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Sat. Mar. 8, 2008

Time is My Friend *

It is good to periodically review the make-up of your portfolio and determine if it is meeting your expectations and is properly allocated. I’ve determined that I have too many bank stocks. There are currently six, in my dividend portfolio. If I want to limit my dividend stock portfolio to 25 equities, six bank stocks are too many. Three to four banks are appropriate for my portfolio. I have decided the weakest of the six must go. So who will be asked to leave. Let’s compare based on March 6, 2008 closing data:


Description BAC BBT MTB RY STI USB
NPV MMA Diff. 98,490 28,293 34,311 304,230 8,812 76,113
Yield 6.82% 5.91% 3.56% 4.18% 5.46% 5.35%
Div. Growth 12.4% 9.5% 15.6% 20.0% 5.5% 14.1%
(Disc.)/Prem. -15.9% -17.8% -20.2 -17.2 -2.9% -4.2%
Stars 4 5 5 5 2 4


STI may seem like a logical choice for dropping due to its low rating. However, the low rating is due to its most recently announced dividend increase to $0.77/share, which lowered its growth rate to 5.5% from 10%. I suspect most of the other banks will significantly lower their growth rate. Let’s consider what happens if the dividend growth rate drops to 5%, and 10% for those above 10%:

BAC:
- Dropping the dividend growth rate to 10% drops the NPV MMA Diff. to $47,993
- Dropping the dividend growth rate to 5% drops the NPV MMA Diff. to $14,803

BBT:
- Dropping the dividend growth rate to 5% drops the NPV MMA Diff. to $9,963

MTB:
- Dropping the dividend growth rate to 10% drops the NPV MMA Diff. to $7,395
- Dropping the dividend growth rate to 5% drops the NPV MMA Diff. to $835

RY:
- Dropping the dividend growth rate to 10% drops the NPV MMA Diff. to $12,104
- Dropping the dividend growth rate to 5% drops the NPV MMA Diff. to $2,853

USB:
- Dropping the dividend growth rate to 10% drops the NPV MMA Diff. to $12,104
- Dropping the dividend growth rate to 5% drops the NPV MMA Diff. to $2,853

Based on the above, it appears that STI and MTB are the weak links. However, when I reviewed the cash flow statements MTB and STI’s were the strongest. At the beginning of this week and this post, I had full intentions of selling a bank stock. But after this limited review, I have opted to wait. I am confident that one will slip and fall behind the others, and when it does I will ponce on it like a lion and cast it from my portfolio. Sometimes the best move is no move at all. In time the appropriate stocks to divest will begin to reveal themselves. Time is my friend.

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