I bought 480 shares of EPB (El Paso Pipeline Partners) for $14,423 on March 31. Those shares sold on April 17 for $15,869, giving me a profit of $1446. That means I realized a 10% profit in 18 days holding the stock. That was certainly nice. And it is another example of how my investing strategy* can work when it works right. Here is how things went down this time.
EPB came up on my weekly high-dividend company screen in late March with an 8.9% dividend yield so I started my evaluation process* on the company. Did I have room in my portfolio for a company operating interstate natural gas pipeline and storage facilities**? Lots of room. Did EPB's business model look good? Yes; this is a business built on longterm fee based contracts.*** So I checked out EPB's balance sheet. Was EPB's ratio of current liabilities to current assets less than 1? Yes; it was 0.91. Was its ratio of longterm debt to total assets (not counting goodwill) less than 1? Yes; it was 0.64. Then, on the company's income statement, was the ratio of operating income to interest expense more than 1? You bet; it was 3.1. And on the cash flow statement, was the ratio of cash from operations to paid dividends greater than 1? Yes; it was a solid 1.6. EPB had passed my financial criteria gauntlet with flying colors*.
Next I checked for any bad news or possible hidden problems****. Nothing there, except for the fact that EPB is actually a subsidiary of Kinder-Morgan, and KM could decide to basically swallow EPB any time; but that was a remote possibility. So, I was ready to buy. But at what price?
The next stop in my evaluation process was EPB's six-month price chart. I found 2 key things. First, EPB stock had taken a price dive from $40 to $35 in early December (get this) because the company had not raised its dividend that quarter. The price had been drifting downwards ever since. Second, I found strong price support on EPB's price chart at $30. And the price that day had dipped below that support to $29.19. (But that was not to last, as we shall see.)
To calculate what I would consider a "safe to buy" price for EPB, I took the $30 price support and added to it the stock's $2.60 annual dividend. In my view, that made the stock safe to buy all the way up to $32.60 -- from which, if the price fell to the $30 support, I would recover my money in the form of dividends over the following 12 months*.
I put in my order to buy EPB at $30.03 a share and waited, because by then the price had spiked back over that $30 support level. On March 31st I caught the stock at $30.03.
I monitored EPB's news and price every day, as I do for every stock in my portfolio****. When I saw that the price was up over 7% from my buy point, I put in an order to sell if and when the stock rose to my 10% profit price.*****. And on April 17, that price was reached, the sale was triggered and I had a 10% realized gain in less than 3 weeks.
I LOVE it when a plan works!
* My High Yield, High Risk Investing:
** Stock Diversification My Way:
*** Stacking The Deck For Dividends:
**** How I Stay On Top Of My Stocks:
***** What Makes Me Sell a Stock?:
(Please remember: I am not a professional financial or investment advisor. I am just relating my personal experiences. You need to do your own research and reach your own conclusions.)
April 19th, 2014 at 02:20 pm 1397917207
April 19th, 2014 at 04:39 pm 1397925592
"The short term gain will be taxed as ordinary income. I guess if you are in the 15 percent bracket, that's not a deterrent to trading. If you are in a higher bracket and also have high state income tax rates, trading becomes less of a worthwhile endeavor."
Maybe so, Another Reader. But this transaction was done in a tax-deferred IRA account. And even if it had not been so, it still would be well worth it to me to turn over a profit so quickly and then be able to reinvest the proceeds.
And this is what I refer to as "collection of dividends in advance" as I explain in my blog post "What Makes Me Sell a Stock?" (which you can read by clicking on the link provided at the bottom of my original post).
April 20th, 2014 at 01:55 pm 1398002110
April 24th, 2014 at 08:28 pm 1398371291
"If you are skilled and you understand and consciously accept the risks, some trading in a retirement account can work. Trading without skill and experience often leads to disastrous results. For most folks, consistent investment of their retirement contributions in low cost index funds works best."
You do have to know what you are doing. Or at least think that you do.