As I wait for the last three dividends of 2017 to post to my account, my final accounting report will delayed into next week. Sure I could just accrue said dividends and release the report but where would the fun in that be? Especially since I can lay claim to being the first official victim of the new tax plan, aka the Tax Cuts and Jobs Act of 2017. As it’s not even effective yet, I guess this is the first – of probably many – unintended consequences to emanate from this bill. This week I’ll also cover my last minute 2017 moves and my first 2018 activity. But first …
On December 12th I celebrated the three year anniversary of this blog’s creation. Although still nothing fancy or glitzy (and probably never will be), I’ve settled into a weekly post routine that generally provides a monthly recap, occasional buy post, strategy brainstorm and/or general meanderings on topical subjects including taxes and or politics. The common thread tying all this together has been investing in general with an emphasis on dividends.
Over the years, I’ve seen blogs come and go, most recently Income Surfer. Some announce their closure and others just fade into the sunset. Of the 447 DGI blogs I encountered since I started, 257 remain active – perhaps less once I audit. That attrition rate (14.2% annually) is greater than I would have expected. The reasons, when known, range from losses in the market (generally high yield issues), lack of patience while the process takes hold (desire for instant gratification), realization of the time involved blogging and the inability to successfully monetize their efforts.
The other end of the spectrum includes the likes of Dividend Daze who embrace the opportunity for success without any illusions of grandeur. Happy Blogiversary by the way!
I would guess I reside somewhere in between. My start was literally therapy. Prescribed during rehab to assist in my recovery from a series of strokes. I visit – and read – a significant number of blogs weekly. I usually comment only when I feel my viewpoint is not redundant to other comments – and I have something worthwhile to add. This due to the effort required to type – what I could do before in 5 minutes now requires 20. You will not find stock analyses in my blog as I did lose most mathematical reasoning. The weirdness is, I can still do Algebra (ROI calculations for one). You will find strategy assessments albeit with a slightly jaundiced view.
A friend of mine calls a couple of times per month to run business ideas off of me (Devils Advocate scenarios). He claims that I can take a shine off an apple even better than I could before the strokes. Apparently there are some benefits – or perhaps I choose to see the positives in life (maybe both?).
Anyway my focus remains providing a map for my wife to follow when the time arises with a reduction in breadth and an emphasis on the central investing thesis. To those who have shared – and perhaps enjoyed – this journey I thank you for your support. To those I offended (unintentionally) I apologize and will attempt to be less offensive going forward.
As the season is upon us I wish you and yours a wonderful holiday and an even better 2018!
In a recent conversation with a friend of mine, the topic of cryptocurrency arose as he has started accepting Bitcoin in his business. Though more enamored over the possibilities of wealth through hoarding and/or trading, he began to look under the hood to figure out why I had a greater fondness for Blockchain over any cryptocurrency. His insight surprised me: “You’re like the sluice box salesman in the California Gold Rush.”
I choose to think of myself as a shortstop hitting singles rather than a home run hitter going for the fence, but his analogy was apt. I prefer to get a slice of many transactions as opposed to getting the big one. I play the percentages. He was able to visualize I place a greater value on the tools (mining), transport (exchanges) and utility (ancillary applications) rather than the commodity itself. Meaning, I’d rather sell the Levi’s than look for (and mine) the gold vein.
It appears the revisions to the tax plan being discussed will be slightly less draconian than previously announced resulting in a little lead time for portfolio adjustments. My guess (pure speculation) is the first half of 2018 will be relatively good but a little choppy. The last half I suspect we’ll be seeing a weaker dollar, a little uptick in inflation and minimal tangible results from the administration’s policies. Anyway, an emphasis on appreciation over dividends in a rising tax environment may result in tax deferral possibilities. This belief is the basis for next years’ strategy as subsequently outlined.
- Continuation of the primary portfolio strategy in regards to moving closer to the defined target allocations. One example of this was my first December purchase, KMB which is an Anchor holding of mine.
- With the tax bill still in an uncertain status, load the maximum allowable contribution to the IRA. These funds have been allocated and will be moved by month end. A small Canadian holding in my taxable account has been identified as my new IRA purchase which will probably be made in January (pre ex-div). A by-product of this will be a temporary overweight status in this issue. Since I don’t like redundant holdings across accounts, my smaller taxable holding will be sold post ex-div. This should shield more income from taxation (under current tax).
- Implemented (December 14th) my side strategy for 2018 titled Sluice Box which is a reference to the Gold Rush days. This represents about 1% of the portfolio and was created (and bought) in my Motif account (shameless plug). The emphasis is on Bitcoin, Blockchain, Growth and my first Swiss stocks with a couple of beaten down issues thrown in.
My 2018 strategy research began in earnest when I encountered Fortune magazines’ November 1st article, In Search Of ‘Vital’ Companies. Of the fifty companies listed, my selection process drilled into the dividend payers – albeit at low yields. Then on November 7th, Investor Place published The 10 Best Growth Stocks You Can Buy Now. I chose to ignore The Dividend Guy’s August 23rd launch of Dividend Growth Rocks as I tend to shy away from paid sites particularly when operated by one person with multiple pseudonyms. Besides, only one of his selections (Nordson – NDSN) was either not owned already or replicated in the other analyses.
Once the data was combined, I removed issues already owned and ones I had no inclination to buy. Basically I had to be convinced of the opportunity and that the price (subjective argument) remained reasonable.
The following table presents my 2018 picks and the primary reason. All but one are dividend payers and I front-loaded my purchase to 2017 to ensure receipt of CME’s special dividend (ex-div Dec 28).
|SLUICE BOX (Motif: 2018 Growth)|
|NVIDIA Corporation (1,2)||NVDA||7.30%||0.32%||Bitcoin chipset|
|CME Group Inc||CME||7.30%||1.76%||Bitcoin Futures|
|Cboe Global Markets Inc||CBOE||6.70%||0.86%||Bitcoin Futures|
|Intercontinental Ex. (1)||ICE||6.80%||1.14%||Coinbase investor|
|Microsoft Corp. (2)||MSFT||6.80%||1.98%||Blockchain (Azure, Ethereum)|
|JPMorgan Chase & Co. (2)||JPM||6.80%||2.68%||Blockchain (hyper ledger)|
|Veritex Holdings Inc||VBTX||5.90%||0.00%||emerging growth co. (JOBS Act)|
|Ottawa Bancorp, Inc.||OTTW||6.10%||1.10%||2-step conversion (growth)|
|Newell Brands Inc||NWL||6.50%||3.02%||Brands|
|Energizer Holdings Inc||ENR||6.50%||2.44%||Brands|
|Cognizant Technology (1)||CTSH||6.50%||0.84%||Future 50|
|Intuit Inc. (1)||INTU||6.70%||1.00%||Future 50|
|Novartis AG (ADR)||NVS||6.70%||3.21%||possible Alcon spin|
|ABB Ltd (ADR)||ABB||6.70%||2.91%||purchased a GE segment|
- Future 50 (also currently own: MA, V)
- Investor Place 10 (also currently own: V, SQ)
- Other Bitcoin/Blockchain indirect investments include: GS, IBM, WU, AMTD
At the very least it will be interesting to observe the Crypto phenomenon in more of a supporting role. I also need to acknowledge Dividend Diplomats whose research on NWL was enlightening.
As many of you know, Two Investing has published – and periodically updates – a Google spreadsheet for portfolio tracking. I started using the original one published by Investment Moats several years ago and later migrated to the Two Investing version. A new version was recently released due to Google/Yahoo API issues – basically not all data was readily available. So I spent the last three weeks manually converting my data. I chose a manual process so I could cleanse data that was no longer relevant primarily due to mergers.
As advertised, I found the new version to be more robust and faster. But there are a few issues to be aware of. I did comment on most of these on their site November 30th but figured I’d include my additional findings to provide a heads up to people reading my ramblings.
1. Perhaps you caught it by now but the version I downloaded was missing Telecom as a sector.
This is readily corrected by adding it via the Lists tab. You also have to update the Summary tab to include it as well. Update: S&P announced on November 15th the Telecommunications sector will be replaced by a newly formed Communications Services sector on September 28, 2018 with preliminary components announced in January and finalized by August 1st.
2. An error is received (Reference Data) when the company name has an apostrophe (Casey’s/CASY). (I did a manual override).
The override I referred to is ‘IF($D146=””,””,”Caseys General Stores Inc”) which is the name (less apostrophe). Google’s name function includes apostrophes.
3. It appears some ADR issues have data and some don’t. I haven’t figured out the why (maybe the sponsor?) ex. AKO.B does, CMSQY doesn’t.
4. OTC pink sheet data (US pricing/dividends on Canadian issues) not available. ex. HRNNF (corresponds to H.TO)
5. OTCQB market data is lacking. I didn’t check the greys as I own none.
I still haven’t figured it out. Cross (dual) listings work and some ADRs as well. My work around (for my 7 outliers) is to enter ‘=GOOGLEFINANCE(A100,“price”) in column J on the Reference Data tab (where A100 corresponds to the ticker symbol field of yours) and manually enter the annual dividend in column K. This sets the override function so the DivPayoutCalc tab and Portfolio tab both update properly.
6) ReferenceData generates ‘error getting data’ (ExDate, PayDate) when the company does not pay a dividend.
Not a functional problem only cleanliness of presentation.
7) (New): Optional use column P – DivCalendar – doesn’t lock to the year as do the other columns.
8) (New – 17 Dec 2017): Column H – ReferenceData – IEX data for ex-div does not reflect current announcements. Ex: KMB shows the prior 7 Sep 2017 ex rather than the current 7 Dec 2017.
Bottom line I’m pleased with the improvements and improved performance. It’s been awhile since I’ve had all the fields working and look forward to approaching year end with a minimum of manual adjustments!
The upward trend continued this month fueled by the progress on the tax plan. If finalized, my guess is that the first half of 2018 will be good for corporations (i.e., dividends) with reality setting in later in the year that the average consumer received a raw deal and has less disposable income than advertised. That is unless trickle down really works. The wild card being the government (or lack thereof) as a second felony plea was accepted with individuals tied to the campaign or administration. The S&P index increased by 2.81% while my portfolio increased by 3.22% largely fueled by Financials. For the year I’m still ahead of the index by 3.12%.
Headlines impacting my portfolio (bold are owned):
- 11/1 – OMI buys HYH‘s Surgical and Infection Prevention (S&IP) business
- 11/2 – SBUX sells Tazo line to UL
- 11/6 – AVGO bids to acquire QCOM at $60 cash & $10 stock per share
- 11/6 – BCE acquiring ARFCF
- 11/9 – AAPL acquires InVisage Technologies
- 11/13 – GE cuts dividend by 50%
- 11/13 – AMT buys Idea/VOD Cellular towers in India
- 11/13 – VER selling Cole Capital to CIM Group
- 11/14 – Baupost Group initiates 3,565,361 sh position (abt 6.25%) in AMC
- 11/14 – MSG to sell WNBA team (Liberty)
- 11/15 – SQ launches ability to buy and sell Bitcoin
- 11/16 – PYPL sells $5.8B loan package to SYF
- 11/16 – IRM buys China assets from SFG.CO
- 11/20 – MSG acquires Obscura Digital
- 11/27 – PNC acquires The Trout Group, LLC
- 11/28 – BLK to acquire C‘s Mexican asset management business
- increased position in existing DRE holding
- November delivered an increase of 18.3% Y/Y with the about 60% of the increase being attributable dividend increases and the remainder purchases.
- November delivered a 1.0% decrease over last quarter (August) due to two payouts being moved to December.
- Declared dividend increases averaged 11.9% with 71.75% of the portfolio delivering at least one increase (including 2 cuts (XRX and YUM) and and 1 suspension (TIS)). Note: GE’s announced cut is counted as 2018.
- YTD dividends received were 109.86% of total 2016 dividends which exceeded last years’ total on October 25th.
Spirit Realty Capital (SRC) – Nov 21, Form 10 was filed confidentially with spin completion targeted for 1H 2018.
AGU/POT (Nutrien) remains pending with the US being the only approval pending.
My 2018 strategy is forming with the focus turning towards Consumer Staples and Utilities (existing holdings). I expect to incorporate a side strategy on lower yielding but faster growing companies which I’ll publish in the next week or two. Of course I will continue to also pursue opportunities as they arise.
And how was your month?
This week I ran across a post on Farnam Street titled, The Code of Hammurabi: The Best Rule To Manage Risk. While an interesting piece, there were a couple of areas that I had an issue with, notably bonus payments. If one navigates successfully through rough waters a reward may be warranted. Conversely, failure should not be rewarded and be, perhaps, punished. In my mind, the degree (lavishness) of the reward has the ability to inflict more damage than the remuneration itself. Risk taken should not be without reward so long as potential downsides are properly mitigated (margin of safety). Excessive CEO pay is an entirely different matter.
The tangent my mind followed was if there was a correlation between Hammurabi’s Code and Dividend Growth Investing. Following I’ll perform a deeper dive into the tenets noted by the author:
Three important concepts are implicit in Hammurabi’s Code: reciprocity, accountability, and incentives.
the practice of exchanging things with others for mutual benefit
As DGI bloggers we freely share our buys, sells, portfolios, reasoning and rationale. We solicit comments and questions. All of which is performed with no expectations other than others knowledge and experience will in turn be of benefit to us.
willingness to accept responsibility or to account for one’s actions
There have been times that our choices or decisions resulted in a loss or failure to achieve the desired outcome. Sharing within the community of a loss incurred or a dividend cut is a form of accountability. Sharing our thoughts and concerns – particularly in a time of failure – is not only cathartic but an exercise in self-improvement.
a thing that motivates or encourages one to do something
The encouragement provided to each other is by far the largest incentive. Considering DGI is a journey that is a lifetime in the making, having our spirits lifted or a nudge along the path is a job undertaken by everyone in the community.
To summarize, you could say we are adherents to the Code of Hammurabi. Perhaps not to the degree or brutality as the original, but to the parts that depict a sense of community and a helping hand to our neighbors.
Much has transpired over the past week in regards to tax reform. With the Alabama Senatorial special election now being too close to call, Congress is kicking into high gear to try to get it passed while the Republicans hold a slim majority in the Senate. This past week saw the House passing their version with no debate although appearances were that many were unaware of the full impact. Case in point is the CNBC interview with Diane Black (R-TN) where she had the wrong definition of carried interest (she thought it was applicable to car dealers not hedge funds).
If it passes the Senate in something close to its current form, the result will be a reduction in the number of people qualifying for tax deduction itemization from the current 29% to an estimated 6%. This is the “gotcha” for many filers including myself. The proposed increase in the standard deduction is large enough to wipe out itemization yet too small to prevent an overall tax increase. The only viable course of action (for me) is to front load deductions into the current tax year and hope it is not a retroactive change. I’ve eliminated one alternative from consideration (establishing a corporation) as it would only be a wash in my current bracket and would choose accelerate my 2018 income up to the 25% tax level while reducing subsequent years to fall below the 0% rate.
This plan also has some potential ‘unintended consequences’ which may impact both Trump’s agenda as well as 2018 (and beyond) investment strategies. Last week I identified home builders as a potential casualty, this week I’ll present a few more that I’m looking at .
This will impact retirees first and wage earners later. Essentially this modifies cost of living increases to a lesser increase than regular CPI. Social Security and Veterans benefits will have lower increases than before reducing disposable income. Wage earners will see tax brackets expand more slowly potentially (eventually) putting them in a higher bracket faster than the current structure. End result is (my opinion) a positive for Staples and Utilities with Discretionary taking it on the chin.
The plan would eliminate – or curtail – issuance of private activity bonds (hospitals, nonprofit colleges and universities, and airports) or Municipal Bonds for stadiums. These types of bonds are often used for rehabilitating cities – think infrastructure. If one tool is eliminated what is the chance of Trump’s Public/Private partnerships getting off the ground? I see this as a negative for some Industrials.
In the midst of GE’s dividend cut and restructuring I had to hit the pause button. Their game plan going forward is to focus on three segments; Aviation, Healthcare and Power. All fine and well – at least it’s a plan. The remaining business lines will be sold or spun off – which is why I remain interested (although prior spins haven’t been shareholder friendly). Now the tax plan injects an additional wildcard. The Power division is the most troubled. The Renewable Energy segment may be a spin candidate especially as the tax plan targets the Wind Energy production tax credit. Retroactively. Talk about throwing a monkey wrench into the thought process.
With all the unknowns, I believe my 2018 strategy will be to prioritize growth over yield. The rationale being to delay taxable events as much as possible. Next year is certainly on tap to be full of uncertainty and surprises.
Are you considering alterations to your strategy?