Peeking Into The New Year

It’s that time of year when the pundits are outlining their 2020 top picks with assorted rationale to support their stance.  I find these exercises interesting at the very least and somewhat illuminating as well. I have to admit I am not immune to the siren song as I have participated in a few.  For instance, last year I participated in Roadmap2Retire’s and placed thirteenth. Not bad considering I was effectively out of the contest mid-year with my pick being acquired.

I also tracked sector picks of mine versus Kiplinger using SPDR as a baseline.  For grins I included Cramer’s Power Rankings and Catfish Wizard’s sector picks. Unfortunately, both of these didn’t complete the quest leaving myself and Kiplinger in a tie.

This year’s entrant was to the Dividends Diversify Investment Ideas for 2020 and Beyond panel.  One of my strengths (or weakness, if you prefer) is to view scenarios through a unique prism.  Of the 20 companies, 11 are already in my portfolio. Other than Visa, which generated one observation, these were ignored (why else would I own them?).  Tom grouped companies by segment (like ‘Energy and Oil’) where I chose sector as identified by Morningstar. The duplicate (Visa) was counted twice for my purposes.

  • Financials                  28.57% (6)
  • Technology                          19.05% (4)
  • Utilities                      19.05% (4)
  • Energy                9.52% (2)
  • Healthcare            4.76% (1)
  • REIT                4.76% (1)
  • Communication Services    4.76% (1)
  • Consumer Defensive        4.76% (1)
  • Industrials            4.76% (1)

Through this lens, a slightly different perspective emerged.  With volatility and stability key concerns, I found Financials being a “go-to” sector as interesting.  The following are my observations with the note they are strictly my perspectives. They should not be construed as a criticism of any of the individuals or selections.  Following is my typical, outside the box purview.

The observation on Visa is based on Tawcan’s rationale, “They also make money from users when they don’t pay the balance in full each month.”  The issuer absorbs both the risk and the reward on this aspect so no additional profits to Visa here.

One surprise was the Utility Sector.  

  • GenYMoney selected Fortis which has been on and off my watch list for awhile.  My issue with them has been their Caribbean dependence on diesel. I may need to review this with the advent of solar in the region.
  • Cheesy Finance selected Canadian Utilities.  My issue here is the ownership structure. CU operates as a subsidiary of ATCO (52% ownership) which in turn is controlled by Sentgraf (a Southern family company).  CU class A shares are also non-voting.
  • Brookfield Renewable Partners was the pick of My Own Advisor.  Most investors’ issue with them is that as a Limited Partnership they issue K-1s.  Although they have no UBTI history, some individual and corporate investors shy away from K-1s. 

Three selections were (in my opinion) a little contrarian.

  • The Rich Miser picked Ally.  This one I wouldn’t touch with a ten foot pole.  Yes they do pay a dividend, but only since July of 2016.  My guess is they were restricted by the TARP bailout. Now TARP in and of itself is not a show stopper for me but the fact that they were formerly known as GMAC – yes GM’s financing arm – gives me pause.  Now, ten years post bailout, they still derive 70% of their business through dealers – that is my issue.
  • MoneyMaaster chose  Artis REIT which recently cut their dividend knocking it off most DGI’s radars.  He does make a compelling case though.
  • Freddy Smidlap selected CDW which is a value added reseller.  The issue here is the possibility of margin compression in the event of an economic downturn.  Plus they have a limited track record since their second IPO.

The ones in my portfolio I’ll periodically add to during the year (except Power Corp which is already a little overweight).  One gets the nod to appear on my watch list, FTS.

And I have to commend Tom for the time and effort in putting this together so people like me can have some ammunition for alternative theories. Just for grins, I added these selections to a spreadsheet available on the main menu titled 2020 DivDiversity Panel. This should update automatically (as per Google standards).

Recent Buy – KMB

Yesterday I added to my Kimberly-Clark position.  Now I have to admit to the possibility (probability?) that it’s overvalued.  Passive Income Pursuit made a good case to this effect in his recent article on Seeking Alpha.  Besides our differences – his being growth oriented whereas I don’t mind the “bond like quality” – there are (I feel) a couple of gaps in his analysis.

First, KMB has demographics on its’ side.  Not only diapers, as mentioned, but elder care products as well.  Second it’s not clear that the article fully accounted for the HYH spin other than to note an increase in goodwill.  Granted, KMB has some headwinds but in a normal economic cycle my guess is they would be out in front of them already.  KMB is Exhibit A for the so called ‘Earnings Recession’ the TV talking heads like to banter about.

Therefore I added to my existing position at $130.15 per share.  This will increase KMB’s share of my dividends from 3.43% to 4.09% (with a target maximum of 6%) and provide an initial yield of about 2.8%.  At least I’m leaving a little room to add in the event of a dip.  🙂

6 Degree Investing

Six degrees of separation is the theory that everything is six or fewer steps …
“Invest in what you know (coupled with serious fundamental stock research)” attributed to Peter Lynch
“Own What You Love” Loyal3 slogan
These are common themes used widely among investors. Presuming due diligence has been performed and ones minimum requirements are attained it makes perfect sense. One example is my granddaughter’s portfolio. Each Christmas she receives a stock that she can relate to and one with a company sponsored DRIP. Her first was General Mills as she liked Lucky Charms. When she studied US history it was Washington Gas Light (WGL) as they keep the Capitol lit. Over the years her portfolio has grown to also include Hershey, Walmart, Procter & Gamble, Union Pacific, Disney and Kraft-Heinz. This year’s addition was Texas Instruments since she applied – and was accepted – to a high school sponsored in part by them. It is a moderately diverse portfolio, but more important is the fact that she can identify with it.  Although none are owned through Loyal3, it is a kind of Own What You Love portfolio.

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