The month of May has arrived and transactions have already occurred in my Portfolio. Yesterday I made an adjustment to the Portfolio, selling one stock, then buying another with the sale proceeds and a little extra cash…. sounds like my last pair of transactions from a couple of weeks ago!
Here are the details…
Omega Healthcare Investors (OHI)
On 5/1/18, I sold about 29% of my OHI position, 50 shares at $26.25/sh. After the commission and SEC fee, the sale total was $1,310.47.
Dividend growth investors are most likely familiar with OHI. It’s a REIT operating in the long-term healthcare industry, mainly skilled nursing and assisted living facilities. The company has performed poorly over the past year as a couple of its largest tenants have run into difficulties making their lease payments to OHI. In addition, the skilled nursing industry may be facing regulatory concerns. The falling FFO numbers over the past year aren’t encouraging either.
While OHI is one of the smaller positions in my Portfolio (bottom 25%), its current ~10% yield results in the largest annual dividend payment for any of my holdings. Given OHI’s recent woes, not to mention their stalled dividend increases, having OHI be such a significant dividend payer for my Portfolio is not desired. Thus, I decided to trim the position a bit, and re-evaluate OHI in a few months. In addition, I’ve decided to stop reinvesting OHI’s dividends back into the stock, and instead use the dividends to add to other Portfolio positions.
The sale resulted in a long-term capital loss of $379.70, and a reduction of $132.00 in annual forward dividend income. That’s no fun!
Pepsico (PEP)
On 5/1/18, I added a few shares to my long-time PEP holdings, purchasing 14 shares at $98.78/sh, for a total of $1,384.92 after commissions.
PEP has fallen nearly 20% since the start of the year. Not only are there concerns about sagging soda sales and slumping net profit margins, but hanging out in the consumer staples sector these days is just bad for one’s stock price. Consumer Staples is the worst sector is the S&P 500 in 2018.
I alluded to possibly adding some PEP in my latest Portfolio Thoughts post, mentioning that I might add should the price drop below $100. It didn’t take long for PEP to reach that level.
The additional 14 shares puts me just over 100 shares now, allowing me to write covered calls on the stock should the urge arise in the future.
The yield on the purchased PEP shares is significant at just over 3.75%. This is the highest it’s been in the past decade thanks to the most recent dividend raise and the falling stock price.
This purchase results in the addition of $51.94 in annual forward dividend income.
Summary
The net result of my activity was a reduction in one position in the REIT sector (OHI), followed by an increase in a position in the consumer staples sector (PEP).
The total amount realized in the sale and the subsequent amount used in the purchase were about a wash, so no significant cash outlay was required.
However, the sale of a high-yielding OHI shares certainly put a dent in my annual forward dividend income, and this was not overcome with the addition of some nice-yielding PEP shares.
The two transactions resulted in a net decrease of $80.06 to my annual forward dividend income. Unfortunately, my goal of $8,700 in forward dividend income by the end of 2018 got a little farther away, but perhaps I can find a way to add to some of my other positions in the next few months to replace all of the lost dividend income.
Any thoughts on these transactions? Are you worried about OHI in the near-term? Does PEP look appealing to you at its current level? I look forward to your comments!
I think its a choice well made. I also have a small ohi position but decided to keep it for now.
PEP is my main contender for my next buy, only concern I have if it’s going even lower. I added PG at $78 and 2-3 weeks later it’s at $70!
Tough timing on PG to be sure, Mr. Robot. However, with good companies the price will rise over time, and the difference in price you paid should eventually become insignificant.
I may have been a bit early with PEP, too, but I was happy with the price I paid.
Well I added 5 PEP shared at $97 so let’s hope it starts to rise now 🙂
I’ll post a blog about it soon, for now I’m enjoying my record breaking dividend haul of April 🙂
I’m glad I never bought OHI for the reasons you mention. I do own VTR and WELL in that space and they have been negatively impacted. I do own PEP. It’s hard to go wrong there. Their snack business gives them more diversification than KO. Tom
Hey, Tom! As always, glad to hear from you. WELL got my attention when it got below $60, and I think it touched $50 before the recent bounce – quite the dip! REITs have had a tough go of it the past few months, but they’ll have their day in the future. I agree there’s less angst with PEP compared to OHI. I like PEP’s product diversification, as you mention.
It looks like more and more DGIs are purchasing PepsiCo recently – it really got my attention. I will consider it as one of the options for my next purchase.
Regarding REITs, I only have O in my portfolio and am no longer allowed to purchase REITs due to some new regulations starting this year. I think it’s a good decision to reduce your position in OHI, as it looked quite risky.
I hope your changes pay off!
I hope they pay off too, BI. I feel good about both moves, but time will tell.
Interesting to hear about the restriction on REITs. Sounds like you get to keep the ones you already owned, and O is a good one to have.
Engineering Divis, I’ve been tempted to sell some OHI, but for now their dividend IS covered. I’m not looking for any increases when their payout is already so high. I’m going to give them another earnings report to see what management can do. I was also considering selling some and buying PEP. I think it is still a good move.
Holding OHI to gather more information seems reasonable to me. Even with the sale I still have about 122 shares. I was just uncomfortable seeing such a large dividend coming from a company that has some near-term question marks. Paring back a bit was the right move for me. OHI has had a nice move up since I sold some.
As for PEP, I’ve owned it for over 20 years and look to continue to hold it. Now struck me as a good time to add some given the recent pullback.
Thanks for dropping by, MH… I appreciate your comments.
I got a bit nervous myself because of my OHI position. I kept my position and am no longer under water. Price pressure will continue for a while, I guess. This week I initiated a position in PEP, very excited aboit that.
Nice site you have here
Welcome, Glenn! Thanks! I’m happy to hear you like the blog. I hope you’ll be a frequent visitor.
OHI appears to have made a nice recovery over the past month. Let’s see if it holds. I still own a good chunk despite my partial sale.
As for PEP, glad to have you as a fellow shareholder now. I think you’ve initiated at a good time.
I look forward to checking out your site.