Tuesday, April 30, 2013

Lineup Change


I decided it was time to part ways with the rest of my UNS position.  At $50 UNS no longer looks attractive, plus there is very little incentive to stick around to see if the dividend increases will accelerate.  The current yield dropped to 3.4%.  No thanks, I will pass.  Even if Mr. Market thinks this stock is worth $50, I do not.  The fair value I have in mind is closer to 40.  An overvalued price coupled with atrocious dividend growth made this decision easier than normal.  I might be wrong about the valuation...  Right or wrong, low dividend growth on a stock yielding 3.4% does not fit my strategy.
I will still follow this company, although it will get less attention now that is has been demoted to watch list status.  If the dividend growth accelerates and the price drops I am not opposed to rebuilding the position.  It will be interesting to see what the future holds for this company. 
I held UNS in both my taxable and ROTH IRA accounts.  That is why I sold in two separate transactions.
With the capital raised with the UNS sale, I purchased 33 shares of BNS.  When I make portfolio changes like this, the goal is to bolster my dividend income and/or expected dividend growth with a stock that has a better valuation.  I'm happy to report that BNS accomplishes all of this.  #1 Immediately my passive income rises.  #2 I expect higher dividend growth #3 I currently see BNS as undervalued. 
It's impossible to know how changes like this will turn out or if it was the right move.  I do like my odds though.
Unfortunately my 2013 Q2 income will take a small hit since BNS already paid this quarter.  That's really just a small blip of less than 20 bucks.  It certainly won't be on my mind 10 or 20 years from now!


  1. I was in much the same situation as you about WM. I sold out of my small position last Friday because the DG just hasn't been there. I loved the starting yield, but 2% and 4% raises from something with a current yield of 3.6% just didn't cut it.

    1. Yeah I hear you. UNS had a great run, but it was time to fully sever ties with that company. I do appreciate the hundreds of dividend $$ they sent my way. Thanks UNS for being a good steward of my capital. Hopefully one day I will become a part owner again.

  2. CI,

    Sounds like a very prudent move. Like you mention, the valuation could be argued either way (I would argue for overvaluation for sure), but you can't ignore the low DGR with the very modest entry yield (for a utility). Looking at a 3.4% yield and very low (sub 3%) dividend raises doesn't translate to very attractive total returns, and certainly doesn't work well in a dividend growth strategy. I'd almost rather have a 7% yield and no raises.

    Great move on BNS. The Canadian banks and some energy plays are where I'm going to be looking next month based on where we're at right now.

    Best wishes!

    1. I've been looking at XOM recently, that is one I may purchase next month. Other than that I don't know. We'll see what happens. Tough market for buyers!