Weekly Purchase - WMT (Stick with Quality)

7 shares WMT, 2.56% yield, $13.16 annual income

I went with Walmart this week.  I'm pleased to add a few additional shares of this company to my holdings, but that's not really on my mind today.

Avoiding disaster with high quality companies... that's whats on my mind.

Back in August I sold Boardwalk Pipeline Partners LP (BWP) when it became apparent distributions would remain frozen.  At the time this decision wasn't easy.  After all I had held it for two and half years during which it provided 6 distribution boosts and sent me hundreds of dollars in steady income.  $761.26 to be exact!

It turns out this company was in even worse shape than I imagined.  Yesterday it cut quarterly distributions from $.5325 to $.10 per quarter.  That's a 82% reduction folks.  OUCH!

 Look at this chart:

Sold BWP at $30.42 on 8/6/2013, today it trades for $13.43

Had I continued holding, my income stream would have been crushed and to make matters even worse principle would have evaporated right before my eyes.  You can't replace an income stream once you lose 56% of your principle!  This has to be my best sell ever, and there are many lessons to be learned here.  The most valuable of which is to stick with quality and always keep an eye on your holdings. PG, KO, PEP, MCD, CVX, JNJ.  Those are all high quality companies that have been raising dividends for decades.  They aren't sexy and they won't make you rich overnight.  But nobody ever went broke buying Procter & Gamble, and nobody ever went broke buying Johnson & Johnson!  They all have huge moats and treat shareholders like royalty.  3 of those companies have raised dividends for over 50 years... think about how hard that would be to replicate... damn near impossible if you started today!  Monitor companies and keep an eye out for warning signs.  Many times (not always) the writing is on the walls. 

Boardwalk warning signs I was able to identify before the meltdown:
-Frozen dividends:  A huge warning sign that should never be completely ignored.
-Thin distribution coverage:  Dividends and future dividend increases are paid with cash.  BWP couldn't afford to pay more even if it wanted to.
-Management refused to discuss dividend increases on conference calls:  Pretty fishy coming from a company on the CCC lists that had done a crap ton of increases in the past.

You can go back and read my August 2013 post about the sale, I'm not hiding anything here. 

Don't let the CCC lists or high yield fool you, a 5 year dividend growth streak isn't all that impressive.  Stick with quality!