After the long thought debate and analysis on whether I should maintain my Lorillard (LO) holding or sell and rejuvenate my position into Philip Morris (PM), my decision was made. You can remember last week, my LO stock was close to hitting the ceiling potential and the valuation on the stock just wasn’t showing that it was an appropriate valuation anymore, as well as my brief research into Reynolds American. I wanted to know my money was going to transition into an undervalued stock, and that it was under my control to make that decision/action happen… And it was.
The Sale
On Monday, March 16th, I sold my LO stock. I sold my 44.1709 shares at a price point of $67.30, or $2,965.75 less the $6.95 transaction fee. This is actually $16 more than what I expected based on my original article, which definitely had me pumped up! This gave me a few more dollars to cover the transaction fees for two trades – the sale and the buy (~$13.90 total in fees) and then some. LO was providing me $116 in dividend at the time and was now yielding below the 4% with over a 20+ P/E ratio and I knew that with the market churning upward in the AM, it was time to leave them behind. I clicked the “sell” button, something us dividend investors RARELY do and feels weird doing to strong companies – as LO was strong, just they weren’t going to be LO anymore within the next 3 months (pending the close of the merger with Reynolds). From just my personal , RAI has the Camel brand with LO holding onto the Newport, but PM has the #1 brand in Marlboro and another top ten in Parliament. My fingertips are tentative as I think that I actually sold a stock and am going to go through capital gain taxation come next April, oh boy.
The Move – Philip Morris
I now had $2,965.75 of cash to use for the next investment. Well, that only took a few minutes, that is that amount being held in cash. Philip Morris stock was trading at $77.65 last week when I wrote the article. I was able to scoop them up at $77.84 after selling my LO stock, only a $0.19 increase or 0.24% (this was after my LO stock rose 0.53%!). Therefore, I was in a net “up” position based on the timing of the trades, given that the Philip Morris stock had not increased as much as Lorillard’s. I purchased 38 shares and used $2,964.87 of the capital I had received (with less than a $1 to spare!). This almost fell too perfectly, with almost a 100% usage of the funds from the sale of Lorillard. I know Bert recently last month performed a dividend stock analysis on Philip Morris and the valuations from last week with a P/E of around 18 and a yield well over 5% and a strong history of double digit 5 year growth rate, with last year being a lower DGR of just over 6%. Further, I have been eyeing Philip Morris stock for some time and have been egging Bert to purchase some, because of all of the valuations – yield, performance, prior stock purchase history, etc.. – it was in a prime spot and is a monster in the tobacco playing field. Lastly, I was able to sneak in 8 days before their ex-dividend date to grab a dividend, which adds $38 in a pretty quick manner (that $1/quarter dividend X fresh new 38 shares), I was loving it! This bumps my portfolio up to a strong amount of 80.0752 shares in total, producing $320 in dividend income now per year.
Results & Conclusion
I bought 38 more shares of Philip Morris Stock, and have created a net increase to my dividend income, after dropping $116 from Lorillard and adding $152 froM Philip Morris, of $36 or 31% more in income on the same amount of funds on a stronger stock within the same industry (maybe I am biased!). This further pushes me towards my annual dividend income goal of $6,750 for the year and I am currently getting closer to that goal each day. With these trades commencing – what would you have done? Do you think Philip Morris is a better stock than Lorillard? What about Reynolds American? Thoughts with these actions? Thanks for stopping by, much appreciated!
-Lanny