New Sell: Caterpillar Inc. (CAT)

As a Dividend Growth Investor I like to buy stocks, hold them, and then simply collect the dividends.

In general I agree with Warren Buffet when he stated that his favorite holding period for a stock is “forever“.

So while I apply this rule for the vast majority of stocks within my portfolio, last week I decided to make an exception.

On January 17 I sold 15 shares of Caterpillar (CAT) for a total of $2,526. 

In this post I go over my main two reasons to ‘break the rule’ and what this means for my forward dividend income.

As can be seen in the chart above, Caterpillar’s stock price has been on an absolute tear in the past five years. Global growth, US corporate tax reform and the promise of a new US infrastructure plan have boosted the stock to around $170.

For comparison: my cost basis on the stock was about $78, meaning I saw a 118% price increase on my original investment.

The company’s Trailing Twelve Month’s P/E ratio is now at a stunning 116.90, as compared to a five year average of 56.

While the stock price has exploded, the company has slowed down it’s dividend growth. Looking at the dividends for the past 10 quarters (bar chart below) it becomes clear that this metric has barely budged.

You could say that recently Caterpillar took the Growth part out of Dividend Growth Investing.

The pay-out ratio (trailing twelve months) is at 217%, which is at nose bleeding levels.

While Caterpillar is still featured on the Dividend Champions, Contenders and Challengers list – boasting 24 years of growing dividends – it’s current valuation and lack of meaningful dividend growth made me decide to take some chips off the table.

I have not sold out of Caterpillar completely and will keep my remaining 15 shares in my portfolio for the foreseeable future.

Given Caterpillar’s annual dividend of $3.12 per share, this sell decreased my forward annual dividend income by $46.80. 

What do you think about Caterpillar right now? Are you selling or buying other dividend growth stocks? Leave a comment/reply to share your thoughts!

Investment Goals for 2017 Check In… and Goals for 2018

2017 Investment Goals

At the beginning of 2017 – which was also the launch of Tallinvesting.com – I formulated five investment goals for the year.

  1. Contribute $30,000 to the portfolio
  2. Achieve forward dividend income of $3,500 by the end of 2017
  3. Receive $3,000 dividend income throughout 2017
  4. Keep forward dividend income as a % of my Portfolio  at >3.5%
  5. Keep trading cost < 150 

With 2017 in the books, let’s check back how I did on these goals.

With regards to Goal #1 I was pretty skepticalestimating that contributing $30,000 to my Portfolio would be a stretch. Turns out my fear wasn’t warranted as I managed to add $43,446 in capital in 2017. Goal achieved! 

Goal #2 was about getting my 12 month projected forward dividend income to $3,500 at the 31st of December. As can be seen in the graphic below, my forward dividend income at the end of 2017 was $3,960 annually (or $330 per month).  Again, Goal achieved! 

Goal #3 was about the dividends I planned to receive between Jan 1st and December 31st of 2017. While the target was $3,000 (see blue line below) – I ended the year with $3,173 in received dividends (green line).

As you can see in the chart, September was the month I crossed the line and started to beat the target. Not surprising since I almost received $400 in dividends that month. Goal achieved! 

With goal #4 I track my forward dividend income (goal #2) as a percentage of my portfolio contributions – ie my yield on cost (YOC).  In buying stocks I try to maintain a balance between high yielders (such as most REITS) and low yielders with above average dividend growth rates (stock like SBUX, DAL). Overall my goal is to obtain a minimum of 3.5% YOC.

At the end of 2017 my forward dividend income stood at 3.86% as a percentage of my portfolio contributions (chart below). Goal achievedand we are four for four here!

Finally, goal #5 is about keeping my trading cost low. As I do not my consider myself a trader but an investor, my ideal holding period for a stock is forever. By definition this allows me to keep my trading cost modest.

But while my goal was to keep my trading cost below $150 for the year, my actual trading fees came to $197. Goal not achieved!

Final score: four out of five 2017 investment goals achieved!

2018 Investment Goals

Turning towards the new year, I strive to achieve the following five updated investment goals:

  1. Contribute $25,000 to the portfolio
  2. Achieve forward dividend income of $6,000 by the end of 2018
  3. Receive $5,000 dividend income throughout 2018
  4. Keep forward dividend income as a % of my Portfolio  at >3.5%
  5. Keep trading cost < 100 

Goals #1, #2 and #3 are more modest in comparison to 2017.

I expect to be able to allocate significantly less capital to my portfolio this year.  However, with dividend raises continuing to kick in – the power of dividend growth investing – goals #1 and #2 should be attainable.

Goal #4 should also be doable if I continue to buy a mix of high-yielders and low-yielders (but with high dividend growth).

Reduced buying activity ensures that I meet my trading cost goal (#5) for 2018, as I failed miserably here for 2017.

What do you think about these goals? Did you make your 2017 goals and what are yours for 2018? Leave a comment/reply to share your thoughts!