Sometimes, expectations just don’t cut it
It is with great disappointment to admit I’ve been cheated on. I put confidence and trust and this is how I get rewarded; broken promises. This is how it feels when a company lets you down and announces a dividend cut!
Selling Black Diamond Group (BDI.TO)
On November 6th, the company reported its latest quarterly earnings announcing a 38% dividend cut. I didn’t expect that. The company is obviously going through a difficult time since oil prices haven’t bounced back as expected. There is less activity in Northern Alberta and Black Diamond sells/rents less modular equipment.
Revenues were down by 11% which is not catastrophic. In fact, while the situation wasn’t paradise anymore, the company was able to evolve through this without being hurt too much:
Unfortunately, the payout ratio started to ramp up recently and management decided to amputate the dividend in order to control the bleeding. While I respect this decision as we all prefer to see a company taking action other than driving towards the cliff. However, I set 7 investing principles that I must follow to be successful. Tolerating dividend cuts is not part of my principles.
But The Company Can Bounce Back – Management is Taking the Right Steps
Yeah… this is when your brain starts playing with your emotions. There were plenty of good reasons to purchase Black Diamond when I did it:
The company was well established in Northern Alberta.
BDI has plenty of contracts even during the crisis.
Oil prices will not stay that low forever.
It was an amazing opportunity to pick-up a stock with a high dividend yield.
I picked BDI as part of my growth strategy. In this part of my portfolio, I select companies paying dividends and offering a strong upside potential. Not so long ago, the company was trading over $30. Now, it’s not close to $10 anymore.
After the dividend cut, you can do two things:
a) Drink management’s Koolaid, refuse to take your paper loss and keep hoping it will all work out.
b) Follow your investing rules and look forward to the next company on your watch list.
I learned a while ago that I will make mistake as an investor. Some of my transactions will result in a loss. I just have to accept it and follow my guidelines. These are highly effective when it’s time to ignore my emotions. Can the company get back on track in the future? That is possible. But that will be without me. Why? Because I’m following rules that are stronger than what I can believe when I see paper loss within my holdings.
The Power of Investing Rules
If I hadn’t set specific rules to follow, I would be left in the mist at the moment. Instead, I’m already getting excited about my next purchase. I’ve lost roughly $2,000 in this transaction. This is about 3.33% of my portfolio. When you think about it, it’s not much! I would rather lose 2K today and start making money with another trade than keeping a dead dog in my holdings that could hurt me more in the future.
Investing rules are guidelines made to be followed. They have been thought out, examined and researched carefully. I know dividend investing well enough that when a company cuts its dividend, this is the last thing it will do in my portfolio!
Investing rules make investing decisions easy. When I read about the news on BDI, I cringed, then I opened my brokerage account and sold it at today’s price. No trade limit, no hesitation; a simple trade and I’m looking at which company I will buy next.
Up on my Watch List…
I’m considering a few options still… but I think I will opt for a core holding instead of picking another growth holding. The reason is simple; I don’t want to open the door to the gambler who wants to double down on its next hand. Stay tuned, my next purchase is right around the corner 😉
There are more red flags
If you can avoid all dividend cutters, your portfolio should beat your benchmark easily. Successful investors often avoid dead stocks and dividend cutters while keeping dividend growers in their portfolio. Looking at revenues, earnings, dividend growth and dividend yield are part of the basic red flags that could be risen for any dividend stock. There is definitely more to it.
This Thursday, I will host a free webinar about identifying red flags while you look at your portfolio. Those signals will tell you which stocks deserve your attention and which ones require immediate action; read: sell. Since this topic will always be relevant, the replay is available for free.
Click here to register to the webinar (it’s free, but requires your email)
Topic: Identify Red Flags Telling You It’s a Bad Dividend Stock
- In this webinar, I will discuss metrics I follow to identify rotten apples in my portfolio. Since 2013, none of my holdings have suffered a dividend cut in my DSR portfolios. I’m sharing what we look at to make sure we keep the streak alive.
- You must register with Webinar Ninja to attend (if you did it in the past, no new registration is required). This is completely free and the webinar is free also. Webinar Ninja is the platform we use to run all our webinars. It works well and provides an optimal experience for everybody.
- The presentation is about 30-35 minutes.
- There will be a Q&A session of about 25-30 minutes.
- The webinar works on Google Chrome or Safari from a laptop or computer. (It is not compatible with smartphones or tablets.)
- If you can’t make it on time, there will be a full replay available, but you must register to access it.
Register here (free – email required).