What to Du?

[kayboy]

I've been re-positioning my portfolio into Dividend Growth stocks. Well, I inherited some DD in 2007. Since then I've let it just sit around and re- invested the dividends. It's grown to be larger than my next two largest holdings put together. I know DD is not a Div. Growth stock. ($.04 increase in 5YEARS!).
I've been giving some thought into selling it and splitting the proceeds between CVX and JNJ. I own no pharma and only a small amount of energy stock (KMI).

But...DD is spinning off its performance chemicals Q2 2015. I have no idea about (possible positive) ramifications. But I can't think of any good reason not to go ahead with my plan. Am I missing something?

Any comments appreciated,
kayboy!

[Kerim]

It is very hard to answer that without knowing a whole lot more about your portfolio. Are you otherwise properly diversified? I don't know a ton about it, but DD is no fly by night company, and could have a place in your portfolio? Have you considered selling part of your shares, keeping a more proportional size of it, relative to your other holdings?

On a related note, I read recently (though I don't remember where) that people who inherit stock often do not sell and reallocate because of several powerful -- but not necessarily beneficial -- psychological biases. Ownership bias makes you value things that you already own more than other people do; familiarity bias makes you more comfortable holding it; and the huge number of other options can also lead to inertia.

[Dividend Watcher]

Tough choices in a way. For me it would be a no-brainer.

So what does DD have going for it? It's a large corporation that's been around for a long time. Management hasn't been too generous to the shareholders; longrundata lists their 5, 10 and 25 year dividend growth rates all under 4.5% and the shorter the time frame, the lower the growth. Yet they've had a nice rebound in price since the Great Recession. It's in a cyclical business, TD's web site and FinViz both have the P/E around 22, the dividend yield is 2.6% and the payout ratio is around 55%.

I didn't research it but what is management saying about the spinoff? Dividend policy post spinoff? Expected earnings trends?

Now let's look at your alternative choices.

JNJ is a Dividend Champion and a Dividend Aristocrat; longrundata shows the dividend growth rate for 5, 10 and 25 years as 7%, 10% and 13% respectively and the payout ratio is around 50%. JNJ's S&P Quality rating is A- and the dividend yield is around 2.7%. The P/E is hovering around 20. A little overpriced for me right here but a limit order or selling an OTM put can bring the price down. I'd like it better closer to or under $90.

CVX is also a Dividend Champion but don't know if it's on the Aristocrat list; longrundata lists the DGR of 9%, 10%, 7% for the three time periods already mentioned and the payout ratio is around 39%. The P/E is around 12 which is at the high end of what it's been trading at for the last few years but the yield is around 3.4%. I like it better around $110 but you missed that dip. It's not grossly overvalued, IMO.

Since I don't know much about you, I can't even hazard a guess about time frame, age, tax situation, etc. You have to weigh it for yourself. One thing that interests me is even with the low dividend growth rate, DD seems to have given you a nice capital gain.

In the meantime, why don't you tell us a little more about your goals and any other information you think is pertinent in the Introductions section. It's hard to make a recommendation without knowing where you're at.

[ChadR]

I'm with Kerim and Dividend Watcher. Too hard to give you specific recommendations without knowing more about you. While this may be big now, it might be reasonalbe sized when you have your finished portfolio. I wouldn't sell all of it, just half or some portion and reallocate if you do decid to sell.

[kayboy]

(05-12-2014, 08:09 PM)Kerim Wrote: It is very hard to answer that without knowing a whole lot more about your portfolio. Are you otherwise properly diversified? I don't know a ton about it, but DD is no fly by night company, and could have a place in your portfolio? Have you considered selling part of your shares, keeping a more proportional size of it, relative to your other holdings?

On a related note, I read recently (though I don't remember where) that people who inherit stock often do not sell and reallocate because of several powerful -- but not necessarily beneficial -- psychological biases. Ownership bias makes you value things that you already own more than other people do; familiarity bias makes you more comfortable holding it; and the huge number of other options can also lead to inertia.

Thanks Kerim. I'm not married to my stocks. I raed something about "biases" at Motley Fool, and I agree.
More will be revealed in the "Introduce Yourself" section.
kayboy!