Portfolio Disection

The other day as I was reading some articles, it occurred to me that everyone seems to have their own flavor of the meaning of life – or in DGI terminology, how safety is valued.  Some have standards pertaining to S&P credit ratings while others use Value Line or their brokers’.  Yet others are mixologists, concocting their own blend of interesting criteria.

With the number of screeners available – through brokers or online – the sheer magnitude of data available is at times overwhelming.  Various  bloggers and analysts have proprietary criteria to sort through the noise – minimum yield,  Dividend Growth Rate, Chowder Rule are among the options – perhaps there are times when less is more.  The Dividend Diplomats employ this process with their three step approach.  Using their process, I selected a few I own – basically for grins.  Sometimes you just have to hold your nose at the odorous valuations or trust your instincts and dive in.  I’m sure the same could be said for stalwarts like CHD and MMM (among others).

HOLD YOUR NOSE STOCKS

COMPANY TICKER P/E RATIO PAYOUT RATIO INCR DIVS Yield RESULT
Kimberly-Clark KMB 46.65% 119.27% Champion 2.88% 1 of 3
Clorox CLX 25.66% 59.77% Champion 2.36% 2 of 3
McCormick MKC 31.50% 53.99% Champion 1.80% 2 of 3
 NOTE: All have paid increasing dividends, data as of 10 May 2016.
ANALYSIS: All have payout ratios at the high-end of the scale and KMB’s sustainability could be questioned at current run rates, but may be attributable to the HYH spinoff.  All P/E ratios are high as well.
COMMENTARY: All were considered overvalued when purchased yet sport even higher valuations today.  Price appreciation for KMB (62.3% since May 2012), CLX (81.5% since July 2012) and MKC (34.0% since January 2015) – all dividends excluded.

So in this light, I decided to evaluate my portfolio. Not so much from the standpoint of stocks held by many DGI enthusiasts, but by my uncommon holdings. Since I’m cheap, no subscription services to obtain the credit score was used and since I’m lazy, I didn’t want to spend the time manually pulling Yahoo! data.  So I decided to use David Fish’s CCC list as my starting point.

PORTFOLIO STRUCTURE

CLASSIFICATION QTY %
Champion 16 11.19%
Contender 25 17.48%
Challenger 41 28.67%
Near-Challenger 5 3.50%
Fallen Angel 1 0.70%
Non-Payer 7 4.90%
Failed Criteria 40 27.97%
Aristocrat (can.) 8 5.59%
143 100.00%
 NOTE: When combined Champions, Contenders, Challenger, Near-Challengers and Aristocrats comprise 66.4% of the portfolio.
The Non-Payers either reside in a strategic category (Cord Cutting, Transaction Processing) or are spinoffs (HYH).

So the real question is: What are the other 28.67% (Fallen Angel and Failed Criteria)?  It turns out they are about equally distributed between rarely (if ever) raising, raising in abnormal cycles missing the list’s cutoff, or relatively new payers without enough history to make the list.

The answer I was seeking remains elusive – or at least undetermined.  But my quest may not have been in vain!  The Diplomats and I have been searching for clues to identify regional banks that are logical candidates to be acquired.  There’s still plenty of research required, but of my last three mergers – two of three were in the Failed Criteria bucket.  The third wasn’t – only because I didn’t own it (I own the acquirer).   Otherwise it would have been all three – meaning the merger premium would have hit my account on all three (instead of two).  Obviously, more research is necessary, but perhaps a clue has been identified.

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2 thoughts on “Portfolio Disection

  1. It’s always a good thing to look at your portfolio and potentials too. There isn’t one answer, some people want different things from their DGI stocks. We would prefer some solid gainers, 1% growth isn’t enough..

    Tristan

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  2. You are absolutely correct. From DGI standards, my portfolio is a little weird since I’m on the downhill side of the snowball. Since my workhorses are still doing their job I figure ‘why not play a little’. 🙂

    Like

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