he fourth quarter swoon continued in earnest this month resulting in an annual loss for the markets. While the final trading day closed higher (DJIA up 265, NASDAQ up 51 and the S&P up 21) it was nowhere near close enough to avoid the worst December since 1931. Though surprised by the resiliency of the US dollar, last year’s intent to migrate further into foreign equities was largely preempted by tariff uncertainty. My other 2018 concern of rising federal deficits stifling the economy did not manifest itself as yet – though I remain skeptical of administration claims that growth can outpace the deficit. For the month, the S&P index dropped by 9.18% while my portfolio dropped by ‘only’ 8.44%. For the year the S&P posted an unusual loss of 6.65% while my overall loss was 3.57%. In an otherwise ugly ending to the year, my primary goal of exceeding the S&P’s return was attained marking the 33rd year (of 38) that I’ve been able to make this claim.
What a start to the final month of the year. At least there is a little something for everyone. First the CME tripped the first wave of circuit breakers in the futures market. Then the chartists found the S&P closed the week in a death cross. Then there’s news of a possible yield curve inversion. Lest we not forget, the most recent China issue which may or may not even be legal. While the Huawei issue is unfolding, Lighthizer continues to stir the pot by saying he considers March 1 “a hard deadline” otherwise the delayed tariffs will be imposed. Hmm … kind of like bringing a gun to a knife fight – or – perhaps the administration really believes that “free and fair trade” is an outgrowth of convoluted negotiations.
If week one is any indication, the traditional “Santa Claus Rally” will be delivering a lump of coal this year. Being the eternal optimist, I’ll argue Christmas isn’t here yet so I had to take advantage of the sell-off to do a little buying:
- First, I added to my ETF group. I accomplished two things with this:
- As the majority of these are foreign, they are underwater. Therefore, an ‘average down’ scenario.
- These all pay December dividends (one quarterly, three semi-annual and one annual) all yet undeclared. All are now captured.
- Second I executed a rebalance on a small portion of the portfolio. I chose a ‘rebalance’ as the fees were lower than the alternatives. End result being:
- Sale of BOKF. I had this issue in two accounts due to a merger, now it’s only in one, with the proceeds and accumulated dividends:
- Added to ADP, MMM, KIM, FAF as these are underweight target holdings
- Added to AVNS as they may have received a good price for the division sold to OMI
- Added to LARK and CASS – missing the ex-date for the stock dividends
- Added to BR, CNDT, CDK, FHN, JHG, KSU, PJT, WU, XRX – capturing WU’s December dividend
I still have another rebalance queued pending completion of a merger (might be into the new year) and then we return to normal operations.
I also will be selling my OMI – perhaps later in the month to see if Santa really exists!
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.
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
- 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)
- 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
Brighthouse Financial (BHF) (MET spin) has been received.
AGU/POT (Nutrien) remains pending, SGBK/HOMB received regulatory approval and is expected to close late September.
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.
December was a continuation of the Trump effect with significant reassessment underway in many portfolios. The DOW continued its march to 20,000 before failing and pulling back at month end. While consumer optimism is at multiyear highs, this has not resulted in holiday sales records probably due to the inability of a President-Elect’s posturing to translate into tangible policy change. This month The S&P gained 1.82%. My portfolio recorded a gain of 3.92% largely reflecting my overweight position in the Financial sector which has been a beneficiary of election sentiment. This increases my lead over the S&P for the year to 19.83% achieving one of my 2016 goals of besting the S&P index.
Headlines impacting my portfolio:
- 12/7 – CIBC/PVTB merger vote postponed
- 12/13 – WFC fails ‘Living Will’, BAC passes
- 12/14 – Fed raises .25%
- 12/20 – BAC sells UK MBNA assets to Lloyd’s
- 12/20 – AMC receives last approval for CKEC merger
- 12/21 – KO buys BUD African, El Salvador and Honduras bottlers
- 12/21 – MET financing for spin secured (BHF)
Basically chose to be a slug through the holidays
- Added to HAS
- Added to HWBK
- New position – CNDT (XRX spin)
- Added to CVLY (stock dividend)
- Added to LARK (stock dividend)
- Added to CBSH (stock dividend)
- December delivered an increase of 24.0% over December 2015. This was due about evenly between dividend increases (Y/Y) and October purchases from merger proceeds.
- December had a 5.4% increase over the prior quarter.
- Dividend increases averaged 12.3% with 74.5% of my portfolio delivering at least one raise.
- Dividends received exceeded total 2015 dividends by 29.3%.
The MET spin (Brighthouse Financial – BHF) secured financing.
LSBG/BHB expected to close in January 2017.
There are companies that as a normal course of operation pay a portion of their dividends in stock (sometimes referred to as script). I’m not referring to companies that lack the cash to pay the dividend either, as a number of these companies are resident on the CCC list maintained by David Fish. Some of these pay a stock dividend irregularly while others pay a stock dividend annually. So the ultimate question is which is better for the investor? Let’s dive into a real example to get the answer.