Recent Sales and Purchases – November 2015

Sales
Sales of dividend generating stocks usually don’t happen too often for those of us investing through this methodology. We hope that we do enough research and invest in companies that will be able to sustain paying dividends. These companies generally have historically paid dividends through the bull and bear periods in the past.

Yet I did just recently sell nearly all of my positions in BBL, BP, CAT, and IBM, all solid dividend payers. However, you’ll notice a theme among all these companies…they all have been struggling lately. No, I did not just lose my mind and possibly sell at a bottom.

Instead, my goal with these sales is to lock-in capital losses before the new year and then buy them back after the wash-sale rule expires.

The wash-sale rule basically forces you to wait 30 days after the sale of a stock at a loss before you can purchase a “substantially identical stock or security.” The IRS was smart and didn’t want people “locking in” a capital loss and then immediately buying the stock back a few seconds later at nearly the same price. Essentially you have to wait awhile in order for the capital loss to count. Of course, there’s nothing stopping you from buying back the exact same security within 30 days, you’ll just lose that capital loss.

This approach of selling at a loss and then buying back later is called tax-loss harvesting. You can do it yourself, like I’m attempting. Numerous automated “robe-advisors,” like Betterment, Wealthfront, and Schwab Intelligent Portfolio also advertise the same process (click the links for those sites’ respective articles on tax-loss harvesting).

The reason I decided to do this was due to quite a bit of capital gains from covered call sales on Apple. Even at a 15% long term tax rate, I’d still owe about $4600 in capital gains taxes.

To offset that gain, I took losses of $2,525 in BBL, $452 in BP, $1,732 in CAT, and $412 in IBM. I also have around $3000 in capital losses from an options trade on GTAT gone bad. Remember that company that was supposed to produce sapphire displays for the iPhones? Yeah, that company, which went bankrupt. I guess there was something good from that poor options trade after all!

I would also love to take some losses in Chevron and Kinder-Morgan (I’m down $622 in CVX and $2600 in KMI). However, I am unable to since they are held within my Roth IRA.

Purchases
Now for the more fun part!

It is still within the 30 day window for the wash-sale rule for BP, CAT, and IBM. I haven’t re-bought those yet. The sale of BBL happened early October so I did just recently re-purchase my shares of BBL. I thought I had lucked out, so to speak, by getting the shares for nearly the same price (maybe 20 cents per share more). However, BBL has subsequently dropped another $5 per share so in hindsight it would have been better to wait a bit longer.

After all these sales (including a covered call that was executed on AAPL), I had roughly $20,000 in cash sitting in my brokerage account. I didn’t necessarily want to keep that as cash but also wanted it to stay “safe” so that I could have capital to buy back those companies.

In my Roth IRA I ran into the same issue. Where to put the cash that isn’t enough to buy an an extra full share? In the past I purchased shares of SCHD, a commission-free dividend ETF paying right around 3% per year in distributions. However, SCHD still fluctuates with the market, has a share price of 38.98 (at today’s close), and pays its dividends quarterly. If I had less than its stock price in available cash, I wouldn’t be able to add to it. I may also miss out on the dividends, since they are only paid quarterly. SCHD isn’t the best for a short term place to park my cash.

Instead of putting that $20,000 into SCHD, I instead picked PGX.

PGX is the ticker symbol for PowerShares Preferred Portfolio ETF. At Schwab, my main broker, this is also commission-free. It trades at around 14.76 at today’s close and has an excellent yield of 5.92%. On top of that, it also pays monthly!

And, it is not volatile at all. Here’s its 5-year chart from Google Finance. It may look volatile until you realize that over 5 years it has ranged from around 13.4-15.1. Definitely not a great place to be if you wanted to participate at all in the last bull market!

PGX 5-year chart

From now on I’m going to be using PGX as a holding place for cash in my brokerage and Roth IRA. I’ll earn 0.5% per month and the trades are commission free. I’ll keep adding to it until I have enough to make the commission for a stock purchase worthwhile.

Today I added three new stocks to my portfolio.

The first is a non-dividend payer growth stock from Israel called Radware Ltd, ticker symbol RDWR. This is a small cap cyber security company that has been growing its sales and earnings but has pulled back around 40% over the last 4-5 months. It has a strong balance sheet with no debt, solid insider ownership, and a numerous Fortune 500 partners. This is riskier than my average company, so I kept my position relatively small at around $1200.

The next purchases take us back to dividend investing.

Canadian banks have historically been some of the most sound and well-run institutions in the world. They are a large part of many investors portfolios but had not been a part of mine until today.

While there are a ton of great banks in Canada, I ultimately went with the Royal Bank of Canada, ticker symbol RY. RY has a dividend yield of 4.26%, a 10-year dividend growth rate of 10.9%, and is well-valued today with a PE of 11.69 while its 5-year average has been 15.91. I purchased $3900 worth, which will contribute $169/year in dividends.

The next purchase is a dividend stock but also a terrific growth opportunity. Today I purchased Amgen, ticker symbol AMGN. This is a biotechnology company that is specializing in targeted immunotherapies. (One of my other microcap biotech stocks, Inovio, does this as well.)

Immunotherapy is the next frontier in disease fighting and prevention. We’ve had chemotherapy and radiation therapy for many, many years and while we’ve gotten very good at treating cancer, the process is definitely not without its systemic effects. We’re finally at the point with our science when we can design therapy to not only specifically target certain cells, but also to tailor treatment for an individual.

It’s a very exciting field that we’re just beginning to explore. In a few years we’ll look back on the cancer therapies of the today with similar light to how we view the first surgeons performing without anesthesia and without adherence to sterile precautions.

Amgen joins my other healthcare-related stocks of Baxter, Baxalta, Inovio, and Johnson & Johnson. AMGN is also a terrific dividend growth stock. It pays only 1.96% and only started paying dividends in 2011. However, it has a 3-year dividend growth rate of 63.3%. This, of course, is unsustainable for any long period of time but definitely sets a great precedent for the future. I purchased $5,400 worth, which will contribute $107/year in dividends.

These purchases bring my total forward twelve month dividends up to $5,180.84 ($431.74/month). I still have yet to re-purchase BP, CAT, and IBM, which will add to this annual dividend as well.

Buffett just purchased on 11/16/2015 nearly 1.5 million more shares of IBM. I am so excited to buy IBM that I almost slipped and went ahead and did it today before remembering that I had just sold it to lock in the capital loss. I’ll definitely be buying it back the first chance I get!

What do you think of these sales and purchases? Is anyone else doing any tax-loss harvesting this year?


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15 Responses

  1. Gerry says:

    On PGX you can also sell a short term Put , If thats your interest an Extra $75 per 100
    some risk but you seem to have solid evaluation skills. Good Luck Gerry

    • scott says:

      Hey Gerry,

      Thanks for the comment! I understand the concept of selling puts but am wondering how you’d go about doing it with PGX. How are you coming up with $75 per 100? 100 shares = 1 contract? or 100 contracts? The options tables I’m looking at show absolutely no premium even going out 210 days with a put at 14.

      Thanks for the clarification,

      Scott

  2. Gerry says:

    Sorry I repeat didnt set commentluv
    Gerry recently posted…Opportunity Knocks with ABBVMy Profile

  3. Dave D says:

    I learned something that I haven’t considered; commission-free ETFs. My broker is TD, so no PGX. But I did find many good Vanguard funds. Just put some money (10 shares) into long term bond fund BLV. Looks like it has a decent quarterly dividend. Better than sitting in cash in money market I guess; low risk I would assume by 5 year chart. Thanks again for taking the time out to write these posts.

    • scott says:

      You’re welcome, Dave. Another ETF very similar to PGX is the iShares Preferred Stock ETF, PFF. I noticed that TD Ameritrade has a number of commission-free ETFs and many of the iShares offerings are included. Might be something to look at as well, though you can’t go wrong with a Vanguard ETF either.

      Scott

      • Dave D says:

        Thanks Scott. I don’t see PFF on the TD Ameritrade list of funds. They do have other iShares funds but not that particular one. I do see Vanguard VIG, which is a dividend appreciation fund which has a great 5-year return at around 11% and the top 10 holdings are some of the big boys in the market.

        • scott says:

          Hi Dave,

          VIG is a good dividend ETF. Very similar to Schwab’s SCHD. If you didn’t want to spend much time researching individual stocks, you couldn’t go wrong just putting it in VIG (or SCHD). In fact, that’s what I directed my brother to do in his Roth. Other than a couple REITs, that’s all he holds in there.

          However, while those dividend ETFs are good, it still seems like you miss out on some of the dividend increases that you’d get from selecting a few of their holdings.

          It would be interesting to do a study to compare the ETF’s dividend growth to buying each stock in the index individually.

          Scott

  4. Jim says:

    I agree with the CAT purchase. I have that position on my list to purchase when funds become available. I think it is a solid buy for moving into the future.

    I have never really considered tax harvesting, so this was an incredibly insightful piece. I will have to look into that wash-sale rule. Keep up the good work!

    • scott says:

      Hey Jim,

      Thanks! CAT is definitely one that I’ll buy again once the wash-sale rule no longer applies. I bet CAT will struggle in the short term, but in the long term should do fine. I think it is a good value at this price.

  5. DivHut says:

    You have been quite busy with all these sales and purchases. Of course, I’m still a long term fan of the Canadian banks. My two fav banks are TD and RY presently. Interesting you mention AMGN as, for the first time, I have considered adding them and maybe GILD to my portfolio. Seems like I’m on a REIT kick these days though as much better prices, value and yield have cropped up in the sector. When you do get to finishing your buys with CAT, BP, IBM, at current yields, will no doubt juice your forward returns immensely. Thanks for sharing.
    DivHut recently posted…Recent Stock Purchase II November 2015My Profile

    • scott says:

      GILD (as well as BMY) were some that I were considering as well! I think I will actually sell RY and then buy it back later in my Roth. I feel bad about doing that, but the short-term loss of those commissions won’t be as bad as the 15% taxes over time. Just wish I would have thought of that ahead of time…I’ll learn better for next time!

      Like you, I also have my REITs (O and VTR) in my Roth. That’s good from a tax standpoint but makes it impossible to buy more when they drop. I’d have to sell one of the other equities in my Roth to get the cash.

      The wash-sale rule expires today so early next week I’ll be able to buy those back. And, for the most part, I’ll actually make out well since I’ll not only have locked in the capital loss but also will be able to buy them for less than I sold them.

      As always, thanks again for commenting!

  6. Nice buys Scott! I’m also considering to add several healthcare companies like AMGN, BMY, BIBB; already owns ABT, GILD and JNJ. Canadian companies like BNS, RY and TD along with POT are great to own and receive juicy dividends. Keep racing!
    Race2Retirement recently posted…Recent Stock Purchase III – November 2015My Profile

    • scott says:

      Hi Race2Retirement,

      There are a lot of great healthcare names available. I actually owned BMY a few years ago. I initially bought it as a stock solely to try selling some covered calls against it (which turned out well!). I sold it at a profit since the dividend growth wasn’t what I would have liked to see. However, it would have more than doubled in value if I would have just held on to it!

      Thanks for commenting!

  7. FerdiS says:

    I haven’t done tax-loss harvesting, though I did sell a few weaker positions for a loss to counterbalance some earlier capital gains… I have no intention of buying back those shares, though.

    Do you time your sells so you don’t miss out on dividends?

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