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Do you ever trade stocks?
While I prefer long-term investing, there are situations where I’ll build a small position in a company with solid fundamentals that doesn’t quite meet my buy-and-hold standards. I’ll hold the shares for a period, collect dividends, and sell once the price rallies.
Dover Corporation is a good example. I bought shares in 2023 when the stock was down for seemingly no reason. The company manufactures garbage trucks, fuel pumps, and commercial refrigeration systems, and it’s a Dividend King with 70 consecutive years of payout increases. Unfortunately, however, these increases are paltry at roughly 1% annually.
I purchased shares at around $135 and sold the following year after they rose above $185.
That return far exceeded what I would have earned from dividends alone.
Why mention this?
Because last fall I wrote about Booz Allen Hamilton Holding Corporation ($BAH), noting that the stock looked undervalued and due for a rebound. I initiated a small position at around $86 per share and then sold my shares at $101.
The stock appreciated so quickly that taking profits made more sense than holding for a trickle of quarterly dividend income.
In hindsight, it was a smart decision. Shares have plummeted since April.
The stock is down more than 9% over the past month, largely due to a canceled government contract. For those unfamiliar, Booz Allen Hamilton is a defense contractor and consulting firm with a long history of interesting government and commercial work.
The firm has contributed to projects such as the Hubble Space Telescope, supported the U.S. Navy’s GPS modernization efforts, coined the term “supply chain management,” and played a key role in the AFL-NFL merger.
Shares now trade below their level from five years ago and currently offer a dividend yield above 3%.
The stock is currently valued at a price to earnings ratio of 12.56 and yields approximately 3.09%, protected by a safe payout ratio of 34.65%.
Additionally, the company has grown its dividend at an 11.50% compound annual rate over the past five years, outpacing inflation.
Despite recent weakness, Booz Allen Hamilton has delivered a 10-year average annual total return of 12.69%. While still underperforming the S&P 500 at 15.33%, it’s a decent return for a stock that now trades lower than its 2021 share price.
The company’s most immediate challenge is administrative. Shares dropped after Treasury Secretary Scott Bessent canceled approximately $21 million in contracts, stating: “We no longer have confidence in that firm’s ability to screen, vet, and deploy contractors within the IRS or the broader Treasury Department.”
While negative, the company still holds more than $35 billion in backlog.
Much of that backlog is tied to agencies such as the Department of Defense, the NSA, and other intelligence organizations. Recently, Booz Allen Hamilton secured a U.S. Space Force contract to develop a space-based interceptor missile defense system as part of the “Golden Dome for America” initiative.
In addition, the company won a $99 million contract last November to deploy 5G and NextG networks for the U.S. Navy, and in March it was selected to build a cloud-based data platform for the National Oceanic and Atmospheric Administration.
In short, the stock has declined following the loss of a $21 million contract, despite maintaining tens of billions in active and backlog work.
At a 12.56 PE ratio and a 3.09% starting yield, I’m interested in re-buying my position. In fact, with a starting yield this high, I’d even build this into a long-term, meaningful holding.
Sound familiar?
Over 4 million people have had the same lightbulb moment.
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Disclaimer: This article is for entertainment purposes only. It is not financial advice, always do your own research.
