Why We Sold Chevron (CVX)

As we mentioned in our last post, we’re looking to raise some cash so that we can turn around and pump it right back into our strategy over the next 57 months. We’ll give you an example of our thought process here using Chevron as an example.

We’ve been accumulating Chevron for the past several years and it constitutes our second largest position at$12,430 which is quite close to the full position size we are targeting of $13,333. Our returns on that position size to-date are about 1% so we’re about even. At this point, if we sell CVX and then buy it back again over the next 57 months, the only way we lose out is if the future price of CVX will be more than it is today. We’ll also miss out on the yield but that doesn’t matter as we aren’t relying on the income at the moment.

With Chevron’s next dividend payment, they will either increase the dividend or Chevron will no longer be a Dividend Champion and it will be removed from our portfolio. If that should happen, the price of the stock would plummet. What we’re doing here in addition to raising cash is hedging against the possibility of CVX not raising their dividend. We’re also betting that the average price of CVX over the next 5 years will not be more than it is today. Even if it is, it’s not like we lose anything since our holding period is indefinite. If suddenly oil spikes and oil stocks soar, we’re still going to benefit from our holding in XOM. We only sold 100 shares of Chevron which means we’ll still be holding about 25% of our original position.

This means that with the sale of Realty Income (O) and Chevron CVX) we’ve freed up $25,000 in cash to bring the total amount of cash we have on the sidelines up to $151,684. We have one more stock to sell which we’ll talk about in our next article.

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