Tuesday, March 12, 2013

Portfolio Tweaks

Even after adding $9k of fresh capital to my portfolio last month, I'm still on the prowl for good stocks to buy. I've been impatiently awaiting a correction in the stock market, but have trouble staying away from moderately priced companies with bright prospects. I also made a tweak to take advantage of a pretty strong price movement and the growing bubble in fixed income securities.

First, I purchased 200 shares of Douglas Dynamics (PLOW) at $14.40 for a total of $2,880. The company has a 40-60% market share in snow plows and carries a hefty (and growing) 5.75% yield. Typical replacements of snow plows have been put off due to the economic downturn compounded by the below average levels of snow in the past few years. With the economy stabilized and more normal snowfall, PLOW will have outsized growth over the coming few years.

I funded the PLOW purchase by selling my position in a junk bond mutual fund (SAMHX). Recent issuances of junk-rated debt have carried all-time low yields AND spreads to corporates, marking the signs of a top in the junk-bond world. The fund paid a monthly dividend, which I'll miss - but the yield on PLOW is comparable and has the potential to grow. Also, dividends from SAMHX (and all bonds) are taxed at the marginal income tax rate whereas dividend from PLOW (and equities) are taxed at more favorable dividend/capital gains rates.

I also sold the 150 shares of JE that I bought last month after deciding that my purchase was reactionary and the stock price moved enough to provide me the equivalent of a half year of dividends in the form of profits. It's always risky to buy/own shares of a company that has recently cut its dividend, which is what JE did earlier this year. I'll try to avoid such reactionary purchases in the future.

I used the JE proceeds to purchase a $500 position in Vermilion Energy (VET) after they announced a NYSE listing in addition to their Toronto listing. VET is an oil/gas driller that pays a monthly dividend and carried a 4.6% annual yield. I used the remaining $800 from the JE sale to buy shares of Miller Industries (MLR), a maker of towing and hauling equipment. The company pays a 3.5% dividend and should benefit from an improving economy and improving efficiency of its manufacturing facilities. Both of these positions are smaller than usual for me, but allowed me to get good companies at good prices without increasing my net exposure...for now.

So there you have it. Moving away from a fixed income mutual fund and a recent dividend cut and into companies I believe have bright prospects. I'm hoping we get a decent correction here so I can get more shares at better prices. I'm trying to work to further concentrate my bets on names I like, having spent the last year or so building out the core of my portfolio with high quality companies that pay growing dividends but don't necessarily have compelling valuations.

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