It’s time to reveal my first set of Portfolio transactions for the new year.  After I settled in for the first half of January, I got to work on trying to improve my Portfolio.

I’ve got four transactions to cover, all from the same day, including one sale and three purchases.  The sale eliminated another stock from my Portfolio.

I used the sale proceeds to make three buys of existing holdings.  It wasn’t much of a net investment, nor much of a boost to my forward dividend income.

Let’s get everyone caught up…  Here are the details for my first four Portfolio transactions of 2024.

 

Hormel Foods (HRL)

I initiated my HRL position early in 2017, but after 7 years of little to no revenue growth or earnings growth, declining returns on equity and invested capital, waning dividend growth in recent years, not to mention a rising payout ratio, I decided it was time to look for a better alternative.

Operating margins and free cash flow margins are currently OK, but they have been trending down over the years as well.  Thankfully, debt is not an issue for HRL, otherwise the picture would look worse.

After 5 years of investment in HRL, I was happy.  I had an annualized return of 12.38%.  Looking good!  But things soured in the past 2 years and my return plummeted.  Things would have been worse had I not trimmed a couple of times when the stock price was higher in 2018 and 2020.

I didn’t like selling now near a 52-week low, but I didn’t feel like holding on any longer and waiting for a recovery (assuming one comes).

On 1/17/24, I sold all 120.25 shares at $31.335/share.  The sale proceeds were exactly $3,768 after the $0.03 SEC fee.

At my sale price, shares of HRL yielded 3.61%.  This is quite elevated relative to their 5-year average.  It just speaks to how much the share price has declined.  This yield is above my current Portfolio yield of 2.73%.

With this sale, I realized a long-term capital loss of $339.22 and a short-term capital loss of $26.00.  The sale also resulted in a $135.88 reduction in annual forward dividend income.

Since my initial HRL purchase back in Mar. 2017 until this final sale, I calculate my annualized return for HRL to be 5.28%.  My annualized return got punished quite a bit in just this past year.

I’ve committed to a replacement in the Consumer Staples sector for HRL, but it’s not part of this cluster of Portfolio moves.  More on this in a future post.

Let’s see what I did with the HRL sale proceeds…

 

CVS Health (CVS)

This is not a position I normally add to.  However, CVS has looked undervalued to me for about 9 months.  Its stock price turned south shortly into 2023 and hasn’t yet recovered.  Earnings don’t look to grow much this year, but analysts expect 10% growth in each of the 2 years after that.

CVS has been generous with their last 3 dividend raises (~10% a year) after unfreezing their dividend at the end of 2021 (once they deleveraged their balance sheet from the Aetna acquisition).  I hope similar raises will continue for a few more years.  The earnings and free cash flow payout ratios are both still reasonable at sub-30%.  Return on equity and return on invested capital could certainly look better, as could their margins.  However, with their dividend yield currently well above the 5-year average, and a forward P/E ratio below their 5-year average (at 9), I was willing to add to my position.

On 1/17/24, I bought 25 shares of CVS at $77.34/share, for a total of $1,933.50.  The stock yielded 3.44% at my purchase price, which is 0.71 percentage points better than my overall Portfolio yield.

I boosted my CVS share total by 20.62% with this purchase.  I now own a total of 146.252 shares of CVS.  The purchase added $66.50 to my annual forward dividend income… almost half of what I gave up in the HRL sale.

Due to this addition, my CVS cost basis rose by more than $2/share and settled at $66.46/share.

CVS has become my 25th largest Portfolio position.  The stock trails the Starbucks (SBUX) position I have, but leads the one I have for Texas Instruments (TXN).

My CVS position is well established at this point, so I don’t plan to add more shares unless the price takes another leg down.

 

Starbucks (SBUX)

Speaking of SBUX, this stock made it to my watchlist last month.  I was hoping to acquire some shares below $90, but with those HRL sale proceeds burning a hole in my pocket, and the price of SBUX not too far above my target level, I decided to pull the trigger on a purchase anyway.

I’ve owned SBUX since April 2016, and my last purchase was in May 2022.  While SBUX has a yield a bit lower than my Portfolio average, I like the dividend growth it provides.

Analysts suggest SBUX is slated to deliver 15%+ earnings growth in each of the next 3 years.  If that holds true, I would like to believe I could expect the dividend growth to be in the double-digits as well.

On 1/17/24, I bought 10 shares of SBUX at $91.471/share, for a total of $914.71.  The stock yielded 2.49% at my purchase price, which is slightly below my current Portfolio yield, but is noticeably above the 5-year average for SBUX (~2.0%).

My SBUX share total increased by 7.66% with this purchase, and my share total now stands at 140.473 shares.  My annual forward dividend income rose by $22.80 with the buy.

This purchase resulted in my SBUX cost basis climbing more than $2/share, to $63.14/share.

Despite my addition, SBUX remains my 3rd largest Consumer Discretionary holding, behind Lowe’s Companies (LOW) and Nike (NKE).

SBUX is currently my 24th largest holding.  It’s slightly behind Caterpillar (CAT) in my Portfolio rankings, but is ahead of CVS, as noted earlier.

I’m definitely open to buying more SBUX shares, especially if they can be had below that $90 target I still have.

 

NNN REIT (NNN)

For my final purchase, I did what I did quite often last year… invest in my smaller Portfolio holdings.

If a stock is going to be in my Portfolio I want it to be large enough to have an impact should earnings exceed expectations, or should the company decide to provide a meaningful dividend raise.

That won’t happen if the stock is too small for my Portfolio.  Typically I want to see my holdings maintaining at least a 1% Portfolio weight.  I’ll allow a 0.5% weighting if I recently initiated the position.  But the position should grow fairly soon thereafter, or it probably makes sense to sell and consolidate that investment into a more favored holding.

In this case, I used the last of my HRL sale proceeds and invested them into NNN.  This stock was my 3rd smallest holding at the time of my buy, which represented a 0.4% weighting in my Portfolio.

On 1/17/24, I bought 22 shares of NNN at $42.95/share, for a total of $944.90.  The stock yielded 5.26% at my purchase price, which is nearly double my current Portfolio yield.

My NNN share total expanded by almost 34.5% with this purchase.  I now own a total of 85.813 shares.  The purchase boosted my annual forward dividend income by $49.72.

My cost basis rose a small amount after acquiring my new NNN shares.  It now stands at $41.31/share.

By purchasing these shares, NNN jumped 3 spots in my rankings and is now my 6th smallest holding.  It’s also no longer my smallest REIT.  That distinction now belongs to VICI Properties (VICI), but only by a little bit.  I’d say NNN is moving on up!

NNN certainly wasn’t a hot buy at the price I paid.  I’ll look for additional shares below $40 to help average down this purchase price.

 

Summary

What a way to kick off the new year in my Portfolio… with a mini flurry of transaction activity all on a single trading day.  I made 4 total transactions… 1 sale and 3 purchases.

I started by selling all my HRL shares, removing the stock from my Portfolio.  No real earnings growth since I bought the stock nearly 7 years ago was the primary factor behind the sale.

The sale proceeds were then used to add to three existing positions: CVS, SBUX & NNN.  About half the proceeds went into CVS, with SBUX and NNN each getting about 50% each of the remainder.

The four transactions resulted in a net investment of $25.11 into my Portfolio.  My annual forward dividend income rose ever so slightly, by $3.14.

I recorded a long-term capital loss of $339.22 and a short-term capital loss of $26.00 with this final HRL sale.  My investment in HRL was positive overall though, as I managed a 5.28% annualized return (I had capital gains with my two previous HRL trims).

With HRL being eliminated from my Portfolio, but the three buys being existing holdings, the number of stocks in my Portfolio declined by one to 58.

 

Have you already made a portfolio transaction in 2024?  Would you consider the transaction unfinished business from 2023, or something that you decided upon early this year?  If you own HRL, what do you make of its prospects moving forward?  I look forward to your comments!