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.
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|