Earnings Season and more …

Earnings season is in full force with its peak next week.  I’m always a little amused by the commentary as the bulk is based against analyst estimates.  My preference is to view the results against prior actuals. Estimates can be fudged or modified more easily than actuals.  One reason Factset was a recent addition to my portfolio was for their analytics in this regard. Their recent report noted that the Y/Y revenue growth is about 2.8% which if held would, “mark the lowest revenue growth rate for the index since Q3 2016 (2.7%)”.  Which would indicate many companies are relying on cost cutting – and perhaps efficiencies – to boost their profits – which without corresponding capex may not be sustainable. This being one of many indicators I keep my eye on. I do agree with Stalflare’s view, “I am not sure about (a) recession to be honest … but I am pretty sure that the downturn has already started.”

The Blog Directory is still undergoing its review for dead or inactive blogs.  As I will be rotating some of my prime blogs – ones I consider my ‘regular reads’, I figured a grocery list of needs, wants and desires was in order, so following are my criteria.

  • Regular (at least monthly) posts
  • Content in addition to status reports
  • Minimal/Irregular guest posts (I want to read the author’s views, not an interlopers’)
  • Minimal advertising (I know the rage is about ‘monetizing blogs’ but the sheer volume of some detracts and is annoying).
  • Thought provoking (I don’t have to agree with the message, only that it spurs analysis)
  • Has posts that invite comments and interaction along with thoughtful discourse

Just some of the things I look for when elevating to (or demoting from) the dozen highlighted on my Blogroll (not to be confused with the couple hundred in the directory).  Once the review is complete, I’ll do a post on my decisions. Blog posts that engaged me this week include:

My Journey to MillionsReviewing my Dividend Investment Account for Sell Opportunities

Pollies DividendWhat is my Yield on Cost (YOC)? – 2019

I’m still contemplating the first, while my comment on the second awaits moderation.

For the first time in awhile, I was a little flummoxed on how to report a payment.  My broker obviously was as well as there was a two day delay on the credit to the account.  Spirit MTA REIT (SMTA) is undergoing a voluntary liquidation in two (perhaps more) phases. The regular quarterly dividend payment wound up being an $8.00 per share initial liquidation return.  My broker ultimately classified it as an ‘Account Credit’. Now I don’t have that level of sophistication in the tools I use, so this payment went into the dividend bucket. The shares will be cancelled, delisted and transferred to a liquidating trust.  I will classify the further payment(s) as sale proceeds. My dividend calendar will retain SMTA solely as a memory jogger. I am now slightly positive on this investment (gamble?) with the profits coming with the subsequent payments.

With my granddaughter’s portfolio replication in full swing (her final stock (PG) was sold post ex-div last week), I’ve recreated about two thirds within one of my brokers.  Although feeling a little like a market timer in this exercise (which I find a little stressful), it will illustrate one of the issues I have with other DGI reports – namely isolating pure portfolio performance versus additional capital.  For example, Stockles says, “Naturally, before the compounding effect has really done its thing, most of the increase is due to increased portfolio value (i.o. additions to portfolio in terms of investments).”  In my view (which could be too literal) his claim of a year to year return of 19.53% could be distorted by cash additions.  In my case, I’m purchasing thousands of dollars of new stock holdings from cash that was previously reported on my monthly reports.  So, should accumulated, non-reinvested dividends or previously reported cash received in M&A activity be treated differently than “new cash” is the quandary I’m dealing with.  Perhaps just footnote the daylights out of it …

So goes my thought processes for the week. Any ideas on the reporting?

Just a Few Dribs and Drabs

To review this week’s market action is to basically yawn for a change.  Earnings season began but was tempered to a degree by economic news that questioned the robustness of the US consumer.  While the economy is still growing, the rate is slowing. My view remains that without a ‘real’ deal – skinny or otherwise – on the table between the US and China, both countries will continue to hobble along.

Meanwhile I did make one purchase this week that was a little unanticipated, but not totally unexpected.  I topped up my Legacy Texas (LTXB) holdings in preparation for the completion of the merger into Prosperity Bank (PB) which has received regulatory approval.  Currently I hold both sides of this merger, LTXB in a taxable account and PB in my IRA. Essentially I wanted to avoid assignment of an odd fractional share that I could do nothing with as the ratio is 0.875:1 (plus $6.28 cash). Assuming shareholder approval October 29th, the expectation is for the deal to close November 1st.  My current thinking is the new PB shares (and cash component) will be assigned to the taxable account. Subsequently, I intend to sell the old PB in my IRA replacing it with TD (to take advantage of the tax treaty).  After the dust settles, I will sell the TD in my taxable account. End result being more shares (slightly) of both PB and TD, no shares of LTXB and some excess cash.

I did hit the halfway point on my endeavor to replicate the grandkid’s trust (now liquidated, save one stock).  After I complete the transactions I’ll post regarding the rhyme and reason, but for now let’s say it’s to preserve all options regarding financial assistance as she begins the college application process. 

The strategy I’ve employed is to gauge the futures market for weakness prior to entering an order for market open as I decided to use M1 finance for the bulk of this replication.  For the most part, this has been a viable approach except of late there have been some wild swings going into the open. I’m unsure as to the why, but perhaps someone has identified the secret sauce regarding presidential tweets?

The effort remains ongoing regarding the directory update – primarily removing dormant entries.  It turns out I wind up spending more time than usual as my attention gets diverted by an interesting presentation or difference of opinion or a concept worthy of further review.  Examples of some of these include:

  • Dividends Diversify – in his review of the book Dividends Still Don’t Lie, the comment, “I did some searching on the internet for free services. But didn’t come up with anything that looked useful … Dividends Still Don’t Lie goes through how the calculations are done.  So it is certainly possible for a do it yourself investor to develop the calculations on their own.” garnered my attention.  Now the strategy discussed may be an anathema to a Buy and Hold type (my concern would be tax implications), the “tool” became the curiosity.  The best I could come up with was the Charles Schwab screener that could only analyze three of the book’s eleven metrics yielding fifteen possibilities for further manual research.
  • Finance Journey – the comments, “As a dividend investor, my full focus is on income than capital gain. Thus, capital gains or losses in my investments do not make any sense to me at least for now.” and “I do not convert dividends received from U.S stocks to Canadian dollar, and I use a 1 to 1 currency rate approach to keep the math simple and avoid fluctuations in my dividend income reports due to changes in the exchange rate.” were the culprits.  I trust the “full focus” does not exclude possible warning signals. For instance, many dividend cuts (income) are preceded by a falling stock price (capital gain (loss)). Likewise, the use of a 1:1 exchange ratio for simplicity sake risks masking the true portfolio performance. Personally, I (like ETFs) translate income from my thirteen foreign holdings to home currency prior to publishing results. Besides, if the full focus is income why distort currency exchange (which is a direct income factor)?
  • Finance Pondering is a relatively new blog from the UK that is in the process of ramping up in a thoughtful manner.  The insightful questions raised in this rollout carry the promise of one day being one of the standouts. Yet there is already one nagging question that I hope will be answered in the future – “Why Trainline?”.  To enlighten my audience, Trainline is a ticket booking company that charges a premium in exchange for convenience in what is basically a mobile app. My issues are, 1) it was a 2019 IPO (albeit one of the better ones), 2) KKR was involved (can you say monetize and exit strategy), 3) I question the nature of Brits to embrace premium services given the uncertainty of Brexit and recent demise of Thomas Cook.  

This weeks’ final thought is a potential black swan.  My concern is the expanding pockets of unrest appearing from Hong Kong to Chile to Spain.  Ignoring Turkey/Syria for now, just something I’m keeping my eyes on …

Some Overdue Cleaning

This week, I began the annual review of my blogroll and noticed something perplexing.  Some Australian sites have gone dark. Frankie’s is offline and Australian Dividend Investor’s final post cryptically reads:, “As the old saying goes, all good things are eventually brought to end by the firms risk and compliance division.”  Just scratching my head a little and wondering if the hammer was dropped by the authorities down under as I know they can be a little more restrictive there …


Meanwhile, I’ll look to shake up the Top Sites a little to at least replace the broken links.
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As part of this review, I ran across a great analysis by Mr Free at 33 illustrating the differences between total return and appreciation through capital gains in one case.  The one hole in the analysis (in my opinion) was the potential role of tax strategies – which was promptly brushed aside by Jason. Curious as to why, I found the answer in another comment thread where he states, “Writing about bureaucracy and stuff like that (including taxes) isn’t very interesting for me, so I just don’t.”.  So yes the current tax law is structured advantageously to his benefit – however if this changes – or he grows his portfolio enough to exceed current thresholds – tax strategies could play a role in improving overall performance.
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A second anomaly in his work becomes evident when his statement, “The stock that can produce the most possible dividend income on the smallest possible investment is, for me, the best stock of all.appears in his post.  In his case this is certainly a plausible theory.  Yet in a prior post, he defines his top holdings in terms of portfolio value rather than dividend income.  It could be claimed this is a minor point, however allow me to illustrate some differences based on the top holdings in my portfolio.

Obviously I have a mix of the AT&T and Visa scenarios as well.  The point being, 70% of my top ten are the same on each side of the ledger, it’s the 30% that is interesting – particularly Disney.  Legacy Texas could be an aberration due to a pending merger (scheduled to complete November 1st (pending shareholder approval)).

And yes, I do have a slight imbalance that I’ve been trying to correct for awhile now.

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Finally, the data in the Dividend CAGR column was extracted from a cool tool that Dividend Dozer created.  It’s one of those things that kind of grows on you particularly when you can identify additional ways to use it.  I would encourage you to look at his Dashboard!

I guess that’s all musings I have for this week, so onward and upward as we see how the market digests the landmark – kinda sorta – trade deal in three phases …

September 2019 Update

The market continued with its’ on-going roller coaster, triggered primarily by external factors in the political arena – basically trade and impeachment. Despite the turmoil, the S&P gained 2.46% and my portfolio rose 4.15%. For the year, I’m outperforming the benchmark by 4.96%.

Like DivHut, I try to make at least one buy per month although these purchases have become smaller as my sentiment has grown increasingly cautious. Therefore, my cash position via non-reinvested dividends (not reported) has grown. The lack of Y/Y dividend growth for September is a testament against hoarding cash – particularly when hit with dividend cuts earlier in the year. This month the grandkid was forced to liquidate her portfolio or face losing 25% of her college assistance (grants/scholarships, etc.). Reminder to self: Future topic possibility being the dark ugly underbelly of custodial accounts (529s are even worse …) Anyway, I decided to deploy part of my accumulated cash to build a replica of her portfolio that I will hold. Bottom line, just when I think I’m shrinking the number of companies owned I get thrown a curveball.

PORTFOLIO UPDATES

  • increased my JNJ position
  • increased my CL position
  • increased my CHD position
  • added GPN (lost TSS via merger)
  • increased my DIS position

DIVIDENDS

My primary focus resides on dividends with the goal being a rising flow on an annual basis.

  • September delivered a decrease of 3.4% Y/Y. This was my first decrease since December 2018 and is primarily a result of not staying ahead of the first quarter dividend cuts (e.g., cash position)
  • Dividend increases averaged 10.34% with 61.67% of the portfolio delivering at least one increase (including 4 cuts). This is off last years’ pace and I believe a new personal record for dividend cuts in a single year since about 1980.
  • 2019 Dividends received were 82.89% of 2018 total dividends putting me on target to exceed last year’s total in late October or early November. The YTD run rate is 108.08% of 2018, slightly under my 110.0% goal – but still recoverable – especially with the portfolio replication decision.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

SPINOFFs

On Oct 4, 2018 MSG filed a confidential Form 10 to spin the sports business which remains in progress.

MERGERS

XRX merger with Fujifilm cancelled (still being litigated). The expected settlement was disallowed by the judge September 13th.

PB to acquire LTXB for 0.528 shares and $6.28 cash for each LTXB share. I plan voted in favor of the transaction (on both sides), pocket the cash and sell the new shares – retaining the old PB shares post-merger. I will not add to my PB stake.

VLY to acquire ORIT for 1.6 sh VLY to 1 ORIT. This merger will result in a slight dividend cut November forward as the rate will be normalized to VLY’s current rate. In my view, the other positives outweigh this negative.

PBCT to aquire UBNK for .875 sh PBCT to 1 UBNK. I plan to hold this one as I wouldn’t be surprised if PBCT gets taken out at some point.

Spirit MTA REIT (SMTA) voted on Sept. 4th to approve the sale of most assets to HPT for cash. A second vote was held to liquidate the REIT. Awaiting final settlement payouts and still expecting to be a profitable outcome for one of my most speculative positions.

The three banks continue to validate my strategy of bank consolidations from a few years ago. The only flaw (so far) was the holding period required – but dividends were received while waiting.

SUMMARY

Overall, no complaints. It appears the pending mergers/liquidation might provide enough of a premium to improve my performance over the index, but I don’t want to get too far ahead of myself yet. I still see a little consolidation in my holdings through the last half of the year and am still migrating to a slightly risk off stance, offset slightly by companies with compelling stories. My cash position will hover close to zero while replicating the kids’ portfolio but expect the dividend growth to accelerate into the first half of 2020 with this strategy.

Here’s hoping your month was successful!