2017 Mid Year Correction

Each year I establish a basic plan to govern my investing activity based on sectors, segments or locales able to deliver a little alpha to my portfolio.  The past couple of years had a focus on the Financial industry with the outcome being rewarded with mergers (small banks) and outsized dividend increases (money center banks).  I also began increasing my Canadian allocation in 2015 from 2.5% of my dividends to the current 8.6%.  Since the election, I was accelerating the increase in my other foreign holdings to the current 13.6% on two theories, 1) gridlock in Congress would persist as the Republican majority would be too narrow to push through sweeping changes, and 2) this inaction would result in a weaker dollar.  It appears I was correct on both counts as the US dollar is now at an eight month low.

With my alpha agendas now too pricey (at least for slam dunk results), a re-prioritization is in order. With the Fed Chairs’ testimony this week indicating that GDP growth of 3% would be difficult, the Trump agenda which projects a higher growth rate is likely in peril – even ignoring the self-inflicted wounds.  Without an improvement in the GDP, deficit hawks will be circling.  It is likely the last half of the year will present some opportunities, but my view these will be predicated on external events.  My eyes will remain open to the USD exchange rate – on strength I may buy foreign issues.

My portfolio allocation between holdings labeled Anchor, Core and Satellite have been imbalanced for a year or two primarily due to merger activity and the acceleration of adding foreign issues.  Now that the major mergers have completed, the last this past January, and other alternatives are slim, I figure it’s time to get back to basics.

My going forward strategy can be summarized as follows:

  1. Non-US equities when secured at a favorable exchange rate
    a)I have 2 Japanese, 2 Swiss, 1 UK and 1 Swedish company on my watch list in the event an attractive price presents itself
  2. Assess corporate actions (spins, splits, mergers) for opportunities
    a) Generally I’m agnostic to splits except when the result would be a weird fractional.  I can easily manage tenths or hundredths of shares.  Smaller sizes are troublesome so I avoid when possible.
    b) Spins (and mergers) are assessed to prevent (if possible) weird fractionals.  For instance, I added to my MET position earlier this month as their spin will be at a ratio of 11:1 which would have otherwise delivered a weird fractional.
  3. Assess portfolio for average down and other opportunities
    a) An example of this was last months’ purchase of KSU.  To this end, I recently updated my Dividends (Div Dates) Google sheet to flag when the current price is lower than my cost basis.
    b) An example of “Other Opportunities” would be BCBP which is resident in my Penalty Box due to dilution.  The dilution (secondary) might be explained (now) with their announced acquisition of the troubled IA Bancorp.  If the regulators provide their seal of approval, it may be time to remove BCBP from Penalty status and perhaps add to this 3.5% yielder.
  4. Add to holdings that are below target weighting
    a) This is where I expect most of my second half activity to reside.

Of my 26 stocks labeled Anchor, Core or Satellite; 5 can be considered at their target weight (within .5% of the target) and 4 I consider to be overweight.  The remaining 17 will receive most of my attention.  As most of these rarely go on sale, I’ll likely ignore price and place a higher priority on yield and events – at least until I’ve exceeded last years’ total dividends.

The following table highlights this portion of my portfolio:

JAN/APR/JUL/OCT

COMPANY TYPE PORT DIV%
Kimberley-Clark/KMB A-(6%) 4.01%
First of Long Island/FLIC C-(3%) 0.85%
Sysco/SYY C-(3%) 1.81%
Bank of the Ozarks/OZRK C-(3%) 0.67%
PepsiCo/PEP S-(1.5%) 1.51%
First Midwest/FMBI S-(1.5%) 0.3%
Comcast/CMCSA S-(1.5%) 8.32%
Toronto-Dominion/TD S-(1.5%) 1.58%
NOTE: Not all payment schedules coincide completely

FEB/MAY/AUG/NOV

COMPANY TYPE PORT DIV%
Clorox/CLX A-(6%) 3.68%
PNC Financial Services/PNC C-(3%) 0.30%
Legacy Texas Financial/LTXB C-(3%) 1.48%
Starbucks/SBUX C-(3%) 1.07%
Blackstone/BX S-(1.5%) 2.58%
Apple/AAPL S-(1.5%) 1.26%
Lakeland Bancorp/LBAI S-(1.5%) 1.04%
Webster Financial/WBS S-(1.5%) 0.82%
NOTE: Not all payment schedules coincide completely

MAR/JUN/SEP/DEC

COMPANY TYPE PORT DIV%
WEC Energy/WEC A-(6%) 5.61%
3M/MMM C-(3%) 0.76%
Home Depot/HD C-(3%) 7.32%
Blackrock/BLK C-(3%) .22%
ADP/ADP C-(3%) 1.60%
Southside Bancshares/SBSI S-(1.5%) 0.96%
Chevron/CVX S-(1.5%) 9.52%
Norfolk Southern/NSC S-(1.5%) 1.99%
Flushing Financial Corp/FFIC S-(1.5%) 0.99%
Wesbanco/WSBC S-(1.5%) 1.14%
NOTE: Not all payment schedules coincide completely

I will provide the caveat that this plan is subject to not only the whims of  the market but of my own as well.  In addition, this plan may be changed if/when a better idea comes along.

April 2017 Update

April brought more noise to the market with geopolitical issues front and center.  The market appeared to acknowledge the fact that even with Republican control of government, a more centrist approach is necessary to accomplish much of anything.  The President’s first 100 days ended with one legislative win; a Supreme Court Justice.  As earnings season kicked into high gear and the French election completed (runoff pending), the markets rebounded and the S&P ended the month with a .91% gain.  Including new money (mostly IRA maximization), my gain was 3.41% (2.32% excluding new money).

Loyal3 Migration

The forced move from the Loyal3 platform is essentially complete.  Full shares arrived at Schwab April 27th.  Fractionals did not move – basically a he said/she said scenario.  Schwab says they would accept them while Loyal3 said they wouldn’t.  All fractional shares on Loyal3 were sold April 28th, netting $218.59.  Loyal3 was basically my ‘spare change’ broker and illustrates the benefits of investing even small amounts.  The trades will settle Wednesday and Friday I’ll transfer remaining funds – after I see which direction the YUM dividend goes.

I decided to use Schwab’s synthetic DRIP for PEP, DIS, SBUX, KO and HAS to mitigate the sting of having to sell shares – even fractionals.  I’ll take the cash on YUM, AMC, AAPL and K.

Headlines impacting my portfolio (bold are owned):

  • 4/3 – IBTX closes Carlile merger
  • 4/4 – NJR/SJI discuss merger
  • 4/4 – MSGN discusses sale
  • 4/7 – JNS merger date expected 5/30/2017 new ticker expected to be JHG w/ qtrly divs
  • 4/10 – UNIT acquires Southern Light (pvt)
  • 4/17 – CCI to acquire Wilcon Holdings
  • 4/17 – BX acquires Eagle Claw Midstream
  • 4/20 – UMBF sells institutional investment arm to RJF
  • 4/20 – SLF acquires Premier Dental
  • 4/24 – NWBI to close consumer finance subsidiary
  • 4/27 –TOWN to acquire PBNC,
  • 4/27 – IVZ to acquire Source UK

Portfolio Updates:

  • Added to JNS
  • Added to VALU
  • Initiated position in PWCDF
  • Initiated position in ARD
  • Initiated position in HOMB
  • Sold LB
  • Sold UL
  • Reduced (fractional positions) YUMC, SBUX, PEP, K, YUM, DIS, SQ, KO, AMC, AAPL, HAS

Dividends:

  • April delivered an increase of 32.55% over April 2016.  17.25% of this increase is attributable to purchases, 48.41% a result of semi-annual cycles (Ireland, Australia) and the remaining 35.51% a result of dividend increases.
  • April had an increase of 20.28% over the prior quarter due primarily to the same reasons.
  • Declared dividend increases averaged 8.72% with 42.94% of my portfolio delivering at least one raise (including 2 cuts – YUM, XRX).
  • YTD Dividends received were 38.1% of total 2016 dividends.  If the current run rate is maintained would exceed 2016 in early November – particularly with most of my semi-annual or interim/final cycles paying during the next quarter.

Spinoffs:

The MET spin (Brighthouse Financial – BHF) remains pending.

Mergers:

Agrium/POT, JNS/HGG.L (estimated completion 30 May) and SGBK/HOMB remain pending.  I did add to JNS and HOMB as both appeared undervalued versus the merger price.

No more Loyal3

Every now and again you wind up getting what you pay for and there’s no such thing as a free lunch.  I probably came to this realization last summer when I ensured that even my smallest holding on the Loyal3 platform had greater than a fractional share.  So the news this week of their migration to FolioFirst was no big surprise.  The issue I have with FolioFirst is the $5 monthly fee.  So transferring my holdings becomes priority one.  In fact Dividend Growth Investor lays out the options fairly succinctly in his post.

Early on, my strategy with Loyal3 was twofold:

  1. Move three horses to the platform to generate enough dividends to play with.  This was accomplished with PEP, AAPL and SBUX.
  2.  Build a group of speculative holdings (less than 1% portfolio weighting) via dividends generated by the first goal.

The free trades with Loyal3 accelerated this process.  Today I’m faced with a (slight) strategy shift.

Sells

An order was placed this morning to sell Unilever (UL) and L Brands (LB).  Unilever due to taking profits off the table and for a sense of protection from a potential single headquarter  location and the possible corresponding tax implications.  L Brands due to uncertainty with their ability to maintain comps while the malls where their stores are located appear to be imploding.  I’ll use this as a tax loss against UL and the required fractional share sales.

Transfer

My remaining Loyal3 full share holdings (YUM, YUMC, AAPL, K, SBUX, HAS, DIS, SQ, PEP, KO and AMC) will be moved … Loyal3 will not move fractionals which will need to be sold.  My goal is to have the transfer complete prior to May 1st which is the ex-div date for the next payer, Hasbro.  I can then sell any remaining fractionals, wait for YUM’s dividend to post (May 5th, went ex-div April 14th), then move any cash into my bank.

My default approach will be to consolidate the holdings into my existing brokerage account which provides the alternative to reinvest dividends.  I will, however, meet with TD Ameritrade today as they (via phone conversations) have indicated they perform OTC ‘grey market’ trades with no surcharge.  As Schwab charges a $50 surcharge, this may clinch the deal for AMTD.

So any Loyal3 strategy shifts in your future?

Update: 20 Apr 2017 – UL and LB sold, decision finalized on move of remaining to existing Schwab account.  AMTD has no set ‘grey market’ policy but will normally adjust the fee.  Lack of certainty killed this option.

Nov 2016 Update

November was a wild month with a downward trend leading into the US elections and what is being referred to as the ‘Trump Rally’ following the widely unexpected result.  All major indexes achieved record highs on November 21st.  Fortunately I was able to redeploy the majority of the merger funds prior to the election.  This month The S&P gained 3.42%.  My portfolio recorded a gain of 11.49% (no normalization) largely reflecting my overweight position in the Financial sector.  This increases my lead over the S&P for the year to 17.74% with one month to go.

Headlines impacting my portfolio:

  • 11/2 – EPR acquires CLLY properties in liquidation
  • 11/8 – XRX spin (CNDT) set for 12/31/16, ratio 1:5
  • 11/14 – Maine is final approval for the BHB/LSBG merger.  Closing expected Jan 2017.
  • 11/15 – BMO designated as Canadian clearing firm for renminbi trades
  • 11/16 – AMC gets EU approval to for Odeon & UCI merger

Blog Updates:

I chose not to do an October portfolio update due to all the activity which distorted the results a little, especially the XIRR column.  The November data has been compiled and should be posted in the next couple of days with the goals update later in the week.  The Unabridged portfolio should be next week as per normal.

Portfolio Updates:

  • Added to DIS
  • Added to UL
  • Added to PEP
  • Added to TD
  • Added to KMB
  • Added to NJR
  • New position – IRM
  • Added to TRP
  • Added to KOF
  • Added to CCE
  • Added to FLIC (they chose to round up fractionals on a split)

Dividends:

  • November delivered an increase of 29.1% over November 2015.  This was due about evenly between dividend increases (Y/Y) and late 2015 funding.
  • November had a 2.1% increase over the prior quarter.
  • Announced dividend increases currently average 12.5% with 71.81% of my portfolio having at least one raise so far this year.
  • Through November, dividends received exceeded total 2015 dividends by 13.8%.

Spinoffs:

The XRX spin (Conduent – CNDT) is on track to complete 12/31/2016.

Mergers:

LSBG/BHB expected to close in January 2017.

Prepping for ’17

In my inbox I found a message inspired (?) by my last post.  In a nutshell, it was a request for further insight into my October purchases.  I have to admit that, on the surface, the appearance is that I was throwing stuff against the wall to see what would stick.  I would like to think I’m slightly more calculating.  To set the scenario, I had an oversized cash position due to a merger, the markets had started their pre-election downward drift and the FBI just breathed new life into Candidate Trump’s aspirations.

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The -opoly World

Early Retiree Reality (ERR) recently published a thought provoking article titled My Duopoly and Oligopoly Shopping List on Seeking Alpha.  The premise is essentially that duopolies and oligopolies provide wider moats which results in greater profitability.  I would encourage you to read it.  This idea is similar to one I’ve been working on with my Speculative Pillars series on Cord cutting, Transaction Processing and to a lesser degree Regional Banks.  Although neatly packaged, I failed to make the leap into the –opoly world.

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Portfolio Structure

Whimsical Dividends recently wrote a piece on monthly dividends – posing some good and thoughtful questions.  So rather than answer in a lengthy response, I figured this would be a good starting point for my weekly (or thereabouts) post.

When I first started investing one of my goals was to build a monthly paying portfolio.  This goal was achieved many years ago.  But when I retired, I guess I had too much time on my hands so I wondered if it was possible to build a weekly paying portfolio.  To this end I have pretty much succeeded.

My research began with Dave Fish’s CCC list.  A wonderful repository of data.  I also used articles by Dividend House as a resource.  Although she’s a recent convert to DGI, and I’m not at all in full agreement with some selections, her style and illustrations make her a must read.

My end result is I have placed 26 companies (of about 105 in my portfolio) into three categories, segmented by quarter, with two payees per week.  The result is (almost) weekly payments.

(updated 26 Oct due to PNY merger)

1 A Kimberly-Clark KMB 1 C PNC Financial PNC 1 A WEC Energy WEC
2 C Piedmont Nat. PNY 2 A Clorox CLX 2 C 3M MMM
3 C Sysco SYY 3 C Legacy Texas LTXB 3 C Home Depot HD
4 C Bnk of The Ozarks OZRK 4 C Starbucks SBUX 4 C Blackrock BLK
1 S PepsiCo PEP 1 S Blackstone BX 5 C ADP ADP
2 C First Long Island FLIC 2 S Apple AAPL 1 S Southside Banc. SBSI
3 S Comcast CMCSA 3 S Lakeland Bancorp LBAI 2 S Chevron CVX
4 S Lake Sunapee Bnk LSBG 4 S Webster Financial WBS 3 S Norfolk Southern NSC
 2  S  First Midwest  FMBI 4 S Flushing Financial FFIC
5 S Wesbanco WSBC