Hello, everyone.  I made a few minor moves in my Portfolio this week that I’m going to update you on.

In total I’ve got 3 transactions to detail…. one sale (a trim) and two buys.  One of the buys resulted in the introduction of a new stock to my Portfolio.

For the most part, the proceeds from my sale were used to establish that new position.  However, I then made a second purchase, investing some cash this time, to make sure my Portfolio didn’t see a drop in forward dividend income.

This all sounds a little vague, I’m sure.  So, let’s dive into some details…

 

W.P. Carey (WPC)

For the past few years, I’ve been very disappointed with the dividend growth I’ve seen from this REIT.

I started my WPC position back in 2015 when the company was sporting a double-digit 5-yr. dividend growth rate.

The past 5 years have resulted in a 5-yr. dividend growth rate of 1.78%  The first YoY dividend raise I recorded was in 2016 at 2.42%, but it’s declined every year since then, and in 2020 it came in at 0.77%.  This is not the dividend growth I was looking for.

Meanwhile, my total annualized return for WPC has been 7.7% as of my last Performance Check.  This is acceptable, but it’s still one of my worst performers in my Portfolio of the stocks that I’ve held for 5+ years.

Thus, I decided to trim my position a bit and plan to reinvest the proceeds into a stock that still had a comparable yield, but better dividend growth prospects.

On 4/6/21, I sold 15 shares at $72.25/sh.  This was roughly 28.2% of my WPC position.  After the SEC fee, the sale proceeds were $1,083.74.

At my sale price, shares of WPC yielded 5.80%, which is over 3.5% higher than my current average Portfolio yield of 2.27%.

The sale resulted in a long-term capital gain of $157.85.  The sale also resulted in a $62.88 reduction in annual forward dividend income.

With this trim, the number of WPC shares I have fell to 38.242 shares.  WPC is now the 6th smallest position in my Portfolio, behind fellow REIT Omega Healthcare Investors (OHI), and ahead of fellow REIT Iron Mountain (IRM).  You can see I try to keep my REIT positions rather small, keeping their respective dividend weightings in my Portfolio under control.

 

OGE Energy (OGE)

So what did I do with the WPC sale proceeds?  I put them right back to work by investing in a Utility stock – OGE Energy.

Here’s some background from the company’s website… “OGE Energy Corp. is headquartered in Oklahoma City.  It is the parent company of Oklahoma Gas and Electric (OG&E), a regulated utility.  Formed in 1902, OG&E is Oklahoma’s oldest and largest investor-owned electric utility.  We serve more than 858,000 customers in 267 towns and cities in a 30,000 square mile area of Oklahoma and western Arkansas.

OGE Energy holds a 25.6 percent limited partner interest and a 50 percent general partner interest in Enable Midstream Partners, LP (ENBL), also headquartered in Oklahoma City.”

Note – OGE recently agreed to support a merger between Energy Transfer Partners (ET) and ENBL, which will effectively allow OGE to exit midstream (to become more of a pure-play electric utility) and significantly reduce the exposure it has to commodity prices (oil, natural gas & natural gas liquids).  This should allow for safer dividend coverage for OGE due to more predictable cash flows.

On 4/6/21, I initiated my OGE position by purchasing 33 shares at $32.695/sh, for a total of $1,078.94.  The stock yielded 4.92% at my purchase price (more than double my current Portfolio average).

I view my OGE buy price as fairly valued.  I would have liked to initiate my position below $32/sh., but this is close enough to start, and I’ll look to add should the price drop.

This purchase resulted in the addition of $53.13 in annual forward dividend income.  This recouped most of the income lost with the WPC trim.

One other positive nugget with regard to the OGE dividend… it’s a qualified dividend, as opposed to the non-qualified one from REIT WPC.  This will result in preferred tax treatment for the dividends.

Since I made my purchase a few days before the OGE ex-dividend date, I expect to collect my first OGE dividend later this month.  That will be nice!

This OGE buy bumped the number of stocks in my Portfolio to 53.  It’s also the 3rd Utility stock in my Portfolio – all of which were established in 2021.

OGE starts as the smallest position in my Portfolio, just behind my two other Utility stocks: Pinnacle West Capital (PNW) and NextEra Energy (NEE).

 

As I usually do with new holdings, let’s take a quick look at the dividend growth history dating back to 2000…

 

 

OGE is proud of their dividend payment history.  Here are some additional words from the company website… “we are proud to be one of a select group of utilities that has never reduced our dividend since going public in 1947—that is 73 years of consecutive dividend payments!  And we’ve consecutively increased our dividend for the last 14 years.”

In the table above you can see that OGE held their dividend steady from 2000 through 2006.  Then starting in 2007, the current 14-year dividend increase streak began.  OGE was averaging 10% raises from 2014 through 2018, but that clip has started cooling off in recent years.

The 3-yr., 5-yr. & 10 yr. dividend growth rates look great for a Utility at around 8%.  I think something on the order of 4%-5% a year moving forward is a realistic expectation, and this should surpass the dividend growth I am getting with WPC.

The payout ratio is roughly 75% based on earnings for the year just completed.  This is high enough that dividend growth will probably track earnings growth (instead of exceed it) in the years ahead.

 

Merck & Co. (MRK)

With the price of MRK still appearing attractively valued to me, I continued to build out this Healthcare position.

In addition, the forward dividend income boost that I received from this purchase made sure that I recouped my entire lost dividend income from my WPC trim.

This was my 5th MRK buy since opening a position last December.  I find my position to be growing nicely.  🙂

On 4/6/21, I purchased another 5 shares of MRK @ $75.92/sh., for a total of $379.60.  The stock yielded 3.42% at the time of my purchase (or 1.15% above my current Portfolio average).

The purchase resulted in the addition of $13.00 in annual forward dividend income.

I now own 70.595 shares of MRK.  The stock moves up to the 40th largest position in my Portfolio (out of 53 stocks), a decent distance behind Main Street Capital (MAIN), and just ahead of Hormel Foods (HRL).

 

Summary

This past Tuesday I made 3 Portfolio transactions.  I started by trimming my WPC position due to its disappointing dividend growth.  I then used the proceeds to establish a new position in the Utility sector, OGE.  Finally, I invested a little cash and continued to build my MRK position.

By trimming a REIT, then adding a Utility and increasing my stake in a Healthcare stock, my Portfolio got a little more defensive.

All totaled, the 3 transactions resulted in a net investment of $374.79 into my Portfolio.  Also, my forward dividend income increased by an almost unnoticeable $3.25.  Still, it was a step in the right direction… up!

With the WPC sale, I recorded a long-term capital gain of $157.85.

With a new Portfolio position being established with the OGE purchase, the number of stocks in my Portfolio ticked up to 53.

 

Have you been making any portfolio adjustments?  Have you been adding any Healthcare stocks in recent weeks?  Please share in the comments!