Dec 2018 Update and Year End Review

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.

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Where’s Santa?

What a start to the final month of the year.  At least there is a little something for everyone.  First the CME tripped the first wave of circuit breakers in the futures market.  Then the chartists found the S&P closed the week in a death cross.  Then there’s news of a possible yield curve inversion.  Lest we not forget, the most recent China issue which may or may not even be legal.  While the Huawei issue is unfolding, Lighthizer continues to stir the pot by saying he considers March 1 “a hard deadline” otherwise the delayed tariffs will be imposed.  Hmm … kind of like bringing a gun to a knife fight – or – perhaps the administration really believes that “free and fair trade” is an outgrowth of convoluted negotiations.

If week one is any indication, the traditional “Santa Claus Rally” will be delivering a lump of coal this year.  Being the eternal optimist, I’ll argue Christmas isn’t here yet so I had to take advantage of the sell-off to do a little buying:

  • First, I added to my ETF group.  I accomplished two things with this:
    • As the majority of these are foreign, they are underwater.  Therefore, an ‘average down’ scenario.
    • These all pay December dividends (one quarterly, three semi-annual and one annual) all yet undeclared.  All are now captured.
  • Second I executed a rebalance on a small portion of the portfolio.  I chose a ‘rebalance’ as the fees were lower than the alternatives.  End result being:
    • Sale of BOKF.  I had this issue in two accounts due to a merger, now it’s only in one, with the proceeds and accumulated dividends:
    • Added to ADP, MMM, KIM, FAF as these are underweight target holdings
    • Added to AVNS as they may have received a good price for the division sold to OMI
    • Added to LARK and CASS – missing the ex-date for the stock dividends
    • Added to BR, CNDT, CDK, FHN, JHG, KSU, PJT, WU, XRX – capturing WU’s December dividend

I still have another rebalance queued pending completion of a merger (might be into the new year) and then we return to normal operations.

I also will be selling my OMI – perhaps later in the month to see if Santa really exists!

Ho-Ho-Ho …

Snake(like) Investors

Being in bed following a minor medical procedure yesterday brought me full frontal to the shenanigans playing out on the ‘news’ shows.  Edited clips framed to curry favor depending on the audience is the rule.  No longer can we – the consumer – decide whether a story is right or wrong without blatant editorializing.  As Sammy Davis, Jr. aptly stated in reference to The Huntley–Brinkley Report, “My only contact with reality. Whatever I’m doing, I stop to watch these guys.”  (Life magazine, 1964).  Or as Warren Buffett writes in his recent letter, “… media reports sometimes highlight figures that unnecessarily frighten or encourage many readers or viewers.”

My contact with reality was found in the (probably edited) recitation by our president of the lyrics to a song in his speech to CPAC members.

“Oh shut up, silly woman,” said the reptile with a grin
You knew damn well I was a snake before you took me in
The Snake by Oscar Brown, Jr., 1963

Applause erupted, a pregnant pause ensued, before he mentioned the words “immigration”.  I really thought he was referring to himself for a minute.  But it does provide a decent lead into this weeks’ post.

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The ‘New’ Xerox

Nothing like trying to wrap your head around a convoluted deal before the first cup of morning coffee.  This one is likely tailored to provide an exit strategy for activists Carl Icahn and Darwin Deason.  The end result is that Fujifilm Holdings (FUJIY – 4901.TSE) will acquire majority ownership (50.1%) of Xerox (XRX).  This will be accomplished by Fuji Xerox first buying Fujifilm’s 75% stake in the current Fuji Xerox / Xerox joint venture followed by Fujifilm buying 50.1% of ‘new’ Xerox shares.

When completed (July/August 2018), the entity will retain the Fuji Xerox name, be traded on the NYSE (probably XRX) and shower existing Xerox shareholders with an estimated $9.80 special dividend in addition to a minority ownership stake.

Even though this combination is of two troubled companies, with cost cutting and synergies this could evolve into an interesting arrangement – particularly if R&D is applied more towards emerging technologies (think the AI/AR space).  The other question is the dividend scheme where Xerox pays quarterly (Jan/Apr/Jul/Oct) and Fujifilm pays on an interim/final (Jul/Dec) cycle.  The old Xerox annual dividend rate has been affirmed on a continuing basis.

While I already obtained what I was after in this investment with the prior Xerox spin of Conduent (CNDT), with the special dividend this moves from a slight loss on the books to a 5.3% gain.  I’ll continue to monitor this one as it progresses but my guess is this will be my first Japanese holding albeit gained through a back door approach.

Dividend Cut – XRX

In the wake of the spinoff of Conduent (CNDT) and in a move that was not unexpected, Xerox (XRX) cut its’ dividend from $0.075 cents to $0.0625 per share (-19.3%) effective with the April 28th payment.

Although this cut was in line with the spin ratio, I’ll place XRX in the penalty box as CNDT has no immediate plans to initiate a dividend.  CNDT being the jewel in the spin is worthy of a speculative portfolio position as a hold.  XRX will be retained for the time being as a possible takeover play.  Perhaps RR Donnelley (or one of its’ recent spins) will rekindle talks in the future that were spurned last summer.

After going over a year without a cut, I now have two so far in 2017 (the other being YUM).  The only solace being the common denominator is they are both the result of spin offs.  The impact will be negligible as this position made up less than 1% of my portfolio dividends.

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.

Nov 2016 Update

November was a wild month with a downward trend leading into the US elections and what is being referred to as the ‘Trump Rally’ following the widely unexpected result.  All major indexes achieved record highs on November 21st.  Fortunately I was able to redeploy the majority of the merger funds prior to the election.  This month The S&P gained 3.42%.  My portfolio recorded a gain of 11.49% (no normalization) largely reflecting my overweight position in the Financial sector.  This increases my lead over the S&P for the year to 17.74% with one month to go.

Headlines impacting my portfolio:

  • 11/2 – EPR acquires CLLY properties in liquidation
  • 11/8 – XRX spin (CNDT) set for 12/31/16, ratio 1:5
  • 11/14 – Maine is final approval for the BHB/LSBG merger.  Closing expected Jan 2017.
  • 11/15 – BMO designated as Canadian clearing firm for renminbi trades
  • 11/16 – AMC gets EU approval to for Odeon & UCI merger

Blog Updates:

I chose not to do an October portfolio update due to all the activity which distorted the results a little, especially the XIRR column.  The November data has been compiled and should be posted in the next couple of days with the goals update later in the week.  The Unabridged portfolio should be next week as per normal.

Portfolio Updates:

  • Added to DIS
  • Added to UL
  • Added to PEP
  • Added to TD
  • Added to KMB
  • Added to NJR
  • New position – IRM
  • Added to TRP
  • Added to KOF
  • Added to CCE
  • Added to FLIC (they chose to round up fractionals on a split)

Dividends:

  • November delivered an increase of 29.1% over November 2015.  This was due about evenly between dividend increases (Y/Y) and late 2015 funding.
  • November had a 2.1% increase over the prior quarter.
  • Announced dividend increases currently average 12.5% with 71.81% of my portfolio having at least one raise so far this year.
  • Through November, dividends received exceeded total 2015 dividends by 13.8%.

Spinoffs:

The XRX spin (Conduent – CNDT) is on track to complete 12/31/2016.

Mergers:

LSBG/BHB expected to close in January 2017.