My 3Rs – Revitalize

In the first two posts of this series, I highlighted my thought process in basically the recent past and present.  Today will attempt to bring the investment landscape of the future into focus.  I will be the first to admit that I have a jaded view of the present – i.e., not being aligned with the economic views espoused by the current administration.  The upcoming midterms have the ability to shuffle the deck even further.  The assumption set I used (which easily could be argued with) is:

  • The current administration will continue to be embattled by prior missteps – primarily in vetting – (resulting continuing indictments and guilty pleas)
  • This could be further hampered by loss of one – or both – chambers of Congress
  • I (currently) anticipate no major activity regarding impeachment, 25th amendment or resignation

Basically a recipe for gridlock – which will put the brakes on some of Trump’s more polarizing policies.  Without a Democratic landslide, I don’t see a major rollback but also don’t see further continuation on a partisan path.  Therefore my view is a continuation of trade tensions (notably Canada and China), rising deficits and interest rates resulting in a slowdown in the US economy.  While the economy is currently growing, the metrics I am watching are debt levels (student loan and state government), the inability of rising wages to keep pace with inflation and savings rate.  Though the concerns are endless, a greater domestic focus tends to mitigate much of the risk but bring me to one conclusion: Regular Americans’ disposable income may be in shorter supply next year.

With this theory outlined, it’s time to fit the remaining pieces into my puzzle of a portfolio which allows for roughly 1/3rd allocation to conservative speculation.  Frankly, my outlook is a bet that the US economy has been front-loaded into the midterm elections.  The downside if incorrect is that I’ve added some slower growth positions.  If correct I’ve generated a little alpha.

Tariff Myself

In the spirit of the times, I completed the move of my Johnson & Johnson (JNJ) and Church & Dwight (CHD) positions to M1 Finance.  I plan to add Colgate (CL) as a new position in the near future.  With M1 being a no-fee broker, my intention is to add new funds whenever I purchase toothpaste, mouthwash or deodorant throughout 2019 with the aim for these companies to attain about 2%, 3% and 1% of the portfolio respectively.

Corporate Actions

I intend to ride the M&A wave in addition to selected spinoffs.  I rarely participate in IPOs but do make an exception from time to time.  I continue to add to my banks that have completed two-step conversions.  This month has seen activity in this area as follows:

  • added to GBNK and sold IBTX locking in a total gain of 46.4% (16.3% annual return).  Assuming their merger with GBNK completes I’ll be assigned more shares of IBTX than I previously had.
  • added to SHPG as they received another approval in their merger.
  • Initiated a post-IPO position (from the 30 day over-allotment period) in Amalgamated Bank (AMAL).  This due to their intention to initiate a dividend next quarter.

Averaging Down

Yes, there are times when I’m underwater on some investments, most of these being holdings of less than 1%.  It would be a fair assessment that something was amiss in my initial analysis as several of these are foreign caught in the cross hairs of the strong US dollar.  One reason I tend to scale in to investments is to take advantage of opportunities to average down when my  original premise remains intact.  These tend to be intermittent purchases.

There, in three parts, is my strategy going into 2019.  As my dividend goals for 2018 are close to being met, I am now starting the realignment process so I’ll be hitting the new year with a running start.

I’d love to hear your thoughts the processes you use!

 

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Recent Sell – TIS

It appears to be a busier month than normal.  Today I exited a position that I’ve held since 2013.  Orchids Paper announced this week the suspension of their dividend.  I can’t say this was a total surprise as I’ve had them in my penalty box for a while.  In fact, the comment I made when Investment Hunting sold his position seems eerily prescient:

Yes I still own it but it has never been a DG stock. With a
stagnant dividend, a high payout ratio, previous management’s penchant
for diluting current owners and the frequent misses on earnings I’m at
about break even on this one. This one is a gamble on current
management, their strategy (expansion), and their execution of their
plan with the wild card being stable pulp pricing.
(June 12, 2016)

Since then, the South Carolina expansion has encountered delays, their Mexican venture has had difficulties, they’ve decided to spend money moving the headquarters to Tennessee and finally go hat in hand to their lenders (led by US Bank) for waivers to their loan covenants (which was the likely cause of the suspension).  As this holding was in my IRA, I have no room for a non-dividend payer in that account.

In searching my database, it appears in addition to IH, Broke Dividend Investor sold in September and I think Dividend Pursuit sold around year end.   Meanwhile, Weekly Investment, Passive Income Mavericks, Mr Free at 33 and A Frugal Family’s Journey are contemplating their options.

So an $80 loss is booked which includes the offset by dividends received.

No more Loyal3

Every now and again you wind up getting what you pay for and there’s no such thing as a free lunch.  I probably came to this realization last summer when I ensured that even my smallest holding on the Loyal3 platform had greater than a fractional share.  So the news this week of their migration to FolioFirst was no big surprise.  The issue I have with FolioFirst is the $5 monthly fee.  So transferring my holdings becomes priority one.  In fact Dividend Growth Investor lays out the options fairly succinctly in his post.

Early on, my strategy with Loyal3 was twofold:

  1. Move three horses to the platform to generate enough dividends to play with.  This was accomplished with PEP, AAPL and SBUX.
  2.  Build a group of speculative holdings (less than 1% portfolio weighting) via dividends generated by the first goal.

The free trades with Loyal3 accelerated this process.  Today I’m faced with a (slight) strategy shift.

Sells

An order was placed this morning to sell Unilever (UL) and L Brands (LB).  Unilever due to taking profits off the table and for a sense of protection from a potential single headquarter  location and the possible corresponding tax implications.  L Brands due to uncertainty with their ability to maintain comps while the malls where their stores are located appear to be imploding.  I’ll use this as a tax loss against UL and the required fractional share sales.

Transfer

My remaining Loyal3 full share holdings (YUM, YUMC, AAPL, K, SBUX, HAS, DIS, SQ, PEP, KO and AMC) will be moved … Loyal3 will not move fractionals which will need to be sold.  My goal is to have the transfer complete prior to May 1st which is the ex-div date for the next payer, Hasbro.  I can then sell any remaining fractionals, wait for YUM’s dividend to post (May 5th, went ex-div April 14th), then move any cash into my bank.

My default approach will be to consolidate the holdings into my existing brokerage account which provides the alternative to reinvest dividends.  I will, however, meet with TD Ameritrade today as they (via phone conversations) have indicated they perform OTC ‘grey market’ trades with no surcharge.  As Schwab charges a $50 surcharge, this may clinch the deal for AMTD.

So any Loyal3 strategy shifts in your future?

Update: 20 Apr 2017 – UL and LB sold, decision finalized on move of remaining to existing Schwab account.  AMTD has no set ‘grey market’ policy but will normally adjust the fee.  Lack of certainty killed this option.

Jul 2016 Update

Last month the sky was falling primarily on Brexit concerns.  Just a few short weeks later, the S&P and DOW are setting all time records.  Similarly you can choose a Cleveland view of the US economy (“it’s on the cusp of a recession”) or the Philadelphia view (“Tremendous progress has been achieved”).  Sadly reality probably sits squarely in between.  Meanwhile, I’m keeping an eye on Italian banks.  For good measure, the S&P outperformed my portfolio for the first time this year – 3.56% vs 3.0%.  For the year though, I’m ahead by 11.65%.  Headlines related to my portfolio this month include:

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Recent Buy, Sell & More

  • Sold: Monarch Financial
  • Bought: Source 1, Arrow Financial, Bank of South Carolina, Codorus Valley Bancorp
  • Cancelled  Chevron DRIP

Today I made the decision to sell Monarch Financial.  This was going to be pulled from my account – probably later this month – anyway, so I chose to accelerate the process for these reasons:

  1. Locked in a 22% total gain over the past year and half
  2. Since I also own the acquirer, I didn’t want the same stock in two accounts
  3. In the event the merger fails (doubtful), could buy in cheaply

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