My 3Rs – Reflection

When I was younger the 3Rs represented basic school subjects Reading, Writing (‘riting) and Arithmetic (‘rithmetic) probably with origins in Colonial times. Yet it is apropos today in that I too use the 3Rs (albeit in a different context) in my investing strategy. My 3Rs being Reflect, Revamp and Revitalize.

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July 2018 Update

The markets generally shook off potential tariff impacts, choosing instead to focus on earnings and GDP.  Any future concerns being tabled by investors to essentially celebrate the present.   Being a contrarian by nature brings out the caution signs when the market ignores some warning signals.  Tariff advocates Alcoa and Whirlpool took hits when they acknowledged the benefits anticipated were not materializing as expected.  Signs of profiteering are beginning to emerge.  The list of companies indirectly impacted continues to grow.  Technology had issues due in part to China exposure.  Perhaps I can be forgiven for seeing the glass half empty rather than half full.  This month had me on the sidelines with only one transaction to report.  July saw a rise in the S&P of 3.6% while my portfolio outperformed by registering an increase of 5.36%.  YTD I’m now ahead of the S&P by 1.06%.

Portfolio Updates:

Performed a rebalance on a portion of the portfolio.  I reduced the overage in DGX created in May and added shares to the others in this group (ABM, AMT, ARD, BLL, CASY, CHCO, KOF, CCE, CTBI, CCI, AKO.B, HOMB, IRM, LAMR, OUT, NWFL, OCFC, ONB, PLD, QCOM, SRC, SMTA, BATRA, UNIT, VALU, VER).  My DGX holdings remain higher than they were in May and the increase in dividends on this rebalance is negligible.

DIVIDENDS

My main focus resides on dividends.  Market gyrations are to be expected but my goal is to see a rising flow of dividends on an annual basis.  I’m placing less emphasis on the quarterly numbers as the number of semi-annual, interim/final and annual cycles have been steadily increasing in my portfolio.

  • July delivered an increase of 29.76% Y/Y, the biggest impact being a June dividend paid in July.   Pro-forma was 19%.
  • July delivered a 3.29% decrease over last quarter (April) due to an interim/final cycle (and would’ve been greater without the dividend move).
  • Dividend increases averaged 14.39% with 66.51% of the portfolio delivering at least one increase (including 1 cut (GE).
  • 2018 Dividends received were 70.19% of 2017 total dividends putting us on pace to exceed last year in early November.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

Spinoffs:

GE‘s rail unit to spin then merge with WEB

GE to spin 80% of the health business

Mergers:

XRX merger with Fujifilm cancelled (now being litigated).

SHPG to merge into TKPYY

GBNK to merge into IBTX

COBZ to merge into BOKF

GNBC to merge into VBTX (semi-reverse)

Summary

All in all a good month but it appears my continuing financial overweight is literally reaping dividends.  This probably needs to be addressed in 2019.

Hope all of you had a good month as well.

Organize – or not

It appears the current theme is organization.  I had to chuckle a little at Dividend Portfolio’s post as I could be the poster boy for his conundrum.   Although finding an elegant solution, I have to side with Mr Robot when he says, “Seems like a nifty feature. I’m afraid I can’t use it since I’m use the free version hosted on wordpress.”  Good old WordPress …   Me?  I have my directory in a Google Sheet and a couple of times per year I go through it all to ensure they aren’t not too stale.  The sites I personally frequent go on my front page allowing for ease of access.  I rotate these out periodically.  Cumbersome? A little.  But functional and the price is right.

Then I caught Mike’s post on decluttering his watchlist.  Now here I am, two for two.  It appears that Mike is ahead in the game since he completed his mission.  In a logical manner, no less.  There is one corner of my desk allocated to notepads.  Obviously I’m a serial procrastinator as several of these have been here for awhile.  Some I’ve entered into a spreadsheet.  Others I’ve discarded.  The remnants I’m still trying to figure out why I thought an idea was good to begin with.  Maybe by Christmas I’ll have the corner cleared.

Then there is always an outlier in the mix.  I could only shake my head the process detailed by Indian Value Investor.  He must have been an overachiever at an early age.  I have to admit he has me beat.  Hands down.  I think I made it through 30 or so reports this year, cross referencing maybe one.  I have, however, spent the better part of this week researching one question – scouring SEC filings, press releases and earnings call transcripts to find the answer.  Indeed the answer was found but only after the markets were closed.  At least that’s one idea I can execute next week.

As with investing styles there is certainly no ‘one-size fits-all’ in the DGI world when it comes to community, review and research.  And that is the beauty of it.

Next question: How much longer can I delay cleaning out the garage?  🙂

 

The YOC Metric

Every now and again I believe a reminder is in store addressing the reason and rationale for various approaches we take.  One such topic relates to Yield On Cost which can generate passion on both sides of the debate.  One side equates this metric as little more than a head fake while the other swears by its’ value.  As with most issues, the real answer lies in between.  At the very least all sides agree on the definition which per Investopedia is:

Yield on Cost (YOC) is the annual dividend rate of a security, divided by its average cost basis.

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Half Year Dividend Increases (2018)

Last quarter, I initiated a series on dividend increases experienced within my portfolio.  The data used was based on actual announcements and identified increases that were “Outsized” as well as those that were merely “Tiny”.

In Lanny’s recent piece, The Impact of Dividend Increases through June of 2018, though thoughtful and in a similar vein, was troubling to me in a subtextual way.  Not that the data presented was inaccurate per se, only that the derived message was a little (likely unintentional) deceiving to the majority of his followers.  The two deficiencies I found in his data were:

  1. Visa reported a dividend increase of 7.69% while he reports 7.73%.  This is likely caused by rounding as his data source (dividend increase from the monthly posts) is based on whole dollars.  A dividend change from $.195 to $.21 will likely result in broker rounding distorting derived percentages.  Not major as he probably saw a 7.73% personal increase.
  2. His approach on annualization is wrong.  The statement, “Of course, one can annualize the percentage and equate to 6.78%.” which is a doubling of the six month number, ignores conventions established by the Global Investment Performance Standards (GIPS) which include, “any investment that does not have a track record of at least 365 days cannot “ratchet up” its performance to be annualized.”  The basic flaw in his approach lies in the fact that his data is not normalized to reflect varying declaration (effective) dates throughout the date range used thereby distorting any derived “annualization” process.

Like some of the commenters, I too began the process of calculating my personal results in this manner until my eureka moment arrived.  There is minimal correlation between actual results and the Dividend Growth Rate. The greater correlation resides in the allocation (quantity) within the portfolio.  Yes the power of DGR is real but is not static. It will fluctuate over time across companies, industries and investment allocations. Nor is it predictable. At which point I ceased this replication exercise.

On a similar note, Buy Hold Long issued a challenge to increase total forward dividend income by 4.24% during the month of July.  A noble challenge indeed. However, the unintended consequences are potential reinforcement of bad habits.  For example, how many investors will be researching high yield or investments inappropriate to the degree of personal safety required?  Or putting their strategy aside to engage in this quest? On the other hand, I’m with Mr SLM’s comment when he says, “I think I’m on the part of the curve where increases aren’t linear from contributions”.

I guess my root issue with my disdain with these endeavors is the fact that we know not our audience.  One could assume a baseline knowledge level – but this would be strictly an assumption. This brings to mind another study of mine from a couple of years ago.  At that time I was unable to prove any confirmation bias but still have been unable to shake the sense that there is some within the community – especially with newcomers.  Also, we can’t discount the number of mirror, copycat or coattail strategies that are prolific today. Which is the probable reason I shy from these types of analyses/events.  I like to think that my results can be replicated (if desired) whether a portfolio is robust or just beginning which highlights why I report percentages.

As usual, I digress.  The purpose today is to share the first half increases – by percentage – reported by my dividend payers.  One item to note is the increases enjoyed by financials (banks, in particular) will be tough to replicate going into 2019.

And this, my friends, is the message this week with the upcoming earnings season sure to present some interesting commentary 🙂

June 2018 Update

At month end, the first of the tariffs took effect with the markets basically going sideways while trying to figure the impact.  My impression is the first industry to be impacted (via retaliation) will be the lobster industry.  Other industries will be later as the supply chains run off.  Even the US dollar is taking the noise in stride resuming its’ ascent.  Finally, the CCAR results were released with approval of the majority of the capital return plans of the banking sector (additional dividend growth on the horizon).   Through this I generally stayed the course, the only exception being the implementation of a hedge on two mergers.  June saw a rise in the S&P of 0.48% while my portfolio underperformed by registering a rise of 0.14%.  YTD I still lag the S&P by 0.69%.

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