Franked Finance
    June 7, 2019 at 7:06 am

    I’d definitely agree that 65 stocks is probably too many to manage! Personally I like 15 or so as a guide, but 30+ works if you’ve made some good choices that should last over the long run.

    Selling shares that haven’t performed is a difficult psychological barrier to break, so well done on biting the bullet.

    Cheers, Frankie

    • Reply
      Tawcan
      June 7, 2019 at 9:31 am

      Thanks, yea it was hard to bite the bullet and hit the sell button.

  • Reply
    Max Out of Pocket
    June 8, 2019 at 11:46 am

    Yeah, I am not sure I have the capacity for that many stocks. Why do you think 30-50 is a good number? I could potentially manage the lower bend of that. I suppose if you are buying long term quality plays you can make anything happen. : )

    We are up in New Brunswick for the next 4 days! Great to be back up here! Heading to Hopewell Rocks tomorrow.

    • Reply
      Tawcan
      June 10, 2019 at 1:22 pm

      I think less than 30 doesn’t provide that much diversification.

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