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BP is up 16% since I bought it and I'm finding it hard to justify it's current price.
The chief exec just got paid 10x the salary of the average FTSE100 CEO for a mediocre performance and BP looks stranded in the oil market with Shell purchasing BG group and pushing ahead.
I'm seriously considering selling 50% of my steak as I'm worried about the continued isolation of the company. It now looks like a potential takeover target for XOM?
I know the idea is to trade as minimally as possible but...
Any advice? First time this matter has arisen for me.
Lewys
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What I would do is first figure out where you would spend the money you get from selling BP. It might be another energy stock, it might be split evenly amongs the rest of your portfolio, it might be something new for your portfolio. Once you know where it's going, then it's easier to compare the two investments. As long as you can convince yourself that you do indeed have a better place for that $$$, then go for it.
Yes the idea is to keep the amount of trades low so that fees and taxes from profits don't ruin the party. But if you think it's time to let go, and you have a better investment in mind, then by all means go for it. A single transaction fee is not much and I'm sure you can figure out ways to keep the tax burden low.
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Lewys, we've all been there before. Stop and think things through.
- CEO Pay: They all try to squeeze every last penny out of their compensation despite what the shareholders say. It's a pretty good system they've got. If they have a "say on pay" vote on the proxy like U.S. corporations are required to have, vote no and move on. Look at the company results instead.
- Do earnings or free cash flow cover the dividend? You want to make sure they're going to be able to continue pay and increase the dividend in the future. If it doesn't now, does management talk about it and seem to have a plan? The oil patch is going through a rough spot right now so they're all feeling the pinch.
- Are earnings growing or is the prospect of earnings positive? Dividends come from earnings so keep an eye on their prospects.
- Is it an outsized position in your portfolio plan? Where do your BP holdings stand in respect to where you want them to be in 5 or 10 years. When you're in accumulation phase, it's common for some holdings to be outsized compared to other companies in the portfolio. It will balance out as you make purchases over time. You do have a plan started, right?
- If you sold it, what would you do with the proceeds? It's good to have a list of replacements ready. Sitting in cash for extended periods, especially at these rates, will not keep you moving forward. Churning your portfolio just because you're nervous just increases your expenses and lowers return.
- Buyouts usually come with a premium to what the company is worth. If there is a bid and you don't want to hold the resulting entity, then you can sell it and collect the premium then. Until then it's all rumors and trading rumors is a bad idea in my opinion.
I don't know much about BP. I'm happy with my CVX holdings even though they're getting cash flow squeezed too. I believe management has a plan and will continue to reward long-term shareholders even if the dividend gets frozen or increased by a penny this year.
BP had quite the operational challenge with the Gulf spill. They seem to have made some adjustments to management since then and are moving forward. Don't be too worried about the continued lawsuits now, they'll take years to sort out. Most of the immediate costs to remedy the situation have already been spent.
If you are still nervous about it, then yes, sell half and move on.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
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I concur with the points DivWatcher raised.
Sitting still is one of the hardest things to do in investing. I am not that familiar with the financials of BP either, but if you suspect a takeover by XOM (not sure how true they are - since ive been seeing that rumor for a while now), why sell? You could potentially lose out on bigger gains.
Alternatively, if you are the type of person who just wants the market to take care of things - if you have enough shares, write a covered call and leave it up to the market to decide for you.
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(04-13-2015, 04:35 AM)Lewys120 Wrote: BP is up 16% since I bought it and I'm finding it hard to justify it's current price.
So you wanted it to not appreciate in value? How does a 16% price movement change your opinion on any position? 22% of the stock price is cash. They have $30B in cash and pay ~$6B in dividends every year. What are you concerned about?
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(04-13-2015, 08:47 AM)rapidacid Wrote: (04-13-2015, 04:35 AM)Lewys120 Wrote: BP is up 16% since I bought it and I'm finding it hard to justify it's current price.
So you wanted it to not appreciate in value? How does a 16% price movement change your opinion on any position? 22% of the stock price is cash. They have $30B in cash and pay ~$6B in dividends every year. What are you concerned about?
This!
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(04-13-2015, 08:50 AM)Kerim Wrote: (04-13-2015, 08:47 AM)rapidacid Wrote: (04-13-2015, 04:35 AM)Lewys120 Wrote: BP is up 16% since I bought it and I'm finding it hard to justify it's current price.
So you wanted it to not appreciate in value? How does a 16% price movement change your opinion on any position? 22% of the stock price is cash. They have $30B in cash and pay ~$6B in dividends every year. What are you concerned about?
This!
After seeing the info from rapid,
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
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(04-13-2015, 09:48 AM)Dividend Watcher Wrote: (04-13-2015, 08:50 AM)Kerim Wrote: (04-13-2015, 08:47 AM)rapidacid Wrote: (04-13-2015, 04:35 AM)Lewys120 Wrote: BP is up 16% since I bought it and I'm finding it hard to justify it's current price.
So you wanted it to not appreciate in value? How does a 16% price movement change your opinion on any position? 22% of the stock price is cash. They have $30B in cash and pay ~$6B in dividends every year. What are you concerned about?
This!
After seeing the info from rapid,
I'm just concerned that BP reinvesting the dividends into the company at its current valuation wouldn't be wise (as I don't feel it represents good value at present). On reflection I over-reacted. What I'm going to do is to take the dividends as cash and invest elsewhere, anyone else do this with some stocks?
I appreciate that this is 'obvious' for a lot of you but this is new territory for me and I greatly appreciate all your support.
I'm not so much concerned about their ability to pay dividends only that they're being outmaneuvered by other oil majors at present.
Lewys
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04-13-2015, 10:24 AM
(This post was last modified: 04-13-2015, 10:37 AM by rayray.)
When looking at any investment one has to love Warren Buffet's quote, "If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes."
There are a couple of stocks in my portfolio that will be liquidated because they simply don't fit my personal criteria of stock ownership, I bought them before I had a plan in place or maybe before I understood what my plan was going to be for the long term. Develop a solid investment plan then execute accordingly and leave all emotions at the front door, so-to-speak.
Seeing your last response about redirecting further dividends, I do that too with stock that appears to be overvalued. It takes patience because I have to let the dollars pile up in order to keep costs to a bare minimum. In fact, in my brokerage account all dividends go directly into the settlement account for future stock purchases, it's my KISS philosophy. Only in my ROTH IRA will I reinvest dividends unless the stock becomes overvalued.
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(04-13-2015, 10:13 AM)Lewys120 Wrote: What I'm going to do is to take the dividends as cash and invest elsewhere, anyone else do this with some stocks?
Yes! We're waaaaaaay closer to retirement so it's time to slowly adjust. I used to DRIP everything but right now I'm taking the dividends from the biggest holdings to expand our utility & REIT holdings to boost the income stream. Once I get them a little more in line with my portfolio plan, I'll go back to reinvesting everything again.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
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(04-13-2015, 10:13 AM)Lewys120 Wrote: What I'm going to do is to take the dividends as cash and invest elsewhere, anyone else do this with some stocks?
This seems like a good decision. I mostly reinvest right back into the dividend payer, even if I feel like the company is slightly overvalued and would not buy with "new" money.
But sometimes I will take the dividends as cash and just add that to the "new" money pile slated for fresh investments. I'll do this if the company gets seriously overvalued or if the investment thesis becomes so broken that I don't want to acquire any more of it, but not quite broken enough to sell. This happened to me with INTC last year. I sold off a portion of my stake, and stopped reinvesting the dividends while the company was on probation.
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(04-13-2015, 10:13 AM)Lewys120 Wrote: What I'm going to do is to take the dividends as cash and invest elsewhere, anyone else do this with some stocks?
Yes, I take all of my dividends as cash. The important thing is that the money goes back into the market, it doesn't necessarily have to go back into the same company.
Ultimately my plan is to leverage my portfolio so that the total amount of debt is equal to 1-2 years of dividend income. This way the cash dividends will automatically pay off the leverage everytime they arrive on the account.
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