Friday, March 18, 2016

Recent Sell


Whenever I make a new purchase, or the rare sale, for my portfolio I feel it's only fair to get a post written giving all of the juicy details.  Normally I try to get the posts out as quickly as possible but there was way too much going on in my personal life over the past two months that I just didn't have the time.  So I want to update you all on some of the changes made to my portfolio.  I want to be as transparent as possible with my journey to reach financial independence through dividend growth investing. Being open about the moves I make allows for better discussion with all of you and helps spread ideas around as well as letting me create my own "investing journal" to chronicle why I purchased a company in the first place and that way I can revisit if something changes and make the decision on whether to continue owning the company or not.

Last Friday I closed one of the positions within my FI Portfolio.  There were many variables that went into the decision to sell which I'll highlight after recapping the numbers.  I rarely make sells within my portfolio.  Outside of my shares of my employer there's actually over 130 purchase articles, but this is just the 8th sale article.  That's not a bad ratio as far as I'm concerned.

Transactions & Returns

W. P. Carey, Inc. (WPC) was one of the later additions to my portfolio.  I initiated a position in WPC in May 2015 by purchasing 20 shares at a total cost of $1,275.73.  Between May and last Friday I received one cash dividend payment and reinvested two other dividend payments that added 0.652 shares to my holding.

The following table highlights the cash flows and returns for my investment in W. P. Carey.


This obviously wasn't my best showing for an investment although much of that is due to the fact that I sold within 10 months of purchasing.  Capital appreciation provided a -4.30% return and cash dividends provided a +1.50% return.  The total return on my WPC investment amounted to -2.81% with a -3.41% internal rate of return.  Returns are net of fees, but before taxes.

Reasons for the trade

I initiated a position in W. P. Carey in May 2015 when I went on a bit of a REIT buying spree.  One of the big reasons that I added WPC to my portfolio back then was that they are very diverse for a REIT.  Many REITs focus on one geography or sector and work to build up the base.  However, WPC has properties that span the globe as well as the different sectors of the economy.

At the time I purchased the shares WPC had exposure to 25 different industries including education, health care, government, retail, hotels and several others.  WPC also owns properties across 18 countries with approximately 1/3 of revenue coming from outside of the United States.  WPC is kind of a one stop shop for real estate diversification.

So why did I sell?

As I mentioned earlier there were several factors that went into my decision to sell.

For starters the dividend growth has been a bit underwhelming, although to be fair one year of dividend growth isn't much to make a judgement on.  However, the dividend growth since I initiated my position was just 1.3%.  While that's beating inflation over the same time it's nothing spectacular especially when compared to their historic growth near 7%.  By itself this wasn't enough to make me sell, but it was enough to at least put it in the reevaluate pile.

One big factor in my decision was that management is thinking of splitting the company into two or possibly three companies without much clarity on the situation.  That could very well be a net win in the long run but the company will be altered drastically by separating their operations.  There's talks of splitting into a management business as well as a typical "triple net" business and possibly even splitting up further with both domestic and international becoming their own entities.  Much like the lackluster dividend growth this wasn't enough by itself for me to sell, but definitely placed the position firmly into the monitor closely pile.

The biggest reason that I sold actually had nothing to do with the company at all.  Since we're firmly in the middle of tax time here in the United States I've been reviewing all sorts of financial information from last year especially in regards to our investments.  What I didn't factor into my decision when I purchased W. P. Carey was the fact that my wife owns a good chunk of shares through an investment account that she inherited several years back.

That position is much larger than within our FI Portfolio and in all honesty I wouldn't have purchased the shares had I known that she already had a large investment there.  That account is one of those out of sight out of mind situations since it's not an account that I look at more often than tax time.  Although reevaluating our investments is on our list of goals for the year.

Due to our larger than I thought exposure to WPC, slow dividend growth last year, potential changes to the company structure and our need to build up cash I went ahead and closed the small WPC position in my FI Portfolio.

Effects on the Dividend Stream

The unfortunate side effect of closing a position is that it means our future dividend stream takes a hit.  Especially since in the short term we won't be reinvesting the proceeds back into another dividend growth company.

My position in W. P. Carey provided $79.68 in annual dividends so this was definitely a big hit.  The forward 12-month dividends for my FI Portfolio now sit at $5,481.79.  Adding in the $62.93 that my Loyal3 Portfolio provides brings my total taxable account dividends to $5,544.72.

What do you think of my decision to sell W. P. Carey?  Have you ever closed a position to satisfy a short/medium term goal?  

Image courtesy of Stuart Miles on FreeDigitalPhotos.net.

10 comments:

  1. Thanks for the post JC. There is nothing wrong with selling something to meet a real world need. We've been selling some individual holdings lately, as we've been tweaking our portfolio. Hope the cash infusion helps, and the sale helps simplify your holdings. Take care buddy
    -Bryan

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    1. Bryan,

      We're in the process of simplifying our portfolio and since we already have pretty good exposure to WPC through my wife's investments. Given all the other factors it made sense to sell the small position in order to raise some more cash. We'll use that to either build up cash or pay down some more debt. Either way it'll be good for us.

      Thanks for stopping by!

      Delete
  2. Thanks for sharing, PIP. WPC caught my eye last year too and its been on my watchlist since. I was a little surprised to see that you sold it,...but after reading the reasons, I can see why.

    Best
    R2R

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    1. R2R,

      I really like WPC for their large diversification for both geography and industry sectors. That's not something you find too often among the typically more concentrated REIT sector. We had plenty of external factors to justify making the sale but even the company specific factors are enough to make me at least want to pay much closer attention to the company. Overall it's the best thing for our portfolio and finances for the time being.

      Thanks for stopping by!

      Delete
  3. Being involved in so many property types and geographies like WPC is, is not necessarily a good thing. You want a reit to know their geographic market inside and out, to have well developed contacts and close relationships with potential clients, and to have laser focus on their core competency. If you want diversification just buy multiple reits that are each focused on an area you want exposure to. Being mediocre at a bunch of stuff isn't as good as being the best at one or two things. That's what kept me away from WPC, and it didn't surprise me at all to see them splitting up now.

    Hope everything is well,
    Dave

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    1. Dave,

      Personally I like their exposure across industries and geographies especially since they typically focus on core real estate for their clients. But I get where you're coming from as far as not being able to fully utilize their contacts/relationships with their clients due to their wide diversification.

      I think a split of the management and real estate holdings will be good to simplify the company and allow each to focus on their core initiative without having to compete for capital against the other. I haven't heard much regarding a possible split of the US and non-US operations although that could make sense as well.

      It'll be interesting to see what they do with the non-US because it doesn't make sense for that portion of the company to have a tax home in the US but have completely international operations. Unless there's rules regarding the REIT status of the new company if it incorporates internationally. I don't really follow the tax treatment of other countries all that closely, ours in the US are hard enough to keep up to date on.

      Thanks for stopping by!

      Delete
  4. WPC is my largest holding by far. Good or bad, it is what it is. I am looking to sell some over the coming year and diversify more. I think it's still a solid company but the future is a bit unclear. I stil want skin in the game but not 18% of my portfolio. I don't think it's a bad decision to sell. If you will put the money to use elsewhere then that's what needs to happen. Thanks for posting your thoughts as I don't see too much on WPC these days!

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    1. Adam,

      I don't blame you one bit for wanting to trim your position. 18% is way too much exposure for my liking no matter how much I like a company. Our decision to sell was more based along the exposure to one company with a secondary factor of us needing to raise cash and the tertiary factors being the potential changes to the company.

      Thanks for stopping by!

      Delete
  5. hey JC, that's a hard one. I get what you're saying and some of my previous spinoffs have been a bust (WIN) but some have been lucrative (BAX). I agree that WPC should be more open on their spinoff plans (if they have any) instead of running around in circles. I'll hold on for now. I think my biggest hope is the new CEO. He was the CFO and acting financial officer for WPC from 2003-2004, 2010-2013 (years WPC ran off with the market). Maybe they hope putting him in will bring back some of that old charm

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    1. BDI,

      The main reason we sold is that it didn't make sense to have a position across 2 accounts and our exposure to one company was a bit too much for my liking so we trimmed it a bit. If we didn't own a decent sized chunk in the other account I'd have just let this WPC position ride.

      Thanks for stopping by!

      Delete