August 2019 Update


The market had significant bouts of volatility this month triggered by some weaker than expected earnings reports – though the consumer still is spending, continuing yield curve inversion – but I remain uncertain as to the weight that should be factored into this, the ongoing tariff whiplash coupled with all the pronouncements of terrific trade deals that seem to whither on the vine, increased international tensions with Russia and Iran having failed military tests and yesterday’s Russian incursion into Georgia. This list doesn’t even include European economic weakness centered in Germany. With all this, the S&P lost some ground dropping 1.84% while my portfolio lost 0.34%. For the year, I’m outperforming the benchmark by 2.5%.

As a reminder to the older readers and a refresher to my newer ones, I am technically in the distribution phase of my investing career – meaning I have minimal new cash (other than self-generated dividends) being deployed. Other than RMDs (required minimum distributions – coming from an account I exclude from this report and are not reinvested in the market), what is reflected is basically a result of market valuation. For August, total cash invested was less than 0.00% of the portfolio value even when rounding generously. The source of funds being accrued (non-reinvested) dividends (42.0%), new cash (49.4%) and reinvested dividends (8.6%. Basically for the month, over half my purchases were funded by the snowball resulting in an even larger forthcoming dividend stream.

PORTFOLIO UPDATES

  • increased my BLK position
  • new position MFG (Japan)
  • new position ERIC (Sweden)
  • new position G (Bermuda)
  • new position CSCO

DIVIDENDS

My primary focus resides on dividends with the goal being a rising flow on an annual basis.

  • August delivered an increase of 13.89% Y/Y.
  • Dividend increases averaged 10.2% with 58.59% of the portfolio delivering at least one increase (including 4 cuts). 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 71.11% of 2018 total dividends putting me on target to exceed last year’s total in late October. The YTD run rate is 108.5% of 2018, slightly under my 110.0% goal – but still recoverable and an improvement over last month.

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.

Spirit MTA REIT (SMTA) will vote on Sept. 4th to approve the sale of most assets to HPT for cash. A second vote will be held to liquidate the REIT. If approved in total, this would be a profitable outcome for one of my most speculative positions.

The three banks 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/liquidation might provide enough of a 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 of the year and migrating to a slightly risk off stance, offset slightly by companies with compelling stories. My cash position still remains slightly above mean as I do expect further volatility.

Here’s hoping your month was successful!



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Summer Vacation

I didn’t have to wait too long for turmoil to reemerge.  Apparently the President is unaware of the concept of a vacation as the barrage of libelous, racist, bullying, slanderous and lying tweets continued unabated.  It makes me wonder at times if Jack Dorsey has any regrets of the monster he has enabled. Although it is easy to digress into the madness, I must remain centered, mindful that this is a blog with an investing focus.  Therefore we need to backtrack a little to set the stage for Friday’s meltdown.

Ignoring the slightly left bent of this article, this week’s drama was highlighted by Fed browbeating and a tantrum as a result of a measured Chinese response to additional tariffs imposed by Trump.  Possible additional measures – not mentioned in the article – include of all things a devaluation of the US dollar. Since the Fed is asserting a measure of independence, it appears the only recourse to further Trump’s agenda is through the Treasury Department.  This all culminated on Friday which coincidentally was the eve of the G7 summit. Going into the weekend, the Dow dropped 623 points. My guess is the drop was a little greater than it should have been as positions were probably closed going into the weekend with an aura of uncertainty in the air.

The talking heads really went to town on all of this with the “probability” of a recession increasing in many analysts’ eyes.  Remembering that a recession is defined as two consecutive quarters of negative GDP growth, I don’t see this in the cards as yet.  However, if the consumer bears the brunt of any downturn, it will surely feel like one. 

With this in mind – and also as most of my available cash for the month was previously allocated – I had minimal opportunity to play Friday’s slide.  I had previously set $100 aside as the minimum price for admission to the Webull platform that Tom at Dividends Diversify had reviewed. Basically, on a new platform, I dip my toes in at the minimum level, play around and test the waters before jumping in.  I took it as a sign that my final approval and funding was completed on Wednesday.

The one complaint I have with Webull (so far) is their desktop version is in beta and currently has limited functionality – forcing most activity to a smart phone.  This is probably only an issue for those of us with disabilities. Outside that, it performed in line with Tom’s review.

The enrollment offer had two free stocks which I promptly claimed.  The ones assigned were MFG and ERIC.  Interesting that both are ADRs which could be off-putting to some given the foreign taxes, fees and exchange rates – but they are dividend payers, MFG semi-annually and ERIC annually.  They both have intriguing storylines in that MFG could benefit from ongoing US/Japan trade talks and ERIC could see some benefit with the US blacklisting of Huawei. Neither of these were on my radar but I’ll hold these for now and with the market value being $11.03 getting an unrealized 11% gain for one weeks use of my money.  If only that were to continue … 

My Friday rampage continued by initiating two new positions, both with stories of their own.  CSCO, another 5G opportunity, reported lackluster results and Genpact which was a GE spinoff. GE remains their largest client which may strengthen further if recent allegations against GE prove to be true.  I’ll probably add one more position to the Webull account then pause while I figure out the ins and outs of the app. If you are interested in their promotion, this referral link can be used.

Rampage in this context is a misnomer, but I couldn’t resist.  I guess the real question is whether Trump decides to be civil with our allies at the G7 with a reset towards a united effort against China or if he decides to continue with a self-serving path where an increase in market volatility will result.  Keep your seat belts fastened!

Moral Investing

Making the headlines this past week was the atrocious scene along our border.  Being an event driven investor, I had to at least take a look at the situation to – at a minimum – determine my exposure and whether strategy adjustments are  necessary.

I’m not a prude by any stretch of the imagination but (outside of ETFs) have never invested in tobacco stocks.  I have minimal exposure to wine and spirits.  While I’m not casting aspersions on those that do, I figure there are more than enough alternatives that better fit my preferences.

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