My final post to this series is probably the least defined and most speculative post I’ve composed. Many have attempted before and I’m sure many will follow, but the topic Cord Cutting and how to profit from it is filled with politics, regulation, evolutionary technology, disruptive practices and good old fashioned corporate greed coming together to create a minefield to negotiate for those seeking answers.
On Friday I decided to initiate a small position in Square, Inc., the day after their IPO. Let’s identify the reasons why this is probably a poor decision:
- No dividends paid
- They lose money
- They lose even more money with volume (Starbucks)
- They had to cut the IPO price
- Their losses attributable to fraud is greater than the average
- They’re holding a high number of shares in treasury
- Next up: Lockup Expiration
Now if that isn’t enough to keep investors on the sidelines – especially DGI investors – then let me explain why I’m willing to gamble a little.
- Passionate customers – the merchants I’ve talked with all deliver rave reviews
- The fraud issues are fixable
- Extension of their product line.
Unlike First Data, IPO’d by KKR, SQ cut their price to levels lower than their final funding round, which improves the odds for me. I like the space – and at a lower price I’d like First Data too.
Most important if they’re able to gain traction and move a little towards profitability, I see them on the radar for a larger player to scoop up.
Today I went on a quest, spurred by an article I encountered a few days ago over at the StreetAuthority, titled Reinvest Stocks At Discounted Rates With This Strategy. OK, I’m a sucker for a bargain. And this is a technique I’ve previously used. So what’s different? One comment in the article caught my eye. “there are a number of companies that offer DRIPs with a discount. They are just really hard to find”. I thought “Oh really. How hard could it be? Well, let me tell you …
I started with Amstock. They (and their sister company CST) are privately held and owned by Pacific Equity Partners out of Australia. I had to do some cutting, pasting and sorting but I came up with a list of 18 companies:
ACFN, AFG, BXMT, BRT, CECE, EFSI, ETP, HT, MEG, MNR, NNN, OLP, SBTB, SSW, SSS, SUBK, UMH, YORW
Can’t say I’d be buying many of these myself , but a good start to my journey.
So I then went to the big one – Computershare. Since I just bought some of their stock, I figured to get answers. Wrong. They do provide the information on their website, but it’s two additional clicks to get the answer. With the thousands of plans they manage, there just had to be a file to download. Nope. Well I’m not that bored (at least today) to go to that effort. So strike one.
Next up was Wells Fargo. They managed Piedmont’s plan (which had a discount). They manage about 160 plans and as a stockholder, maybe they’d cut me a little slack. Strike two. They’re even worse. You go to the list on their site, click on the company, then click on the document so you can read each and every prospectus to see if a discount is offered.
While I still had a strike left I gave up without checking Broadridge or DST. These are smaller – Broadridge has Disney as a client and I know no discount is offered there. At least it provided a semi-productive way to spend a rainy day.
It would appear that another fixture in the DGI community has bitten the dust. I don’t know the full story – and I doubt many do – but whether it was greed, misrepresentation, miscalculation, lack of understanding, or a combination of these Dividend Mantra is no more. Long Live The Dividend Mantra Team?
Reviled by some, but revered by many, through his knowledge and hard work successfully monetized his passion. From media interviews to authoring a book, he built the Dividend Mantra brand from nothing to something. But his most lasting accomplishment is the number of people that became investors through his inspiration.
This is not to say I agreed with all of his decisions, I didn’t. Orchids Paper is not a DGI stock. It’s yield chasing. I was surprised when he added it. Yes I own it – but I’ve been to their Oklahoma plant. And I reduced my holdings prior to their secondary. He and I also disagreed on his decision to sell Sysco. So it’s dividend wasn’t growing fast enough? Well when you buy into a company just after the ex-div date and sell it prior to an ex-div date you’ve artificially reduced your return. He had a extreme dislike for the YoC metric, I tend to favor it. His doubling into BBL is questionable, particularly with their exposure to Materials and China. It could wind up being very profitable but their loss of a dam at their Brazilian mine last week doesn’t help.
His overall success has been well documented, which makes this latest chapter all the more perplexing. Previously he stated a desire to offload the work required with his blog’s popularity. He obviously was a willing seller and he located an obviously willing buyer. My guess is after the contracts were signed, DM realized he gave up editorial control, evidenced by his post that some blog sections would no longer be published. Likewise, the buyers have come to realize (belatedly) that a blog’s popularity is a reflection of its creator – not the owner.
Is it now too late to recover? Well the jury’s still out. I fear that DM the man will be late to realize he has lost – perhaps destroyed – the orchestra. It is unfortunate the benefits he enjoyed will be diminished as well. And DM the team is obviously late to recognize they bought the music but not the conductor. Meanwhile the patrons are fleeing to the exits. Any hope for recovery is reduced by the day.
After last night’s debate, it would appear that at least one of the three pillars of my speculation strategy could be at risk. To review, 65% of my portfolio is allocated into buckets of Anchor, Core, and Satellite categories. The remaining 35% is loosely split into what I refer to as Speculative Pillars. These are theme-based sections that I feel can be rewarding – at least in the short term:
- Cord cutting
- Transaction Processing
- Regional Banks
I will address my thoughts with #1 and #2 in a later post. But last night the Republicans put #3 squarely in their cross hairs. My thesis addressed here and here, is that regional banks are good investments not for their dividend but for their M&A premium. The key to profit, I argued, was to own the bank being acquired. The trick is figuring out which is which. Mergers in this space are rising due in part to the costs imposed by Dodd-Frank.
Maybe it’s only rhetoric, but perhaps the candidates should be reminded of the number of bank failures pre-Dodd-Frank and if Dodd-Frank is repealed, what happens to the Basil accord and the US’s ability to compete internationally in the banking sector. Until then, I’m now following the race a little closer.
With apologies to Tom Cochrane (Life is a Highway), been humming his tune today after completing two purchases. The first took three weeks and an assist from my broker. My limit order finally hit (and went below) but the Aussies didn’t execute it until getting a call from the states. So now I’m the proud owner of Computershare. I then submitted an order for Broadridge which executed prior to the close. With my current Wells Fargo stake, one could say I man one of the toll booths on the dividend investing highway.
Alright, I’ll elaborate. All three companies are Transfer Agents. Meaning companies hire them to pay out dividends, manage ownership records, run the DRIPs (if the companies have one), and so on. These three companies control close to 60% of the market with private companies splitting the remainder. Of the 35 most popular DGI owned stocks, 30 use these three companies.
At today’s close, BR’s yield is 2.27%, WFC is at 2.81% (both quarterly) and CMSQY sits near 3.3% (twice per year). And as the popularity of dividend investing continues to rise, I have all of you to thank – because without you as an investor there would be no need for Transfer Agents.