Wednesday, November 17, 2010

RRSP: Bye Bye GE - Hello 3M

I had been thinking of selling my General Electric (NYSE: GE) shares in my RRSP. The company has been struggling for a long time, with its financial division dragging down the rest of the company. As I see it, the company will continue to grow slowly and recover from its past mistakes, just as slowly. I see that growth at less than 5% per year. With a current dividend yield around 3%, I think I can find a better use for that money.

So I've sold GE and used the money to purchase shares of 3M Company (NYSE: MMM). The company is also a large conglomerate with diversified income streams, but without the financial division that's been pulling GE down. 3M keeps innovating and developping new products. Current yield is a bit lower at 2.6%, but the company keeps increasing the dividend at a steady pace and its payout ratio is lower.

My money could have been put into a different company with better growth prospects. But GE (and now 3M) fulfilled a specific role in my portfolio and moving my money into a growth-oriented company would not have satisfied that role.

As I sold GE and purchased 3M on the same day, I was able to same on currency conversion fees (what is sometimes called a "wash trade"), reducing them almost to nothing.

I also own a few shares of 3M in my DRiP portfolio.


Anonymous said...

did you make a profit on GE? How did you decide the 3M was at a suitable price to buy?

Frog of Finance said...

I have a loss on GE. But I could have kept it for a long time and still have a loss. It still took me months to reach the decision to sell.

Aside from a quick calculation to make sure that 3M was not overvalued, I did not perform a detailed analysis. It ids the kind of company that will make money long-term for its shareholders. As Benjamin Graham (or was it Warren Buffet?) said: "A good company at a fair price."