My 3Rs – Revamp

Last post in this series I highlighted my views from the rear view mirror.  Going into 2019 will see more changes than normal.  No I’m not selling any positions but changing the emphasis (allocation) on certain issues.  The game plan is for reinvested dividends and fresh money to gradually swing the portfolio into balance with the new targets.

The biggest change is with the banks.  A few years after the financial crisis I went overweight looking for Dodd-Frank to kick in, M&A activity to accelerate, capital return to resume and interest rates to rise.  As my expectations have been met – and exceeded in many cases – the easy pickings have been had.  This isn’t to intimate that there’s nothing left – there is.  I just foresee a slowdown in growth – meaning we’re unlikely to see dividend hikes at the magnitude experienced over the past few years.

The markets have been a little schizophrenic of late which I expect to continue well into 2019.  Nudged by the tax cuts, dampened by trade wars, real wages being outpaced by inflation coupled by rising interest rates and increasing deficits is not generally a recipe for success.  Though the trickle down theorists say otherwise I’m not a believer.  Essentially I feel it’s time to begin the return to the basics in the 2/3rds of my portfolio that is central to my monthly income.  Below is my structure for 2019 which I’ve started shifting towards with the changes highlighted.

First the drops – all of which are banks.  Lakeland Bancorp (LBAI) and Flushing Financial (FFIC) could be the babies thrown out with the bathwater.  Southside Bancshares (SBSI) eliminated their annual stock dividend.  Bank OZK (OZK) has had some curious moves of late with a costly name change and repositioning from federal to state oversight.  These, along with their increasing exposure to high value CRE gives me pause.  First Midwest Bancorp‘s (FMBI) Ag exposure in uncertain tariff times is my issue with them – though offset by their continued expansion into greater Chicago.

The banks retained are First of Long Island (FLIC) (downgraded from Core to Satellite), Webster Financial (WBS) by virtue of their ownership of HSA bank, Legacy Texas Financial (LTXB) as a M&A candidate (see question from Gary Tenner) , Toronto Dominion (TD) and Wesbanco (WSBC) as the canary in the coal mine.  I suspect WSBC’s position in a red coal producing state hit hard by the opioid crisis with a Democratic senator will be a bell weather of the success or failure of Trumpian policies.

Sysco (SYY) and Comcast (CMCSA) only swapped places due to valuation while ADP (ADP)moved from the C to A schedule.

New to my Primary list is Duke Realty (DRE) as they shift focus to being an industrial REIT, Visa (V), First American Financial (FAF) as a play on both sides of housing (boom/bust/purchase/refi/HELOC) as Satellites and Kimco (KIM) on valuation and Church & Dwight (CHD) as Core holdings.

I don’t expect the percentage held to align to the target percentage in the near term, I suspect it will be closer to YE 2019 before I can lay claim to being reasonably close – particularly as I intend to retain the current shares that are currently owned placing them into my speculative group.

In a nutshell, this is my thought process at this moment.  Part three will lay bare some moves in the (cautiously) speculative segment of the portfolio.  As always, thoughts and jeers are welcome!

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