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There’s a time to buy and a time to sell. My reasons for selling seemed rational. Don’t rely on your emotions to make investment decisions. Having a pre-arranged selling plan can be helpful when a decision to sell needs to be made. As a dividend growth investor I look for and buy stocks that appear to be a good value and have a descent dividend growth. However, it doesn’t mean I will buy and hold any particular stock in perpetuity. There comes a time when a particular stock no longer lives up to my expectations and the decision to sell has to be made. This is what has happened in my case when it came to Target Corp. (NYSE: TGT ). I had owned TGT since October 2013 which was a few months before the big data breach. Originally, I had bought the stock in the mid $60s range. As the stock fell into the mid $50s I purchased some more. I ended up with the stock at a cost basis of $61.67. As you may know, the stock started sliding after the data breach was made public and it bottomed at $55 in early February 2014. The stock meandered between $55 and $62 for much of the rest of the year until November 2014. Then it gapped up and headed north to about $77.50. Since then it has backed off to the $75 range. This is the point at which I decided it was time to exit. In the life of any investor it is just as important to know when to buy as when to sell. Buying and then forgetting about a stock could cause you much pain and suffering in your portfolio. There are numerous examples that could be referenced. Remember Enron, World Com, General Motors (NYSE: GM ), Lehman Brothers, Kmart, and etc. Many who held on to these stocks were wiped out. As the song goes, “You have to know when to hold them and know when to fold them”. I will now try and delineate why I decided to sell. Hopefully, the exercise will help both of us to be better investors. Target has no economic moat. There is no doubt it is a well known brand and has been in business some 50 years. The company now boasts a network of over 1800 stores. However, there is serious competition from the likes of Wal-Mart (NYSE: WMT ), Kroger (NYSE: KR ), Costco (NASDAQ: COST ) and online vendors. It really doesn’t have any great advantage over any of its competitors. Target’s price for several reasons is a bit stretched. Morning Star puts the Fair Value price in the mid $60s. On the technical side the price is far away from both the 200 and 50 day simple moving averages. Target’s current P/E ratio is north of 30. And the question in my mind is whether earnings are going to be better near term or get worse. There is still the question of how much the exit from the Canadian market will impact Target’s earning later this year. Also, there is the question of organic growth near term. I don’t see any particular catalyst that will drive growth higher. The dividend yield is now 2.75%. For me this is not acceptable. I need yield greater than 3.5% to achieve my investment goals. The growth in the dividend has been good up to this point. Last year’s dividend was increased by almost 21%. The current payout ratio is about 80%. I don’t believe the dividend growth rate will continue at such a high level. Earnings will be a key to whether dividend growth can be sustained at such high levels. The unrealized gain was the straw that broke the camel’s back. Before I sold, I had roughly 6 years of accumulated dividends sitting in my unrealized gains. As the old say goes, “a bird in the hand is worth two in the bush”. Basically, the decision came down to this, sell Target before my gains evaporated and use the money to fund a position that will meet my investment goals. It the moment I am looking a Tupperware Brands Corp.(NYSE: TUP ), StoneMor Partners (NYSE: STON ), Royal Dutch Shell (NYSE: RDS.B ), or Alliance Resource Partners (NASDAQ: ARLP ). Of course, it is not for me to say what you should do with Target. Each of us has our own wants, needs, and expectations when it comes to investment decisions. But, what is important for all of us, I believe, is to have a rational reason for buying and selling. Having a plan in place ahead of time will make that decision easier and help all of us to become better investors. If we don’t have a prearranged plan we will end up relying on our emotions or a hot tip from the barber. And, that kind of investing is sure to bring disaster to anyone’s portfolio. Additional disclosure: I’m not recommending anyone buy any stock mentioned in this article. This article is intended for educational purposes only. Scalper1 News
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