Reflections on Dividend yields vs. capital gains.

Choices, choices…choices

They are everywhere, at every time, ever present. They are present in our daily lives, at work, at home, everywhere. We are constantly bombarded with choices in every aspect of life. Choices that require our attention, decision making and ultimately – A Decision.

That is, unless you deliberately ignore them.

See that is the good thing about choices. Some of them can simply be ignored. In our daily lives, at home and at work, some of them can simply be ignored.

It does take a good deal of insight, matureness and experience though, filtering out all of these choice situations into ones that require our attention and resolve, and which ones we can simply ignore and forego.

Turning to the world of investments, capital decision choices are ever present. They are always there, …is this good…is this bad…should I…what if….but wait on the other hand….what would happen…what could happen….FUCK..I’ll do it…but what then…when should I…can I get out again…how do I get out…when should I get out….FUCK..it’s good enough.

Nowadays, when these decisions are evaluated through the lens of capital investments we label them as real options.

https://en.m.wikipedia.org/wiki/Real_options_valuation

Options, …alternatives, …choices

What options do I have, what are my alternatives, and what is the optimal strategy that will guide my choices, given the situation I am confronted with.

One of the greatest insights of real options theory is that every decision must be evaluated in the light of alternatives that are available to you. What is the alternative, and is that alternative better from a risk/reward perspective. It goes with out saying that within the realm of investment opportunities, the alternatives seem endless, leading into the above mind spin…that ultimately only ends when you find yourself having made a decision you are fine with, or you are on the brink of being certifiable.

Having pursued a strategy of building my DGI (dividend growth investment) portfolio over the last couple of years, – which is kind of a naive simplistic investment strategy admittedly – I increasingly find myself exposed to the considerations of alternatives.

This week presented one such consideration of alternatives, and warranted me to mentally start addressing switching options within my portfolio.

A while back I invested a portion in A.P. Miller Maersk – the transport and logistics conglomerate. It had fallen quite a lot on trade war rhetoric, all the way down to where it was starting to actually show an almost 2% dividend yield. I decided that was good enough for my DGI portfolio, as not all shares in a portfolio will be able to show +5% dividend yield and I also needed to start diversifying my portfolio.

Entered position at 7.320 DKK.

Likewise, I recently started taking on positions in the danish retailer Matas A/S and insurance company Topdanmark.

Both of which are yielding around 5% dividends.

What has happened, is that Maersk has risen a almost 15% in the last month, and hence the question starts popping up in the back of my consciousness – at what level do you take the chips off the table, and what are the alternatives available to you.

In this little isolated example, when is the capital gain high enough to be realized, and the stakes moved to an alternative that on the face of it, dividend-wise looks even better.

Well, why has Maersk moved so much in a short timespan? And will that end? My answer is part change in trade war rhetoric, part drops in the bunker fuel prices around the world, a key driver of profitability of any transportation company.

Should I switch, and at what level? My current thinking, is at around a 20% capital gain, I will look to switch my capital exposure into Matas and Topdanmark.

What considerations are you having around your portfolio?

Remember: Flexibility has value.

Coelestem adspicit lucem

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Thank you – Minimal5.

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One thought on “Reflections on Dividend yields vs. capital gains.

  1. Dividends are great to have but I personally wouldn’t risk my capital on individual investments. I prefer to use income producing mutual funds that focus on dividends.

    Like

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