DGI Adventure – 09-29-2015 Payday! – Gilead Sciences Inc. (GILD)

I got paid today. Woo hoo! GILD paid its second ever
dividend of $0.43/share. I bought 15 shares of GILD on April 1 of 2015 at
$96.10/share for a total investment of $1,448.45 (including $6.95 trade
commission). Which means I have an extra $6.45 cash in my account that I didn’t
have yesterday. Woo hoo! Payday party!

At the time that I made the investment I felt pretty smart.
The share price had just dipped below its 200 day moving average primarily due
to negative media noise about Hepatitis C drug pricing. It didn’t stay there
long, shooting up to an all-time high of $122/share in June just a few months
later. Although, I thought that was a little optimistic of a price curve, I
didn’t try to time the market and sell it at a high. I had bought the stock
because management had initiated a dividend policy. I’ve got a feeling that 10
years from now Gilead will pop up on the Dividend Contenders list. The company
is growing like crazy, they have a ton of potentially revolutionary drugs in
their pipeline, and they have boat loads of cash. The growth profile is great,
and the dividend payout ratio is only 4.54%.

As it turns out I would have done well to sell on June 23rd
(the dividend record date for the first dividend was 6/16/15). I could have
taken the profit from the sale plus the first dividend of $6.45 and bought that
many more shares of GILD at an equal or maybe even lower share price yesterday
(it closed at $94.80/share). But if I wanted to receive the second dividend I
would have had to buy in before the ex-dividend date of 9/14. My best
opportunity to do that would have been on 8/24, which was a brutal day for a
lot of share prices. In other words I would have had exactly one opportunity to
get back in at or below my original purchase price. Any other time, and I would
have been stuck with a slightly worse invested yield than I locked in on 4/1
with the initial purchase.

But I’m not trying to time the market on two sides. I just
want to time it on the buy-side and preferably only once (maybe twice or three
times averaging down if I have to). I feel like I got pretty lucky when I
caught it at $96.10. Did I suspect $122 was a little too high? Maybe. Did I
think it would go all the way back down to the mid-90’s. No I did not. Do I
think I could have gotten equally lucky two more times by selling at the right
peak and buying again on the one day it dropped back into my original purchase
range? I do not.

Am I upset that the share price has given up all its gains?
A little bit, but the “market value” of my investment is an imaginary number. I
shouldn’t be too upset about imaginary numbers. There is a real number though:
$12.90. That is how much cash I’ve been paid in dividends so far, and  I expect over the next several years, that
real number is just going to keep going up up up, even if the imaginary number
might fluctuate a lot in the meantime. And I don’t have to do anything else or
get lucky or time anything for that real number to grow. I just have to hold on
to the shares and I plan to.

I am tempted to average down a bit, but frankly GILD was a
little bit of an outlier for me anyway. It doesn’t really fit into my current
investment philosophy because of the small current dividend amount. While I
expect the dividend to grow…a lot…it’s a really small dividend none the less.
If I use my standard limitations on DDM analysis (10% discount rate with a max
dividend growth rate of 8%), the stock’s fair value is only $86/share. GILD is
a more of a conventional growth stock rather than a dividend growth stock. So
that DDM analysis is a little shortsighted. I recognize that, and that’s why
I’m still happy with the investment. But for now there are a lot of other
options out there with much higher current yields. So averaging down on GILD is
less appealing to me than deploying that capital into a different higher
yielding investment.

$6.45 may not sound like much to you, but it
nearly pays for the trade commission on my next stock purchase. Free trade!
Payday! Woo hoo! 

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