Thursday, November 19, 2015

Merger: Dividend Portfolio Impact

One of my holdings, TAL, announced a merger with fellow container company Triton. What does this mean for my dividend portfolio ? After TAL cut their dividend by almost 40%, from .72 to .45 per share, TAL has been on my Watch to Sell list. However, with the newly announced merger, it may be worthwhile to hold on just a little longer.

With any investment, there are always three options: do nothing, shrink (or close) the position, or add to the position. I'm not adding, which leaves doing nothing and closing. I have 150 shares, which earned me about 1500 in dividend payments since I bought them. However, the share price declined sharply, leaving me with a net loss of about $700. TAL pays me $270 per year at the newly lowered dividend. Let's look at my options.

If I hold on to the stock, it'll get converted 1 for 1 to the new company's stock. There's a one-time special dividend payment of $0.54 per share, or about $81. The new company pays the same dividend as TAL does now, $1.80 per share, which means $270 per year for me. It's unclear of course, how the new company will perform, what their dividend (growth)  strategy is etc. Restructuring will take a year, and no one knows what the numbers will look like in a year. A share buy back is announced, which can help boost the EPS, but it's better if real earnings drive this of course.

If I sell now, I realize my loss, and put the roughly 2900 dollars in another stock that's highly rated on my screener, or that fits in my goal of building up my existing positions when the price is right. For example HCP would pay around $200, JNJ would pay $87, and CAT would pay around $130. None of them close to what TAL or the new company pays, but in return for lower payout, I get more certainty. That's how high yield works, you pay for it with higher risk.

So, what to do ? A stock with no div track record would normally not be in my portfolio. Should I sell it now, and move on ?  Or wait, grab the special div, and see how the new company fares ?  What would you do ?

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