Apr 2018 Update

The month was relatively crazy with geopolitics driving the highs and domestic lunacy driving the lows.  In between were relatively strong earnings and interest rates inching higher driving the question of the bull market sustainability.  Personally, I’m not overly concerned yet but Marco Rubio‘s “implication that Republicans have found no good answer to the problems Mr Trump described is irrefutable.” may be an omen of things to come.   Meanwhile, I took advantage of some dips and stayed the course.  April saw the S&P rise 0.27% and my portfolio outperformed the index by registering a rise of 0.65%! YTD I still lag the S&P by 0.43%.

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April Showers

Below the shifting landscape that debates the notion as to whether tariffs are a negotiating ploy or the real deal, some pig farmers are now operating at a loss of thousands of dollars per week (futures markets have priced in tariffs) and soybean growers are considering whether to reduce their plantings to avoid the same fate.  Meanwhile the impact on our NAFTA partners is also being considered across the borders.  Canada can increase their soybean and pork sales to China but the net impact will still be negative to them considering the magnitude of trade volumes.  Mexico is expanding ties to China in an effort to mitigate the ‘Trump’ effect.  All the while, the administration has to be aware that China holds the ultimate ‘trump’ card in the debt held.  Some bearish views posit US interest rates could rise to 14% if China ceases their bond purchases.

With these headlines staring at us, it would be excusable to have missed some of the underlying news – one being in healthcare.  Two of my companies made the news this past week with possible or rumored deals; Shire (SHPG) and Humana (HUM).  Takeda’s interest in Shire has all the appearances of industry consolidation, Wal-Mart and Humana’s discussions are more along the lines of being one of the last gorillas.

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Mar 2018 Update

A few days late since Easter got in the way with the markets being closed March 30th and dividends not being posted in a timely manner.  FX transactions were also delayed impacting my final accounting for the month and quarter.  This month the DOWs first quarterly loss since 2015 grabbed the headlines while the news getting my attention was the rising Libor particularly with its potential impact on adjustable rate mortgages and business loans.  March saw the S&P drop 2.69% and for the first time this year my portfolio outperformed the index by registering a drop of 0.06%!  YTD I still lag the S&P by 0.81%.

Portfolio Updates:

  • Added to PWOD, WU and ABB
  • Initiated a position in VLVLY

DIVIDENDS

This is where my main focus resides.  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 amount of semi-annual, interim/final and annual cycles have been steadily increasing.

  • March delivered an increase of 39.79% Y/Y fueled by dividend increases and purchases.  In particular, my December buys were almost exclusively March payers.
  • March delivered a 11.44% increase over last quarter (December).
  • Dividend increases averaged 11.25% with 40.3% of the portfolio delivering at least one increase (including 1 cut (GE) and 1 suspension (DST see M&A).
  • 2018 Dividends received were 29.3% of 2017 total dividends putting us on pace to exceed last year in early November.

Spinoffs:

Spirit Realty Capital (SRC) – Mar 6, Form 10 was filed publicly with spin completion targeted for 1H 2018.

Mergers:

Jan 13 – DST announced it was merging with SS&C for $84 cash per share.  As part of the merger agreement, the dividend has been suspended – the merger received shareholder approval on March 28th.   I expect the deal to complete in April or May.

Jan 31 – XRX announced a merger with Fujifilm for stock and $9.80 in cash.

A few others are rumored to be in play including Humana and Shire.

Summary

With my March call being spot on (… it appears we’re getting a preview of March Madness in the form of a Trump induced possible trade war.) the Paychex jobs data (small business) released this morning is keeping me in a cautious mood.  Yes it is only a one month view showing fewer jobs – but small businesses are supposed to be the economic driver in Trump World.  Perhaps it’s an aberration – but one to keep an eye on.  Overall a good month in spite of tariff uncertainty.

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.

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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.

 

Shifting Sentiments

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.

Of This and That

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.

Cuba Revisited

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.

(Long: SGBK, KOF)

28 November 2016, Mastercards (MA) issued by Banco Popular (BPOP) and NatBank (NA.TO, NTIOF) are currently valid by Executive Order (Obama) as well.

School Transportation

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)

Philanthropy

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.