July 2017 Update

The general upward trend continued in July with major indices again hitting new highs.  With my strategy shift in place, I did deploy new capital but only in a positioning move ahead of a spin. The S&P ended the month up 1.93% while my portfolio trailed with a gain of 1.77% largely due to the financial sector lagging the market.  For the year, I’m ahead of the index by 4.86%.

Headlines impacting my portfolio (bold are owned):

  • 7/5 – YUMC indicates reviewing possible dividend payout
  • 7/7 – MET acquires FIG’s asset management business
  • 7/10 – CM acquires Geneva Advisors
  • 7/11 –BR acquires Spence Johnson Ltd
  • 7/12 – ABM acquires GCA Services
  • 7/12 – AAPL adds PYPL as appstore pymt option
  • 7/13 – MFC reportedly reviewing sale or IPO of John Hancock
  • 7/17 – CHD to buy waterpik
  • 7/17 – China places restrictions on loans to Wanda (AMC)
  • 7/18 – MKC to buy RBGPF’s food business
  • 7/18 – CCI acquires Lightower
  • 7/19 – HRNNF (H.TO) to acquire AVA
  • 7/20 – SRC considering spinoff of Shopko properties
  • 7/21 – BX and CVC Capital offer $3.7B for Paysafe (PAYS.L)
  • 7/26 – SHPG rumored to be takeover target
  • 7/27 – Ackman discloses stake in ADP
  • 7/28 – IRM acquires Mag Datacenters LLC
  • 7/31 – BX (w/ ETP 50.1%) buys 49.9% of holding co. that owns 65% of Rover pipeline

 Note: my comment of July 21st on AMC (Dividend Diplomats) remains prescient in light of their warning on August 1st.  I believe now is a viable entry point if cognizant of possible risk to the dividend particularly as related to lender covenants.  EPR may have a slight risk as well.

Portfolio Updates:

  • Added to MET (spinoff positioning)

Dividends:

  • July delivered an increase of 2.14% Y/Y with the vast majority of the increase being attributable dividend increases.
  • July delivered a decrease of 8.85% over last quarter (Apr) with TIS (dividend suspension) and foreign cycles (interim/final) being the culprits.
  • Declared dividend increases averaged 10.81% with 61.02% of the portfolio delivering at least one increase (including 2 cuts and 1 suspension)
  • YTD dividends received were 69.81% of total 2016 dividends which if the current run rate is maintained would exceed last years’ total in early November

Spinoffs:

MET has declared their spinoff – Brighthouse Financial (BHF) – effective August 4th.  Holders as of July 19th will be entitled to 1 share for each 11 MET shares owned.

Mergers:

AGU/POT (Nutrien), SGBK/HOMB remain pending

Summary

Overall another positive month with the only disappointment being the Q/Q dividend decline – which was expected.  The primary metric (annual dividend increase) remains on target and well ahead of inflation.

2017 Mid Year Correction

Each year I establish a basic plan to govern my investing activity based on sectors, segments or locales able to deliver a little alpha to my portfolio.  The past couple of years had a focus on the Financial industry with the outcome being rewarded with mergers (small banks) and outsized dividend increases (money center banks).  I also began increasing my Canadian allocation in 2015 from 2.5% of my dividends to the current 8.6%.  Since the election, I was accelerating the increase in my other foreign holdings to the current 13.6% on two theories, 1) gridlock in Congress would persist as the Republican majority would be too narrow to push through sweeping changes, and 2) this inaction would result in a weaker dollar.  It appears I was correct on both counts as the US dollar is now at an eight month low.

With my alpha agendas now too pricey (at least for slam dunk results), a re-prioritization is in order. With the Fed Chairs’ testimony this week indicating that GDP growth of 3% would be difficult, the Trump agenda which projects a higher growth rate is likely in peril – even ignoring the self-inflicted wounds.  Without an improvement in the GDP, deficit hawks will be circling.  It is likely the last half of the year will present some opportunities, but my view these will be predicated on external events.  My eyes will remain open to the USD exchange rate – on strength I may buy foreign issues.

My portfolio allocation between holdings labeled Anchor, Core and Satellite have been imbalanced for a year or two primarily due to merger activity and the acceleration of adding foreign issues.  Now that the major mergers have completed, the last this past January, and other alternatives are slim, I figure it’s time to get back to basics.

My going forward strategy can be summarized as follows:

  1. Non-US equities when secured at a favorable exchange rate
    a)I have 2 Japanese, 2 Swiss, 1 UK and 1 Swedish company on my watch list in the event an attractive price presents itself
  2. Assess corporate actions (spins, splits, mergers) for opportunities
    a) Generally I’m agnostic to splits except when the result would be a weird fractional.  I can easily manage tenths or hundredths of shares.  Smaller sizes are troublesome so I avoid when possible.
    b) Spins (and mergers) are assessed to prevent (if possible) weird fractionals.  For instance, I added to my MET position earlier this month as their spin will be at a ratio of 11:1 which would have otherwise delivered a weird fractional.
  3. Assess portfolio for average down and other opportunities
    a) An example of this was last months’ purchase of KSU.  To this end, I recently updated my Dividends (Div Dates) Google sheet to flag when the current price is lower than my cost basis.
    b) An example of “Other Opportunities” would be BCBP which is resident in my Penalty Box due to dilution.  The dilution (secondary) might be explained (now) with their announced acquisition of the troubled IA Bancorp.  If the regulators provide their seal of approval, it may be time to remove BCBP from Penalty status and perhaps add to this 3.5% yielder.
  4. Add to holdings that are below target weighting
    a) This is where I expect most of my second half activity to reside.

Of my 26 stocks labeled Anchor, Core or Satellite; 5 can be considered at their target weight (within .5% of the target) and 4 I consider to be overweight.  The remaining 17 will receive most of my attention.  As most of these rarely go on sale, I’ll likely ignore price and place a higher priority on yield and events – at least until I’ve exceeded last years’ total dividends.

The following table highlights this portion of my portfolio:

JAN/APR/JUL/OCT

COMPANY TYPE PORT DIV%
Kimberley-Clark/KMB A-(6%) 4.01%
First of Long Island/FLIC C-(3%) 0.85%
Sysco/SYY C-(3%) 1.81%
Bank of the Ozarks/OZRK C-(3%) 0.67%
PepsiCo/PEP S-(1.5%) 1.51%
First Midwest/FMBI S-(1.5%) 0.3%
Comcast/CMCSA S-(1.5%) 8.32%
Toronto-Dominion/TD S-(1.5%) 1.58%
NOTE: Not all payment schedules coincide completely

FEB/MAY/AUG/NOV

COMPANY TYPE PORT DIV%
Clorox/CLX A-(6%) 3.68%
PNC Financial Services/PNC C-(3%) 0.30%
Legacy Texas Financial/LTXB C-(3%) 1.48%
Starbucks/SBUX C-(3%) 1.07%
Blackstone/BX S-(1.5%) 2.58%
Apple/AAPL S-(1.5%) 1.26%
Lakeland Bancorp/LBAI S-(1.5%) 1.04%
Webster Financial/WBS S-(1.5%) 0.82%
NOTE: Not all payment schedules coincide completely

MAR/JUN/SEP/DEC

COMPANY TYPE PORT DIV%
WEC Energy/WEC A-(6%) 5.61%
3M/MMM C-(3%) 0.76%
Home Depot/HD C-(3%) 7.32%
Blackrock/BLK C-(3%) .22%
ADP/ADP C-(3%) 1.60%
Southside Bancshares/SBSI S-(1.5%) 0.96%
Chevron/CVX S-(1.5%) 9.52%
Norfolk Southern/NSC S-(1.5%) 1.99%
Flushing Financial Corp/FFIC S-(1.5%) 0.99%
Wesbanco/WSBC S-(1.5%) 1.14%
NOTE: Not all payment schedules coincide completely

I will provide the caveat that this plan is subject to not only the whims of  the market but of my own as well.  In addition, this plan may be changed if/when a better idea comes along.

Pure Randomness

Every now and again events are thrown our direction which necessitate a change.  Being one who abhors change, I tend to procrastinate until the absolute last minute.  I knew the drive in my laptop was on its’ last legs a year ago when I bought a new one.  Last week it bit the dust.  I did perform regular backups so data loss was minimal.  What loss exists is not due to Wanna Cry but their evil twin, Micosoft (MSFT).  Though I have an Office license, my use (legally) of an upgraded version resulted in the inability to perform a backward migration.  It appears my best recourse is to purchase an upgrade.  My frugal nature has an issue with this solution (being held hostage?).  Meanwhile, seeing if Google fills the void.  I did add a sheet to my Dividends spreadsheet (Div Dates) which – assuming I get the hang of conditional formatting – has the potential of automating my watch list.

Continue reading

April 2017 Update

April brought more noise to the market with geopolitical issues front and center.  The market appeared to acknowledge the fact that even with Republican control of government, a more centrist approach is necessary to accomplish much of anything.  The President’s first 100 days ended with one legislative win; a Supreme Court Justice.  As earnings season kicked into high gear and the French election completed (runoff pending), the markets rebounded and the S&P ended the month with a .91% gain.  Including new money (mostly IRA maximization), my gain was 3.41% (2.32% excluding new money).

Loyal3 Migration

The forced move from the Loyal3 platform is essentially complete.  Full shares arrived at Schwab April 27th.  Fractionals did not move – basically a he said/she said scenario.  Schwab says they would accept them while Loyal3 said they wouldn’t.  All fractional shares on Loyal3 were sold April 28th, netting $218.59.  Loyal3 was basically my ‘spare change’ broker and illustrates the benefits of investing even small amounts.  The trades will settle Wednesday and Friday I’ll transfer remaining funds – after I see which direction the YUM dividend goes.

I decided to use Schwab’s synthetic DRIP for PEP, DIS, SBUX, KO and HAS to mitigate the sting of having to sell shares – even fractionals.  I’ll take the cash on YUM, AMC, AAPL and K.

Headlines impacting my portfolio (bold are owned):

  • 4/3 – IBTX closes Carlile merger
  • 4/4 – NJR/SJI discuss merger
  • 4/4 – MSGN discusses sale
  • 4/7 – JNS merger date expected 5/30/2017 new ticker expected to be JHG w/ qtrly divs
  • 4/10 – UNIT acquires Southern Light (pvt)
  • 4/17 – CCI to acquire Wilcon Holdings
  • 4/17 – BX acquires Eagle Claw Midstream
  • 4/20 – UMBF sells institutional investment arm to RJF
  • 4/20 – SLF acquires Premier Dental
  • 4/24 – NWBI to close consumer finance subsidiary
  • 4/27 –TOWN to acquire PBNC,
  • 4/27 – IVZ to acquire Source UK

Portfolio Updates:

  • Added to JNS
  • Added to VALU
  • Initiated position in PWCDF
  • Initiated position in ARD
  • Initiated position in HOMB
  • Sold LB
  • Sold UL
  • Reduced (fractional positions) YUMC, SBUX, PEP, K, YUM, DIS, SQ, KO, AMC, AAPL, HAS

Dividends:

  • April delivered an increase of 32.55% over April 2016.  17.25% of this increase is attributable to purchases, 48.41% a result of semi-annual cycles (Ireland, Australia) and the remaining 35.51% a result of dividend increases.
  • April had an increase of 20.28% over the prior quarter due primarily to the same reasons.
  • Declared dividend increases averaged 8.72% with 42.94% of my portfolio delivering at least one raise (including 2 cuts – YUM, XRX).
  • YTD Dividends received were 38.1% of total 2016 dividends.  If the current run rate is maintained would exceed 2016 in early November – particularly with most of my semi-annual or interim/final cycles paying during the next quarter.

Spinoffs:

The MET spin (Brighthouse Financial – BHF) remains pending.

Mergers:

Agrium/POT, JNS/HGG.L (estimated completion 30 May) and SGBK/HOMB remain pending.  I did add to JNS and HOMB as both appeared undervalued versus the merger price.

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.

Rolling Unabridged Update #2

The second month of the Rolling Unabridged Monthly Portfolio (RUMP) is in the books with the results posted a few days ago.  A few were added, a couple removed and one renamed (Mr Free at 33).  No major surprises revealed themselves while the update cycle settled into the 6-9 month desired lag.  Following are the highlights, findings, questions and issues identified round.

Continue reading

Sep 2016 Update

Last month saw the commencement of the Congressional take on the ‘bully pulpit’ with first Heather Bresch (Mylan (MYL)/EpiPen) then John Stumpf (WFC) called on the carpet.  One would think Heather would have been smart enough to avoid taking the same path blazed so brilliantly by Martin Shkreli (Turing/Valeant (VRX) fame).  Her show was overshadowed by the even greedier Wells Fargo with John either portrayed as ‘asleep at the wheel’ or a criminal mastermind.  Wouldn’t life be interesting if Congress actually did anything other than use hearings to frame media sound bites?  The S&P was basically flat for the month ending down 0.12%.  My portfolio was basically flat as well, ending up 0.04%.  This increases my lead for the year to 11.88% with one quarter left to go.

Headlines impacting my portfolio:

  • 9/1 – CHD 2:1 stock split
  • 9/2 – Ireland to appeal EU anti-AAPL tax ruling
  • 9/6 – ENB to acquire SE
  • 9/12 – AGU/POT reach merger agreement
  • 9/19 – REITs officially become their own sector
  • 9/26 – YUM spin set at 1:1 YUMC for 10/31
  • 9/29 – Supreme Court agrees to hear credit card surcharge case
  •           – PNY/DUK merger approved, closing set for 10/3

Blog Updates:

I’m a little behind this month but the portfolio data has been compiled and will be posted in the next couple of days with the goals update later in the week.  The Unabridged portfolio should be next week as per normal.

Portfolio Updates:

  • FMBH replaced FCLF due to merger
  • Added to TOWN – this ‘makes whole’ this holding following my sale of MNRK prior to the merger.  (didn’t want to hold TOWN across two accounts)
  • Added to AROW prior to ex-div for the stock dividend (shares added Sept 29)
  • Added to SBUX

All were funded by dividends with no ‘new cash’ deployed.  New cash was deployed for the  annual funding of the trust I manage (skip generation).  The trust is excluded from my DGI portfolio and WFC is this year’s addition.  This is only the second time I’ve duplicated one of my holdings – the other being DIS.  The other trust holdings are GIS, HSY, PG, WMT, WGL, UNP, KHC and TXN.

Dividends:

  • September delivered an increase of 24.7% over September 2015.  This was due about evenly between dividend increases (Y/Y) and late 2015 funding.
  • September was up 4.4% from the prior quarter.
  • Announced dividend increases currently average 12.91% with 63.09% of my portfolio having at least one raise so far this year.
  • Through September, dividends received were equal to 95.7% of all 2015 dividends, keeping me on pace to exceed last year’s total -now estimated to be October 4th (as compared to 2015 being Sept. 9th).

With the cash from PNY/DUK, I’ll be looking to redeploy primarily into existing Jan/Apr/Jul/Oct payers within my portfolio with no new positions expected.  Losing PNY and the expected loss of LSBG (another merger) will leave about a 5.07% hole in my January dividend receipts unless I act now.

Spinoffs:

The YUM spin has been set for Oct 31st with YUMC to begin trading Nov 1st.  I don’t think the XRX spin date and ratio have been set.