Earlier this week I posted about my first set of Portfolio transactions for the new year, see Recent Transactions – HRL, CVS, SBUX, NNN. Well, it’s already time for another post because I’ve got a second set of transactions to share. It turns out that January has been quite busy with Portfolio changes.
I’ve got another four transactions to cover, but this time the moves were spread out by a few days. Once again, I made one sale and three purchases. However, in this case the sale was just a trim instead of an elimination, and one of the buys brought an old holding back to my Portfolio.
My proceeds from the trim were basically used to replace my Hormel Foods (HRL) position (from that first set of transactions earlier this week) with another Consumer Staples company. The other two purchases were new capital investment designed to increase the size of a pair of my smaller positions.
In total, the transactions resulted in a net capital investment with an increase to my forward dividend income. Keep reading to see the impact.
Let’s get some details on this latest set of Portfolio transactions…
General Dynamics (GD)
I’ve been trying to reduce my Industrials weighting within my Portfolio for quite some time. However, I like my current group of Industrials, so selling is difficult.
One stock I’ve been eyeballing for a trim though is GD. I’ve trimmed my GD position before in an effort to shrink its weighting. I did this back in October 2022.
The stock appears to have a high valuation right now, with its yield getting pushed down to a little over 2%. If I did trim, I think I could replace it with something in the Consumer Staples sector (more on this coming up), where I just exited my HRL position and have a void to fill.
I also thought I could select a replacement stock for my Portfolio with a higher yield, allowing me to effectively swap stocks and net some additional forward dividend income.
Lastly, the trim would bring the size of my GD position closer to that of Lockheed Martin (LMT). I prefer these two Aerospace & Defense holdings in my Portfolio to have an equal weighting.
On 1/18/24, I sold 15 shares of GD at $249.00/share. The sale proceeds were exactly $3,734.97 after the $0.03 SEC fee.
At my sale price, shares of GD yielded 2.12%. This yield is about 10% below the stock’s 5-year average. This yield is also below my current Portfolio yield of 2.74%.
With this sale, I realized a long-term capital gain of $1,197.72. I sold some of the shares I bought back on 4/10/2019 at $169.15/share. Since I sold some of my most expensive shares, my cost basis for my remaining shares dropped to $155.73/share.
The sale also resulted in a $79.20 reduction in annual forward dividend income.
After the trim, GD is now the 32nd largest position in my Portfolio. It’s a bit smaller Main Street Capital (MAIN), but larger in size than Quest Diagnostics (DGX).
Cummins (CMI)
CMI is a position that’s way to small in my Portfolio, well under the minimum 1% weighting I desire. It’s a good, consistent performer that I want to have a larger weighting for me.
Thus, I decided to add some shares, especially since it was trading at a lower price than I bought at just a month ago, when it was $237/share.
Unfortunately, the buy adds to my Industrials weighting. So, I relinquished some of the weighting progress I made with the GD trim. It’s still a good tradeoff for my Portfolio.
On 1/19/24, I bought 2 shares of CMI at $227.00/share, for a total of $454.00. The stock yielded 2.96% at my purchase price, which is 0.22 percentage points better than my overall Portfolio yield.
The purchase boosted my CMI share total by 12.89%. I now own a total of 17.519 shares of CMI. The purchase added $13.44 to my annual forward dividend income.
As a result of the addition, my CMI cost basis rose by more than $2/share and now stands at $210.80/share.
CMI is no longer a Bottom 10 holding in my Portfolio. It transitioned from my 8th smallest holding to the 13th smallest with the share add. The stock is now sandwiched in between Enbridge (ENB) and Best Buy (BBY) in my Portfolio value rankings.
I plan to keep adding CMI shares as I can, as its position still needs to be more than 50% larger to reach that minimum 1% Portfolio weighting I’m looking for.
NextEra Energy (NEE)
NEE is a stock I added to 6 times in 2023 as its stock price declined. It grew from one of my smallest holdings to just exiting the bottom quartile of Portfolio holdings.
That climb also made it my largest Utility holding, but it still didn’t provide it with a 1% weighting in my Portfolio. Thus, I continue to add here at the start of 2024.
The decline that NEE saw in 2023 didn’t stop as we entered 2024. So, this addition was at my lowest share price yet.
Analysts see earnings per share growing at a 7%-8% clip over the next 3 years. I believe NEE has suggested another year of ~10% dividend growth is slated for 2024, too. I like this.
On 1/19/24, I bought 5 shares of NEE at $56.90/share, for a total of $284.50. The stock yielded 3.29% at my purchase price, which is about half a percent above my current Portfolio yield, and is ~50% above its 5-year average yield of 2.15%.
My NEE share total increased by 5.76% with this purchase, and my share total now stands at 91.862 shares. My annual forward dividend income rose by $9.35 with the buy.
This purchase resulted in my NEE cost basis falling by only $0.63/share, to $68.04/share.
NEE is now the 43rd largest position in my Portfolio, settling in between a couple of Healthcare stocks in Medtronic (MDT) and Bristol-Myers Squibb (BMY).
Adding more NEE shares is still in my plans. I’d have to add 25% more shares to meet the minimum 1% Portfolio weighting I’m looking for.
Hershey Co. (HSY)
I used to own HSY in my Portfolio a little over 5 years ago. I sold out (nearly 49 shares) because HSY had a decent price run-up back then, I was looking to reduce my sector weighting, and HSY appeared to have the slowest growth prospects in that sector at the time.
Of course, that happened to only be the start of a nice run for HSY, one which saw is earnings grow more rapidly and their dividend growth accelerate, too. However, the valuation really got ahead of itself over the years I was out of the stock. Too bad I missed out on that. After peaking in price last May, HSY’s stock price has fallen considerably, bringing its valuation to a more reasonable level… about the same level I sold out at many years ago (P/E ratio of 20).
Looking over HSY’s financials now, all metrics look very good. Most encouraging is seeing the company’s sales growth over the past 2-3 years which is growing at a double-digit clip. Earnings have been solid and dividend growth followed. Returns on equity and invested capital are outstanding, as are operating and free cash flow margins. Outstanding share count is trending down, and its earnings payout ratio has been falling, too.
Earnings growth for the next 2-3 years is only slated to be in the 4%-6% range, so it seems a slowdown is coming. But I can live with that while HSY figures out its next growth avenue.
The metrics for HSY are looking much better than fellow Consumer Staples stock HRL that I purged from my Portfolio last week. Thus, I think HSY will do a fine job of replacing HRL in my Portfolio. I’ll try to avoid selling out of HSY again.
On 1/22/24, I established my new HSY position by purchasing 20 shares at $188.22/share, for a total of $3,764.40. The stock yielded 2.53% at my purchase price, which is 0.21 percentage points less than my current Portfolio yield.
The purchase added $95.36 to my annual forward dividend income.
HSY entered my Portfolio as the 11th smallest position, with a 0.55% weighting. Thus, I’ll be looking to double my position over time to bring it up to that desired minimal 1% target weighting.
The stock sits behind Best Buy (BBY) in my Portfolio value rankings, but is ahead of OGE Energy (OGE).
As I normally do with a new holding, let’s take a quick look at the dividend growth history dating back to 2000…
HSY is currently on a 14-year dividend growth streak after holding its dividend steady in 2009.
Dividend growth is solid over all the time periods shown. It has picked up significantly over the past two years in conjunction with earnings.
If earnings growth is to slow down in the near-term as I noted earlier, I’d expect the dividend growth to slow down as well. We’ll see what shakes out, but I’d expect at lest 5% dividend growth.
Finally, HSY was assigned a ‘Very Safe’ dividend safety score (93 out of 99) from Simply Safe Dividends.
The re-addition of HSY brought the number of my Portfolio holdings back up to 59.
Summary
My Portfolio activity remains elevated in 2024 with a second set of 4 transactions… 1 sale and 3 purchases, just like last week.
Things began with a trim of GD to reduce my Industrials sector weighting. I followed that up with small additions to my CMI and NEE positions, making them slightly more significant holdings.
Lastly, I took the GD sale proceeds and returned HSY to my Portfolio after it had a 5-year hiatus. HSY effectively replaces HRL (sold last week) in my Consumer Staples sector with what should be better prospects.
The four transactions resulted in a net investment of $767.93 into my Portfolio. My annual forward dividend income increased by $38.95. The effective yield is 5.07%, boosted by the yield improvement realized by selling GD and buying HSY.
I recorded a long-term capital gain of $1,197.72 with the GD trim. It also reduced my GD cost basis since I sold some of my most expensive shares.
With HSY being added to my Portfolio, the number of stocks in my Portfolio rose by one to 59.
Have you added any new stocks to your Portfolio in 2024? What do you think of HSY? Is it part of your portfolio already? I look forward to your comments!