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.

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Baseball and Screeners

This is one of the times that another blogger’s post has triggered my (loosely defined) creative juices.  The post in question was Lanny’s (Dividend Diplomats)  Waste Management analysis.  Now I have no disagreement with his conclusion, in fact you could compare the DD Screener to delivering a fastball right down the middle.  The only alternatives to a strike are whether the pitch is high or in the dirt.

Personally, I like a little more strategy – the brush back before throwing a curve that nicks the corner.  Questions like EPA regulations or NIMBY impact on landfills.  Or the number of municipal contracts that are competitive versus monopolistic.  Issues obscured by a strict reading of batting and earned run averages.

The jewel in his analysis was:

I was driving around my neighborhood and was surrounded by a few waste disposal service trucks …

Aha!  A twist on the old kitchen cupboard investing strategy.  You know the drill … identify the companies behind the products you use.  I’m not sure of the absolute merits of this strategy, but there is comfort in investing in companies whose products and/or brands are familiar.  And it is one I use (to a degree) as well.  My assumption being, why not have my spending subsidized by companies I do business with through dividends?

I think I stated earlier I thrive in the obscurities, case in point being that last week I required a new prescription.  My meds generally delivered by mail from Humana (HUM).  One-off situations are handled by a local pharmacy.  In this case I chose Tom Thumb grocery as they accepted Humana insurance and I could wait at the Starbucks (SBUX) nearby.  I noticed on my paperwork that Argus Health was used for claim processing.  Argus is owned by one of my companies, DST.

There we have it.  Humana paid Tom Thumb which paid a processing fee to DST while I paid Starbucks while waiting.  Of which HUM, DST and SBUX all will provide a rebate (dividend) to me.  Although a topic I’ve mused on before, it is also one I feel never gets old.  One can always posit that this level of detail is irrelevant and perhaps it is.  But I feel it provides a broader snapshot of the business when inter-relationships are recognized.

 

Money Found Under the Couch Cushion

With apologies to Lanny (Dividend Diplomats), I figured since it’s relatively appropriate I’d play on the title to his recent post.  Couch money generally refers to the spare change lurking in the cushions of your sofa and  is commonly used to describe assets you own that have been long forgotten until found while scrounging in the crevices.  I encountered such an animal this past month and figured I’d share my experience to (at least) give my readers a little food for thought. 

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Some Cracks Begin To Form?

Naysayers of this market (of which I include myself to a degree) have been voicing a concern regarding market valuations.  When reviewing my February results I noticed the average size of  dividend increases was lagging last years’ pace (12.3% in 2016 vs. 7.96% YTD 2017).  One could say it’s too early to make an assessment and that could be true.  But it could also be said that companies are being cautious due to uncertainty in regulations, taxes, inflation and economic growth.  If this were a one-off issue, that would be one thing.  On the other hand I’m starting to see some parallels to times when bubbles existed.

Exhibit #1 – SNAP

When was the last time an IPO was launched successfully with an increased price, profitability uncertain, a twelve month lockup for outside investors and founder retention of roughly 88% of the voting rights?  If so inclined, the safest play is through Comcast (CMCSA)’s roughly 5% ownership of Class A shares.  Can we say dot-com revisited?

Exhibit 2 – Target

Target (TGT – #19) whiffed on earnings and guidance last week.  On one of Lanny’s posts, my comment How many were blindsided by TGT’s report yesterday, how many updated their forward estimates and how many incorporated the fact (illustrated by mgmt) that a turn around was (minimally) two years out and would incur additional costs in store conversions and IT expense?  raised the question Did you, by any chance, seize the opportunity, by the way, at TGT? Or waiting for some dust to settle?. 

The short answer is no and not likely near term.  All retailers are struggling against Amazon (AMZN).  I have exposure to Wal-mart (WMT) through a trust I manage.  WMT is about a year ahead of TGT via their Jet acquisition but still significantly lag AMZN.  The good news is TGT now recognizes a problem.  My question surrounds their execution (and time required).  Yet several bloggers bought this dip.  They may be correct but this one currently carries more risk than reward in my book.

Exhibit 3 – Caterpillar

It’s always disconcerting to have Federal agents raiding corporate offices.  To have it broadcast live on television raises the stakes.  Caterpillar (CAT – #32) experienced this treatment last week.  Not overly surprising as CAT has been embroiled in a dispute with the IRS regarding alleged shifting of profits offshore to a Swiss subsidiary.  What I found interesting was that FDIC regulators participated … which perhaps raises a new question of money laundering?

Exhibit 4 – Costco

Sliding back to the retail space, we have another DGI darling illustrating how customer loyalty should be rewarded.  Costco (COST- #156) reported Y/Y revenue growth due only to new stores and membership fees.  Their response?  Let’s boost revenue growth by raising membership fees further!  Talk about a counter-intuitive response.

These are but a few reasons I believe this market warrants an abundance of caution.

Long: CMCSA, WMT (trust).  Ranking based on DGI popularity list.

Prepping for ’17

In my inbox I found a message inspired (?) by my last post.  In a nutshell, it was a request for further insight into my October purchases.  I have to admit that, on the surface, the appearance is that I was throwing stuff against the wall to see what would stick.  I would like to think I’m slightly more calculating.  To set the scenario, I had an oversized cash position due to a merger, the markets had started their pre-election downward drift and the FBI just breathed new life into Candidate Trump’s aspirations.

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Madness (Pt 2) Updated

Last year I published Methods To My Madness Pt 2 where I presented part of my non-core investing strategies.  One section has seen some activity in the broader market recently to the point I figured an update was warranted.  The section in question:

Not so obvious are Webster, UMB Financial, Health Equity, UnitedHealth and Xerox.  Each of these companies operate Health Savings/ Flexible Spending Plans.

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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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