I’ve got a pair of transactions to share as we get ready to close out the month of March.

In one case I exited a Portfolio position.  In the other case I started a new position.

I began with the sale.  I don’t take closing out a position lightly, but I’ve been in the process of paring back one of my positions for a while now with the plan of eventually exiting it.  That day finally came.

With the purchase I desired to replace my lost dividend income from the sale, boost my dividend safety, and improve the dividend growth.

Did I manage to do it?  Let’s find out right now.  Here are all the details of my recent transactions.

 

Omega Healthcare Investors (OHI)

This stock has been a thorn in my side and I’m happy to say it’s been extracted from my Portfolio and won’t bother me any longer.

I owned this stock for nearly 6 years and in that time I’d been disappointed with the capital appreciation and the dividend growth.  Within the past 2 years, I established concerns about the dividend safety, too.

I starting paring down my position in 2018, eventually selling around two-thirds of my position during that year.  The remainder of the selling took place in the past calendar year as it’s become clear that their business has been negatively affected by the pandemic, with several of their tenants struggling to reliably make rent payments.  These problems have led to no dividend growth since late 2019 and declining dividend safety.

In the chart below, you can see the stock price during the time I’ve owned OHI.  It looks to have been flat over the past 6 years.  In fact, it’s down about 10% from where I made my first purchase.

Yes, OHI has a nice yield, but with little or no capital appreciation over the long-term it’s hard to get inspired.

 

 

I haven’t calculated my total return yet.  It’s possible that with the high dividend yield that I scratched out a positive return, but I’m not optimistic.

On 3/25/22, I sold my remaining 37.81 shares at $30.60/share.  The sale proceeds were $1,156.98, after the $0.01 SEC fee.

At my sale price, shares of OHI yielded 8.76% (this was easily my highest-yielding Portfolio stock).  This yield is over 3.6x my current Portfolio yield of 2.42%.

I realized a long-term capital gain of $9.67, and a short-term capital loss of $9.41.  The sale also resulted in a $101.33 reduction in annual forward dividend income.

The number of stocks in my Portfolio dropped to 55 after OHI was eliminated.

 

Verizon (VZ)

With the OHI sale complete, I set out to replace my lost dividend income, which was a difficult task.  After introducing STOR Capital (STOR) and VICI Properties (VICI) to my Portfolio earlier in the month, I decided to look outside the REIT sector.

I ended up with a slow-grower from the Communication Services sector that grows their dividend at a measured pace, but offers a 5% yield and very good dividend safety.  That stock is VZ, a telecom giant in the U.S.  Wireless services generate nearly all of the profits for VZ today.

Even at 5%, VZ yields significantly less than OHI, so I needed to pony up some cash to add to my OHI sale proceeds in order to replace all the dividend income.

On 3/29/22, I initiated my VZ position by purchasing 40 shares at exactly $51/sh, for a total of $2,040.00.  The stock yielded 5.02% at my purchase price, which is a little more than twice that of my overall Portfolio.

This purchase added $102.40 to my annual forward dividend income.  Thus, I recovered all the dividend income lost in the OHI sale, plus a little extra.

VZ starts as the 6th smallest position in my Portfolio, sandwiched in between a couple of REITs in Medical Properties Trust (MPW) and National Retail Properties (NNN).

 

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

 

 

Dividend growth was nearly non-existent in the first half of the 2000s.  However, VZ currently has a 15-year dividend growth streak.  Unfortunately, the dividend raises over that time have averaged in the 2%-3% range, with 2% being a better representation of the past 5 years.

The payout ratio for VZ is 47%, which is rather low for a telecom company.  This ratio has been moving down over the past decade as well.  I’m hoping this provides room to accelerate the dividend growth a bit in the coming years.

Return on Equity (RoE) and Return on Invested Capital (RoIC) look favorable, but the company’s outstanding share count has been increasing ever so slightly.

Adding VZ to my Portfolio brought the number of stocks to 56.

 

Summary

With the month of March coming to an end, I made a pair of Portfolio transactions.

I finally purged the remaining shares of OHI that I had in my Portfolio after trimming several times in the preceding years.  While OHI has a nice yield, this didn’t outweigh its poor price performance, its frozen dividend, and its questionable dividend safety.

With the OHI sale proceeds and some cash, I initiated a position in VZ, providing some additional oomph to the weighting of Communication Services within my Portfolio.  While the yield for VZ is just north of 5%, its dividend growth seems stuck at the 2% level.  However, with a 5G rollout underway and consumers signing up for higher-end, more profitable services, perhaps the growth can slightly improve here in the short-term, all while maintaining a safe, reliable dividend payment along the way.

The two transactions resulted in a net investment of $883.01 into my Portfolio.  My annual forward dividend income rose by a paltry $1.07, but at least it moved in the right direction.

The capital gains/losses on my sale were muted as well.  I recorded a long-term capital gain of $9.67, while also recording a short-term capital loss of $9.41.

After removing OHI from my Portfolio, but adding VZ, the number of stocks in my Portfolio remained at 56.

 

Have you sold any high-yielding stocks from your portfolio recently?  Did you find it difficult to replace the lost dividend income?  Which stocks were involved?  I look forward to your comments!