DVK System Review

I’ve been noodling over a post published by FerdiS over at DivGro for awhile now, essentially weighing the pros and cons against my biases to figure the most appropriate rebuttal.  In a nutshell, the post first grabbing my attention was his Recent Sells.  Within this piece was the comment, “I … rank my … stocks by quality score and by CDN” and on this basis eliminated two holdings.  

I am a proponent of every investor having a defined methodology within their comfort zone to determine the quality of their portfolio and various bloggers regularly publish their screening mechanisms and processes.  Conversely, I don’t shy away from highlighting perceived frailties in these. A combination of Yield, Rising Payout Streak, PE Ratio and Payout Ratio are the most common attributes used by several bloggers while adding others to customize to their tastes.  One example being the Dividend Discount Model.  

Back in 2013, I’m not sure Simply Investing anticipated the record bull market coupled with inordinately low interest rates.  Using KO as an example, his method would have classified it as overvalued. A changing business – while looking backwards (bottler spinoff) – doesn’t neatly fit this model.  On the other hand, forward looking views, such as the DDM, have a basis in a series of assumptions. Even the Diplomat’s approach – which is arguably the most straightforward – has an assumption set within the metric, Dividend Growth Rate greater than the rate of inflation, allowing for management discretion (not a major issue in a low inflation environment).

FerdiS method – while thoughtful and elegant – has some limitations and could be viewed as an advertisement for premium services.  Value Line, S&P, Morningstar and Simply Safe Dividends are the source data. S&P data can be obtained free and Morningstar through some brokers (otherwise $199/year).  Simply Safe Dividends runs $399/year and Value Line $598/year.

Beyond the fees, the results are only as good as the dataset can generate.  Mindful that I only performed a spot check against my portfolio, it appears Morningstar applies no moat to financials and narrow to utilities.  As to the other providers – your stock has to be within the universe they cover. My assumption is the 80/20 rule applies here with limitations to small caps and foreign issues as these are not widely held by US investors.  

As my preference is to get the investing view from the rear view mirror (ala, what have you done for me lately), all the metrics this model uses are forward focused based on analysis by an individual or algorithm.  The final note being the use of the CDN (Chowder Rule) as Sure Dividend makes a compelling case of its unreliability.  

A comparison would be incomplete without peer review.  KO scores 23 of 25 on the modified DVK scale whereas the Diplomats and Dividends Diversify consider it overvalued.  For my part, KO is a small (<1%) position that I’m not adding to other than dividend reinvestment. Kind of makes me wonder …

Bottom line: I’m not sure of the value of this – at least to me.  But in my spare time I’ll continue plugging my portfolio into the model to ascertain whether this assessment is correct.  I do, however, like the jigsaw puzzle of his methodology but can’t help but wonder if this is a prelude to even further premium offerings being rolled out …

Disclosure: Long MORN, VALU, KO

May 2017 Update

May was generally quiet with the market trending generally higher.  With few pullback opportunities, I barely deployed new dividends so my cash position increased again.  At least the turmoil I experienced moving from Loyal3 subsided and I could resume a more moderate pace.  An upcoming election in the UK may present a buying opportunity on weakness in the GBP versus the US dollar.  The S&P ended the month up 1.16% while my portfolio recorded a gain of 1.37%.  For the year (so far), I’m ahead of the index by 4.07%

Headlines impacting my portfolio (bold are owned):

  • 5/1 – DRE sells medical office portfolio to HTA
  • 5/1 – TIS suspends dividend
  • 5/4 – FHN to acquire CBF
  • 5/30 – JNS/HGG.L merger completed (becoming JHG)
  • 5/31 – KEY acquires HelloWallet from MORN

Portfolio Updates:

  • Initiated position in SGAPY
  • Added to IVZ
  • Added to PWCDF (proceeds from sale of TIS)
  • Added to DST
  • Added to PLD

Dividends:

  • May delivered an increase of 51.44% over May 2016 with the vast majority of this attributable to foreign dividend cycles not held last year.
  • May delivered an increase of 38.94% over last quarter (Feb) for the same reason.
  • Declared dividend increases averaged 8.89% with 48.02% of my portfolio delivering at least one increase (2 cuts – XRX and YUM; 1 suspension – TIS)
  • YTD dividends received were 47.11% of total 2016 dividends which if the current run rate is maintained would exceed last year’s total in early November.

Note: with 14.6% of current dividends paid by foreign sources, the weakening US dollar is providing a tailwind with exchange rates i.e., increasing my return.

Spinoffs:

The MET spin (Brighthouse Financial – BHF) remains in regulatory review.

Mergers:

Agrium/POT, SGBK/HOMB remain pending

Closing the Primerica Experiment

One year ago I embarked on a mission to determine whether Primerica stock (PRI) was a better investment then the sum of its’ parts – well at least most of the parts.  SEC filings were scoured to identify their investments as insurance companies are required to maintain reserves (the float).  A portfolio was established (3Q 2015) , funded (4Q 2015) and tracked (Oct 2015 to Sep 2016) to be able to declare a winner.

And the winner is … Primerica by 16.15%.  Now I realize that a single snapshot in time may not be reflective of reality, but to my surprise Primerica outperformed the basket through this snapshot in time.

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Aug 2016 Update

Last month was relatively quiet as the world digested the Jackson Hole confab and vacations are coming to an end.  With valuations relatively high, concerns are being raised regarding inflated investor expectations.  I touched on this briefly and Passive Income Dude had similar concerns in his post, Two More Powerful Examples of Low Expected Stock Returns: LOOK OUTFor good measure, the S&P was down slightly for the month and my holdings barely outperformed the index (-.06% versus the S&P’s -.12%).  For the year I’m ahead by 11.71%.

Headlines related to my portfolio this month include:

  • August 11 (and 15) – DOW, S&P, and NASDAQ record high
  • August 29 – MORN authorized by SEC to rate corporate bonds joining S&P, Fitch and Moody’s
  • August 31 – AGU & POT reportedly in merger discussions

Blog Updates

  • Updated the Blog Directory
  • Updated Goals
  • My updated portfolio posted
  • Rolled out Blog Stuff (will update next week)

Portfolio Updates

  • Added to KMB.
  • Added to K.
  • Added to AMC.

Dividends

  • August delivered an increase of 12.2% over August 2015.  This was due primarily to dividend increases (Y/Y).
  • August was up 7.2% from the prior quarter.
  • Announced dividend increases currently average 12.98% with 57.43% of my portfolio having at least one raise so far this year.
  • Through August, dividends received were equal to 81.0% of all 2015 dividends, keeping me on pace to exceed last year’s total in early October (as compared to 2015 being Sept. 9th).

Unbundled PRI Q1

Yes, I know you want me to get to the end of year results and 2016 goals already.  Those will be my next two posts.  Promise.

Meanwhile, it’s time for a review of the first quarter of my Primerica analysis.  Here’s my initial write up.  On Christmas Eve, I used my remaining free cash to purchase this group of companies.  I did make a few changes to the original selection:

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