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Sold most of my dividend-paying stocks, acquired earlier this year, for dividend ETF
#1
After a several days of discomfort and deliberation, I pulled the trigger today to sell most of my dividend-stocks and buy a broad dividend ETF with the proceeds.
 
The list includes PG, PFE, KO, DUK and XOM. All were bought this year and have collectively gained more than I anticipated (over 12%). Ironically, some of these outsized gains caused my discomfort. I wouldn't have bought some of these stocks at the current price (except XOM which ended up even). I also realized that I'm not really an own-individual-stock-for-long-term person. I do like researching and trading stocks, but only through options (I sell deep OTM puts) that gives a margin of safety. My core investments are through low-cost ETFs. The only reason I went into these individual stocks is that, I needed more sustainable dividend income from my portfolio. Based on my budget, my required yield had to be close to 4% that none of the quality dividend ETFs offered. As an alternative, I picked one "value" stock from most of the sectors to get a meaningful yield. Given that I got lucky with most of these, I'd be more comfortable to switch to an ETF that spreads my investment into a larger number of companies and reduces the "single-company" risk. It's as if I got the ETF at 12% discount. Also the ETF contains all of the stocks that I sold today (25% of the ETF is in these 5 stocks) - so I will have some exposure to them, as well as similar companies in the same sector, plus several other companies.
 
I still have a few other individual dividend-paying stocks that I can wait until they shine (T, IVZ, ING). They don't overlap with the ETF. Also their yield is on the high-side. As long as the dividend is maintained, I'm fine holding them (unless I find some quality-related reason to sell). If they move up beyond my comfort level, I will do the same with those. It's quite strange that I can stay calm with declining stocks and also ready to take losses if needed, but I get uneasy with unexpected price gains.
 
The particular ETF I chose was HDV.  I liked the methodology and the weightage. It has a relatively smaller number of holdings compared to other similar ones. I'm familiar with most holdings and don't mind holding those except a few like IBM. There are a few other candidates too that I liked VYM, but I prefer dividend weighting rather than market-cap weighting. Anyways, I'm not married to HDV and if I find a better fit, will switch to that.

 

What do you think? Was it a reasonable move given my objective and style?

 
PS: I considered other sustainable-yield alternatives, including CEFs. End of the day, I decided not to compromise on my "low-cost" criteria.
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#2
Well thought out decision consistent with your goals and needs.   Big Grin
Congrats on the gain on your individual dividend stock picks.
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#3
Thanks SeattleCyclone!  About the "gain" of the individual, I just got lucky that those went up so quickly. I had similar temptation with LB when it was hovering to 25, CAH when it dropped below 50, LEG when it went below 35 - to name a few. Part of the realization is that it won't scale well. Also I'm not really very good at researching/assessment for the purpose of owning a stock outright - the quality of the research has to be very exhaustive and has very little margin of error, even ignoring the luck and other "unknown-unknown" factors. The unexpected gains made me realize that luck and systematic factors are often very important and I can't really count on my own research skills on individual securities. I'm comfortable selling puts where there is some room for errors (the OTM margin of safety) - but buying individual stocks is a different ball-game and I'm not quite up for it.
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#4
I consider you to be one of the more thoughtful and sensible investors in this forum, but I'm not in favor of a blanket decision to move from dividend stocks to a dividend ETF. Of course whether or not the move would be advantageous hinges on the choice of which stocks compared to which ETFs. I'm personally very much against picking stocks solely based on dividends and instead focus on overall performance. For a dividend stock, my ideal is Microsoft, not XOM, since Microsoft provides not only a respectable dividend, but also growth in the dividend and share price.  Looking at the chart below, we can see what a huge difference this makes. In the past 5 years, while XOM paid about twice the dividends of MSFT, the net total return of an MSFT investment was 231.32% versus a mere 4.35% for XOM. HDV and VYM while yielding quite a bit more than XOM, are still quite a bit behind stocks like MSFT.
 
I think it's reasonable to have a portion of one's investments in a good dividend oriented fund such as VYM, DGRW or SCHD, and I do hold some of these, but personally I would (and will) keep some select high performing dividend paying stocks like MSFT and PFE. There's nothing really wrong with moving to HDV, it's simple to manage and not overly reliant on an individual stock's outcome, but the tradeoff of course is lower performance.

   
   
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#5
(11-29-2018, 11:07 AM)Nords Wrote: I consider you to be one of the more thoughtful and sensible investors in this forum, but I'm not in favor of a blanket decision to move from dividend stocks to a dividend ETF. Of course whether or not the move would be advantageous hinges on the choice of which stocks compared to which ETFs. I'm personally very much against picking stocks solely based on dividends and instead focus on overall performance. For a dividend stock, my ideal is Microsoft, not XOM, since Microsoft provides not only a respectable dividend, but also growth in the dividend and share price.  Looking at the chart below, we can see what a huge difference this makes. In the past 5 years, while XOM paid about twice the dividends of MSFT, the net total return of an MSFT investment was 231.32% versus a mere 4.35% for XOM. HDV and VYM while yielding quite a bit more than XOM, are still quite a bit behind stocks like MSFT.
 
I think it's reasonable to have a portion of one's investments in a good dividend oriented fund such as VYM, DGRW or SCHD, and I do hold some of these, but personally I would (and will) keep some select high performing dividend paying stocks like MSFT and PFE. There's nothing really wrong with moving to HDV, it's simple to manage and not overly reliant on an individual stock's outcome, but the tradeoff of course is lower performance.

I like your presentation and marked "like".
I would not, however, compare MSFT with XOM for the last 5 years. Oils went through a difficult time in the period. I agree that MSFT is a dependable stock. So is XOM of the oils regardless of the bad times oils had during that hard period.
Now, XOM may have a better time in the next 5 years. I am not saying MSFT will not do well either. XOM is still a good choice for energy diversification one may want. There was a large period of time I owned MSFT and did very little up to 2014. I sold it as not responsive per my goals at the time. Again, I am not saying MSFT is not a good choice now for what they do.....
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#6
(11-29-2018, 12:10 PM)Shiny Wrote:
(11-29-2018, 11:07 AM)Nords Wrote: I consider you to be one of the more thoughtful and sensible investors in this forum, but I'm not in favor of a blanket decision to move from dividend stocks to a dividend ETF. Of course whether or not the move would be advantageous hinges on the choice of which stocks compared to which ETFs. I'm personally very much against picking stocks solely based on dividends and instead focus on overall performance. For a dividend stock, my ideal is Microsoft, not XOM, since Microsoft provides not only a respectable dividend, but also growth in the dividend and share price.  Looking at the chart below, we can see what a huge difference this makes. In the past 5 years, while XOM paid about twice the dividends of MSFT, the net total return of an MSFT investment was 231.32% versus a mere 4.35% for XOM. HDV and VYM while yielding quite a bit more than XOM, are still quite a bit behind stocks like MSFT.
 
I think it's reasonable to have a portion of one's investments in a good dividend oriented fund such as VYM, DGRW or SCHD, and I do hold some of these, but personally I would (and will) keep some select high performing dividend paying stocks like MSFT and PFE. There's nothing really wrong with moving to HDV, it's simple to manage and not overly reliant on an individual stock's outcome, but the tradeoff of course is lower performance.

I like your presentation and marked "like".
I would not, however, compare MSFT with XOM for the last 5 years. Oils went through a difficult time in the period. I agree that MSFT is a dependable stock. So is XOM of the oils regardless of the bad times oils had during that hard period.
Now, XOM may have a better time in the next 5 years. I am not saying MSFT will not do well either. XOM is still a good choice for energy diversification one may want. There was a large period of time I owned MSFT and did very little up to 2014. I sold it as not responsive per my goals at the time. Again, I am not saying MSFT is not a good choice now for what they do.....

The new CEO Nadella took over in 2014. He deserves credit for turning that ship around. Until I saw signs of his doing so, I wasn't interested. There's no question you have to look at the whole picture, including not only leadership but also factors such as global politics and economics.
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