March 2020 Update

Certainly a month for the record books with the dual blows of the Russia/Saudi oil war and Covid-19 wreaking havoc on portfolios.  Coupled with a bear market unlike any other leaves many licking their wounds and pondering their strategies. At this juncture, proven methods like dollar cost averaging, credit evaluation and retained earnings analyses are more valuable than ever before as the discussion moves towards longevity of the crisis and corporate survivability.

For the month, the S&P index dropped 14.3% while my portfolio dropped 13.51%.  While I typically don’t report cash positions, I will say my first quarter reallocation plan (almost completed) has increased my cash position to 7% rather than the typical 0-1% I carry.  If this cash is included, the net portfolio drop was 6.57%. In these days, cash is king for the moment and at least I have some dry powder to redeploy. For the year (ex-cash) I’m beating the index by 2.53%.

Continuing with the Monthly Recap in its newest iteration, I’m still finding pieces that require some elaboration in order to rationalize it.

The net purchase expense threshold is not a pure indicator of my cash position.  The Incr/Decr from the market — 98.95% of the portfolio volatility was due to the market.  Dividend Raises more than offset my one cut. My full position sales were NWL (receipt of a SEC subpoena), EPR (exposure to AMC and Social Distancing constraints) and MAIN (a BDC with exposure to small business lending).

Dividends:

  • March delivered an increase of 30.91% Y/Y with most of the increase attributable to the migration of the majority of my Canadian holdings into my IRA with timing resulting in some double payments (both taxable and IRA).
  • Dividend increases averaged 8.06% with 25.82% of the portfolio delivering at least one increase (including 1 cut and 1 suspension). This is off last years’ pace and a direct by-product of the global pandemic.
  • 2020 Dividends received were 30.34% of 2019 total dividends. The YTD run rate is 106.5% of 2019, slightly under my 110.0% goal. 

As an aside, Justin Law notes “53 companies declared higher dividends in the past month (March), with an average increase of 7.16%”.  While my YTD 8.06% is in the ballpark, I am cautious of going forward potential cuts or suspensions.  For instance, Coca-Cola Amatil maintained their prior dividend noting the dual headwinds of the Australian wildfires and now Coronavirus.  This I consider a positive although I take a shave on the exchange rate.

Spinoffs:

On Oct 4, 2018 MSG filed a confidential Form 10 to spin the sports business which will become effective on April 17th.  Madison Square Garden Sports Corp will begin trading under the symbol MSGS and the new company, Madison Square Garden Entertainment Corp. will trade under the symbol MSGE.  Each existing MSG share will receive 1 share of MSGE and subsequently convert to MSGS.

Mergers:

Spirit MTA REIT (SMTA) voted on Sept. 4th, 2019 to approve the liquidation of the REIT. I am awaiting the final settlement payout and as of December 31, this issue was delisted. I fully expect a profitable outcome for one of my most speculative positions.

Splits and Stock Dividends

Although splits are technically agnostic, I consider them a positive with reverse splits a negative.  TU had a 2:1 split.

Tax Season

Yesterday marked my end to tax season with my returns turned into the Post Office for delivery.  During my investment “career” I’ve thrived under tax schemes where I paid as much as a 37% effective rate while realizing over the years that minimizing the tax hit has a direct correlation to wealth creation.  What I dislike more than anything is change as my strategies generally can’t turn on a dime. I experienced this during the Reagan years and again in the Trump years. My effective tax rate has generally been between 12-17% (after loopholes, deductions and credits) with one audit resulting in a tax refund.  My prior Trump Tax plan bluster was due more to the forced change to my strategies than to the outcome – although I think it was shortsighted to increase the debt in flush times. The Trump Tax plan, I’m proud to report, after a year of restructuring has rewarded me with a new record low tax rate of 1.67% proving it pays to incorporate tax strategy into ones’ investing strategy.

Summary

With the health of you and your loved ones paramount – stay safe.  My reading pleasure during my home time includes the economic history surrounding 1918.  Here’s one interesting tidbit along those lines.