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 …

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Weekly Musing (Sep2019)

For the umteenth time during this presidential reign, I have to say, “What a week!”.  What surprised me was the markets took the probable presidential impeachment in stride, only faltering when Trump decided to fuel trade tensions with China (again) – and this being just prior to the next round of talks.  The topic this time being capital restrictions – neither of which would likely be very successful. For instance, rescinding the waiver allowing Alibaba (BABA) or Tencent (TCEHY) to trade on US exchanges would not change their ways but force them to move their listings to London or Hong Kong.  Noble but not realistic.  Then there’s the issue of the impact on Hong Kong listings … My potential impacts include Yum China (YUMC) and Swire Pacific (SWRAY) which I’ll have to investigate further if this idea gains traction.

I am not alone!  BAML decided to upgrade CHD to Buy citing “strength in their largest business (laundry) and seeing the company’s brand-building efforts paying dividends.”  The one quibble I have with this assessment is the attribution of recent weakness to “value rotation” rather than placing the blame squarely on a short seller (Spruce Point).  Shares were up for the week but still down 5.5% from their September 5th close. This puts last week’s buy squarely in the green. Gotta love it when you are on your game.

Last week’s lament was regarding the lack of novel concepts emanating from the Delivering Alpha conference.  Fast forward a week and one appeared out of nowhere – well actually on the CNBC set. David Zaslav, Discovery’s (DISCA) CEO was interviewed on the launch of a new concept dubbed the Peloton model, aka,  The Food Network Kitchen. Like Peloton (PTON), this offering provides multi-level customer engagement; Subscription, Interactive and Transactional. This type of engagement – if successfully executed – has the potential to attract, retain and increase sales – all while the customer is eagerly forking over their cash.  I chose not to participate in PTON as the dual class and pricing was a turnoff. DISCA pays no dividend so I’m not invested there either. But the concept, if not the companies, is intriguing. 

Thumbing through other news, I ran across an interview with Robert Herjavec regarding his view on interest rates in which he opines, “If I can borrow at 2% or 3% and grow by 10% or 20%, I’m going to take that all day long.”  Well, yes, I would too – and then Eureka!  (yes, I can be dense at times), a rationale behind Trump’s persistent jawboning of the Fed.  I’ve never believed the President’s motives were pure, as people on fixed incomes are disproportionately impacted by low rates.  If a successful businessman such as Herjavec can leverage off of low rates, a leveraged real estate guy – such as the President – should easily profit (or reduce losses) via refinance.  Particularly when other ways to increase business are being scrutinized and licensing deals are drying up.

There are my thoughts for this week.  With both month and quarter end arriving Monday, I’ll be heads down.  I don’t know how it happened but fully 15% of my dividends arrive on two days … the last day of the quarter and the first day of the subsequent quarter.  Next week will be the Monthly/Quarterly recap.

Have a great week!

Old Fashioned Horse Race

the horses rounded the bend and started down the home stretch. “Look! Look! See his stride now!”

Black Mack by Neil Dawson in The Canadian Magazine, Vol. 29, Oct. 1907

In a followup to my last post, I decided to increase my position in Church & Dwight (CHD) this week which I posited was a possibility with the current weakness.  I’m assuming that a floor has been reached following Spruce Point’s short campaign and some insider selling reported. Quarterly filings also revealed some increases in long positions by entities much larger than Spruce Point.  With the price decline now at roughly 10%, I thought it prudent to begin accumulating some more. Its’ position in my portfolio was about 0.2% – and now about 0.22%, there’s still plenty of room to add until my 1% limit is met. This is one I’ll be keeping an eye on prior to there next ex-dividend date.  

The Dow Jones Industrial Average rose for eight straight days, I believe largely on the heels of positive-sounding trade news – particularly on President Trump’s acknowledgement that he would at least consider an interim trade deal.  This may be short-lived if his base considers this a retreat from the all-or-nothing position that was held stating the tariffs will force China to conform with established standards. Perhaps the message to the base would be, “See how easy trade wars are to win when the goal posts are moved.

With the yield curve steepening, some pressure was off of financials contributing to my portfolio attaining a new record high as well, eclipsing the prior high set in July.  Let’s see if this can continue through month-end as there are some issues like the Fed meeting and the attack on Saudi oil to consider.

This is the time of year that I begin the fine tuning of the portfolio strategy as there are limited possibilities remaining to impact dividend results as the final quarter of the year looms on the horizon.  Considering that ten of my companies have no more ammunition available until next year, the pickings will become increasingly slim until we turn our focus to the new year. Plus there’s a delicate balancing act to perform with the cash allocation as October has historically been a volatile month.  Keeping a little dry powder in place could also be a viable strategy. Just some random ideas that are framing my thought process a little.

So to come full circle, we’re rounding the bend and coming down the home stretch. Being a nose ahead of the index is something I’m not accustomed to as generally I’m several lengths ahead. Which is why my final assessment this year (about two weeks away) will be crucial. Here’s hoping your week is fruitful!

More of the Same …

Basically I took last week off.  While I pride myself in posting weekly, there was little new to reflect on in the business world.  Some earnings were good and when they weren’t the trade war was the culprit. The Fed cut rates but the White House wanted more, ostensibly because Europe’s were lower relatively.  So now Trump’s self-proclaimed “greatest economy in the history of our country” wants to compete with others in a race to the bottom? There are plenty of signals indicating troubles ahead, yet for every one I find problematic another exists with a contrarian view.  Then when all else fails to divert attention away from the clouds forming on the economic horizon, the President amps up his racist banter to ensure the focus is on antics over reality.

So I took a week off from posting to revitalize.  To clear my head of the endless back and forth. To dig a little deeper into my research on some of the oddities that appear regardless of the political view that one ascribes to.  One example being the workplace raids in Mississippi rounding up undocumented individuals. Once I got past the fact that all these plants were not publicly traded my business interest waned as there is minimal direct impact to investors such as ourselves.  The question that continues to be asked by left of center media is, “Which employers will be charged?”. The answer is probably NONE. The reasons are twofold, 1) HR functions (in at least 6 of the seven) were outsourced to a third party, and 2) the Government’s E-Verify system was used.  Plausible deniability is the buzzword of the day unless documented attempts to circumvent the process occurred. The real question should be, “What is Homeland Security doing to improve the verification system?”

The one item that left me scratching my head was if the impact of the underlying consequences was identified – or even considered.  With low unemployment, these are the types of jobs that are typically shunned by most legal workers. Higher wages may make the difference which would result in higher consumer prices.  The second consideration is according to the Mississippi Poultry Association, the feed used for the birds is a mix of corn and soybean. The state may be licking their wounds as well since their Development Authority contributed $1.5 million in federal community development money to improve a building that Pearl River Foods leases from Leake County. The county also provided $170,000 for infrastructure improvements.  As I see it, a campaign promise kept may impact the CPI, reduce soybean demand even further (following the loss of the Chinese market) and embarrass a Trump-allied governor by highlighting poor oversight of “corporate welfare”. But my dividend stream should be unimpeded.

However, as the dog days of summer are upon us, this is the time I like to reflect on the portfolio progress thus far and identify any adjustments necessary as we move towards year end.  This continues to be difficult as during this presidency the only certainty has been volatility usually caused by tweet or inconsistent positions. During times of uncertainty, my fallback view traditionally has been transportation.  But for every analysis like Wolf Street reflecting on the production backlog decreasing, there are other – not so dire measures – such as port utilization. I will say one of holdings (Volvo) has reflected some weakness in North America. Perhaps some of the answer lies in tariff front running and taxes or perhaps this time has no historical parallel. So I continue to be cautious while playing some of the dips – all the while remaining on the strategy that has not let me down over the years.

I may decide to take another week off unless the market gets even crazier!

Randomness For July

Typically I gain inspiration from the news or other bloggers – or a combination thereof. When a thought – or concept – materializes my research kicks in to validate (or invalidate) the idea. Unlike others, my approach doesn’t follow a given model nor does it lend itself to a generic screening process. This isn’t to imply I ignore PE ratios, Dividend Growth Rates, Dividend Coverage, et.al., because I don’t. It’s just that outside the core 36 holdings I want to see a story, a compelling reason or something that makes me scratch my head and think.

Hidden in plain sight this week were a few that fit this category, so without further introduction, I present these for your consideration.

Bottling/Snacks Skirmish?

Pepsi announced the acquisition of South Africa’s Pioneer Food Group. I believe this intensifies the battle between the two giants and provides Pepsi a leg up in the snack segment, adds some bottling and expands their distribution capabilities. Conversely, Coke has pretty much divested their bottlers with the exception of Africa. So the question becomes, “What’s up with Africa?” and which one holds the answer to this riddle. Category: scratching my head

Watch List Addition

A friend of mine sent me a link to the Australian version of 60 minutes with an interesting (but non-standard) treatment for stroke victims. There are many more questions than answers with this treatment, most notably sustainability, yet the initial findings hold some promise. Ever the sucker for a speculative play in the realm of strokes (remember my Nexeon investment – (currently tardy in their filings)), perhaps a small investment may bear fruit. The drug in question is Etanercept and the company is Amgen. Bonus points for AMGN paying a dividend. Category: Good Story

Political Thought

We’ll delve into the political arena a little as the Democrats have initiated an opening salvo illustrating to the world they might be able to walk and chew gum simultaneously. This effort is in the form of a Senate bill provocatively titled, “Stop Wall Street Looting Act of 2019“. This bill aims to stem some of the more egregious acts of private equity firms when they take companies private. Assuming this gets through the proverbial roadblock in Mitch McConnell and the unrelenting lobbyists, I have a one minor concern (outside the name) that should be addressed in order for bipartisan support to be obtained. Section 309 is applicable to workers and places a higher priority on pension funding, which is well and good. The issue I have is in the charge to bankruptcy judges to consider job retention in a liquidation (sale) event. If I thought I could profit via productivity gains (technology) at the expense of labor, I would have no incentive to prevent full on bankruptcy – waiting to buy the pieces after the fact. Category: Compelling Reason (probable GOP inaction to avoid debate)

With these thoughts, I hope the week ahead is good for you!

Things Making Me Go Hmm

Loose reference to a segment on The Arsenio Hall Show, 1989-1994

A handful of areas caught my attention this past week, some of which captured my whimsical thinking so much that it occurred to me that our president may actually have a game plan. Before I roll that scenario, let me start with the Boeing saga.

The Max Issue

As it will be awhile before the dust settles and the corner is turned, shareholders are likely in for choppy ride. My guess is the Jim Cramer Chipotle advice is applicable to this situation, “It takes 18 months from the last incident to get the American people to forget“. As Boeing previously had a solid reputation (outside supplier negotiations), there’s little doubt, given time, they’ll recover. The nagging question in my mind is, “What about their subs?”, the three largest being Spirit AeroSystems (SPR – ~50%), Triumph Group (TGI – 31%) and Hexcel (HXL – 25%) with several others dependent on Boeing for about 10% of their sales.

While some have pulled guidance, looking at Spirit shows a ‘sweetheart’ arrangement with a guaranteed production take threshold. Even so, Wichita, Kansas is feeling a little pain as SPR has cut hours by 20% and eliminated most contractors. The possible hmm counterpoint: Trump’s recent efforts to prod the Fed to reduce rates to weaken the USD.

Ongoing Farm Woes

A couple of weeks ago I touched on the plight of Wisconsin dairy farmers. This week, farming issues – specifically lending – crossed the wires. A Reuters study concluded farm lending declined 17.5% by the thirty largest banks between December 2015 and March 2019. Perhaps they’ve identified a bubble or perhaps diversifying risk. While keeping an eye on developments, my portfolio of community banks isn’t overly concerned as most of their loans are USDA carrying a 95% government guarantee. I think the current largest downside would be depressed merger premiums in this space. The possible hmm counterpoint: The federal debt limit may be reached sooner than anticipated, perhaps in part, due to increased credits to farmers to counteract tariff retribution?

Game Plan?

Low interest rates essentially delays the day of reckoning for out of control federal deficits. A weaker USD benefits exporters to the detriment of importers, but has the potential to reduce the trade deficit. These two issues, coupled with the fairly robust economy have the ability to provide a tailwind to the incumbent’s reelection prospects. The possible hmm counterpoints: Possible implementation of a surcharge based on the USD strength in the Petrodollar world, additional tariff retaliation.

Just some random thoughts to start your week!

Preliminary 1H Results

My apologies, but first half results will have a one week delay due to some dividends not crediting on Friday. These are primarily Canadian held in my taxable account – I’m thinking it’s a tax processing issue as the Canadian stocks in my IRA credited as normal. I do know the S&P beat me for the month but I’m slightly ahead for the year. Beyond that … there’s always next week.

This week, the President attended the G20 and had the anticipated meeting with Xi Jinping. The preliminary reporting by Eunice Yoon, CNBC’s Beijing correspondent was: (June 29, 2019 tweet)

  • By my tally, so far China gets:
    • -no new tariffs
    • -access to US tech for Huawei
    • -better visa treatments for Chinese students
    • -truce on tradewar (resumption of talks)
  • US gets:
    • -bigger purchases for farmers

My initial take was that China came out ahead due to the fact that their pork production has issues with a swine flu epidemic – meaning I think they used a weakness to their advantage. They probably had limited options. The Daily Beast concurs (although a little more stridently). But the futures market appears to be rallying – perhaps because it wasn’t worse? As Monday dawns here I’ll be looking at this a little closer.

Meanwhile, I’ll (finally) be making some moves in July, selling three issues – primarily dividend cut related. Since one of my core holdings is being acquired, a restructure of my top 36 is also in order. So my expectation is more than normal activity is on tap with a slight decrease in the number of my holdings (not the value) as well.

With it being a holiday shortened trading week in the US, I hope you enjoy and have a safe 4th!