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 was pretty solid with the market continuing its upward grind. Earnings season was in focus with good reports outweighing the bad. Most of the attribution to the hurricanes was legitimate but a few did raise my eyebrows. The US dollar turned in a second rising month. The S&P index increased by 2.22% while my portfolio lagged (again) by only increasing 2.03%. The two culprits were international currency weakness and a drop in value in my October (speculative) purchase. For the year I’m still ahead of the index by 2.7%.
Headlines impacting my portfolio (bold are owned):
- 10/3 – IRM acquires Bonded Services Holdings from Wicks Group, LLC
- 10/4 – IBM acquires Vivant Digital (pvt)
- 10/5 – YUMC initiates quarterly dividend scheme
- 10/5 – IRM buys CS datacenters in London and Singapore
- 10/6 – K acquires Chicago Bar Company LLC (RXBAR)
- 10/11 – BHB sells insurance business
- 10/11 – FHN acquires Professional Mortgage Co.
- 10/16 – SJI buys NJ/MD assets from SO
- 10/17 – SYY acquires HFM Foodservice
- 10/18 – India approval for POT/AGU merger received. awaiting US and China.
- 10/18 – DGX to acquire Cleveland Heart Lab
- 10/19 – JNJ acquires Surgical Process Institute
- 10/25 – AAPL acquires PowerbyProxi
- 10/30 – DGX aquires some California Laboratory Associates assets
- 10/30 – TU to acquire Xavient Information Systems
- initiated position in NXNN
- October delivered an increase of 24.59% Y/Y with the about half of the increase being attributable dividend increases and the other half purchases.
- October delivered an increase of 8.53% over last quarter (July).
- Declared dividend increases averaged 10.91% with 70.62% of the portfolio delivering at least one increase (including 2 cuts and 1 suspension).
- YTD dividends received were 103.83% of total 2016 dividends which exceeded last years’ total on October 25th.
Spirit Realty Capital (SRC) has been announced.
AGU/POT (Nutrien) remains pending.
With the primary goal of exceeding last year’s dividends completed, my focus turns to developing a strategy for 2018. Meanwhile adding NXNN (speculative) in October and DRE for November’s primary purchase. DRE as they go ex-div next week and a special dividend is likely in December as a result of the sale of their Medical buildings to HTA this past May.
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|
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
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
- Added to CLX
- New position – CCLAY
- New position – BHB (LSBG merger)
- New position – SWRAY
- 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.
The MET spin (Brighthouse Financial – BHF) remains pending.
Agrium/POT, JNS/HGG.L remain pending
Yesterday brought the announcement that Lake Sunapee Bank Group (LSBG) agreed to be acquired by Bar Harbor Bankshares (BHB). This will be an all stock transaction valued at approximately $17.00 per LSBG share and represents a nearly 20% premium t0 yesterday’s close. The terms:
- .497 shares of BHB for each LSBG share.
I’ve had my eye on BHB for a little while but never pulled the trigger. Perhaps the premium received will allay any nagging issues.
Lake Sunapee, being one of my poster children for my bank merger thesis, occupied a Satellite slot (1.5% dividends generated) in my portfolio. Since the dividend date will change with the merger, I’ve decided to elevate Toronto-Dominion Bank to replace LSBG since they have the same payment date.