January 2020 Update

What a way to start the new year.  Beginning with the reshuffling of my portfolio and continuing right into earnings season and the inevitable debate over the Coronavirus impact on the economy … all I can say is yep it’s a lot to digest – and it’s only January.  With the gyrations in the market, all but two of my low-ball limit orders executed, probably the most controversial being MTR Corporation – the Hong Kong high speed rail line recently at the forefront of the protests. Anyway, I added two Canadian companies (Fortis and TMX Group – (Toronto stock exchange)) and starting the long rumored whittling of some of the non-core holdings (XRX and MSGN).  Most of the other action was moving Canadian companies from my taxable accounts to the IRA – some of which were done as a rebalance to minimize fees (hence the slight additions to the other holdings). Also selling part of the PB stock (which went overweight due to a merger) to fund these movements. As I indicated last week, this is the first of a multi-month transition. Obviously my timing was decent (this time, anyway) as the S&P lost 0.16% for the month while my portfolio gained 1.81%.

PORTFOLIO UPDATES

DIVIDENDS

My primary focus resides on dividends with the goal being a rising flow on an annual basis.

  • January delivered an increase of 22.73% Y/Y primarily the result of last years’ dividend cuts rolling off.
  • Dividend increases averaged 11.48% with 8.5% of the portfolio delivering an increase.
  • 2020 Dividends received were 1.86% of 2019 total dividends putting me on target to exceed last year’s total in November. The YTD run rate is under my 110.0% goal but I anticipate this will normalize as my portfolio movement becomes clearer and the current year begins to distinguish itself from the last. 

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.

AT A GLANCE

Inspired by Simple Dividend Growths reporting

The relationship between market action and purchase activity was roughly 95/5.  As I’m generally playing with ‘house money’ (proceeds from sales, M&A activity and dividends), I doubt there will be a significant variance until I fund my 2019 IRA contribution.  The Net Purchase Expense being less than 1 or 2% illustrates the ‘house money’ concept. Timing did play a part as I sold early in the month (before the drop) and most of the purchases were in the latter part of the month. 

SPINOFFs

On Oct 4, 2018 MSG filed a confidential Form 10 to spin the sports business which remains in progress.

MERGERS

Spirit MTA REIT (SMTA) voted on Sept. 4th to approve the sale of most assets to HPT for cash. A second vote was held to liquidate the REIT. The first payment was received and awaiting final settlement payout. Fully expecting a profitable outcome for one of my most speculative positions.

SCHW to acquire AMTD for 1.0837 sh SCHW to 1 AMTD.  My only surprise with AMTD being taken out was the suitor – I had expected TD.  Regardless, I have three concerns over this deal, 1) profit margin compression with the onset of $0 fee trades, 2) possible liquidation of a partial TD stake to reduce their ownership share from 13.4% to 9.9% (the same issue Buffet regularly faces) and 3) 10 year phase-out of AMTD/TD cash sweep account relationship.  The third one means TD has a low cost (albeit, decreasing) source of deposits for the foreseeable future. After the first of the year, I’ll probably cash in AMTD and increase TD a little further.  

SUMMARY

Overall, the only complaint is the sluggish start to the year. Minus the drag from last years’ dividend cuts I figure this will be short lived.  On my goals, progress was made as follows:

  • Scenario 1 – TD is now confirmed
  • Scenario 2 – Half complete, awaiting timing issues for the sell part
  • Scenario 3 – Determination of maximum contribution amount complete
  • Scenario 4 – 2020 RMD amounts identified

Here’s hoping your month was successful!

My Lazy*** Goals

Actual book cover, JoeKarbo.com

In my younger days, I was fascinated with the notion of becoming wealthy with a minimal amount of effort.  To that end I scraped and saved enough pennies to become the proud owner of a copy of the late Joe Karbo’s best seller, The Lazy Man’s Way to Riches.  Imagine my disappointment when I realized that significant effort was still required, albeit in a different manner.  If the book were updated today, I would think it would gloss over the time and coding required to attain website SEO success and focus on the rewards – while ignoring the fact that only a few will reach that level.

My quest for the laziest way to make money was not in vain as I stumbled onto dividend oriented investing forty years ago.  Essentially one can spend as much – or little – time and effort as they want in this regard. One person can use a set-it and forget-it strategy while another can be actively involved.  Or in my case, I’ve used both. While I recovered from my strokes, my portfolio was on auto-pilot accumulating dividends awaiting my return. For over a year – and it didn’t miss a beat. 

The complaint I’ve most often heard is that it takes too long to see results and this endeavor does require patience to get the snowball rolling – probably five to seven years.  But once it gains momentum it is a force to be reckoned with.

This is a meandering way to get to this weeks’ point. I’m really not that much into goals at this stage, but since I’m basically a let the portfolio do its own thing type of guy, there are times when adjustments just have to be made and framing them as goals could be beneficial.  For this year, perhaps you can refer to me as an active manager. The broader theme was my desire to reduce the number of holdings and so far I’ve dropped two (XRX and MSGN) but added two (FTS and TMXXF). Currently, this is a wash. On my monthly reports – with the exception of the new and sold positions – all of the activity nets out with an increase in the value of the stocks retained – which will probably be the case throughout the year.  

Scenario #1

Goal – consolidate all Canadian stocks across multiple accounts into the IRA

Rationale – the tax treaty between the countries allows most holdings to be exempt from the 15% Canadian tax withholding

Funding Source – the sale of PB from my IRA (leaving a slightly larger position in a taxable account)

Actions Required – 

  1. Ensure all have no Canadian taxed dividends
    1. RY, PWCDF are confirms
    2. BCE, CM, BNS, CP, CNI, TRP, TD, BMO, ENB, TMXXF, MFC, SLF, HRNNF, TU, RCI, FTS are pending confirmation
  2. If any are taxed, file appeals
  3. If appeal denied, review for possible sale
  4. If confirmed, add to TRP, TD, BMO, MFC, HRNNF positions
  5. Close out remaining taxable Canadian positions including NTR and AMTD (US)

Over the years I’ve received conflicting answers on the taxability issue.  With free trades I can get the real answer with the next dividend payment. I have 20 current Canadian positions plus AMTD (American, but I grouped it with the Canadians due to TD’s ownership stake).  NTR and AMTD (merger) will be closed positions – probably in April. End result will be more room for foreign dividends to stay under the Form 1116 filing cap.

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Scenario #2

Goal – Migrate a few issues from Motif to Webull

Rationale – Webull has a promotion too good to pass

Funding Source – petty cash to be replenished by the sale of the same issues in Motif (timed to avoid wash rule issues – if applicable)

My issue with Motif is that they are late to the party on free trades, so I’m beginning to take some money off their table.  Although not fond of Webull (they are in the same camp as Schwab with paying stock dividends as cash-in-lieu rather than fractionals), getting three free stocks is a return equivalent to an immediate 5% (or more).  As my moniker implies, I seek returns where I find them.

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Scenario #3

Goal – Add cash to spousal IRA

Rationale – Reduce tax liability

Funding Source – emergency cash to be replenished by the anticipated tax refund

For the first time in years, we have some earned income which enables us to contribute.  This will be done into the spousal one which is not subject to RMDs (yet).

Scenario #4

——

Goal – Address RMDs without liquidating stock

Rationale – Keep the snowball alive

Funding Source – accrued surplus dividends

Our planning for this event was done a few years ago when we reduced the holdings in two IRAs.  One contains all SBUX (cost basis of $6) and the other all AAPL. 2019’s RMDs were addressed by surplus accrued dividends.  In 2020 we may have to journal transfer a few shares of each to the joint account which happens to already have these issues in place.  RMD slam dunk – except for the wife who’d like the cash – hence the alternate funding source.

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So there are this lazy man’s goals for 2020 and it sure looks like more work than I’ve seen in awhile.  In my spare time I can see how my diverse and weird ideas panned out (or not) to determine the further portfolio reductions so I can return to being a future lazy man! As always, comments, thoughts and criticisms are always welcome.

July 2017 Update

The general upward trend continued in July with major indices again hitting new highs.  With my strategy shift in place, I did deploy new capital but only in a positioning move ahead of a spin. The S&P ended the month up 1.93% while my portfolio trailed with a gain of 1.77% largely due to the financial sector lagging the market.  For the year, I’m ahead of the index by 4.86%.

Headlines impacting my portfolio (bold are owned):

  • 7/5 – YUMC indicates reviewing possible dividend payout
  • 7/7 – MET acquires FIG’s asset management business
  • 7/10 – CM acquires Geneva Advisors
  • 7/11 –BR acquires Spence Johnson Ltd
  • 7/12 – ABM acquires GCA Services
  • 7/12 – AAPL adds PYPL as appstore pymt option
  • 7/13 – MFC reportedly reviewing sale or IPO of John Hancock
  • 7/17 – CHD to buy waterpik
  • 7/17 – China places restrictions on loans to Wanda (AMC)
  • 7/18 – MKC to buy RBGPF’s food business
  • 7/18 – CCI acquires Lightower
  • 7/19 – HRNNF (H.TO) to acquire AVA
  • 7/20 – SRC considering spinoff of Shopko properties
  • 7/21 – BX and CVC Capital offer $3.7B for Paysafe (PAYS.L)
  • 7/26 – SHPG rumored to be takeover target
  • 7/27 – Ackman discloses stake in ADP
  • 7/28 – IRM acquires Mag Datacenters LLC
  • 7/31 – BX (w/ ETP 50.1%) buys 49.9% of holding co. that owns 65% of Rover pipeline

 Note: my comment of July 21st on AMC (Dividend Diplomats) remains prescient in light of their warning on August 1st.  I believe now is a viable entry point if cognizant of possible risk to the dividend particularly as related to lender covenants.  EPR may have a slight risk as well.

Portfolio Updates:

  • Added to MET (spinoff positioning)

Dividends:

  • July delivered an increase of 2.14% Y/Y with the vast majority of the increase being attributable dividend increases.
  • July delivered a decrease of 8.85% over last quarter (Apr) with TIS (dividend suspension) and foreign cycles (interim/final) being the culprits.
  • Declared dividend increases averaged 10.81% with 61.02% of the portfolio delivering at least one increase (including 2 cuts and 1 suspension)
  • YTD dividends received were 69.81% of total 2016 dividends which if the current run rate is maintained would exceed last years’ total in early November

Spinoffs:

MET has declared their spinoff – Brighthouse Financial (BHF) – effective August 4th.  Holders as of July 19th will be entitled to 1 share for each 11 MET shares owned.

Mergers:

AGU/POT (Nutrien), SGBK/HOMB remain pending

Summary

Overall another positive month with the only disappointment being the Q/Q dividend decline – which was expected.  The primary metric (annual dividend increase) remains on target and well ahead of inflation.

June 2017 Update

June was an interesting month in that the Tech sector hit a rough patch, some IPOs had trouble getting out the door and financials had a second wind.  Frankly I think a lot of the action had more to do with repositioning as some funds/traders’ positions didn’t perform as anticipated and are now playing ‘catch up’ during the last half of the year.  The S&P ended the month up 0.48% while my portfolio recorded a gain of 1.44% largely on the heels of the bank CCAR results.  For the first half of the year, I’m ahead of the index by 5.02%.

Headlines impacting my portfolio (bold are owned):

  • 6/12 – HYH explores sale of surgical line (infection prevention)
  • 6/12 – SBSI acquires Diboll Bancshares
  • 6/14 – OUT acquires Dynamic Outdoor
  • 6/23 – IBTX sells 9 Colorado branches to TBK
  • 6/23 – CM completes PVTB merger
  • 6/23 – Upon merger, POT/AGU to be renamed Nutrien
  • 6/27 – V takes stake in Klarna
  • 6/27 – XRX sells France research center to NHNCF
  • 6/29 – MET spin finalized
  • 6/30 – OCFC to acquire SNBC

Portfolio Updates:

  • Added to KSU
  • Added to CLX

Dividends:

  • June delivered an increase of 31.84% Y/Y with, once again, the vast majority of the increase being attributable to foreign dividend cycles (larger, although less frequent).  With one exception this should now be normalized.
  • June delivered an increase of 12.4% over last quarter (Mar).    The breakdown of the increase is:
    • 37.4% replacement for TIS (which paid in April (late) and suspended the div)
    • 36.2% April purchase for tax reduction
    • 14.8% foreign cycle
    • 11.3% purchases from dividends/dividend increases
    • For the second month in a row, no new cash invested
  • Declared dividend increases averaged 10.82% with 56.5% of the portfolio delivering at least one increase (including 2 cuts and 1 suspension)
  • YTD dividends received were 59.58% of total 2016 dividends which if the current run rate is maintained would exceed last years’ total in early November

Note: My portfolio additions have begun migrating back to US equities as the weakness in the US dollar has been faster than I forecast.  Unless geopolitical events occur to reverse this trend I suspect fewer foreign issues will be acquired.

Spinoffs:

MET has declared their spinoff – Brighthouse Financial (BHF) – effective August 4th.  Holders as of July 19th will be entitled to 1 share for each 11 MET shares owned.

Mergers:

AGU/POT (Nutrien), SGBK/HOMB remain pending

 

March 2017 Update

March brought us the longest DOW losing streak in five and a half years on the heels of the first legislative defeat of the Trump administration.  The talking heads then moved their focus to the “end of the earnings recession”.  Frankly, I think as long as the US dollar remains strong, earnings will continue to suffer – except for domestically focused companies.  As a leading indicator to this thesis, I would point to the slowing growth in dividend increases as a proxy.  Regardless, the S&P closed the month down .04% while my portfolio rebounded ending the month up 3.3%.  At the end of the first quarter, I lead the S&P by 1.35%.

Headlines impacting my portfolio:

  • 3/1 – SQ buys OrderAhead (pvt)
  • 3/6 – FMBI acquires Premier Asset Mgmt, LLC
  • 3/9 – BR acquires Message Automation, Ltd.
  • 3/13 – BUSE acquiring MDLM
  • 3/16 – MMM acquiring Scott Safety from JCI
  • 3/16 – Fed lowers barriers for <$100B bank mergers
  • 3/20 – UL reviewing sale of spreads line
  • 3/23 – BLK buys 5% stake in NTDOY
  • 3/27 – BLL sells paint can line to BWAY Holding
  • 3/27 – DST buys remaining UK JVs from STT
  • 3/27 – SGBK to merge with HOMB
  • 3/28 – KO and KOF close on AdeS line purchase from UL
  • 3/29 – MA acquires NuData Security
  • 3/30 – CM increases offer for PVTB

Portfolio Updates:

  • Added to BCE
  • Added to SQ
  • Added to KO
  • Added to TD
  • Initiated position in AKO.B

Dividends:

  • March delivered an increase of 9.15% over March 2016.  2.24% of this increase is attributable to purchases with the remaining 97.76% a result of dividend increases.  The Y/Y comparison is a little distorted as four companies shifted pay dates and one special dividend did not reoccur.
  • March had an increase of 6.44% over the prior quarter.  This was primarily due to a pay date shift as a result of a merger.
  • Declared dividend increases averaged 7.75% with 36.42% of my portfolio delivering at least one raise (1 cut – YUM).
  • YTD Dividends received were 27.1% of total 2016 dividends.  If the current run rate is maintained would exceed 2016 around October 15th – particularly with most of my semi-annual or interim/final cycles paying during the next quarter.

Spinoffs:

The MET spin (Brighthouse Financial – BHF) remains pending.

Mergers:

Agrium/POT, JNS/HGG.L and SGBK.HOMB remain pending

Bank Strategy 2016 Review

The third year of this particular strategy is in the books with a pretty decent result.  In 2014, I embarked on a strategy of buying Regional Banks and collecting a dividend while waiting for a potential merger to occur.  The results were:

  • 2014 – 6-1-2 (21.9%) one full premium (2.3%) – 41 positions
  • 2015 – 16-3-0 (38.7%) three full premiums (6.1%) – 49 positions

Using 2014 as an example, I had a 21.9% success ratio of picking merger candidates, with 2 being reverse mergers (I get screwed on the premium), and one (2.3%) with a full premium.

I had some reservations at first, but soon embraced this strategy.  During 2016, I had a net gain of nine positions in regional banks – tweaking the strategy in April to include banks paying stock dividends and again in October to clear my watch list prior to the election.  (Yes, it was fortuitous timing).

Four transactions failed to complete by year-end, two were approved but closing scheduled after the new year  (one has now completed).  CIBC’s (CM) was postponed due to the post election price runup for Private Bancorp (PVTB).  Independent Bank (IBTX)’s acquisition of Carlile is in progress.  The pace of M&A activity appeared to have slowed leading into the election and due to anticipated rate hikes.

So 2016’s result is 8-2-0 (13.8%) two full premiums (3.4%) – 58 positions.  Due to valuations, I doubt I’ll be adding positions to this strategy in 2017.  I do expect the merger pace to pick up in the latter part of the year.

Dec 2016 Update

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)

Blog Updates:

Basically chose to be a slug through the holidays

Portfolio Updates:

  • 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)

Dividends:

  • 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%.

Spinoffs:

The MET spin (Brighthouse Financial – BHF) secured financing.

Mergers:

LSBG/BHB expected to close in January 2017.