DVK System Review

I’ve been noodling over a post published by FerdiS over at DivGro for awhile now, essentially weighing the pros and cons against my biases to figure the most appropriate rebuttal.  In a nutshell, the post first grabbing my attention was his Recent Sells.  Within this piece was the comment, “I … rank my … stocks by quality score and by CDN” and on this basis eliminated two holdings.  

I am a proponent of every investor having a defined methodology within their comfort zone to determine the quality of their portfolio and various bloggers regularly publish their screening mechanisms and processes.  Conversely, I don’t shy away from highlighting perceived frailties in these. A combination of Yield, Rising Payout Streak, PE Ratio and Payout Ratio are the most common attributes used by several bloggers while adding others to customize to their tastes.  One example being the Dividend Discount Model.  

Back in 2013, I’m not sure Simply Investing anticipated the record bull market coupled with inordinately low interest rates.  Using KO as an example, his method would have classified it as overvalued. A changing business – while looking backwards (bottler spinoff) – doesn’t neatly fit this model.  On the other hand, forward looking views, such as the DDM, have a basis in a series of assumptions. Even the Diplomat’s approach – which is arguably the most straightforward – has an assumption set within the metric, Dividend Growth Rate greater than the rate of inflation, allowing for management discretion (not a major issue in a low inflation environment).

FerdiS method – while thoughtful and elegant – has some limitations and could be viewed as an advertisement for premium services.  Value Line, S&P, Morningstar and Simply Safe Dividends are the source data. S&P data can be obtained free and Morningstar through some brokers (otherwise $199/year).  Simply Safe Dividends runs $399/year and Value Line $598/year.

Beyond the fees, the results are only as good as the dataset can generate.  Mindful that I only performed a spot check against my portfolio, it appears Morningstar applies no moat to financials and narrow to utilities.  As to the other providers – your stock has to be within the universe they cover. My assumption is the 80/20 rule applies here with limitations to small caps and foreign issues as these are not widely held by US investors.  

As my preference is to get the investing view from the rear view mirror (ala, what have you done for me lately), all the metrics this model uses are forward focused based on analysis by an individual or algorithm.  The final note being the use of the CDN (Chowder Rule) as Sure Dividend makes a compelling case of its unreliability.  

A comparison would be incomplete without peer review.  KO scores 23 of 25 on the modified DVK scale whereas the Diplomats and Dividends Diversify consider it overvalued.  For my part, KO is a small (<1%) position that I’m not adding to other than dividend reinvestment. Kind of makes me wonder …

Bottom line: I’m not sure of the value of this – at least to me.  But in my spare time I’ll continue plugging my portfolio into the model to ascertain whether this assessment is correct.  I do, however, like the jigsaw puzzle of his methodology but can’t help but wonder if this is a prelude to even further premium offerings being rolled out …

Disclosure: Long MORN, VALU, KO

Tax Time & Earnings Season

For all the procrastinators out there the deadline is near.  In fact, this year I was one – completing mine yesterday.  This season brings to mind some of the best practices compiled to minimize – or delay – the tax hit, thereby maximizing disposable income published by the Dividend Diplomats.  Though geared towards wage earners, I can be considered a poster child of these practices as one migrates from the accumulation phase of investing.  Over the years the use of many of these strategies have resulted in continued savings well into retirement.  Case in point being a 2017 Federal effective tax rate of  8.04% on a six figure Adjusted Gross Income ($156 of which was earned income).  Take advantage of all of the breaks provided in life as early as possible to reap the rewards (true in investing as well).

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Rolling Unabridged Update #2

The second month of the Rolling Unabridged Monthly Portfolio (RUMP) is in the books with the results posted a few days ago.  A few were added, a couple removed and one renamed (Mr Free at 33).  No major surprises revealed themselves while the update cycle settled into the 6-9 month desired lag.  Following are the highlights, findings, questions and issues identified round.

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Rolling Unabridged Monthly Portfolio

It seems that at times I seem to be a little late to the party. In late 2013, I stumbled across investment blogs and the DGI community in particular. With a knowledge of databases, I began to enter blogs I encountered into a table followed shortly thereafter by their holdings in another table. Obviously Ferdi (DivGro) had a similar thought as in February 2014 he presented the initial Blogger’s Portfolio. Initially 31 stocks within 20 portfolios, it was subsequently expanded to its’ current form of 60 companies within 43 portfolios.

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Crisis Management

Not to belabor a beaten down topic, but as we all know the story – and in many instances rehashed – versions of the Kinder Morgan fiasco and the subsequent fallout.  A perspective I haven’t seen addressed is human nature.  In a previous life, a role I held was to design and create contingency plans for telecom networks  – and subsequently data centers – in the event of a major outage.  The obvious corollary being a massive dividend cut (i.e., catastrophic failure).

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Happy Anniversary!

One year ago marked my first post to this blog.  Along the way I’ve made new friends, shared ideas,  and debated strategy (mostly on Seeking Alpha).  And for this I thank you.

On occasion I run across posts that either beg for a rebuttal or leave me thinking.  This week had three blogs; Dividend Diplomats, Div4Son and Roadmap2Retire filling the bill. Continue reading