Show Me The Money!

politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other.”

Oscar Ameringer 1870-1943

With apologies to the cast of Jerry Maguire, this post is not about sports – unless politics  is now the national pastime.  This post is only peripherally related to the forthcoming election by virtue of the cash.  Period.  Today is not about Purple, Red or Blue – but Green.

Last week I mentioned that any sales of my banks were on hold pending a study which I have now completed.  The common denominator in any US election is fundraising.  The Federal Election Commission lays out the rules of the game, one of which is that cash must be held in one (or more) domestic financial institutions.  For a multitude of reasons (mostly tax related), most campaign advisors recommend placement in a non-interest bearing account.  (Exceptions are rampant – particularly among PACs, but we’ll assume otherwise for simplicity’s sake).

In the current environment, low or no-cost money is key to profitability.  Once critical mass is attained, the spread between cost of funds and the amount earned can be significant.  Three ready sources (that I’m aware of) exist – HSA/FSA accounts (covered previously), state and local tax accounts (still looking for a data source) and political money.

The main problems with political money are additional reporting requirements and stickiness.  A media buy can pull thousands (or millions) of dollars from an account in short order – which could be problematic for many smaller banks.  That said, I kind of had to wonder if the PE ratio noted by Lanny of Peoples United (PBCT) is attributable in part to the fact it was of two used by the Bernie Sanders campaign.  Or perhaps it is an offset to one of my banks’ heavy leverage to the oil patch (BOKF).

Political money is quite often invested in brokered CDs (ensuring FDIC insurance), Treasuries and other low risk and therefore low-yielding investments.  One such bank, Amalgamated (AMAL) reported (March 2020) $774.8m in political deposits (campaigns, PACs, and state and national party committees) with a net interest margin of 3.46%.  All that is required is a decent algorithm to ensure liquidity as the candidates spend their money.

As I was identifying which banks to retain in a post-Motif world, figured it might be enlightening to identify if there was a Republican alternative to the Democratic Amalgamated?  The amount of blatant hypocrisy embedded in the money?  Preconceived notions that were pierced?

I identified 842 campaign accounts reported to the FEC.  116 candidates had no report on file – pretty evenly split between parties.  One of the reasons is explained in this article.  115 of the accounts were held at non-public institutions (private banks, mutual societies or Credit Unions).  For the purpose of this analysis, both categories were ignored with one exception.  66 institutions had the account of only one candidate which were also ignored (except for the self-reporting piece) as they were generally banks in the state or district of the candidate.

The first exception was the answer to Question #1  – a Republican alternative to AMAL.  The answer is an unqualified yes, although Chain Bridge Bank is a closely held (not publicly traded) corporation.  It probably played the spread a little better than AMAL by investing in Treasuries last year, locking in then higher rates.  I identified 42 Republican accounts  held at Chain Bridge versus 88 Democratic at AMAL.  Some Republican accounts of note (at Chain Bridge) include: John Cornyn (TX), Tom Cotton (AR), Lindsey Graham (SC), Joshua Hawley (MO), Rand Paul (KY), the Republican National Committee and one Donald J. Trump.  Notable Democratic accounts at AMAL include: Richard Durbin (IL), Kamala Harris (CA), John Lewis (GA), AOC (NY), Bernie Sanders (VT), Elizabeth Warren (MA), the Democratic National Committee and Joe Biden.

As far as hypocrisy goes, in politics it’s second nature and there’s little difference with the money.  While Democrats seem to thrive keeping Wells Fargo’s feet to the fire after multiple misdeeds over the years, apparently they aren’t severe enough to warrant fellow House Financial Services Committee members David Scott (GA) and Madeleine Dean (PA) to move their accounts or other notable Dems such as Timothy Kaine (VA) or Ted Lieu (CA) either.   Republican’s aren’t immune from hypocrisy either.  Consider the President’s America First campaign.  Apparently Brian Bavin (TX), Richard Shelby (AL) – both BBVA, Glenn Grothman (WI – BMO), Devin Nunes (CA – MUFG) , Ken Calvert (CA – RY) and John Cornyn (TX – UBS) all consider repatriating profits to other countries (Spain, Canada, Japan and Switzerland) the path to making America Great Again.  Moving along …

Let’s talk of my biases – things I had presumed accurate with little basis for the assumption.  Things like Zions Bancorp (ZION) based in Utah would have a conservative political bent.  In fact, 75% of their political accounts are Democratic.  Or the International Bank of Commerce (IBOC) with their CEO an ardent Trump supporter headquartered in a border town with both their political accounts being Democratic.  Or First Republic (FRC) that had some interesting – if not questionable – dealings with Trump associates entrusted by two Democrats. So much for preconceived notions …

The top ten publicly traded banks holding political campaign money are (# of accounts):

Bank of America Corp BAC 115
Amalgamated Bank AMAL 89
Wells Fargo & Co WFC 87
Truist Financial Corp TFC 81
PNC Financial Services Group Inc PNC 23
Citigroup Inc C 19
JPMorgan Chase & Co. JPM 17
Eagle Bancorp, Inc. EGBN 14
Cadence Bancorp CADE 13
Capital One Financial Corp. COF 13

If I were to wager a guess, Amalgamated and Chain Bridge have the number of accounts to move the needle a little where the others either don’t have the critical mass or their sheer size dwarfs any impact to earnings.

I currently own AMAL, BAC, BANF, BMO, BOKF, C, CBSH, CFR, CHCO, CMA, FFIC, FHN, FMBH, HOMB, HTH, IBOC, JPM, KEY, ONB, PB, PBCT, PNC, RY, TD, UMBF, USB, VLY and WFC all with varying degrees of campaign funds.

July 2019 Update

The market continued to defy gravity this month as the only external turmoil was leveled at the Fed with encouragement to cut rates in excess of a quarter point. At month end, the Fed chose their own path and the market tailed off from the highs recently attained. Earnings season has been generally good to mixed with ongoing concern regarding Trump’s Tariff strategy the main issue. This month the S&P gained 1.3% while my portfolio gained 1.8%. For the year, I remain ahead of the benchmark by 1.0%.

PORTFOLIO UPDATES

  • finally sold out my OMI position (prior dividend cut) and used the proceeds to increase my RY position
  • Sold my UNIT (dividend cut/debt covenant issue) and LAMR (reporting discrepancies (my opinion)) positions using the proceeds to increase positions in ABM, ARD, BLL, CHCO, KOF, CCEP, CTBI, AKO.B, HOMB, IRM, NWFL, OCFC, OUT, PLD, QCOM, SRC, SMTA, BATRA and VALU as a rebalance
  • increased my CHD position
  • increased my JNJ position

DIVIDENDS

My primary focus resides on dividends with the goal being a rising flow on an annual basis. This month marks the removal of the quarterly comparison as this has proved to be steadily meaningless.

  • July delivered an increase of 4.64% Y/Y. This is off my typical run-rate due to two foreign pay cycles hitting in August this year, rather than the July of last year.
  • Dividend increases averaged 10.13% with 57.27% of the portfolio delivering at least one increase (including 4 cuts (two being OMI)). This is off last years’ pace and I believe a new personal record for dividend cuts in a single year since about 1980.
  • 2019 Dividends received were 64.31% of 2018 total dividends putting me on target to exceed last years’ total in late October. The YTD run rate is 107.66% of 2018, slightly under my 110.0% goal – but still recoverable.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

SPINOFFs

On Oct 4, 2018 MSG filed a confidential Form 10 to spin the sports business which remains in progress.

MERGERS

XRX merger with Fujifilm cancelled (still being litigated). Pending settlement expected in September.

TSS to merge into GPN (all stock, .8101 sh GPN for each TSS sh) estimated to complete in October – Upon the announcement, I was prepared to sell my TSS position to book almost a triple in just over 4 years as GPN currently pays only a penny per share dividend per quarter. However, page 14 of their slideshow states: Dividend – maintain TSYS’ dividend yield. This would appear to indicate an increase in GPN’s dividend, so for now I’ll hold.

PB to acquire LTXB for 0.528 shares and $6.28 cash for each LTXB share. I plan to vote in favor of the transaction (on both sides), pocket the cash and sell the new shares – retaining the old and perhaps use some of the cash to purchase additional PB shares post-merger.

VLY to acquire ORIT for 1.6 sh VLY to 1 ORIT. This merger will result in a slight dividend cut November forward as the rate will be normalized to VLY’s current rate. In my view, the other positives outweigh this negative.

PBCT to aquire UBNK for .875 sh PBCT to 1 UBNK. I plan to hold this one as I wouldn’t be surprised if PBCT gets taken out at come point.

The last three continue to validate my strategy of bank consolidations from a few years ago. The only flaw (so far) was the holding period required – but dividends were received while waiting.

SUMMARY

Overall, no complaints. It appears the pending mergers might provide premium to improve my performance over the index, but I don’t want to get too far ahead of myself yet. I still see a little consolidation in my holdings through the last half by migrating to a slightly risk off stance, offset slightly by companies with compelling stories. My cash position does remain slightly above mean.

Here’s hoping your month was successful!

July 2018 Update

The markets generally shook off potential tariff impacts, choosing instead to focus on earnings and GDP.  Any future concerns being tabled by investors to essentially celebrate the present.   Being a contrarian by nature brings out the caution signs when the market ignores some warning signals.  Tariff advocates Alcoa and Whirlpool took hits when they acknowledged the benefits anticipated were not materializing as expected.  Signs of profiteering are beginning to emerge.  The list of companies indirectly impacted continues to grow.  Technology had issues due in part to China exposure.  Perhaps I can be forgiven for seeing the glass half empty rather than half full.  This month had me on the sidelines with only one transaction to report.  July saw a rise in the S&P of 3.6% while my portfolio outperformed by registering an increase of 5.36%.  YTD I’m now ahead of the S&P by 1.06%.

Portfolio Updates:

Performed a rebalance on a portion of the portfolio.  I reduced the overage in DGX created in May and added shares to the others in this group (ABM, AMT, ARD, BLL, CASY, CHCO, KOF, CCE, CTBI, CCI, AKO.B, HOMB, IRM, LAMR, OUT, NWFL, OCFC, ONB, PLD, QCOM, SRC, SMTA, BATRA, UNIT, VALU, VER).  My DGX holdings remain higher than they were in May and the increase in dividends on this rebalance is negligible.

DIVIDENDS

My main focus resides on dividends.  Market gyrations are to be expected but my goal is to see a rising flow of dividends on an annual basis.  I’m placing less emphasis on the quarterly numbers as the number of semi-annual, interim/final and annual cycles have been steadily increasing in my portfolio.

  • July delivered an increase of 29.76% Y/Y, the biggest impact being a June dividend paid in July.   Pro-forma was 19%.
  • July delivered a 3.29% decrease over last quarter (April) due to an interim/final cycle (and would’ve been greater without the dividend move).
  • Dividend increases averaged 14.39% with 66.51% of the portfolio delivering at least one increase (including 1 cut (GE).
  • 2018 Dividends received were 70.19% of 2017 total dividends putting us on pace to exceed last year in early November.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

Spinoffs:

GE‘s rail unit to spin then merge with WEB

GE to spin 80% of the health business

Mergers:

XRX merger with Fujifilm cancelled (now being litigated).

SHPG to merge into TKPYY

GBNK to merge into IBTX

COBZ to merge into BOKF

GNBC to merge into VBTX (semi-reverse)

Summary

All in all a good month but it appears my continuing financial overweight is literally reaping dividends.  This probably needs to be addressed in 2019.

Hope all of you had a good month as well.

Dec 2017 Update and Year End Review

The upward trend continued this month with catalysts being the tax plan and holiday sales.  My guess remains that the first half of 2018 will be good for corporations (i.e., dividends and buybacks) with a shift in focus later with deficits and mid-term elections playing a leading role.  I remain convinced the yearlong weakness in the US Dollar will continue and expect to allocate more cash into foreign equities during the first half 2018.  I will review this plan as my personal tax implications become clearer.  For the month,   the S&P index increased by .98% while my portfolio increased by 3.29% largely fueled by Financials (again).  For the year the S&P increased by a stellar 16.26% while I came in at +20.58%! The S&P return with all dividends reinvested adds about 2.41% which my hybrid approach still beat.

Continue reading

September 2017 Update

This month for my portfolio was choppy to say the least.  Impacts were the start of calculating hurricane damage, data breaches, fears of a primary tenants’ possible bond default, continuing geopolitical fears and a strengthening of the US dollar at month end (again). With a portfolio currently weighted 15.35% pure international and a little overweight towards Texas it’s not too surprising the S&P index outperformed by increasing 1.93% versus my 0.36% increase.  For the year I’m still ahead by 2.9%.  On the other hand, dividends received set a new monthly record.

Headlines impacting my portfolio (bold are owned):

  • 9/7 – SQ to apply for UT banking license as an industrial loan co.
  • 9/7 – BANF acquires First Wagoner Corp and First Chandler Corp
  • 9/7 – EFX announced massive dB hack
  • 9/11 – UNH makes formal offer to acquire BANMEDICA.SN
  • 9/11 – Cdn approval for POT/AGU merger received. awaiting  US, India and China.
  • 9/14 – MMP forms JV w/ VLO for marine termimal in Pasadena, TX
  • 9/21 – GBL (Mario Gabelli) increases stake to 7.74% in BATRA
  • 9/25 – GE sells industrial solutions unit to ABB
  • 9/28 – DGX acquires Shiel Medical Laboratories from FMS
  • 9/28 – IVZ buys Guggenheim Ptnrs ETF business
  • 9/29 – AIG sheds SIFI designation

Portfolio Updates:

  • added to FFIC prior to ex-div on market weakness (N. Korea)
  • added to NWFL (stock split)
  • added to AROW (stock dividend)
  • added to HOMB and lost SGBK (merger)

Dividends:

  • September delivered an increase of 47.56% Y/Y with the about half of the increase being attributable dividend increases and the other half purchases with an assist from a merger premium.
  • September delivered an increase of 16.87% over last quarter (June).  Semi-annual payers, a purchase and dividend increases being the reasons.
  • Declared dividend increases averaged 10.98% with 65.54% of the portfolio delivering at least one increase (including 2 cuts and 1 suspension)
  • YTD dividends received were 92.61% of total 2016 dividends which if the current run rate is maintained would exceed last years’ total in late October.

Spinoffs:

Spirit Realty Capital (SRC) has been announced.

Mergers:

AGU/POT (Nutrien) remains pending, SGBK/HOMB completed September 26th.

Summary

With the primary goal of exceeding last year’s dividends in sight, my focus turns to developing a strategy for 2018 – which will likely hinge on the degree of success – if any – to be expected in Year 2 of this administration.  Otherwise I’ll probably continue with the current adding to the underweight holdings unless news erupts.

August 2017 Update

The markets ended the month generally flat while whip-sawing in between on geo-political news (North Korea), domestic disturbance (Charlottesville) and natural disaster (Harvey) taking center stage.  I did deploy a minimal amount of new capital along with dividends received in some positioning moves.  The S&P ended the month up .05% while my portfolio lagged by dropping -0.34%.  The differential can be explained by two events, 1) higher exposure to Texas (e.g., hurricane), and 2) the month-end rise in the US dollar causing my foreign issues to drop a little.  For the year, I remain ahead of the index by 4.47%.

Headlines impacting my portfolio (bold are owned):

  • 8/3 – IVZ in talks to buy Guggenheim Ptnrs ETF business
  • 8/3 – VLO agrees to export refined fuels to Mexico through iEnova (SRE subsidiary)
  • 8/3 – SRC announces spinoff of Shopko properties
  • 8/4 – Ackman requests delay in ADP brd nomination deadline as “8% owner”
  • 8/4 – LAMR acquires Philadelphia market billboards from Steen Outdoor
  • 8/8 – ONB acquires Anchor Bank (MN)
  • 8/10 – PYPL acquires Swift Capital (Del.)
  • 8/10 – INVH and SFR agree to merge (BX stake to be abt 41%)
  • 8/15 – KEY acquires Cain Brothers (pvt)
  • 8/16 – TU acquires Voxpro (pvt)
  • 8/16 – PLD buys out CCP (CYRLY) JV
  • 8/20 – GS approved for Saudi Arabian stock trading license
  • 8/22 – PAYX acquires HR Outsourcing Inc. (a Clarion Capital portfolio company)
  • 8/22 – CLX sells Aplicare line to Medline (pvt)
  • 8/22 – BX considering an IPO/sale of Gates Global
  • 8/30 – KSU forms JV with Bulkmatic for bulk fuel terminal in Mexico
  • 8/31 – BNS confirms discussions to acquire Chile operations from BBVA Spain

Portfolio Updates:

  • Added to VLO
  • Added to LARK
  • Added to AROW

LARK and AROW were positioning moves ahead of anticipated stock dividends (3% announced by AROW post purchase)

Dividends:

  • August delivered an increase of 22.24% Y/Y with the about half of the increase being attributable dividend increases and the other half purchases.
  • August delivered a decrease of 12.99% over last quarter (May).  Semi-annual payers, a date change due to a merger, and normal BX dividend being the culprits.  Also a Singapore dividend paid in August (locally) has yet to be paid via Citi’s ADR (now likely Sept.), so I expect September to be firing on all cylinders.
  • Declared dividend increases averaged 10.92% with 62.71% of the portfolio delivering at least one increase (including 2 cuts and 1 suspension)
  • YTD dividends received were 75.91% of total 2016 dividends which if the current run rate is maintained would exceed last years’ total in early November

Spinoffs:

Brighthouse Financial (BHF) (MET spin) has been received.

Mergers:

AGU/POT (Nutrien) remains pending, SGBK/HOMB received regulatory approval and is expected to close late September.

Summary

Overall another positive month with the only disappointment being the Q/Q dividend decline – which was unexpected.  The primary metric (annual dividend increase) remains on target and well ahead of inflation.

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.