Dec 2018 Update and Year End Review

he fourth quarter swoon continued in earnest this month resulting in an annual loss for the markets.  While the final trading day closed higher (DJIA up 265, NASDAQ up 51 and the S&P up 21) it was nowhere near close enough to avoid the worst December since 1931.  Though surprised by the resiliency of the US dollar, last year’s intent to migrate further into foreign equities was largely preempted by tariff uncertainty. My other 2018 concern of rising federal deficits stifling the economy did not manifest itself as yet – though I remain skeptical of  administration claims that growth can outpace the deficit. For the month, the S&P index dropped by 9.18% while my portfolio dropped by ‘only’ 8.44%. For the year the S&P posted an unusual loss of 6.65% while my overall loss was 3.57%. In an otherwise ugly ending to the year, my primary goal of exceeding the S&P’s return was attained marking the 33rd year (of 38) that I’ve been able to make this claim.

Portfolio Updates:

• increased position in existing CASS holding (plus stock dividend)
• increased position in existing ADP holding
• increased position in existing KIM holding
• increased position in existing LARK holding (plus stock dividend)
• increased position in existing PJT holding
• increased position in existing WU holding
• increased position in existing XRX holding
• increased position in existing MMM holding
• increased position in existing AVNS holding
• increased position in existing BR holding
• increased position in existing CDK holding
• increased position in existing CNDT holding
• increased position in existing FAF holding
• increased position in existing FHN holding
• increased position in existing JHG holding
• increased position in existing KSU holding
• Reduced position in existing BOKF holding
• increased position in existing ETFs (VGK, EWA, EWW, CUT, JPMV)
• Added to CVLY (stock dividend)
• Added to CBSH (stock dividend)
• Initiated position in TFSL (MHC conversion)

Dividends:

• December delivered an decrease of 2.49% Y/Y with all of the decrease attributable to the OMI dividend cut and move of pay cycle to January (window dressing).
• December delivered a 17.68% decrease over last quarter (September) due to OMI and a good sized September special dividend
• Dividend increases averaged 15.38% with 77.58% of the portfolio delivering at least one increase (including 2 cuts (GE and SMTA)).  Note: GE’s and OMI’s announced cuts are counted as 2019.  As a point of reference, this is above 2017’s 10.95% average with 74.01% of portfolio companies  increasing.
• 2018 Dividends received were 23.92% greater than 2017 dividends and exceeded last years’ total on October 19th.  The decrease from 2017’s 25.94% growth rate is due to a larger base and fewer M&A plays.
• Portfolio churn returned to normal (excluding M&A) (below 1%).

Spinoffs:

GE‘s rail unit to spin then merge with WEB

GE to spin 80% of the health business (maybe)

NVS proposed spin of Alcon scheduled for shareholder approval Feb 2019

On Oct 4, MSG filed a confidential Form 10 to spin the sports business

Mergers:

XRX merger with Fujifilm cancelled (still being litigated)

GBNK to merge into IBTX (set for January 1)

GNBC to merge into VBTX (set for January 1)

SHPG to merge into TAK (set for January 8th)

BNCL to merge into WSFS

BHBK to merge into INDB

Splits and Stock Dividends

Although splits are agnostic, I consider them a positive with reverse splits a negative.  None of my companies had stock splits this year – perhaps due to the unsettled nature of the markets.  Two did perform reverse splits (SRC and NXNN).

Seven companies showered me with shares of stock ranging from 2.5% to 20%.  I do love stock dividends and this year the benefactors were: CBSH (5%), HWBK (4%), CASS (20%), LARK (5%), AROW (3%), BKSC (10%) and CVLY (5%).

Summary

All in all a solid year but I await the Y/Y comparisons (earnings due to the tax plan)  before giving the administration any of the credit they crave. My personal report card on their policies will be rendered as I prepare 2018 taxes.

One question was answered this past year on our approach towards taxes.  The option selected was to draw down the IRA and take a one year tax hit angling for a future 0-10% tax bracket (to wit, my rediscovered interest in bonds).  The reason was to fend off a lawsuit (successfully). We were assessed damages (costs to defend – 10’s of thousands of dollars) due to the judge deeming it a malicious action resulting in wage garnishment against the plaintiff.  The bad news is I’ll probably be long gone before the repayment is complete, leaving my estate to complete the collection process.  As the IRA has never been reported, here there is no impact to my results.

The one issue left pending was the OMI sale.  As there is no tax loss harvesting available, I decided to wait for the market to normalize first.  Now that I’m thinking about it, this may be awhile …

My guess is that the data I display will be fully updated by month end as I convert the spreadsheets to 2019 – so my apologies for some outdated data.

Hopefully your year wasn’t too brutal – just remember the paper losses are (for most of us) a reset to about fourteen months ago.  A step back, yes, but it’s times like these where time in the market is your ally.