Harvey

Hurricane

Mother Nature certainly is a beast at times.  Watching her ongoing treachery on the television is heartbreaking to say the least.  Looking out the window, I see sporadic rain – which will continue for a few days – but nothing of the magnitude being experienced just a couple hundred miles away.

As my mind wanders a little due to the same images being replayed over and over, I can’t help but thinking of the economic impact of Harvey.  Being resident in Texas, my portfolio has a little bias towards my home state.  In a similar vein, which companies stand to lose – or gain – from this tragedy?  I figured I’d lay out my thoughts – which probably are incomplete – as a basis for determining whether my portfolio can weather (pun intended) a storm of this severity.

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April 2017 Update

April brought more noise to the market with geopolitical issues front and center.  The market appeared to acknowledge the fact that even with Republican control of government, a more centrist approach is necessary to accomplish much of anything.  The President’s first 100 days ended with one legislative win; a Supreme Court Justice.  As earnings season kicked into high gear and the French election completed (runoff pending), the markets rebounded and the S&P ended the month with a .91% gain.  Including new money (mostly IRA maximization), my gain was 3.41% (2.32% excluding new money).

Loyal3 Migration

The forced move from the Loyal3 platform is essentially complete.  Full shares arrived at Schwab April 27th.  Fractionals did not move – basically a he said/she said scenario.  Schwab says they would accept them while Loyal3 said they wouldn’t.  All fractional shares on Loyal3 were sold April 28th, netting $218.59.  Loyal3 was basically my ‘spare change’ broker and illustrates the benefits of investing even small amounts.  The trades will settle Wednesday and Friday I’ll transfer remaining funds – after I see which direction the YUM dividend goes.

I decided to use Schwab’s synthetic DRIP for PEP, DIS, SBUX, KO and HAS to mitigate the sting of having to sell shares – even fractionals.  I’ll take the cash on YUM, AMC, AAPL and K.

Headlines impacting my portfolio (bold are owned):

  • 4/3 – IBTX closes Carlile merger
  • 4/4 – NJR/SJI discuss merger
  • 4/4 – MSGN discusses sale
  • 4/7 – JNS merger date expected 5/30/2017 new ticker expected to be JHG w/ qtrly divs
  • 4/10 – UNIT acquires Southern Light (pvt)
  • 4/17 – CCI to acquire Wilcon Holdings
  • 4/17 – BX acquires Eagle Claw Midstream
  • 4/20 – UMBF sells institutional investment arm to RJF
  • 4/20 – SLF acquires Premier Dental
  • 4/24 – NWBI to close consumer finance subsidiary
  • 4/27 –TOWN to acquire PBNC,
  • 4/27 – IVZ to acquire Source UK

Portfolio Updates:

  • Added to JNS
  • Added to VALU
  • Initiated position in PWCDF
  • Initiated position in ARD
  • Initiated position in HOMB
  • Sold LB
  • Sold UL
  • Reduced (fractional positions) YUMC, SBUX, PEP, K, YUM, DIS, SQ, KO, AMC, AAPL, HAS

Dividends:

  • April delivered an increase of 32.55% over April 2016.  17.25% of this increase is attributable to purchases, 48.41% a result of semi-annual cycles (Ireland, Australia) and the remaining 35.51% a result of dividend increases.
  • April had an increase of 20.28% over the prior quarter due primarily to the same reasons.
  • Declared dividend increases averaged 8.72% with 42.94% of my portfolio delivering at least one raise (including 2 cuts – YUM, XRX).
  • YTD Dividends received were 38.1% of total 2016 dividends.  If the current run rate is maintained would exceed 2016 in early November – particularly with most of my semi-annual or interim/final cycles paying during the next quarter.

Spinoffs:

The MET spin (Brighthouse Financial – BHF) remains pending.

Mergers:

Agrium/POT, JNS/HGG.L (estimated completion 30 May) and SGBK/HOMB remain pending.  I did add to JNS and HOMB as both appeared undervalued versus the merger price.

No more Loyal3

Every now and again you wind up getting what you pay for and there’s no such thing as a free lunch.  I probably came to this realization last summer when I ensured that even my smallest holding on the Loyal3 platform had greater than a fractional share.  So the news this week of their migration to FolioFirst was no big surprise.  The issue I have with FolioFirst is the $5 monthly fee.  So transferring my holdings becomes priority one.  In fact Dividend Growth Investor lays out the options fairly succinctly in his post.

Early on, my strategy with Loyal3 was twofold:

  1. Move three horses to the platform to generate enough dividends to play with.  This was accomplished with PEP, AAPL and SBUX.
  2.  Build a group of speculative holdings (less than 1% portfolio weighting) via dividends generated by the first goal.

The free trades with Loyal3 accelerated this process.  Today I’m faced with a (slight) strategy shift.

Sells

An order was placed this morning to sell Unilever (UL) and L Brands (LB).  Unilever due to taking profits off the table and for a sense of protection from a potential single headquarter  location and the possible corresponding tax implications.  L Brands due to uncertainty with their ability to maintain comps while the malls where their stores are located appear to be imploding.  I’ll use this as a tax loss against UL and the required fractional share sales.

Transfer

My remaining Loyal3 full share holdings (YUM, YUMC, AAPL, K, SBUX, HAS, DIS, SQ, PEP, KO and AMC) will be moved … Loyal3 will not move fractionals which will need to be sold.  My goal is to have the transfer complete prior to May 1st which is the ex-div date for the next payer, Hasbro.  I can then sell any remaining fractionals, wait for YUM’s dividend to post (May 5th, went ex-div April 14th), then move any cash into my bank.

My default approach will be to consolidate the holdings into my existing brokerage account which provides the alternative to reinvest dividends.  I will, however, meet with TD Ameritrade today as they (via phone conversations) have indicated they perform OTC ‘grey market’ trades with no surcharge.  As Schwab charges a $50 surcharge, this may clinch the deal for AMTD.

So any Loyal3 strategy shifts in your future?

Update: 20 Apr 2017 – UL and LB sold, decision finalized on move of remaining to existing Schwab account.  AMTD has no set ‘grey market’ policy but will normally adjust the fee.  Lack of certainty killed this option.

March 2017 Update

March brought us the longest DOW losing streak in five and a half years on the heels of the first legislative defeat of the Trump administration.  The talking heads then moved their focus to the “end of the earnings recession”.  Frankly, I think as long as the US dollar remains strong, earnings will continue to suffer – except for domestically focused companies.  As a leading indicator to this thesis, I would point to the slowing growth in dividend increases as a proxy.  Regardless, the S&P closed the month down .04% while my portfolio rebounded ending the month up 3.3%.  At the end of the first quarter, I lead the S&P by 1.35%.

Headlines impacting my portfolio:

  • 3/1 – SQ buys OrderAhead (pvt)
  • 3/6 – FMBI acquires Premier Asset Mgmt, LLC
  • 3/9 – BR acquires Message Automation, Ltd.
  • 3/13 – BUSE acquiring MDLM
  • 3/16 – MMM acquiring Scott Safety from JCI
  • 3/16 – Fed lowers barriers for <$100B bank mergers
  • 3/20 – UL reviewing sale of spreads line
  • 3/23 – BLK buys 5% stake in NTDOY
  • 3/27 – BLL sells paint can line to BWAY Holding
  • 3/27 – DST buys remaining UK JVs from STT
  • 3/27 – SGBK to merge with HOMB
  • 3/28 – KO and KOF close on AdeS line purchase from UL
  • 3/29 – MA acquires NuData Security
  • 3/30 – CM increases offer for PVTB

Portfolio Updates:

  • Added to BCE
  • Added to SQ
  • Added to KO
  • Added to TD
  • Initiated position in AKO.B

Dividends:

  • March delivered an increase of 9.15% over March 2016.  2.24% of this increase is attributable to purchases with the remaining 97.76% a result of dividend increases.  The Y/Y comparison is a little distorted as four companies shifted pay dates and one special dividend did not reoccur.
  • March had an increase of 6.44% over the prior quarter.  This was primarily due to a pay date shift as a result of a merger.
  • Declared dividend increases averaged 7.75% with 36.42% of my portfolio delivering at least one raise (1 cut – YUM).
  • YTD Dividends received were 27.1% of total 2016 dividends.  If the current run rate is maintained would exceed 2016 around October 15th – particularly with most of my semi-annual or interim/final cycles paying during the next quarter.

Spinoffs:

The MET spin (Brighthouse Financial – BHF) remains pending.

Mergers:

Agrium/POT, JNS/HGG.L and SGBK.HOMB remain pending

My 2017 Strategy (Coca-Cola)

Usually during the third quarter of each year I analyze my portfolio’s performance, do a little tweaking and cast about for an underlying strategy for the new year.  2016 was especially difficult due to a couple of mergers wreaking havoc on my portfolio structure as well as the uncertainty caused by the election.  The easy fix is to add to my anchor, core and satellite holdings at reasonable price points to get them to their target weightings.  This is illustrated by my recent purchases of KMB, CLX and SBUX with more to come.  The more difficult issue was identifying potential value plays for an ancillary portion of the portfolio.

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Moral Investing?

When visiting friends and acquaintances, some topics are generally held as taboo for discussion with financial status, politics and religion usually top of the list.  It’s not due to political correctness but more along the lines of common courtesy.  Unless invited, why would I discuss the success I’ve enjoyed with someone who’s filed for multiple bankruptcies?

There are investors that choose to invest in faith based, moral or social causes that fit their beliefs.  Some choose to avoid tobacco, liquor, coal or oil issues in their portfolios for personal reasons.  Others have no issues or concerns whatsoever.  I believe Lawrence Meyers presents this view nicely in The Myth of Socially Responsible Investing.

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Recent Buy – SWRAY

swray

In keeping with my current strategy of utilizing a strong US dollar to my benefit, today Swire Pacific was added to my portfolio.  Swire Pacific is 49% owned by privately held, London based  John Swire & Son with the remaining 51% traded on the Hong Kong exchange under the ticker 0019 (a second class trades as 0087).  The ADR corresponding to 0019 trades in the US as SWRAY.  They are also one of Coca-Cola’s (KO) anchor bottlers under the 21st Century Beverage Partnership Model of KO’s that is expected to complete in 2017 with territory covering Hong Kong, the Chinese mainland, Taiwan and the western United States.

But Swire is much more than a Coca-Cola bottler.  Last year they celebrated their 200th anniversary and are a conglomerate in a style similar to Warren Buffet.  They own 45% of Cathay Pacific, have significant real estate holdings and refrigerated warehouse operations among their holdings.  The Coca-Cola Bottler’s Association did a great article on their success.

Swire Pacific pays a dividend twice per year on an interim/final schedule.    At today’s purchase price ($10.338), the dividend yield translates to roughly 4.77%.  There is a risk of currency fluctuation as dividends are declared in HK$.

As an aside, I wonder how this company fits into Pres. Trump’s world view as a Chinese (HK) company that employs several thousand US workers – many on production lines?