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.
It was a tale of two markets this month with highs being set on the 20th before pulling back through month end. It’s a riddle of sorts when consumer sentiment is off the charts and the ultimate consumer stock (BBBY) plunges on terrible sales. How about the Fed raising rates again but bank stocks fall? Then Mexico appears to tap the brakes on a possible bilateral trade deal in favor of retaining a trilateral including Canada with the Trump threat being tariffs on Canadian cars. Yes, a conundrum indeed. I was off the sidelines during the first half of the month but going silent during options expiration and the sector changes later in the month. September saw a rise in the S&P of 0.43% while my portfolio lagged by registering a decrease of 0.42%. YTD I’m ahead of the S&P by 0.21%. The biggest factor being my cash position – which is normally minimal. I only report stock positions – but if cash were reported the results would have been a wash.
- added to KMB prior to ex-div
- added to GBNK (hedge on IBTX merger)
- sold IBTX (locking in a 46% gain – I’ll get these back post merger)
- sold one CHD position (completed last month’s repositioning)
- sold one JNJ position (completed last month’s repositioning)
- added to CMA (minor rebalance)
- added to EPR (minor rebalance)
- added to CBSH (minor rebalance)
- added to FFIN (minor rebalance)
- added to MAIN (minor rebalance)
- added to MKC (minor rebalance)
- added to PYPL (minor rebalance)
- added to PNC (minor rebalance)
- added to PRI (minor rebalance)
- added to SHPG (minor rebalance)
- added to TSS (minor rebalance)
- added to UNH (minor rebalance)
- added to VLO (minor rebalance)
- added to V (minor rebalance)
My main focus resides on dividends. Market gyrations are to be expected but my goal is to see 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.
- September delivered an increase of 13.54% Y/Y, the impacts being dividend increases and a sizable special dividend (AMC).
- September delivered a 15.65% increase over last quarter (Jun).
- Dividend increases averaged 14.96% with 71.03% of the portfolio delivering at least one increase (including 1 cut (GE).
- 2018 Dividends received were 92.71% of 2017 total dividends putting us on pace to exceed last year next month.
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.
GE‘s rail unit to spin then merge with WEB
GE to spin 80% of the health business
NVS proposed spin of Alcon scheduled for shareholder approval Feb 2019
XRX merger with Fujifilm cancelled (now being litigated).
SHPG to merge into TKPYY
GBNK to merge into IBTX (shareholders approved)
COBZ to merge into BOKF (expected completion 1 Oct 2018)
GNBC to merge into VBTX (semi-reverse)
My repositioning is almost complete so next month I can begin to front load into 2019. Dividends this month hit a new record.
Hope all of you had a good month as well.
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.
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|
December was a continuation of the Trump effect with significant reassessment underway in many portfolios. The DOW continued its march to 20,000 before failing and pulling back at month end. While consumer optimism is at multiyear highs, this has not resulted in holiday sales records probably due to the inability of a President-Elect’s posturing to translate into tangible policy change. This month The S&P gained 1.82%. My portfolio recorded a gain of 3.92% largely reflecting my overweight position in the Financial sector which has been a beneficiary of election sentiment. This increases my lead over the S&P for the year to 19.83% achieving one of my 2016 goals of besting the S&P index.
Headlines impacting my portfolio:
- 12/7 – CIBC/PVTB merger vote postponed
- 12/13 – WFC fails ‘Living Will’, BAC passes
- 12/14 – Fed raises .25%
- 12/20 – BAC sells UK MBNA assets to Lloyd’s
- 12/20 – AMC receives last approval for CKEC merger
- 12/21 – KO buys BUD African, El Salvador and Honduras bottlers
- 12/21 – MET financing for spin secured (BHF)
Basically chose to be a slug through the holidays
- Added to HAS
- Added to HWBK
- New position – CNDT (XRX spin)
- Added to CVLY (stock dividend)
- Added to LARK (stock dividend)
- Added to CBSH (stock dividend)
- December delivered an increase of 24.0% over December 2015. This was due about evenly between dividend increases (Y/Y) and October purchases from merger proceeds.
- December had a 5.4% increase over the prior quarter.
- Dividend increases averaged 12.3% with 74.5% of my portfolio delivering at least one raise.
- Dividends received exceeded total 2015 dividends by 29.3%.
The MET spin (Brighthouse Financial – BHF) secured financing.
LSBG/BHB expected to close in January 2017.
There are companies that as a normal course of operation pay a portion of their dividends in stock (sometimes referred to as script). I’m not referring to companies that lack the cash to pay the dividend either, as a number of these companies are resident on the CCC list maintained by David Fish. Some of these pay a stock dividend irregularly while others pay a stock dividend annually. So the ultimate question is which is better for the investor? Let’s dive into a real example to get the answer.