The YOC Metric

Every now and again I believe a reminder is in store addressing the reason and rationale for various approaches we take.  One such topic relates to Yield On Cost which can generate passion on both sides of the debate.  One side equates this metric as little more than a head fake while the other swears by its’ value.  As with most issues, the real answer lies in between.  At the very least all sides agree on the definition which per Investopedia is:

Yield on Cost (YOC) is the annual dividend rate of a security, divided by its average cost basis.

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Half Year Dividend Increases (2018)

Last quarter, I initiated a series on dividend increases experienced within my portfolio.  The data used was based on actual announcements and identified increases that were “Outsized” as well as those that were merely “Tiny”.

In Lanny’s recent piece, The Impact of Dividend Increases through June of 2018, though thoughtful and in a similar vein, was troubling to me in a subtextual way.  Not that the data presented was inaccurate per se, only that the derived message was a little (likely unintentional) deceiving to the majority of his followers.  The two deficiencies I found in his data were:

  1. Visa reported a dividend increase of 7.69% while he reports 7.73%.  This is likely caused by rounding as his data source (dividend increase from the monthly posts) is based on whole dollars.  A dividend change from $.195 to $.21 will likely result in broker rounding distorting derived percentages.  Not major as he probably saw a 7.73% personal increase.
  2. His approach on annualization is wrong.  The statement, “Of course, one can annualize the percentage and equate to 6.78%.” which is a doubling of the six month number, ignores conventions established by the Global Investment Performance Standards (GIPS) which include, “any investment that does not have a track record of at least 365 days cannot “ratchet up” its performance to be annualized.”  The basic flaw in his approach lies in the fact that his data is not normalized to reflect varying declaration (effective) dates throughout the date range used thereby distorting any derived “annualization” process.

Like some of the commenters, I too began the process of calculating my personal results in this manner until my eureka moment arrived.  There is minimal correlation between actual results and the Dividend Growth Rate. The greater correlation resides in the allocation (quantity) within the portfolio.  Yes the power of DGR is real but is not static. It will fluctuate over time across companies, industries and investment allocations. Nor is it predictable. At which point I ceased this replication exercise.

On a similar note, Buy Hold Long issued a challenge to increase total forward dividend income by 4.24% during the month of July.  A noble challenge indeed. However, the unintended consequences are potential reinforcement of bad habits.  For example, how many investors will be researching high yield or investments inappropriate to the degree of personal safety required?  Or putting their strategy aside to engage in this quest? On the other hand, I’m with Mr SLM’s comment when he says, “I think I’m on the part of the curve where increases aren’t linear from contributions”.

I guess my root issue with my disdain with these endeavors is the fact that we know not our audience.  One could assume a baseline knowledge level – but this would be strictly an assumption. This brings to mind another study of mine from a couple of years ago.  At that time I was unable to prove any confirmation bias but still have been unable to shake the sense that there is some within the community – especially with newcomers.  Also, we can’t discount the number of mirror, copycat or coattail strategies that are prolific today. Which is the probable reason I shy from these types of analyses/events.  I like to think that my results can be replicated (if desired) whether a portfolio is robust or just beginning which highlights why I report percentages.

As usual, I digress.  The purpose today is to share the first half increases – by percentage – reported by my dividend payers.  One item to note is the increases enjoyed by financials (banks, in particular) will be tough to replicate going into 2019.

And this, my friends, is the message this week with the upcoming earnings season sure to present some interesting commentary 🙂

June 2018 Update

At month end, the first of the tariffs took effect with the markets basically going sideways while trying to figure the impact.  My impression is the first industry to be impacted (via retaliation) will be the lobster industry.  Other industries will be later as the supply chains run off.  Even the US dollar is taking the noise in stride resuming its’ ascent.  Finally, the CCAR results were released with approval of the majority of the capital return plans of the banking sector (additional dividend growth on the horizon).   Through this I generally stayed the course, the only exception being the implementation of a hedge on two mergers.  June saw a rise in the S&P of 0.48% while my portfolio underperformed by registering a rise of 0.14%.  YTD I still lag the S&P by 0.69%.

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Moral Investing

Making the headlines this past week was the atrocious scene along our border.  Being an event driven investor, I had to at least take a look at the situation to – at a minimum – determine my exposure and whether strategy adjustments are  necessary.

I’m not a prude by any stretch of the imagination but (outside of ETFs) have never invested in tobacco stocks.  I have minimal exposure to wine and spirits.  While I’m not casting aspersions on those that do, I figure there are more than enough alternatives that better fit my preferences.

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Road Trip Musings

Settling in at home after wandering the country a little, provides an opportunity to reflect on my observations, discussions and tenor of the people I engaged with.  I thoroughly enjoyed the visits and sometimes lively discussions and following are a sampling of these.  There is but one potential action item for my portfolio review – which is less than normal for these adventures.

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Thoughts on EV Investing

FI Fighter returned from his self-imposed exile with a renewed passion.  Now I’ll be the first to admit that his investing style is a little (ok, maybe a lot) more on the fringe than mine, but his concepts and theories are well-reasoned.  Perhaps the downside to his methods as the timing – not in the sense of timing the market but in having a measure of foresight in developing trends. Being ahead of the curve tends to have drawbacks as Elon Musk can probably attest.

He returned May 18th with a series of three posts/podcasts, one of which garnered my attention.  His views on metals – in particular Lithium – seem to resonate with me. I agree with his general view of market direction, our disagreement would be in the investment manner.  In short I prefer a greater margin of safety with a ‘proven concept’ where he’s all-in on a ‘plausible theory’.

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