April 2016 Update

April was generally favorable for the markets.  Earnings reports presented few surprises although the trend of beating analysts’ expectations while presenting lower year over year results continued.  Financials were modestly positive while old technology seemed to disappoint.  Until month end, the market was drifting higher.  Then Apple’s and Starbucks reports were weak, the BOJ failed to raise rates and Carl Icahn announced he sold his Apple position over China fears.  So the month ended basically flat managing a gain of .27% – at least it was positive.

My portfolio value managed a 2.66% gain with the weaknesses (KMB, SBUX and AAPL) being offset by M&A activity (Comcast (CMCSA) acquiring Dreamworks (DWA) and First Cloverleaf (FCLF) being acquired).

Blog Updates

  • I changed my portfolio reporting to measure % of dividends provided instead of market value.
  • Updated the Blog Directory

Portfolio Updates

  • Sold Monarch Financial (due to upcoming merger).
  • With the proceeds, initiated positions in SRCE, BKSC, CVLY and AROW
  • Moved CVX from DRIP to brokerage resulting in a fractional share sale
  • Added to LTXB prior to their earnings release.
  • Added to SBUX after earnings.
  • Added to AAPL after earnings(and the Icahn announcement)
  • Added to XRX – I anticipate a reverse split prior to – or in conjunction with – the spinoff.  So trying to position myself more favorably in this event.

Dividends

  • April delivered an increase of 38.7% over April 2015.  This was due primarily my first dividends from NJR and SJI coupled with dividend increases.
  • April was also up slightly from last quarter by 4.4%
  • Announced dividend increases currently average 10.05% with 48.6% of my portfolio having at least one raise so far this year. .
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Recent Buy, Sell & More

  • Sold: Monarch Financial
  • Bought: Source 1, Arrow Financial, Bank of South Carolina, Codorus Valley Bancorp
  • Cancelled  Chevron DRIP

Today I made the decision to sell Monarch Financial.  This was going to be pulled from my account – probably later this month – anyway, so I chose to accelerate the process for these reasons:

  1. Locked in a 22% total gain over the past year and half
  2. Since I also own the acquirer, I didn’t want the same stock in two accounts
  3. In the event the merger fails (doubtful), could buy in cheaply

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Dividends: Stock vs Cash

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.

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Bank Strategy 2015 Review

Back in 2014, with a portion of my portfolio I embarked on a strategy of buying Regional Banks and collecting a dividend (although typically a little smaller) while waiting for a potential merger to occur.  In early 2015, this strategy was validated by Lanny (Dividend Diplomats) with his CZNC purchase.  At that time I had 41 positions with a 6-1-2  result.  Meaning, I had a 21.9% success ratio of picking merger candidates, with 2 being reverse mergers (I get screwed on the premium), and one (2.3%) with a full premium.

Now I can’t say that I was overly thrilled with the outcome of the first year, but Lanny thought it was decent.  So I did a little research and stretched into some smaller banks.  I bought a group and couldn’t  decide between SUSQ and MNRK as the final candidate.  I chose MNRK only to see BBT later pick up SUSQ.  Six months later I placed an order to buy NPBC only to see the price spike in pre-market trading.  I switched my order to PWOD only to find BBT beat me again.  But it did validate the theory that I’m getting closer to the ‘sweet spot’.

So the results for 2015 are in and my 49 positions produced a 16-3-0 result.  Meaning my selection of merger candidates improved to 38.7% but more important is receiving the premium on 3 (6.1%).  So now we’re seeing some results closer to my expectations!

I’m not certain how long this strategy will work and I’m under no illusions otherwise.  But I do expect it to continue through 2016 and will finalize this years entries probably around tax time.

And so it continues …

December is shaping up to be a pretty good month.  The news this morning was Monarch Financial merging into Towne Bank.  This is the second time I’ve owned both sides of the deal which is pretty cool.  Terms of the merger:

  • each share of Monarch gets .883 shares of Towne.

Based on yesterday’s close, the value is about 18.57 per Monarch share which is a 39% premium off of yesterday’s close.

I guess the only ‘complaint’ is that Monarch was one of those companies that paid an annual stock dividend and Towne doesn’t.  At least they paid this years’ stock dividend earlier this month!