Recently, I had a couple of stock sales to kick off my Portfolio transactions in the new year.  Sales are not necessarily what I like to see for my Portfolio that’s supposed to be growing, but it’s something we will encounter every now and then for various reasons.

One of the stocks sales was the result of an assigned covered call, while the other was a position trim that I’d been contemplating for a couple of months.  Unfortunately, these sales put a temporary dent in my forward dividend income, but I hope to rectify that situation in short order by finding some stocks to invest in with the sale proceeds.

The assigned covered call was for Target (TGT).  There shouldn’t be too much surprise in the call assignment given the price run up TGT had last year.  I actually rolled my call option forward once in an effort to keep the TGT shares, but with that 2nd price pop in November after another strong quarterly report, I didn’t feel the desire to pay up to keep them.

The position trim was to Realty Income (O).  The REIT had a terrific year in 2019 and its stock price actually climbed into the low $80s in Q4.  While my timing wasn’t good enough to sell at that point, I’m happy with the price I did sell at.  Now O is a more comfortable size within my Portfolio.

Let’s get some additional specifics regarding both sales…

 

TGT

I initiated my TGT position back in January of 2017, buying 42 shares at $66.81, then another 42 shares about 6 months later at a price of $52.70.  It was about the time of that 2nd purchase that TGT started to recover in price.  I polished off my purchases with 10 more shares at $66.50 in December of 2018.  With the help of my reinvested dividends, I had a little over 100 shares when I wrote my covered call in July of last year.  At that time, TGT was trading for a little under $88 (sporting a run up of over $20/share in just 6 months), when I wrote a covered call with a $95 strike price and a 9/20/19 expiration date.

My option was nicely out of the money until TGT released their earnings report in August, as which time the stock shot up to roughly $105, blowing past my strike price.  I wasn’t sure I wanted to give up my TGT shares at that point, especially with good times apparently ahead, so I decided to roll the option forward.  On 8/21/19, I was able to garner a small premium by buying my existing option and selling a new one.  The new option had a $100 strike price and a 1/17/20 expiration date.  Surely, after this big run up in price, TGT was now overvalued and would retreat in price over the coming months.  Well, that never happened, and when TGT delivered another strong earnings report in November, the stock rose again, this time eclipsing $125/share.  The cost to roll my option forward again was too much, and so for the last couple of months I resigned myself to that fact that these TGT shares would get called away.

In the week prior to my option expiration/assignment, TGT reported some disappointing holiday sales and the stock dropped about $10/share, but it was nowhere near enough for me to keep the shares.  TGT was just under $117 at expiration, still well above my strike price.  After factoring in some of my premiums for writing the options, I effectively sold 100 shares at a little over $101, missing out on about $1,500 in gains.

With TGT’s price seemingly in overvalued territory, and TGT delivering some slowing dividend growth in recent years, I decided it wouldn’t be so horrible to see my TGT shares go away and re-deploy the proceeds.

With the sale of 100 TGT shares thanks to the options assignment on 1/17/20, I was left with 2.34 TGT shares in my Portfolio.  With this remaining position being so small, I sold these shares this past Tuesday, 1/21 at $116.54/share.  Thus, TGT is no longer in my Portfolio.

TGT definitely was a good stock investment for me overall, especially considering the gains it made in 2019.  In fact, you’ll find out in the coming weeks in my Annual Performance Review that TGT was my #1 Portfolio performer in 2019.

When all was said and done with my TGT position, I sold all 102.34 shares, and collected sale proceeds of $11,125.46.  TGT’s stock value position in my Portfolio was just outside my top 10.

I owned TGT for a shade over 3 years, showing a Compound Annual Growth Rate (CAGR) of 25.63% during that time.

I realized a long-term capital gain of $4,742.21, and a short-term capital loss of $626.67 when accounting for option costs.

The removal of TGT from my Portfolio resulted in the reduction of $270.18 in annual forward dividend income.  That will be missed, for sure!

I’m open to owning TGT again in the future, but at a lower valuation than currently exists.

With the TGT sale, the number of stocks in my Portfolio dropped to 45.

 

O

The O shares I chose to sell were part of a share lot from May 2017 that I bought for $55.59/share.  This lot contained the most expensive O shares I held, outside of any of those I bought with reinvested dividends.

I’ve had success selling O when the shares appeared overvalued, then buying them back at a later date for a lower price.  I can’t say I’m expecting to do that here, but should the share price drop I’ll certainly consider buying them back at a lower price.

Given how my REIT positions grow due to reinvesting the plentiful dividends (thanks to their higher-than-average yields), I’d imagine I’ll be trimming all my REIT positions over time.  This stems from keeping the non-preferred income REITs distribute to a manageable level within my taxable Portfolio, and not having my REITs have too large of a dividend weighting in my Portfolio.

I trimmed about 20% of my O position, leaving me just under 100 shares.  Although O’s February dividend should put me back over the 100 share mark.

Let’s check out the sale details…

On 1/21/20, I sold 25 shares at $77.00/share, for a total of $1,924.96 after my $0.04 SEC fee.

With the sale, I realized a long-term capital gain of $557.08.

The O trim resulted in a $69.75 reduction in annual forward dividend income.  I’m going the wrong direction again, aren’t I?  🙂

 

Summary

So, all totaled, I sold shares of two companies (TGT & O), including all shares for one of them (TGT).

Accounting for both, I realized a net long-term capital gain of $5,299.29, and a short-term capital loss of $626.67.

Sadly, my annual forward dividend income dipped by $339.93 in conjunction with the two sales.  I’ll have some work to do to replace that lost income.  However, don’t fret… I’ve already started scooping up shares of other companies to help replace that income.  I should be reporting on those purchases in the coming days.

 

Has your portfolio already seen its first transaction of 2020?  What spurred you to take action?  Please share in the Comments.