Blast From the Past

A little unsure as to what I was researching when I ran across this ancient nugget from 2012.  I don’t recall having read it when it was fresh, but has some similarities to my investing style outside the world of Coke – particularly with the international bent.  I’ll also point out this predates the 21st Century Beverage Partnership Model where Coke essentially attempted to become a marketing engine leaving the capital intensive bottling and distribution operations to a handful of larger (facilitated by mergers) bottlers.  For today, I’ll ignore the 32 (give or take a couple) family owned operations that are basically distributors – or bottlers in name only. These buy product from larger bottlers, warehouse it  and deliver to commercial customers. I suspect these little guys won’t be long for the world as they’ve lost any economies of scale.

The impetus for this piece came from the final comment from NeoContrarian where he asks (a year ago), “This is an excellent article:- What’s the current update 6 years on???” Given the author hasn’t published anything since 2016 and I now have a vested interest, I figured it apt to address this question – particularly with the change in the business model.

I have stakes in seven of these bottlers with a pending limit order for an eighth, so allow me to correct a mistake the author made.  The list of companies contains duplicates – either with a class of stock (AKO.A/B) or CCLAY/F. The former has greater economic interest (votes) but a lower dividend while the latter is the ADR versus in country OTC listing.  The ADR withholds taxes (net payout) while the F version is the gross payout leaving the investor having to deal with those details.

Subsequent to her piece, Coca-Cola Hellenic began trading on the LSE (not NYSE) and moved its’ HQ from Greece to Switzerland, Coca-Cola Enterprises ultimately morphed into Coca-Cola European Partners, HQ UK; and Mikuni Coca-Cola merged into Coca-Cola East, which merged with Coca-Cola West becoming Coca-Cola Japan.  Also, Coca-Cola İçecek.’s ADR program has been cancelled.

I tried to retain the structure she used but made a few modifications; removed dividend growth and comparison to KO’s and added % owned by KO.  Being primarily foreign companies, dividend growth is less telling than the US as the vast majority of payouts are based on a percentage of profits.  Perhaps a profitability growth rate should be included instead.

I will editorialize that it appears the results are mixed in KO’s move out of bottling.  They have succeeded, for the most part in the domestic market – at least in avoiding reporting consolidated results.  The failure has been in foreign markets as several remain owned – at least in the majority – by KO. These include Africa (68.3%), The Philippines and Bangladesh (100%).  KO also retains significant stakes of between 14 and 34% in nine of the publicly traded bottlers. This analysis excludes privately owned companies with the exception of Joint Ventures that include public companies.

a/o 8Dec2019

Yes it remains possible to muster a dividend yield piggybacking on KO’s marketing prowess.  There are risks, chiefly currency and political. For instance, Zimbabwe faces a hard currency shortage leaving Heineken unable to repatriate their profits.  The reason I have no intention of buying Hellenic or İçecek. Is their exposure to Russia and Turkey respectively. Future administrations may revert back to normal putting undue risk on the table.

The one aspect I didn’t anticipate was the consolidation of bottling operations into the larger operators leaving the smaller players as merely distributors.  That is one way to spread the capital intensiveness into manageable pieces and is probably one reason for their performance.

There are risks as well as potential rewards – perform your own due diligence.

Own: CCEP, KOF, AKO.B, CCLAY, SWRAY, KNBWY, COKE.  Open order: CCOJY

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!

April 2019 Update

With taxes being in the rear view mirror, it’s time to turn our attention towards the remainder of the year. This month had no further dividend cuts announced (hooray!) yet for every good report there’s a yes, but … To be honest, I don’t see this trepidation ending over the near term as only time will tell, and until then everyone will remain convinced their strategy is right. For myself, this means a closer alignment to my core strategy and jettisoning a few (not all) speculative positions. Meanwhile, the S&P rose 3.78% while my portfolio rose 4.22% on the back of Financials. For the year, I’m slightly ahead of the benchmark by 0.44%.

PORTFOLIO UPDATES

  • increased my ETF position (CUT,VGK,EWA,EWW,JPMV)
  • increased my INDB position and lost BHBK (merger)
  • increased my GNTY position
  • New position ALC (NVS spinoff)
  • New position BDX – this one is a defensive move as I’m long BDXA. This is strictly a placeholder in the event BDX pays a BDXA dividend in stock (unlikely) or when the preferred shares convert to common (next year).

DIVIDENDS

While my primary focus resides on dividends with the goal being 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.

  • April delivered an increase of 12.97% Y/Y, the largest impacts being dividend cuts and a couple of cycle changes offset by increases.
  • April delivered a 6.58% increase over last quarter (Jan) – basically a reflection of my decision to pause dividend reinvestment to fund the tax bill.
  • Dividend increases averaged 7.21% with 42.73% 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 37.12% of 2018 total dividends putting me on target to exceed last years’ total in late October.

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

MERGERS

XRX merger with Fujifilm cancelled (still being litigated).

BHBK to merger into INDB completed April 1st

CORPORATE ACTIONS

  • KOF announced a stock split and listing of shares in the form of units. There was an eight (8) for one (1) stock split on the Series L shares consisting of three (3) Series B ordinary shares and five (5) Series L ordinary shares. The new shares were simultaneously exchanged into a Unit – each consisting of three (3) Series B ordinary shares and five (5) Series L ordinary shares. As a result, BNY Mellon changed the deposit agreement to update the deposited securities on the Coca-Cola FEMSA, S.A.B. de C.V. American Depositary Share (“ADS”) program as follows:
    • Effective Date for change: April 11, 2019
    • Old Deposited Securities: 1 ADS: 10 Series L Ordinary Shares
    • New Deposited Securities: 1 ADS: 10 Units
  • FFIN declared a 2:1 stock split effective June 3rd

SUMMARY

The blog data conversion to 2019 is almost complete still being worked on. The most significant error is my cost basis (dividend date screen) which doesn’t yet account for all DRIP additions or additional purchases. At this rate it may be 2020 before I finish this update.

Hope your month/quarter was a good one!

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.

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.

Continue reading

Nov 2016 Update

November was a wild month with a downward trend leading into the US elections and what is being referred to as the ‘Trump Rally’ following the widely unexpected result.  All major indexes achieved record highs on November 21st.  Fortunately I was able to redeploy the majority of the merger funds prior to the election.  This month The S&P gained 3.42%.  My portfolio recorded a gain of 11.49% (no normalization) largely reflecting my overweight position in the Financial sector.  This increases my lead over the S&P for the year to 17.74% with one month to go.

Headlines impacting my portfolio:

  • 11/2 – EPR acquires CLLY properties in liquidation
  • 11/8 – XRX spin (CNDT) set for 12/31/16, ratio 1:5
  • 11/14 – Maine is final approval for the BHB/LSBG merger.  Closing expected Jan 2017.
  • 11/15 – BMO designated as Canadian clearing firm for renminbi trades
  • 11/16 – AMC gets EU approval to for Odeon & UCI merger

Blog Updates:

I chose not to do an October portfolio update due to all the activity which distorted the results a little, especially the XIRR column.  The November data has been compiled and should 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.

Portfolio Updates:

  • Added to DIS
  • Added to UL
  • Added to PEP
  • Added to TD
  • Added to KMB
  • Added to NJR
  • New position – IRM
  • Added to TRP
  • Added to KOF
  • Added to CCE
  • Added to FLIC (they chose to round up fractionals on a split)

Dividends:

  • November delivered an increase of 29.1% over November 2015.  This was due about evenly between dividend increases (Y/Y) and late 2015 funding.
  • November had a 2.1% increase over the prior quarter.
  • Announced dividend increases currently average 12.5% with 71.81% of my portfolio having at least one raise so far this year.
  • Through November, dividends received exceeded total 2015 dividends by 13.8%.

Spinoffs:

The XRX spin (Conduent – CNDT) is on track to complete 12/31/2016.

Mergers:

LSBG/BHB expected to close in January 2017.