Wednesday, July 17, 2013

Sold: Canadian Western Bank ("CWB")

No, I didn't take the job that required me to get rid of all my shares in Canadian banks. Instead, despite an impressive record of profitability and dividend growth, I decided to sell my holding (100 shares) in Canadian Western Bank ("CWB"). There were two main reasons I decided to sell my shares in CWB:

- The paltry 2.4% dividend yield. This yield is much lower than its Canadian banking peers average dividend yield (~4.3%). Management had lots of room to increase the yield (dividend payout ratio ~ 35%), but has instead re-invested back into the bank. To me, this speaks to management not placing sufficient importance of paying a dividend sizable enough to attract investors to hold shares for the long-term.

- As mentioned, I only held 100 shares of CWB, making it one of the smaller holdings in my portfolio. Furthermore, the investment was made in my non-registered account, and I had accumulated a sizable capital gain on the holding. It came down to a decision if I wanted to increase my holding (which I didn't given the low yield), or sell and take the taxable capital gain now, when I have enough losses to offset it.

Selling CWB allows me to create some liquidity that can be used to increase my holdings in another company I'm more comfortable with, that offers a better yield. This was one of my harder sell decisions in recent years, but I think I made the right choice.

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