August 2017 Update

The markets ended the month generally flat while whip-sawing in between on geo-political news (North Korea), domestic disturbance (Charlottesville) and natural disaster (Harvey) taking center stage.  I did deploy a minimal amount of new capital along with dividends received in some positioning moves.  The S&P ended the month up .05% while my portfolio lagged by dropping -0.34%.  The differential can be explained by two events, 1) higher exposure to Texas (e.g., hurricane), and 2) the month-end rise in the US dollar causing my foreign issues to drop a little.  For the year, I remain ahead of the index by 4.47%.

Headlines impacting my portfolio (bold are owned):

  • 8/3 – IVZ in talks to buy Guggenheim Ptnrs ETF business
  • 8/3 – VLO agrees to export refined fuels to Mexico through iEnova (SRE subsidiary)
  • 8/3 – SRC announces spinoff of Shopko properties
  • 8/4 – Ackman requests delay in ADP brd nomination deadline as “8% owner”
  • 8/4 – LAMR acquires Philadelphia market billboards from Steen Outdoor
  • 8/8 – ONB acquires Anchor Bank (MN)
  • 8/10 – PYPL acquires Swift Capital (Del.)
  • 8/10 – INVH and SFR agree to merge (BX stake to be abt 41%)
  • 8/15 – KEY acquires Cain Brothers (pvt)
  • 8/16 – TU acquires Voxpro (pvt)
  • 8/16 – PLD buys out CCP (CYRLY) JV
  • 8/20 – GS approved for Saudi Arabian stock trading license
  • 8/22 – PAYX acquires HR Outsourcing Inc. (a Clarion Capital portfolio company)
  • 8/22 – CLX sells Aplicare line to Medline (pvt)
  • 8/22 – BX considering an IPO/sale of Gates Global
  • 8/30 – KSU forms JV with Bulkmatic for bulk fuel terminal in Mexico
  • 8/31 – BNS confirms discussions to acquire Chile operations from BBVA Spain

Portfolio Updates:

  • Added to VLO
  • Added to LARK
  • Added to AROW

LARK and AROW were positioning moves ahead of anticipated stock dividends (3% announced by AROW post purchase)

Dividends:

  • August delivered an increase of 22.24% Y/Y with the about half of the increase being attributable dividend increases and the other half purchases.
  • August delivered a decrease of 12.99% over last quarter (May).  Semi-annual payers, a date change due to a merger, and normal BX dividend being the culprits.  Also a Singapore dividend paid in August (locally) has yet to be paid via Citi’s ADR (now likely Sept.), so I expect September to be firing on all cylinders.
  • Declared dividend increases averaged 10.92% with 62.71% of the portfolio delivering at least one increase (including 2 cuts and 1 suspension)
  • YTD dividends received were 75.91% of total 2016 dividends which if the current run rate is maintained would exceed last years’ total in early November

Spinoffs:

Brighthouse Financial (BHF) (MET spin) has been received.

Mergers:

AGU/POT (Nutrien) remains pending, SGBK/HOMB received regulatory approval and is expected to close late September.

Summary

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

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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.

Jan 2017 Update

January saw DOW 20,000 being attained before dropping under once again.  The post inauguration euphoria  beat a hasty retreat in the wake of record protests, a wave of executive orders and a record number of lawsuits filed against a president in his first eleven days.  In finance terms, this uncertainty translated into concerns about the the ability or  time required to effect change through the legislative process – in particular tax reform.  This month The S&P gained 1.79%.  while my portfolio recorded a gain of 3.51% largely due to the final significant merger completing.  After a great 2016, I’m making some changes in my 2017 strategy that will (hopefully) accelerate performance in 2018.  Meanwhile I’ll be content with a slight win versus the S&P this year.

Headlines impacting my portfolio:

  • 1/5 – WMT ends V ban in Canada
  • 1/9 – SBUX discontinues Evenings concept
  • 1/10 – NWBI divests MD assets to SHBI
  • 1/13 – LSBG/BHB merger completes
  • 1/17 – ADP acquires Marcus Buckingham Co.
  • 1/20 – IRM acquires Kane Office Archives LLC through BK court
  • 1/23 – AMC acquires Nordic Cinema
  • 1/24 – Executive order moving Keystone (TRP) forward signed
  • 1/25 – DOW 20,000
  • 1/25 – BLK moves 1T$ from STT to JPM
  • 1/26 – JNJ to acquire ALIOY then spin R&D unit to ALIOY shareowners
  • 1/30 – GDOT buys UniRush (RushCard)
  • 1/31 – BX prices INVH IPO

Blog Updates:

posts under consideration for Feb are Methods to my Madness Pt 3 update, Anti-Trump strategy, My Coca-Cola strategy and The Commonality Between Trump and Me

Portfolio Updates:

  • Added to CLX
  • New position – CCLAY
  • New position – BHB (LSBG merger)
  • New position – SWRAY

Dividends:

  • January delivered an increase of 15.46% over January 2016.  This requires normalization due to PEP and WRE paying in January rather than December, KO paying in December rather than January and BUSE paying in February.  On a normalized basis, this represents a Y/Y increase of 3.1% which is attributable to dividend increases (Y/Y).  This means my October purchases from merger proceeds were successful in maintaining my Jan,Apr,Jul,Oct income stream.
  • January had a 3.0% increase over the prior quarter.
  • Declared dividend increases averaged 7.44% with 19.65% of my portfolio delivering at least one raise (1 cut – YUM).
  • Dividends received were 9.2% of total 2016 dividends and if the current run rate is maintained would exceed this total around October 15th.

Spinoffs:

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

Mergers:

Agrium/POT, JNS/HGG.L remain pending

Portfolio Structure

Whimsical Dividends recently wrote a piece on monthly dividends – posing some good and thoughtful questions.  So rather than answer in a lengthy response, I figured this would be a good starting point for my weekly (or thereabouts) post.

When I first started investing one of my goals was to build a monthly paying portfolio.  This goal was achieved many years ago.  But when I retired, I guess I had too much time on my hands so I wondered if it was possible to build a weekly paying portfolio.  To this end I have pretty much succeeded.

My research began with Dave Fish’s CCC list.  A wonderful repository of data.  I also used articles by Dividend House as a resource.  Although she’s a recent convert to DGI, and I’m not at all in full agreement with some selections, her style and illustrations make her a must read.

My end result is I have placed 26 companies (of about 105 in my portfolio) into three categories, segmented by quarter, with two payees per week.  The result is (almost) weekly payments.

(updated 26 Oct due to PNY merger)

1 A Kimberly-Clark KMB 1 C PNC Financial PNC 1 A WEC Energy WEC
2 C Piedmont Nat. PNY 2 A Clorox CLX 2 C 3M MMM
3 C Sysco SYY 3 C Legacy Texas LTXB 3 C Home Depot HD
4 C Bnk of The Ozarks OZRK 4 C Starbucks SBUX 4 C Blackrock BLK
1 S PepsiCo PEP 1 S Blackstone BX 5 C ADP ADP
2 C First Long Island FLIC 2 S Apple AAPL 1 S Southside Banc. SBSI
3 S Comcast CMCSA 3 S Lakeland Bancorp LBAI 2 S Chevron CVX
4 S Lake Sunapee Bnk LSBG 4 S Webster Financial WBS 3 S Norfolk Southern NSC
 2  S  First Midwest  FMBI 4 S Flushing Financial FFIC
5 S Wesbanco WSBC