I have some Portfolio activity I want to share.  It is a pair of moves comprising my first transactions of April.

I trimmed one of my positions due to poor dividend growth and dreadful stock performance, not to mention ongoing litigation that is a headwind for near-term growth.

This continued a trend I started in March… weeding my Portfolio to allow for a better stock garden overall.  I don’t need those disappointing stocks stealing light, water and nutrients from my Portfolio as a whole.

The other move was to re-introduce a stock to my Portfolio that I owned years ago.  This stock should offer better prospects and dividend growth than the one I trimmed.

I used the trim proceeds to fund my new stock purchase.  Unfortunately, the new stock is lower-yielding, resulting in a reduction in my forward dividend income.  So, I’ll need to keep shopping in the stock market to recoup the lost income.

On the bright side, my new holding offers better dividend safety than the one I trimmed, making my Portfolio income stream just a tad safer.

Let’s take a look at all the details of this pair of transactions…

 

3M Co. (MMM)

After eliminating a couple low-dividend growth stocks from my Portfolio last month in W.P. Carey (WPC) and Omega Healthcare Investors (OHI), I kept busy with attacking another low-dividend growth stock in April – MMM.

The dividend growth from MMM over the past couple of years has been pathetic (easily less than 1%).  Unfortunately, the business if facing headwinds – legal liabilities tied to the company’s legacy PFAS chemicals and military earplugs.  A wide range of outcomes are possible for this litigation, and it will most likely take years to gain clarity on these matters.  With all this uncertainty, I’m not expecting anything except more token dividend raises over the near-term while MMM probably tries to preserve cash.

So, I began the process of paring down my MMM position and putting my capital to work elsewhere.  With the stock price dropping this year, and pushing up the yield up to the 4% area, it’s difficult to sell my entire position and replace the lost income.  Thus, I’ll plan to pare down my position over time… starting with this trim I’m covering today.

I was not fond of selling here at what appears to be an untypically low forward P/E ratio, but I may never get this process going if I don’t start now, as I don’t see the stock price for MMM moving significantly higher anytime soon.  Perhaps if the market shot up, MMM would follow along.

On 4/1/22, I sold 15 shares at $149.345/share.  This was roughly one-third of my entire position.  The sale proceeds were $2,240.17, after the $0.01 SEC fee.

At my sale price, shares of MMM yielded 3.99%.  This yield is over 1.6x my current Portfolio yield of 2.47%.

I realized a long-term capital loss of $603.53.  The trim also resulted in a reduction of $89.40 in annual forward dividend income.

I now have 29.066 shares remaining in my MMM position, which leaves MMM as the 45th largest position in my Portfolio, easily behind VF Corp (VFC) and barely ahead of OGE Energy (OGE).

 

Cummins (CMI)

Although I’m trying to lighten up on the Industrials sector, and did that with the MMM sale, I went right back to Industrials with this choice.  CMI is part of the Machinery industry within the Industrials sector.

I’ve been looking to add CMI back to my Portfolio since selling it in Nov. 2016.  I can’t recall the reason I sold at that time (it was before I began the blog and started documenting my transactions).  In any case, CMI is back and I’m hopeful it’s part of my Portfolio for a long time.

CMI is the largest dedicated global industrial diesel and natural gas engine manufacturer.  Primary markets for CMI include highway and heavy-duty vehicles, construction, and industrial.

The company operates five business segments, but its largest segment is its Engines division, which makes up over 35% of sales and 40% of operating profit.

By continuing to make their engines more efficient, with fewer emissions, while limiting noise, CMI has built a business with a decent moat.

CMI was founded in 1919 in Columbus, Indiana, and remains headquartered there today.

On 4/5/22, I initiated my CMI position by purchasing 10 shares at $198.75/sh, for a total of $1,987.50.  The stock yielded 2.92% at my purchase price, which is 0.45% better than my Portfolio average.

This purchase added $58.00 to my annual forward dividend income.  However, this doesn’t make up for all the income I relinquished with the MMM sale.  Thus, I’ll have to stay on the lookout for opportunities to add to my forward dividend income.

CMI starts as the 4th smallest position in my Portfolio, in between a couple of REITs in National Retail Properties (NNN) and VICI Properties (VICI), but closer to NNN.

I’d like to see CMI move way up my Portfolio ranks over time.  I’ll be looking to add to my new CMI position should the stock price drop further.

 

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

 

 

CMI started the 2000s with zero dividend growth.  Yet growth heated up in the decade that followed, averaging about 30% annually.  The past 5 years, growth has been in the 5%-10% range – probably more indicative of what to expect moving forward.

The dividend growth streak for CMI currently stands at 16 years.  This is a good track record given some tough economic times inside that time period.  Also, uninterrupted dividend payments have occurred for 29 consecutive years.

The earnings payout ratio for CMI is 38%, which is a good spot to be for heavy equipment makers.  The free cash flow payout ratio is higher at 55%, however, that was an uptick from the previous year’s 36%.  In general, CMI management has been fairly consistent with keeping these numbers around 40%.

Adding CMI raised the number of stocks in my Portfolio to 57.

 

Summary

In the first week of April I continued shaping my Portfolio with a pair of transactions – one trim and one purchase of a new stock.

I started the process of paring down my MMM position due to its depressing dividend growth and a lackluster near-term business outlook.  I don’t know if I’ll end up eliminating the stock from my Portfolio, but it’s a possibility.

After the MMM trim, I took the majority of the sale proceeds and funneled them into another Industrials stock in CMI.  I’d been looking to add CMI to my Portfolio once again, and the time looked right.

The moves should result in better dividend growth and provide a boost in dividend safety for my Portfolio.

With the pair of transactions, a net withdrawal of $252.68 occurred in my Portfolio.  My annual forward dividend income was reduced by $31.40.  This is obviously not the direction I want to go, so expect me to make further additions here in the short-term to recoup that lost dividend income.

I realized a long-term capital loss of $603.53 with the MMM trim.  This poor performance was another reason I’ve soured on MMM.

After introducing CMI as a new holding, the number of stocks in my Portfolio rose to 57.

 

Which of your portfolio stocks have been disappointing you lately?  Are you at the point where you’d consider trimming or eliminating the position?  I look forward to your comments!