First Woes and some Good News

IMG_20150629_103639265[1]It had to happen, sooner or later…

I’ll review the year later on, but in order to break the monotony of the “usual” dividends posts and so here it goes, first woes to the Long Haul Portfolio strike!

A couple of weeks ago my position with Breitburn Energy Partners (BBEP), an MLP that I picked almost 1 year ago for its potential and excellent dividend yield (at that time it was sporting an hefty 8%), took a massive beating thanks to the decision to suspend the dividend payout.

I will not get too much into the details of this decision, I guess that I “had it coming”, as I decided to ignore all signs of a disaster that was about to strike, betting on the oil price recoveries, mostly. Well, I was wrong, and together with its hefty payout, share decline took also 85% of the initial value, meaning that I am left with 150 dollars (badly counted) on a 1000 dollars investment.

To be honest I am not too upset about it, I have been quite bold and stubborn on this stock, and I got what I deserve.

The real question is: What do I do of the remaining shares? I can sell the off and make nothing, or keep them there (the worst that it can happen is that I loose 150 dollars, in case they bankrupt).

On my rules I wrote that I would asses company position in order to evaluate what to do after a dividend cut or suspension, in this case the money in play is marginal and I am a bit puzzled.

I am eying BHP and OKE with suspicion now, as I believe that there could be some dividend cutting actions there too, BHP right now is one of my biggest holdings and on them I am a little bit more “worried”.

Anyhow there are also some positive news, Cincinnati Financials declared an extra cash dividend in December, and that comes as a great bonus! 🙂

How do you normally behave when a dividend is cut? Sell and take the loss or wait till something is recovered?

 

 

 

 

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12 thoughts on “First Woes and some Good News

    1. Ciao Alfio,
      Effettivamente è una soluzione, un po di “tax loss harvesting”, che però non utilizzerei subito (in verità i titoli dove sono in forte gain non vorrei dismetterli)… Ma allora non avrebbe senso aspettare quando effettivamente la perdita mi servirebbe davvero? Tu come ti muovi di solito (se mai hai avuto casi di sospensione di dividendo)?

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  1. Si in effetti se non hai da vendere nulla potrebbe essere utile aspettare..
    Come mi muovo… dipende da titolo a titolo… Kinder Morgan con l’attuale dividendo dovrei venderla e reinvestire il ricavato in qualcos’altro… e portare a casa una bella perdita.
    Ma in questo momento sono a corto d’idee. Non so cosa fare..e in questi casi..meglio non far nulla.
    Per sicurezza ho deciso di tagliare il dividendo stimato di Bhp Billiton e Shell del 50%..contento di essere in futuro sempre smentito.

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    1. Si anche io stimo BHP e RDS in calo di dividendo… spero non lo sospendano del tutto dato che sono due holdings importanti per me… per BBEP ho deciso di aspettare per adesso, non ho molte aziende che vorrei comprare e quindi è bene stare un po fermini penso…

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  2. That is bad news…. The oil ocean starts to take down some stock prices….

    Such a big loss is not good. the question is: is it just sentiment, or is there a fundamental reason?

    With by RDSA stock, something similar is going on, albeit not as hefty. I think here it is mainly sentiment as it is a diversified company, especially if the BG acquisition happens.

    I also used the opportunity to buy a MLP after it cut its dividend. It stayed strong a few days, but now drops still lower with the further dropping oil price.

    Interesting times…

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    1. It’s a difficult call, BBEP seems to fluctuate heavily following whatever swing oil prices take. It was a “bet” on oil prices and clearly it has gone wrong. No we are hovering at -90% so I’d say that things have gone more sour.

      To answer your question there is a 30% sentiment and a70% fundamental reasons to this cut in my opinion, at least from the research that I have made. Issues with MLPs now are high debts (and low income), hence the dividend cut.

      The first lesson learned is that if a company cuts the dividend in the future (100% cut) then I must get out of there immediately, I did bide my time and now this is costing me not only the former loss but also the latter. Fortunately is a loss on a “sideline” stock. RSDA/B it’s a different company altogether, it suffers from low oil prices, but it also has a different business model/stability to it. I think at least…. 😛

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  3. That is unfortunate news, but I think we all took it on the chin in some form with oil stocks and MLPs. It happened so let’s move on. Sometimes moments like these are valuable as you can take away some great lessons that will make you a better investor. It sounds like you were caught chasing yield (As I was as KMI’s price tanked and the dividend yield kept on increasing). So work hard to refine your stock screner to prevent it from happening again. If you succeed in preventing these instances, you will squeeze some great value out of the position you are in!

    Keep your head up and don’t let it get to you! Every investor whether or not they admit it. Take care and have a great weekend.

    Bert

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    1. Ciao Bert,
      Thanks for the message, much appreciated! Actually I totally agree with you, and out of the 55 stocks that I own BBEP was infact the most “dangerous play” that I made, so in a way I knew what it was coming…. Anyhow lots of lessons learnt this year (the first one in investing) so I don’t see everything as a major disaster, but as a learning experience… Of course I need to keep them at a minimum because every mistake does cost money 😛 Thanks again for posting!

      Ciao ciao

      Stal

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  4. These things happen from time to time. From Breitburn Energy Partners to KMI, dividend cuts or suspensions happen. And don’t feel too bad that you were chasing yield etc. I experienced dividend cuts from very “safe” long term dividend payers too back in 2009. Names like GE, WFC and IR come to mind. It’s part of the game we play. Just stay diversified and look for lower yielding higher dividend growth companies rather than high current yield. But, just as my example shows, even the most solid companies can cut at some time.

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    1. Ciao DH,
      Thanks for posting! Well I couldn’t agree more, dividend cuts and bad investments are all part of the game, and all in all considering that my “career” in investments started 1 year ago I cannot be overly sad about some bad results. Of course I could live better without them, but I am sure they will be useful for the reminder of the trip. 🙂
      Alas 2016 starts with some potential “risky” elements, mostly linked to Materials and Energy sectors, reason why I have stopped accumulating despite the fall in stock price. This means that I am looking at other sectors and now energy doesn’t represent the vast majority of the PF like it was when I started, so I am containing the risk through diversification… Or at least I am trying… 😛

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  5. Hi Stal,

    I’m expecting BBL to cut dividends this year although it shouldn’t be a major deal since they’re a small part of my overall holdings. In BBL’s case I’m going to hold regardless of what they do. I think CVX will struggle on with a frozen dividend for a while yet.

    Are there any tax benefits to selling investments at a loss in Italy? In the US you can sell the stock now and the loss can be used to offset taxes. You can’t buy the stock again until 30 days later; but if you don’t expect the price to change much in that 30 day period it’s an option for US investors. Trading fees will be a large part of the overall costs for smaller transactions though.

    The common mindset about “locking in losses” when you sell is misguided I think; the money’s already been lost and if BBEP continually grows at 10% a year, it’d take over 20 years to restore your original amount. As well as the “is this a good company for the long-term” question raised by the earlier commenters, I’d also add a “is it worth selling?” question considering the small amount relative to trading fees and your overall portfolio.

    Personally I think unless there’s a good tax benefit for selling, I’d be inclined to just keep the $150 in the stock and ride it out, and apply any learnings from this experience going forward.

    Best wishes,
    -DL

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  6. Ciao DL,
    Thanks for coming by and for the post! 🙂
    I agree on the view with BBL, the current dividend is very hard to sustain, I hope for a cut, not a 100% cancellation. If they keep something, the stock will stay in the PF, if they cancel the dividend… technically I should sell it.
    the experience with BBEP taught me this, if I had sold it when they declared the cut I would have gone out at 1.7 dollars (still a massive loss but…), now we are at 50 cents… I am keeping BBEP not so much for the tax redemptions on other gains (yes we have that in Italy, they last for 4 years), but because this stock seems soooo much linked to the oil prices, so assuming that in the future there MIGHT BE a rise (even around 50$ would get this stock from .50 to 3 dollars), I still keep it. After all if I sell now I get 150 minus commissions…
    Right now I am not looking at selling anything from my current PF so even the tax redemption is not really a drive to sell for me.
    Ciao and thanks again for the comment!

    Stal

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