Well, lied when I said there would be no weekly post. I’ve found both time and an internet connection to accomplish the deed. Other than a flight delay caused by a faulty sensor reading (a result of morning moisture and a bad seal), the flight itself was uneventful. Without any scientific basis, only driving or walking through parts of the city, it appears the pandemic has impacted poorer areas harder than the wealthier in terms of business failures – I would suggest that that is due to capitalization levels and retained earnings followed by less competition. Interestingly, both the city and state have not mowed the grass on their right-of-ways. Whether a budgetary or manpower issue hasn’t been determined.
I did talk with a couple of restaurant owners and their sentiment is wary but generally upbeat, both just recently reopening. No issues with labor other than training some new hires, although higher labor and food costs are being passed through to their customers.
So more to observe and analyze, but my initial thought? In this slow growth microcosm of society, I’m not sure all the consequences of the ending of easy money and stimulus has had the time to be felt yet. Still a few more days to go …
M1 Answer
We’ve heard back from our clearing firm and gotten an answer as to why you received a Substitute Dividend Payment(SDP) instead of a qualified dividend. The in lieu of a dividend, SDP entries were made due to the SDP lottery. These are marginable securities that are subject to the Substitute Dividend Payment lottery process, which is based on account type and whether the securities are marginable or stock loan eligible. Since you signed a Margin agreement allowing for the hypothecation of shares, shares held in your taxable brokerage accounts will be subject to the SDP lottery.
While we are able to opt our clients out of securities lending, unfortunately, we are unable to opt you out of the SDP lottery process. So while your securities will not be lent out and the vast majority of your dividend payments will be qualified, you may see an SDP issued every so often.
Basically they are saying their clearing firm (Apex) conducts a lottery of all margin accounts when a dividend is due and the lucky winners get assigned a substitute payment rather than qualified dividend and the master agreement with Apex provides for this. And as we identified in April that M1 only provides margin accounts, an M1 customer can either suck it up or walk.
For me, I’ll continue the process of getting the holdings as possible to just over full shares (ex. 10.0101 or 1.0031) to minimize the tax hit on transfer. My goal is to leave M1 during Q1 2022.
Portfolio Activity
My sale of Valley National (VLY) executed this week on the news they were acquiring Bank Leumi Le Israel’s US operations (BLMIF). My sale decision was based on their stagnant dividend and this acquisition would appear to do little to change this – at least in the short term. I acquired VLY through their acquisition of Oritani which was I bought as part of my Mutual Holding Company (MHC) strategy. Holding period was 7.44 years with 38.4% gain (5.1% annualized) plus dividends.
An update on the timing of the CP/KSU merger: shareholder voting is expected in December with the voting trust completed in Q12022. Capital gains will be a 2022 issue.
That’s pretty much it for this weeks’ edition, next week will be end of month/quarter report. Have a good week!
Seeking Returns 