The Stock I Loved To Hate, or, When Not To Break The Rules

I have been an owner of BCE Inc since 2003, and even when I bought it, I questioned the wisdom of the purchase. You’ll recall that I maintain a portfolio of Dogs of the TSX60, and my method involves a calendar (to time my purchases) and a spreadsheet (to find the top 5 yielding issues). BCE, although one of those “widows and orphans” issues, was also generally the top-yielding stock, and as per my rules, to be avoided.

I called it the “stock I loved to hate” for two reasons: 1. although paying around 5%, it never raised it’s dividend, and 2. it was perpetually stuck in a $28 – $30 trading range, hence the perpetual 5% dividend.

Once having made the decision to purchase, I was loathe to sell without good reason, that going against the rules (sort of), so you can imagine my glee when, in 2007, the Ontario Teachers Pension Plan decided to buy BCE for $42.75 in cash! And here Stupid met Greed; Stupid Greed even. You see, by following my rules and the schedule, BCE should have been sold that May for a tidy profit, but instead, because it was a cash deal, with no brokerage fees incurred I chose to save the 2.5% commission and hold out for cash. And then the ABCP crisis –  the pre-cursor to the current financial crisis – hit, and credit dried up, and investors got cold feet, and $52B deals like the BCE purchase slid to the back-burner.

And once again, BCE became the “stock I loved to hate”. For 18 months I followed the story as the Teachers tried to make this work; some days the news was good and the stock came closer to it’s $42.75 potential, other days the news was more realistic. Drop-dead dates came and went. Finally, late November 2008 saw the news that the deal was dead. BCE dropped 35% that day. Any gains from the previous 5 years evaporated.

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Ironic of course that I sold BCE in a fit of pique shortly thereafter, paying the commission that I had been trying to avoid. More ironic still that after I recovered from my pique I purchased BCE at about the same price, and of course, paying the commission yet again.

BCE still pays around 5%, but this time on price appreciation and decent dividend growth.

The moral, because there better be one if you’ve dedicated this much time to this post: if you go to all the trouble of building a method and scribing rules, Follow Them!

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