Some Overdue Cleaning

This week, I began the annual review of my blogroll and noticed something perplexing.  Some Australian sites have gone dark. Frankie’s is offline and Australian Dividend Investor’s final post cryptically reads:, “As the old saying goes, all good things are eventually brought to end by the firms risk and compliance division.”  Just scratching my head a little and wondering if the hammer was dropped by the authorities down under as I know they can be a little more restrictive there …


Meanwhile, I’ll look to shake up the Top Sites a little to at least replace the broken links.
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As part of this review, I ran across a great analysis by Mr Free at 33 illustrating the differences between total return and appreciation through capital gains in one case.  The one hole in the analysis (in my opinion) was the potential role of tax strategies – which was promptly brushed aside by Jason. Curious as to why, I found the answer in another comment thread where he states, “Writing about bureaucracy and stuff like that (including taxes) isn’t very interesting for me, so I just don’t.”.  So yes the current tax law is structured advantageously to his benefit – however if this changes – or he grows his portfolio enough to exceed current thresholds – tax strategies could play a role in improving overall performance.
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A second anomaly in his work becomes evident when his statement, “The stock that can produce the most possible dividend income on the smallest possible investment is, for me, the best stock of all.appears in his post.  In his case this is certainly a plausible theory.  Yet in a prior post, he defines his top holdings in terms of portfolio value rather than dividend income.  It could be claimed this is a minor point, however allow me to illustrate some differences based on the top holdings in my portfolio.

Obviously I have a mix of the AT&T and Visa scenarios as well.  The point being, 70% of my top ten are the same on each side of the ledger, it’s the 30% that is interesting – particularly Disney.  Legacy Texas could be an aberration due to a pending merger (scheduled to complete November 1st (pending shareholder approval)).

And yes, I do have a slight imbalance that I’ve been trying to correct for awhile now.

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Finally, the data in the Dividend CAGR column was extracted from a cool tool that Dividend Dozer created.  It’s one of those things that kind of grows on you particularly when you can identify additional ways to use it.  I would encourage you to look at his Dashboard!

I guess that’s all musings I have for this week, so onward and upward as we see how the market digests the landmark – kinda sorta – trade deal in three phases …

Analyst BullS#!T!

My friend Frankie posted an aptly titled piece (Beware the Broker BullS#!T!) on analyst’s actions awhile ago (along with a followup) which struck a nerve as my early investing career had several of the pitfalls mentioned.  While I did evolve to settle primarily on a modified DGI strategy, I have to wonder as to the due diligence exercised by some of the broker’s clients. In the US, there are some shops that are essentially pay for play schemes, meaning pay us money and we’ll cover your business.  One of these is Taglich Brothers (which has a clearing business relationship with Pershing, LLC in which I am a shareholder (BK)).  Taglich, through it’s press release with NXNN (a spec holding of mine) disclosed, “In October 2017, the company paid Taglich Brothers a monetary fee of $4,500 (USD) representing payment for the creation and dissemination of research reports for three months.  After the first three months, the company will begin paying Taglich Brothers a monthly monetary fee of $1,500 (USD) for the creation and dissemination of research reports.”  Unbiased?  Unlikely. Another take on them was provided by D/M/O.  Point of reference, Orchids Paper (TIS), mentioned in the article was formerly in my portfolio and subsequently filed for bankruptcy protection (I had sold prior to the filing).

Another angle on alternative strategies was brought front and center this week with the publication of Spruce Point’s analysis on Church & Dwight (CHD).  Spruce Point is a small, short focused firm similar to Muddy Waters Capital or Kerrisdale Capital that use Seeking Alpha, Twitter and other social media to broadcast their research.  Spruce Point takes a short position, runs a campaign and determines the traction being gained. In the words of the founder Ben Axler, “Because I run a small business, we don’t have a lot of time to waste going down rabbit holes where there’s a dead end,” he says. “I can generally sniff out a company pretty quickly.”  OK, then.  

I admit that CHD is richly valued and perhaps they overpaid for some acquisitions.  I also submit that Spruce Point is highly vocal for their smallish size. They have, however, been building a little bit of a track record in this bull market.  On first blush, it appears the Spruce Point results have been stellar thus far in 2019 with a by moving the market in their intended direction 77% of the time on the day their report is released – translating into an average market loss of their targets of 3.78%.  I would posit their gain is even greater as I suspect their investors and subscribers get a first look at the reports. My guess would be a 5-10% short term gain.  

As of Sept 7, 2019

In the shorting game, the real money is to be had by riding a target down, but to do so requires conviction, stamina and staying power.  Based on Ben’s comment, I doubt they are riding the targets down other than a select few high conviction ones. My reasoning being that they would be booking a loss for 2019 as their targets, in aggregate, are 2.88% higher post call.  The three that would have rocketed their results lost 49%, 26% and 25%. Conversely the three they should have exited quickly gained 86%, 51% and 12% for the longs.

Over the weekend Spruce Point has continued their campaign against CHD using Twitter to gleefully proclaim success as CHD has not chosen to engage in their antics.  Although some of Spruce Point’s issues have some validity, in large I feel they are overstated – essentially a headline grabber.  

One issue they raise is the use of factoring to manipulate results.  Possible, but it depends on whether it is recourse or non-recourse. Spruce Point also takes issue with an undisclosed UK acquisition.  My take is with sales in the £764,000 range this is negligible. The current year “slowing dividend growth” could be explained by prudence in digesting its last two acquisitions.  I suspect this dividend trend may be the new normal for a period of time if management executes on their goal of expanding their “power brands” to twenty.

In summary, they could very well be right. They could also be playing a manipulation game. If weakness intensifies my thoughts are that a buying opportunity may be at hand. Then again – I may be wrong 🙂

When a Dividend Increase Really Isn’t

As a kid I enjoyed a good riddle every now and again but as the years went by thought I’d outgrown them to a large degree.  Until now.  One of the companies in my portfolio announced a dividend.  In reviewing the announcement (specifically the SEC 6-K filing), I noticed the dividend amounted to an increase of 13.16%.  Not shabby – in fact it exceeds the average of my portfolio (12.08% current).  So imagine my surprise to find the amount to be credited resulted in a 15.23% reduction!  Hmm … kind of blows away the increase, doesn’t it?   Of course I had to investigate – it appears like that’s what I seem to do.

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Volatility Returns!

With the wild ride in the markets this week, I perused some of the community’s blogs to gauge the reaction.  While not meeting scientific norms regarding sample size, I was surprised by the lack of reference to the pullback in 66% of them – including ones with posts as recent as yesterday.  Perhaps it’s a lack of funds to take advantage or the deer in the headlights syndrome.  One blog, Fully Franked Finance, had a timely piece a few days prior which stated the importance of a ‘shopping list’ – as many others also encourage.  I too, engage in a strategy which emulates  the ‘shopping list’ strategy.  So, what were my moves so far this month?

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