January 2019 Update

The new year began with a flourish shrugging off the December selloff and recovering most of the losses. With the month exhibiting minimal turbulence outside some earnings misses, my purchases were essentially toppers to existing holdings (except one) – all in the first week. The S&P rose 7.29% while my portfolio lagged a little rising 6.48%. In reality, I was probably even but my cash position was abnormally high as I failed to deploy the cash received from a merger (I exclude cash from my investing positions). I expect this will normalize during February.

PORTFOLIO UPDATES

  • Lost GBNK, GNBC and SHPG via mergers
  • Added TAK and regained IBTX via mergers
  • Added new position BDXA
  • Increased VGK, MSCI, SF, JPMV, HTH, GNTY, EBSB, EWA, DGX, CUT, CL, BNCL and BHBK positions

DIVIDENDS

While my primary focus resides on dividends with the goal being a rising flow of dividends on an annual basis, I’m placing less emphasis on the quarterly numbers as the number of semi-annual, interim/final and annual cycles have been steadily increasing in my portfolio.

  • January delivered an increase of 19.63% Y/Y, the impacts being dividend increases, special dividends and reinvesting merger cash proceeds into the portfolio.
  • January delivered a 0.83% decrease over last quarter (Oct) – the impact of two dividend cuts.
  • Dividend increases averaged 8.84% with 20.81% of the portfolio delivering at least one increase (including 2 cuts (GE, OMI).
  • 2019 Dividends received were 9.33% of 2018 total dividends putting me on target to exceed last years’ total in October.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

2019 conversion remains pending

SPINOFFs

GE‘s rail unit to spin then merge with WEB. This was restructured in January to generate more cash for GE – end result being a taxable event for shareowners

GE to spin 80% of the health business

NVS proposed spin of Alcon scheduled for shareholder approval Feb 2019

On Oct 4,2018 MSG filed a confidential Form 10 to spin the sports business

MERGERS

XRX merger with Fujifilm cancelled (still being litigated).

BNCL to merge into WSFS

BHBK to merge into INDB

SUMMARY

To escape January’s dividend cuts relatively unscathed is monumental. Back in October my expectation was for the effects to linger through the first quarter. Now I can just put my head down and focus on the long game.

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Mergers & a Buy

The first full week of 2019 was busier than usual with three mergers completed – and I still haven’t completed the year end conversion on my blog data.  I’m getting there though – although one unexpected item was the decision of three of my companies to change their names exacerbating the conversion even further.  I figured this week we would dive a little deeper into the mergers and the subsequent purchase.

Guaranty Bancorp

This one was straightforward with Independent Bank Group (IBTX) shares swapped for GBNK shares on January 1st.  On September 13th I had sold my IBTX shares at $66.15 which was prescient in that the 4th quarter selloff hit Financials particularly hard.  I now have more IBTX shares than I previously had with a cost basis of $48.67.  So my arbitrage angle worked out nicely on this one.

Green Bancorp

The next one was Veritex (VBTX) shares swapped for GNBC shares, also on January 1st.  Holding both sides to completion was a losing proposition as both were impacted with the 4th quarter swoon.  Making matters worse was the forced sale of the new shares (computer glitch on the broker side) locking in a loss on the transaction.  I still retain the old shares so my booked loss is $6.54 per share.  At least the prior one was a nice offset.

Shire Plc

As with a number of investors, I incurred a paper loss on the Baxalta spinoff from Baxter on July 1, 2015 along with the subsequent acquisition by Shire on June 3, 2016.  While this loss was offset to a degree by the cash component of the Shire merger, a loss was carried forward.  On January 8th, the Takeda Pharmaceuticals (TAK) acquisition of Shire was completed.  While the shares have arrived, the cash component is expected next week.  Citi (the ADS sponsor) has provided initial indications that this merger is a fully taxable event (cash and stock) under the new tax law.  Chalk another unintended consequence onto the Trump plan as the intent of the IRS ruling was to increase revenues, I’ll finally be able to book my remaining loss on next years’ taxes decreasing their take (if the ruling holds).

Becton Dickinson

Tom at Dividends Diversify recently performed a Deep Dive on BDX, which I won’t go into here, but I had been researching preferred issues of which they had made the cut.  In general terms preferred stock pays a fixed dividend, has less (or no) voting power, but has a higher standing in the event of bankruptcy.  Each issue is different so it is wise to review the prospectus.

This is my first foray back into preferreds since 1978.  Becton’s pfd A (BDXA) is not callable, yields 5.34% (at my purchase price) and matures May 1, 2020 when it converts to .2361 shares of BDX stock.  The proceeds were used in financing the CR Bard acquisition.  I bought on the 8th making me eligible for the February 1st dividend.  I suspect we’ll see a little dilution in BDX when these mature.


So there we are with my ‘week in review’ and hope you had a good start to your year!