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.
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.
Generally I put together a watch list quarterly based first on overall portfolio goals. As an example, the first quarter typically is used to readjust weightings where they’ve gone a little awry – particularly in my anchor and core positions. This next quarter has historically been goosing returns as its’ priority. Meaning, adding to out of favor positions (depending on the reason) which carry the highest current yield. You could say it’s a personalized Dogs Of The Dow approach. As always, market valuations have the final vote on my actions.
In preparing the list for next quarter, I’m finding more compelling reasons to avoid sectors as opposed to buying:
- Example 1 – The first legislative test facing the Trump team is today’s vote on health care. Even putting campaign rhetoric aside which placed a spotlight on the likes of CVS, the actual bill aims directly at Medicaid and indirectly at Medicare recipients. Assuming the bill passes in its current form (unlikely), estimates are roughly 20 million people will become uninsured. The indirect impact to health care REITs could blindside some investors. Using CCP for one, some providers to which they lease could face reimbursement issues. Simultaneously, the DOJ is pursuing a case alleging Medicare fraud against AET, CI, CNC and HUM. Then there’s fraud in diagnostics resulting in one bankruptcy. I think I’ll let the dust settle in this segment before treading any deeper.
- Example 2 – My expansion into Hong Kong encountered some headwinds. Swire announced a dividend which was effectively a cut (still figuring the magnitude, but about 38%) primarily on the heels of their 45% ownership stake in Cathay Pacific (CPCAY). At least the poor fuel hedge (that my analysis missed) expires next year. And, no, my efforts to increase my diversification outside the US are still intact. If only the Yen would weaken …
Perhaps a correction is on the horizon as UBS suggests. perhaps not. But the one certainty is there is plenty of uncertainty – especially with earnings season set to begin again. I guess I need to finish my taxes to see what the budget for purchases looks like.
Periodically I piece together thoughts based on my internet browsing or events garnering recent headlines. Some may have an impact on my portfolio or strategy, others are only food for thought. For your entertainment, I present my latest installment.
Previously I wrote on Cuba themed investing . Yesterday’s headline delivered the news of Fidel Castro’s death. Regardless of individual feelings on the Cuba issue, the fact remains the current trajectory is for further easing of sanctions. It will, however, be an interesting first test for the new president pitting his stance on increasing exports versus his campaign rhetoric on rolling back Obama’s executive actions and the promises made to the Cuban Americans in Florida. At the very least, the Canadians are likely chuckling at Trump’s conundrum as they never had an embargo to begin with. A couple of articles are linked below.
28 November 2016, Mastercards (MA) issued by Banco Popular (BPOP) and NatBank (NA.TO, NTIOF) are currently valid by Executive Order (Obama) as well.
Also in the headlines this past week was the school bus tragedy in Chattanooga, TN. Knowing there are four bloggers invested in school bus transportation services, I figured it was time to perform a little research. There appear to be three major players in the space, two from the UK and one from Canada. The largest is apparently First Student (FGP.L), followed by National Express Group (NEX.L), with Student Transportation (STB) in third. First Group’s dividend has been suspended for a couple of years and National Express has been flirting with being acquired but with suitors leaving her at the altar. National Express has Durham School Services as a subsidiary which was involved in the accident. Our four blogger friends are all invested in STB.
The New Healthcare?
One of the bigger questions surrounding the new administration is the direction to be taken with healthcare. In all likelihood changes are coming but to what end? Outside my fondness for HSA/FSA managers, a plausible argument has emerged pertaining to Medicare insurers.
(Long: UNH, HUM)
One blogger displays the fact that he is a philanthropist. Now this got me thinking. I’m old school and think of the likes of a Carnegie (public libraries) when considering the term. My opinion is that this title is earned by – or bestowed upon – individuals based on works and deeds over a significant period of time. Considering my net worth is greater than his (but his growth trajectory is increasing) and his portfolio has performed similarly to mine, left me scratching my head. I do consider myself charitable but think philanthropy takes charity to another level. Thinking that perhaps I’m operating in the past, I looked at the Urban Dictionary‘s definition which says, “one who gives money to charity, often associated with the wealthy and given a negative connotation by people who have never donated more than a dime at McDonald’s.” Hmm … perhaps we are all (or most of us) philanthropists.
Until next time.
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.
October was basically a quiet month with OPEC failing – once again – to shore up their hold on the oil markets. Chevron announced a small increase in their dividend maintaining their status as a Champion. Several small positions were added at month end as the market began a pullback (continuing into November) enabling me to start redeploying funds received from PNY’s merger with DUK. This month The S&P dropped 1.94%. My portfolio was basically flat, ending down 0.1%. Note: I normalized these numbers to consider the impact of cash infusion from the merger. My ‘pure’ equity positions decreased by 4.15%. The need for this normalization should end as my excess cash is used. This increases my lead for the year to 11.5% with two months to go.
Headlines impacting my portfolio:
- 10/3 – JNS to merge w/ Henderson
- 10/11 – SRCE gains FRB approval for Sarasota, FL branch
- 10/19 – C finalist to be designated as clearing firm for Renminbi trades
I’m a little behind again this month but the portfolio data has been compiled and will 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.
- Closed PNY due to merger
- Added to BMO
- Added to CVLY prior to ex-div for the stock dividend
- Added to JNS (weakness on currency exposure)
- New position – ABM
- New position – AMT (Jan)
- New position -BLL
- New position -CASY
- New position -CHCO
- New position -KOF (Mex. peso exposure)
- New position -COKE
- New position -CCE (UK exposure)
- New position -CSAL
- New position -CTBI (Jan)
- New position -CCI
- New position -HUM (Jan)
- New position -LAMR
- New position -NWFL
- New position -OCFC
- New position -ONB
- New position -OUT
- New position -PLD
- New position -QCOM
- New position -DGX (Jan)
- New position -SRC (Jan)
- New position – SGBK (Cuba exosure)
- New position – BATRA
- New position – VALU
- New position – VER (Jan)
- New position – YUMC (YUM spin-off)
- October delivered an increase of 28.9% over October 2015. This was due about evenly between dividend increases (Y/Y) and late 2015 funding.
- October was down 10.68% from the prior quarter due to special and semi-annual payments in July.
- Announced dividend increases currently average 12.59% with 67.11% of my portfolio having at least one raise so far this year.
- Through October, dividends received exceeded total 2015 dividends by 7.2%.
Roughly half of the PNY/DUK proceeds have been redeployed with an additional 3 orders pending for January payers. I’ve filled some of the hole I’ll face in January, so I plan on maintaining a small cash position through the election before making further decisions.
The XRX spin (Conduent) is on track to complete by year end. MetLife has filed for a spin of their Brighthouse Financial unit under the ticker BHF.
Proxies were received and voted for both the LSBG/BHB and AGU/POT mergers.