This is the final segment to the best and worst of 2015. This series was inspired Bespoke Investment Group’s article tailored to actual holdings in DGI portfolios. The first post, 2015: What Went Right can be found here.
Again I need to address the caveats:
- Only publicly disclosed data culled from portfolios in my Blog Directory were used. If your blog is not listed, your data was not included.
- My data only reflects a snapshot in time. Once entered in my database I generally make no updates.
- I make no guaranty as to the accuracy of the data either through input errors, processing errors, or the legitimacy of the source data. Meaning, use at your own risk – or you get what you pay for.
Bespoke’s article raised a number of questions in my mind. Although not specifically targeted to the DGI community, I found it to be timely none-the-less. So the question today is why were so many ‘losers’ contained in DGI portfolios?
First I found that 19 of the bottom 40 were resident in DGI portfolios. This analysis excludes BHP Billiton which is widely held in DGI portfolios (71) – and a significant loser – as it is not included in the index, being a non-US company. Bespoke’s report identified that ‘consumers were extremely fickle’, meaning there were both winners and losers within the same sector. With this guidance, I turned my attention in this direction.
- Technology underperformers were in 10 portfolios. These I excused as these types of companies tend to be cyclical by nature and dependent on their development cycle
- Materials only had 2 entries with FCX, therefore not statistically significant, but recovery is China dependent which may impact others (DE,CMI) as well
- Industrials also had two entries with KSU (which had weakness due to currency) and Cummins – which saw a recent uptick in DGI purchases (13 portfolios)
- Consumer Discretionary had 6 companies across 14 portfolios. These are most likely to fit the ‘fickle consumer’ moniker as designated by Bespoke, although I would probably give a little leeway to Macy’s (REIT spinoff hopes) and Viacom (cord cutting impact most likely overblown)
Which leaves us with the elephant in the room – the seven Energy related companies favored by DG investors. These seven are; KMI (85), NOV (22), ESV (18), OKE (16), SE (4), WMB (2) and (CHK (2). As we enter into 2016 there are still headwinds facing this gouup:
- Will the export ban being lifted be a net positive or negative
- Can these companies continue to borrow at attractive enough terms in spite of rising rates
- Will the dividend cuts currently in place provide enough cushion
- If bankruptcies increase, can the excess capacity be absorbed (pipelines, banks, services) without causing a deflationary spiral with renegotiated contracts
I believe 2016 will be an interesting year. It would be prudent to keep abreast of events both domestically and abroad. In DivHut’s recent post, he recommends reviewing your allocations. The Dividend Diplomats suggest a review of the debt load of your stocks. I believe both approaches would serve a portfolio well. Yield chasing should also be limited. When a high-yield mutual fund restricts redemptions (Third Avenue) or OPEC doesn’t expect to reduce production until 2019 (wsj), 2016 has the makings of being a very interesting year indeed.