Hello everyone… I’ve got an update for you with regard to some Portfolio transactions.

I’ve been quiet in September, but that all changed this week when I made a series of transactions.  When all was done, I sold one stock (exiting the position) and purchased 4 others.

Even more exciting, 3 of the 4 purchases involved new stocks for my Portfolio.

I didn’t end up investing a lot of new capital, but instead used my sale proceeds to fund the majority of my purchases.  However, I did end up with a nice boost to my annual forward dividend income thanks to the generally higher yields of my new stocks relative to the one I sold.

Let’s not waste anymore time… here are all the details of my recent transactions.

 

Gentex (GNTX)

We’ll start with my sale.  I’ve been down on GNTX since March when the company failed to raise their dividend for a 2nd straight year.  As you know, dividend growth is a key component for my Portfolio stocks and when a holding contributes low or no dividend growth, I am typically going to be looking for one or more replacement stocks.

I’d already trimmed my GNTX position once in 2021 and twice in 2022, so the handwriting was on the wall.

Despite generally good price performance from GNTX since I purchased the stock back in 2015, I decided to move on from the stock.

I didn’t even hold the stock for another couple of weeks to lock in another dividend payment.

Even with a 25.33% year-to-date loss from GNTX, my investment over the years netted an annualized return of 10.46% – not too shabby.

On 9/22/22, I sold all 246.615 shares at $25.15/share.  The sale proceeds were $6,202.23, after the $0.14 SEC fee.

At my sale price, shares of GNTX yielded 1.91% which is more than 1% lower than my current Portfolio yield of 2.95%.

I realized a long-term capital gain of $2,096.41 and a short-term capital loss of $33.88.  The sale also resulted in a $118.38 reduction in annual forward dividend income.

The number of stocks in my Portfolio dropped to 57 after GNTX was removed.

So what did I do with the GNTX sale proceeds?  Well, I used them to establish 3 new positions and partially pad an existing one.

 

Best Buy Co. (BBY)

The 1st stock I initiated a position in with the GNTX sale proceeds was BBY.  It’s a stock that’s probably outside of my normal Portfolio holdings.  However, I wanted to keep some of the GNTX proceeds in the Consumer Discretionary sector.

BBY is a large ($15.5B market cap) computer and electronics retailer operating in the U.S. and Canada.  It has over 1,100 stores.  The company was founded in 1966 and is headquartered in Minnesota.

EPS growth has been better than 23% annualized since the start of 2016.  Fiscal 2023 (which ends in Jan. 2023 for BBY) will end up being a tough year, but EPS growth should be back in the mid-teens in the 2 years after that (according to analysts).  The P/E ratio for BBY is currently below 10.

Sales have moved higher, averaging mid-single digits, the past half decade.  Return on Equity and Return on Invested Capital are trending up and look quite good for a consumer retailer.  Operating margins and Free Cash Flow margins could be better, but they are slowly trending upwards.

In addition, share count is trending down and debt doesn’t appear to be an issue.  The dividend metrics for BBY look great, which I’ll go into further in just a bit.

I’ve been watching BBY for several months.  The stock dropped below $70 in late June/early July, but I neglected to act at that time.

I told myself I’d consider the stock again should it return to that level.  That time arrived with the recent market pullback.

On 9/22/22, I initiated my BBY position by purchasing 30 shares at $68.50/sh, for a total of $2,055.00.  The stock yielded 5.14% at my purchase price, better than 2% higher than my overall Portfolio yield.

The purchase added $105.60 to my annual forward dividend income.  This recouped over 89% of the dividend income lost in the GNTX sale.

BBY starts as the 6th smallest position in my Portfolio, just behind Cummins (CMI) and slightly ahead of another new holding, which I cover soon.

 

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

 

 

Regarding those dividend metrics for BBY that I mentioned earlier… Dividend yield is currently north of 5%, dividend safety is rated ‘Safe’ by Simply Safe Dividends (score of 80 out of 99), and dividend growth is solidly in the double-digit range over both short and long time periods (as can be seen in the chart above).

BBY started paying a regular dividend in 2004, after a special dividend in late 2003.  Special dividends were also paid in 2015 and 2016.

The dividend decrease in 2019 was the result of only 3 dividend payments that calendar year (due to a permanent shift of the December dividend payment into January).

The dividend growth streak for BBY currently stands at 18 years after its last raise of 25.71% in March, 2022.

The earnings payout ratio has been below 40% for all years of the past decade, but will pop over that in 2023.  The free cash flow payout ratio of BBY was also well below 40% for several years prior to this past year of operation.  Thus, I expect a smaller dividend raise in 2023 than normal, before possibly picking up again with an earnings recovery.

The addition of BBY raised my number of Portfolio holdings to 58.

 

FedEx (FDX)

The 2nd stock I established a position in with the GNTX sale proceeds was FDX.

As you probably know, FDX is a huge transportation and e-commerce company ($38.9B market cap) operating in the U.S. and internationally.  The company was founded in 1971 and is based in Tennessee.

FDX is another stock that had been on my watchlist radar.  I was looking to purchase the stock below $200.  Luckily for me, the stock was still trading around $205 before the company pre-announced an earnings miss and warned of worsening economic conditions that led to a 20%+ single-day stock price decline.

With FDX now well-below my desired entry point, I committed to establishing a position.

In the short-term, I don’t expect much of a return on my FDX purchase as the company manages through the current operating environment.  However, I like the entry point and I’m willing to hold the stock for years to come.

On 9/22/22, I established an FDX position by purchasing 14 shares at $153.50/sh, for a total of $2,149.00.

The stock yielded exactly 3.00% at my purchase price… a tick above my Portfolio average.  This is a historically high dividend yield for FDX.

This purchase added $64.40 to my annual forward dividend income.

FDX starts as the 9th smallest position in my Portfolio, behind STORE Capital (STOR), and decently ahead of Medical Properties Trust (MPW), which has been getting destroyed as of late.

 

Again, since this is a new holding, let’s take a quick look at its dividend growth history…

 

 

FDX started paying a dividend part way into 2002.  Dividend growth has been outstanding since then, averaging better than 17% over the most recent 5-year and 10-year periods.  Dividend growth seemed to take a hit in 2021, but that was due to the January, 2021 dividend payment getting shifted into December, 2020.  Thus, 2020 had 5 dividend payments while 2021 had only 3.

Simply Safe Dividends rates the dividend safety of FDX as ‘Safe’ (score of 64 out of 99).  This score takes into account the most recent pre-announcement from FDX.

The dividend growth streak for FDX only stands at 2 years due to the company keeping the dividend frozen in 2019 and 2020.  The most recent dividend raise was a monster 53.33% boost this past June.

The earnings payout ratio for FDX was only 16% in 2022.  Its free cash flow payout ratio was higher at 29% in 2022.  Both of these are well below the 60% number that is targeted for most companies.

Those payout ratios will be trending up after the earnings hit FDX expects to take in the short-term.  Despite this, FDX will still have conservative payout ratios and a good balance sheet.  So, FDX should be able to support the existing dividend without much issue.

The addition of FDX brought my number of Portfolio stocks to 59.  FDX also became the 9th Industrials stock in my Portfolio.

 

McCormick & Co. (MKC)

The 3rd stock I initiated a position in with the GNTX sale proceeds was MKC.

MKC manufactures spices, seasoning mixes and other flavorings for the food industry.  This Consumer Staples company ($20.4B market cap) was founded in 1889 and is headquartered in Maryland.

Of my 3 new holdings, MKC probably has the least desirable valuation.  I’d consider it to be fairly valued if not somewhat overvalued at current levels.

However, the stock has pulled back to a price not seen since the market decline at the start of the pandemic.

Having eyeballed the stock for a while, with a plan to add it to my Portfolio at some point, I figured now was a good time to establish some sort of a position.

On 9/22/22, I established my MKC position by purchasing 25 shares at $77.1906/sh, for a total of $1,929.77.  The stock yielded 1.92% at my purchase price.  This is about 1% lower than my Portfolio average, but it’s on par with the GNTX stock that I sold.

This purchase added $37.00 to my annual forward dividend income.

MKC starts as the 5th smallest position in my Portfolio, behind BBY, but ahead of utility Pinnacle West Capital (PNW).

 

Again, since this is a new holding, let’s take a quick look at its dividend growth history…

 

 

MKC has been very consistent in its dividend growth over time.  You’ll see that MKC averages a dividend growth rate in the 9%-10% range over all the four reporting periods I track.  That’s some terrific consistency and it allows for a good level of predictability come dividend raise time.

The dividend growth streak for MKC has reached 35 years, making it a Dividend Aristocrat for over a decade.  The most recent dividend raise was solid 8.82% raise last November.

MKC sported a 45% earnings payout ratio, but a higher 66% free cash flow payout ratio in 2021.  Those will probably be moving higher due to lower earnings in 2022, but the dividend remains safe.

Simply Safe Dividends rates the dividend safety of MKC as ‘Safe’ (score of 80 out of 99).

The addition of MKC raised my number of Portfolio stocks to 60.  That’s a new high for the Portfolio.

 

Microsoft (MSFT)

With virtually all of my GNTX proceeds invested in the 3 new Portfolio stocks, I took what little was left over, added some new capital, and tacked on a share of MSFT.

I added a share of MSFT back in July, too.  With the price dropping since then, increasing the size of my position now was an easy decision.

MSFT never seems inexpensive, so my plan is to add small amounts over time in an effort to build out the position.

Adding to my Information Technology holdings is a bonus goal in 2022.  This doesn’t move the needle much, but every bit helps.

On 9/22/22, I purchased 1 share of MSFT @ $240.00.  The stock yielded 1.13% at the time of my purchase (close to 2% lower than my overall Portfolio yield).

The purchase increased my annual forward dividend income by $2.72.  This isn’t much, but it was more than I would have gotten last week thanks to MSFT’s 9.68% dividend raise just 2 days before my buy.

My MSFT position has grown to 13.222 shares.  The purchase drove up my cost basis some, to $161.98/share.

MSFT is currently the 14th smallest position in my Portfolio.  Its position is just behind that of Amdocs Ltd. (DOX), but comfortably ahead of Verizon Communications (VZ).

I’ll continue to look for opportunities to grow my MSFT position.

 

Summary

My Portfolio had a total of 5 transactions this past week.  All the transactions were executed on the same day.  I sold one stock and purchased four others.

The lone sale led to GNTX exiting my Portfolio, while three of the four purchases resulted in new Portfolio holdings: BBY, FDX and MKC.  The GNTX sale proceeds were essentially divided equally between these 3 new holdings.  The final buy was just a single share add of existing holding MSFT.

With two of the three new stocks having a higher yield than GNTX, I easily made up all the dividend income lost with the GNTX sale… and then some.

I invested a little cash, too.  I added a little more than $170 to the remainder of my sale proceeds to add that single share of MSFT.

All totaled, the 5 transactions resulted in a net investment of $171.54 into my Portfolio.  My annual forward dividend income rose by a welcomed $91.34.  That’s an effective yield of 53.2%!

I recorded a long-term capital gain of $2,096.41, and a short-term capital loss of $33.88, with the GNTX sale.

After removing GNTX from my Portfolio, but adding BBY, FDX and MKC, the number of stocks in my Portfolio settled at 60.

 

Do you own any of the 3 new stocks that entered my Portfolio?  Have you exited any portfolio positions lately?  I look forward to your comments!