he fourth quarter swoon continued in earnest this month resulting in an annual loss for the markets. While the final trading day closed higher (DJIA up 265, NASDAQ up 51 and the S&P up 21) it was nowhere near close enough to avoid the worst December since 1931. Though surprised by the resiliency of the US dollar, last year’s intent to migrate further into foreign equities was largely preempted by tariff uncertainty. My other 2018 concern of rising federal deficits stifling the economy did not manifest itself as yet – though I remain skeptical of administration claims that growth can outpace the deficit. For the month, the S&P index dropped by 9.18% while my portfolio dropped by ‘only’ 8.44%. For the year the S&P posted an unusual loss of 6.65% while my overall loss was 3.57%. In an otherwise ugly ending to the year, my primary goal of exceeding the S&P’s return was attained marking the 33rd year (of 38) that I’ve been able to make this claim.
The upward trend continued this month with catalysts being the tax plan and holiday sales. My guess remains that the first half of 2018 will be good for corporations (i.e., dividends and buybacks) with a shift in focus later with deficits and mid-term elections playing a leading role. I remain convinced the yearlong weakness in the US Dollar will continue and expect to allocate more cash into foreign equities during the first half 2018. I will review this plan as my personal tax implications become clearer. For the month, the S&P index increased by .98% while my portfolio increased by 3.29% largely fueled by Financials (again). For the year the S&P increased by a stellar 16.26% while I came in at +20.58%! The S&P return with all dividends reinvested adds about 2.41% which my hybrid approach still beat.
This month for my portfolio was choppy to say the least. Impacts were the start of calculating hurricane damage, data breaches, fears of a primary tenants’ possible bond default, continuing geopolitical fears and a strengthening of the US dollar at month end (again). With a portfolio currently weighted 15.35% pure international and a little overweight towards Texas it’s not too surprising the S&P index outperformed by increasing 1.93% versus my 0.36% increase. For the year I’m still ahead by 2.9%. On the other hand, dividends received set a new monthly record.
Headlines impacting my portfolio (bold are owned):
- 9/7 – SQ to apply for UT banking license as an industrial loan co.
- 9/7 – BANF acquires First Wagoner Corp and First Chandler Corp
- 9/7 – EFX announced massive dB hack
- 9/11 – UNH makes formal offer to acquire BANMEDICA.SN
- 9/11 – Cdn approval for POT/AGU merger received. awaiting US, India and China.
- 9/14 – MMP forms JV w/ VLO for marine termimal in Pasadena, TX
- 9/21 – GBL (Mario Gabelli) increases stake to 7.74% in BATRA
- 9/25 – GE sells industrial solutions unit to ABB
- 9/28 – DGX acquires Shiel Medical Laboratories from FMS
- 9/28 – IVZ buys Guggenheim Ptnrs ETF business
- 9/29 – AIG sheds SIFI designation
- added to FFIC prior to ex-div on market weakness (N. Korea)
- added to NWFL (stock split)
- added to AROW (stock dividend)
- added to HOMB and lost SGBK (merger)
- September delivered an increase of 47.56% Y/Y with the about half of the increase being attributable dividend increases and the other half purchases with an assist from a merger premium.
- September delivered an increase of 16.87% over last quarter (June). Semi-annual payers, a purchase and dividend increases being the reasons.
- Declared dividend increases averaged 10.98% with 65.54% of the portfolio delivering at least one increase (including 2 cuts and 1 suspension)
- YTD dividends received were 92.61% of total 2016 dividends which if the current run rate is maintained would exceed last years’ total in late October.
Spirit Realty Capital (SRC) has been announced.
AGU/POT (Nutrien) remains pending, SGBK/HOMB completed September 26th.
With the primary goal of exceeding last year’s dividends in sight, my focus turns to developing a strategy for 2018 – which will likely hinge on the degree of success – if any – to be expected in Year 2 of this administration. Otherwise I’ll probably continue with the current adding to the underweight holdings unless news erupts.
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
- 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)
- 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
Brighthouse Financial (BHF) (MET spin) has been received.
AGU/POT (Nutrien) remains pending, SGBK/HOMB received regulatory approval and is expected to close late September.
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.
Periodically I encounter an article that hits at the core of one of my strategies. As many of you know, I’m currently a little overweight financials with an emphasis on regional banks. This was not always the case as I (fortunately) exited the sector in late 2007 reentering only in early 2013. My five year pause was bookended by what Richard J. Parsons refers to as the Great Panic of 2008-2009. His article, Finding Alpha In Reliable Dividend Banks(14 June 2017) struck a chord with me and illustrated some of the style I came to embrace for a time. Though I’m not selling my banks, other than special situations, I’m currently not a buyer either. If you are a bank investor (or considering being one) I’d recommend reading his article.
His article highlights 30 regionals that actually raised dividends during the Panic. By comparison, my hypothesis was segmented into three ‘buckets’ which were:
1.Good dividend payers
2.Stock dividend payers
Although he includes some stock payers (CMBH, AROW, SBSI, and FLIC (roundups on splits)) this is not his article’s focus. I’ve written on these before so I’ll exclude them.
His article also points out that only one of the original 30 was acquired which is a slight disappointment when one of my goals is to obtain a merger premium. Several on his list were acquirers which kind of proves my rationale to expand the universe to include potential acquisition targets in my bank holdings a couple of years ago.
Leaving us with his list. One notable point is his geographic analysis. “Certain states are more likely to be home to these reliable dividend banks: Indiana, Texas, California, Kentucky, Missouri, and upper state New York.” This melds with my findings though I attributed this to state regulatory agencies as certain states had disproportionate numbers of bank failures. Therefore I excluded western (California) and southern US banks. To his mix, I found Pennsylvania to be a viable candidate as well. This difference could be that mutual conversions (notably preeminent in PA, NY, NJ, VA and MA) were identified as likely targets by my study.
Another note on his analysis, “…a few critical factors influence long-term success in banking: hands-on expert management…” In fact he elaborates a little on this in the comment stream. A tidbit is both Missouri banks on his list were established by the Kemper family.
So the actual question is how do my portfolio holdings stack up against his list? Half of the thirty are owned. Of the nine owned by Richard, seven are owned (one obtained via a merger). One being in California was excluded by geographic screening. I’m not sure offhand though, why I excluded CBU out of New York. My primary takeaway from his article was a validation of my strategy and I need to further investigate a few.
His complete list follows:
|Arrow Financial Corp.||AROW||2.7B||NY|
|Auburn National Bancorp||AUBN||.8B||AL|
|Bar Harbor Bankshares||BHB||3.4B||ME|
|Bank of Marin Bancorp||BMRC||2.0B||CA|
|Bryn Mawr Bank Corp.||BMTC||3.3B||PA|
|Bank of Oklahoma||BOKF||32.6B||OK|
|Community Bank System||CBU||8.9B||NY|
|Community Trust Bancorp||CTBI||4.0B||KY|
|First of Long Island Corp.||FLIC||3.6B||NY|
|Farmers & Merchants Bancorp||FMCB||3.0B||CA|
|Norwood Financial Corp.||NWFL||1.1B||PA|
|Bank of the Ozarks||OZRK||19.2B||AR|
|People’s United Financial, Inc.||PBCT||40.2B||CT|
|Stock Yards Bancorp||SYBT||3.0B||KY|
|Tompkins Financial Corp.||TMP||6.3B||NY|
|UMB Financial Corp.||UMBF||20.6B||MO|
|Bold-owned by Richard, Italics-owned by me|
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
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.
- 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.
- 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.
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.
April was generally favorable for the markets. Earnings reports presented few surprises although the trend of beating analysts’ expectations while presenting lower year over year results continued. Financials were modestly positive while old technology seemed to disappoint. Until month end, the market was drifting higher. Then Apple’s and Starbucks reports were weak, the BOJ failed to raise rates and Carl Icahn announced he sold his Apple position over China fears. So the month ended basically flat managing a gain of .27% – at least it was positive.
My portfolio value managed a 2.66% gain with the weaknesses (KMB, SBUX and AAPL) being offset by M&A activity (Comcast (CMCSA) acquiring Dreamworks (DWA) and First Cloverleaf (FCLF) being acquired).
- I changed my portfolio reporting to measure % of dividends provided instead of market value.
- Updated the Blog Directory
- Sold Monarch Financial (due to upcoming merger).
- With the proceeds, initiated positions in SRCE, BKSC, CVLY and AROW
- Moved CVX from DRIP to brokerage resulting in a fractional share sale
- Added to LTXB prior to their earnings release.
- Added to SBUX after earnings.
- Added to AAPL after earnings(and the Icahn announcement)
- Added to XRX – I anticipate a reverse split prior to – or in conjunction with – the spinoff. So trying to position myself more favorably in this event.
- April delivered an increase of 38.7% over April 2015. This was due primarily my first dividends from NJR and SJI coupled with dividend increases.
- April was also up slightly from last quarter by 4.4%
- Announced dividend increases currently average 10.05% with 48.6% of my portfolio having at least one raise so far this year. .