The Defunct Kid Portfolio

This week saw the completion of the rebuild of my granddaughter’s portfolio.  Basically an effort that spanned six weeks and navigated some tricky waters – earnings season, trade news, Fed meeting … Yep, we had them all.  So, I figured it was only fitting to share the whys and wherefores of this little expedition since it pertains to the market.

Background

Since coming to live with us, the kid has been given an annual present of a stock holding and as such has accumulated a nice – but not quite fully diversified portfolio.  Over the years she has been proud of this and one year participated in a ‘mock’ stock contest at school which was (I believe) sponsored by FinViz taking eighth place in the state.  So it was a sad day for her when she was advised that the majority of college aid programs (Grants, Scholarships, etc.) would be discounted by 25% of her net worth. This includes savings, portfolio …  There goes the incentive for planning ahead. End result being upon graduation, her nest egg would be 0. My wife and I are not her parents – the legal status is guardian – so at least our net worth is not considered. So the game plan evolved to maximizing the available assistance.

Liquidation

The rules are similar between 529 plans and custodial accounts, except when liquidated.  With 529s, there is a penalty and possible tax restatements. With Custodial accounts there is the obligation of the custodian to prove the liquidation benefit was on behalf of the minor.  As these accounts were Custodial, I’m now tracking application fees, ACT/SAT testing fees and much more, so if necessary I can respond to an IRS audit.

My Decision

She’s aware that I chose to replicate her portfolio as a slice of one of my M1 pies.  So I laid the groundwork to ensure no dividends were lost in this migration. Fortunately I’d been holding much of my previously paid dividends in cash just waiting for an opportunity to present itself.  As the checks arrived, I moved an equivalent sum to M1. What I haven’t shared is my intention to gift it back to her upon graduation from college.

The Process

I created a spreadsheet with the sale price and the repurchase price to determine if I made or lost money (outside of fees).  I will say that I don’t have the nerve to try to time the market for a living. On the subject of fees, company plans managed by Computershare, Broadridge and Equiniti downright suck on fees when transferring or cashing out.  To be fair, that’s an aspect that’s not at the forefront of most DGIs who buy and hold for the long term. The fees ranged from a little over $25 (BR, CMSQY) to $0 (SCHW) with EQN.L in between at $15 and change. With today’s free trading schemes, the incentive for using traditional DRIPs will likely wane as I noted in one of my infrequent comments on Seeking Alpha.

Once started, I was blindsided by some events.  WFC named a new CEO, TXN provided weak earnings guidance and KHC had an earnings beat.  For the most part, I was able to better her sale price when I did my purchase as illustrated below.

Cur price as of November 8, 2019

Takeaways

While I didn’t enjoy this exercise, had I realized in 2010 what rules would be in place in2019 I’m not sure I would have done anything differently as the kid gained an appreciation for investing and the power of compounding.  Besides, Administrations come and go, rules and policies are ever changing. The key is adjusting to whatever is most beneficial at a point in time.

Going Forward

I will be hoarding most of my dividends once again until tax time as my wife took a part time job this year.  For the first time in a couple of years I’ll be able to make an IRA contribution. 2020 portfolio reporting will likely be a little strange – at least from my view of normalcy, as I tend to like consistency rather than one-off events.  (I know … first world problems …) My concerns lie more in highlighting dividend growth performance rather than portfolio growth via cash infusions – regardless of whether it’s new cash or self generated by reported dividends. This I’m sure will become clear as we progress into the new year.

As always, thoughts and comments are welcome!

Proxy Time!

It’s the time of year when winter is but a memory (for most of us), taxes have been filed and proxies are filling our mailboxes.  As I review the filings and determine how to cast my votes, I’m struck with one of these off-the-wall thoughts that hit me every now and again.  I wondered how much was earned – and the margins derived – via the annual proxy season. I didn’t delve into the number of trees sacrificed though I’ll wager it’s fewer than before electronic transmissions.

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A Look ‘Down Under’

It’s been about two years since I first invested in Australian issues, choosing to take a slow approach while I obtained some practical experience first hand.  Certainly many of the yields are good, but the economy – much like Canada – is resource based.  Then there’s the whole franking deal.  Plus the foreign exchange conversion – but this has been relatively stable at 75 – 80 cents per USD.  Add to that, until recently the selection was limited to ADRs or using a cost prohibitive foreign desk.

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DRIPs & Ugly Customer Service

Today I went on a quest, spurred by an article I encountered a few days ago over at the StreetAuthority, titled Reinvest Stocks At Discounted Rates With This StrategyOK, I’m a sucker for a bargain.  And this is a technique I’ve previously used.  So what’s different?  One comment in the article caught my eye.  “there are a number of companies that offer DRIPs with a discount. They are just really hard to find”.  I thought “Oh really.  How hard could it be?  Well, let me tell you …

I started with Amstock.  They (and their sister company CST) are privately held  and owned by Pacific Equity Partners out of Australia.  I had to do some cutting, pasting and sorting but I came up with a list of 18 companies:

ACFN, AFG, BXMT, BRT, CECE, EFSI, ETP, HT, MEG, MNR, NNN, OLP, SBTB, SSW, SSS, SUBK, UMH, YORW

Can’t say I’d be buying many of these myself , but a good start to my  journey.

So I then went to the big one – Computershare.  Since I just bought some of their stock, I figured to get answers.  Wrong.  They do provide the information on their website, but it’s two additional clicks to get the answer.  With the thousands of plans they manage, there just had to be a file to download.  Nope.  Well I’m not that bored (at least today) to go to that effort.  So strike one.

Next up was Wells Fargo.  They managed Piedmont’s plan (which had a discount).  They manage about 160 plans and as a stockholder, maybe they’d cut me a little slack.  Strike two.  They’re even worse.  You go to the list on their site, click on the company, then click on the document so you can read each and every prospectus to see if a discount is offered.

While I still had a strike left I gave up without checking Broadridge or DST.   These are smaller – Broadridge has Disney as a client and I know no discount is offered there.  At least it provided a semi-productive way to spend a rainy day.

 

 

Life is a Toll Road

With apologies to Tom Cochrane (Life is a Highway), been humming his tune today after completing two purchases.  The first took three weeks and an assist from my broker.  My limit order finally hit (and went below) but the Aussies didn’t execute it until getting a call from the states.  So now I’m the proud owner of Computershare.  I then submitted an order for Broadridge which executed prior to the close.  With my current Wells Fargo stake, one could say I man one of the toll booths on the dividend investing highway.

Alright, I’ll elaborate.  All three companies are Transfer Agents.  Meaning companies hire them to pay out dividends, manage ownership records, run the DRIPs (if the companies have one), and so on.  These three companies control close to 60% of the market with private companies splitting the remainder.  Of the 35 most popular DGI owned stocks, 30 use these three companies.

At today’s close, BR’s yield is 2.27%, WFC is at 2.81% (both quarterly) and CMSQY sits near 3.3% (twice per year).  And as the popularity of dividend investing continues to rise, I have all of you to thank – because without you as an investor there would be no need for Transfer Agents.