I made a pair of Portfolio transactions on the 2nd of this month, but have thus far neglected to post about them. So, it’s time to play catch-up and get that done.
My first move was to trim what has become my largest Industrials holding. My second move was to take those sale proceeds and a bit of cash and add shares to one of my existing Information Technology holdings.
The two moves will hopefully help me achieve a couple of my Portfolio goals this year. Namely, reduce the weighting of Industrials and increase the weighting of Tech in my Portfolio.
In total, the two transactions resulted in a very small net capital investment that boosted my forward dividend income (primarily due to a yield increase resulting from the stock swap).
Here are the details regarding my pair of transactions…
Fastenal (FAST)
I don’t often buy or sell within my Top 10 holdings, but I did with this first transaction. FAST has been looking richly valued after a strong price run-up over the past 15 months or so.
The run-up has also led to FAST surpassing Union Pacific (UNP) as my largest Industrials holding. So, I executed a small trim of FAST that not only reduced my Portfolio weighting in the sector, but allowed me to invest in a fellow Portfolio holding that is currently more undervalued, and also allowed me to net a yield increase at the same time.
FAST has been a terrific ‘set it and forget it’ stock for me. Since I initiated my position in FAST back in 2015, I’ve only had one additional purchase in 2016. Since then I’ve just been reinvesting my dividends… and watching the position grow.
On 2/2/24, I sold 20 shares of FAST at $70.40/share. The sale proceeds totaled $1,407.99 after the $0.01 SEC fee.
At my sale price, shares of FAST yielded 2.22%. This yield is below the stock’s 5-year average of 2.40%, and is roughly half a percentage point below my current Portfolio yield of 2.75%.
The size of my FAST position was reduced by 5.94%. I’d say that qualifies as a trim.
With this sale, I realized a long-term capital gain of $1,024.13. I sold some of the shares I bought back on 10/14/2016 at $19.1645/share. My cost basis for my remaining shares rose slightly to $23.90/share.
The sale also resulted in a $31.20 reduction in annual forward dividend income, but I wouldn’t be out this income very long.
As a result of the trim, FAST essentially slipped back in-line with UNP as my largest Industrials stock. The stock remained in my Top 10, though, coming to rest in the #7 ranking. The stock is behind AbbVie (ABBV), but just barely ahead of UNP.
Skyworks Solutions (SWKS)
SWKS has been on my watchlist in recent months. I was looking to add at a price lower than my last purchase price of $101.80 back in May of last year. I set a target of a price below $100.
This was one of the few Tech stocks in my Portfolio that looked decently valued. Analysts forecast declining earnings through the end of this fiscal year (in Sept.) before a rebound ensues. If this comes to fruition, then I expect this to be a good addition.
Adding to SWKS bolsters my most underweight sector, Information Technology. I often struggle to add in this sector due to high valuations, but this buy didn’t feel like a stretch.
On 2/2/24, I bought 15 shares of SWKS at $99.90/share, for a total of $1,498.50. The stock yielded 2.72% at my purchase price, a good 0.50% higher than the FAST shares I sold, and basically on par with my overall Portfolio yield of 2.75%.
The purchase increased my SWKS share total by 11.46%. I now own a total of 145.92 shares of SWKS.
The purchase added $40.80 to my annual forward dividend income, more than making up for the amount I lost with the FAST trim.
As a result of the addition, my SWKS cost basis increased nearly $2/share to $82.83/share.
SWKS jumped 4 spots in my value rankings, from #23 to #19. The stock trails Merck & Co. (MRK), but leads JPMorgan Chase & Co. (JPM).
SWKS still remains my 3rd largest Tech holding. My four largest Tech positions are all semiconductor stocks. I’d like to change that over time, perhaps getting a software stock like Microsoft (MSFT) into the mix.
Summary
I wasted little time at the start of February before making my first Portfolio transactions for the month. Just a couple of days in and I executed one sale and one purchase.
The moves started with a trim of FAST. I decided to realize some gains while the stock’s valuation is elevated. A nice byproduct was reducing my Industrials sector weighting.
With the FAST sale proceeds I took advantage of what I deemed to be undervalued SWKS shares. I added to my position at a price I targeted in my watchlist. As a result of the buy, I was able to increase my Information Technology weighting in my Portfolio, something that seems to elude me on a consistent basis.
The pair of transactions resulted in a small net investment of $90.51 into my Portfolio. Yet, my annual forward dividend income increased by $9.60. The effective yield is 10.61%, a healthy number stemming from the yield improvement I realized by swapping some FAST shares for some SWKS shares.
I recorded a long-term capital gain of $1,024.13 with the FAST trim. It also raised my FAST cost basis by roughly $0.28/share, to $23.90/share.
With FAST only being trimmed, and SWKS already being part of my Portfolio, the number of stocks in my Portfolio held steady at 59.
Do you have any portfolio stocks that might be overvalued and you’d consider trimming? In your mind, are there any Tech stocks that appear to be trading at a good value? I look forward to your comments!