Show Me The Money!

politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other.”

Oscar Ameringer 1870-1943

With apologies to the cast of Jerry Maguire, this post is not about sports – unless politics  is now the national pastime.  This post is only peripherally related to the forthcoming election by virtue of the cash.  Period.  Today is not about Purple, Red or Blue – but Green.

Last week I mentioned that any sales of my banks were on hold pending a study which I have now completed.  The common denominator in any US election is fundraising.  The Federal Election Commission lays out the rules of the game, one of which is that cash must be held in one (or more) domestic financial institutions.  For a multitude of reasons (mostly tax related), most campaign advisors recommend placement in a non-interest bearing account.  (Exceptions are rampant – particularly among PACs, but we’ll assume otherwise for simplicity’s sake).

In the current environment, low or no-cost money is key to profitability.  Once critical mass is attained, the spread between cost of funds and the amount earned can be significant.  Three ready sources (that I’m aware of) exist – HSA/FSA accounts (covered previously), state and local tax accounts (still looking for a data source) and political money.

The main problems with political money are additional reporting requirements and stickiness.  A media buy can pull thousands (or millions) of dollars from an account in short order – which could be problematic for many smaller banks.  That said, I kind of had to wonder if the PE ratio noted by Lanny of Peoples United (PBCT) is attributable in part to the fact it was of two used by the Bernie Sanders campaign.  Or perhaps it is an offset to one of my banks’ heavy leverage to the oil patch (BOKF).

Political money is quite often invested in brokered CDs (ensuring FDIC insurance), Treasuries and other low risk and therefore low-yielding investments.  One such bank, Amalgamated (AMAL) reported (March 2020) $774.8m in political deposits (campaigns, PACs, and state and national party committees) with a net interest margin of 3.46%.  All that is required is a decent algorithm to ensure liquidity as the candidates spend their money.

As I was identifying which banks to retain in a post-Motif world, figured it might be enlightening to identify if there was a Republican alternative to the Democratic Amalgamated?  The amount of blatant hypocrisy embedded in the money?  Preconceived notions that were pierced?

I identified 842 campaign accounts reported to the FEC.  116 candidates had no report on file – pretty evenly split between parties.  One of the reasons is explained in this article.  115 of the accounts were held at non-public institutions (private banks, mutual societies or Credit Unions).  For the purpose of this analysis, both categories were ignored with one exception.  66 institutions had the account of only one candidate which were also ignored (except for the self-reporting piece) as they were generally banks in the state or district of the candidate.

The first exception was the answer to Question #1  – a Republican alternative to AMAL.  The answer is an unqualified yes, although Chain Bridge Bank is a closely held (not publicly traded) corporation.  It probably played the spread a little better than AMAL by investing in Treasuries last year, locking in then higher rates.  I identified 42 Republican accounts  held at Chain Bridge versus 88 Democratic at AMAL.  Some Republican accounts of note (at Chain Bridge) include: John Cornyn (TX), Tom Cotton (AR), Lindsey Graham (SC), Joshua Hawley (MO), Rand Paul (KY), the Republican National Committee and one Donald J. Trump.  Notable Democratic accounts at AMAL include: Richard Durbin (IL), Kamala Harris (CA), John Lewis (GA), AOC (NY), Bernie Sanders (VT), Elizabeth Warren (MA), the Democratic National Committee and Joe Biden.

As far as hypocrisy goes, in politics it’s second nature and there’s little difference with the money.  While Democrats seem to thrive keeping Wells Fargo’s feet to the fire after multiple misdeeds over the years, apparently they aren’t severe enough to warrant fellow House Financial Services Committee members David Scott (GA) and Madeleine Dean (PA) to move their accounts or other notable Dems such as Timothy Kaine (VA) or Ted Lieu (CA) either.   Republican’s aren’t immune from hypocrisy either.  Consider the President’s America First campaign.  Apparently Brian Bavin (TX), Richard Shelby (AL) – both BBVA, Glenn Grothman (WI – BMO), Devin Nunes (CA – MUFG) , Ken Calvert (CA – RY) and John Cornyn (TX – UBS) all consider repatriating profits to other countries (Spain, Canada, Japan and Switzerland) the path to making America Great Again.  Moving along …

Let’s talk of my biases – things I had presumed accurate with little basis for the assumption.  Things like Zions Bancorp (ZION) based in Utah would have a conservative political bent.  In fact, 75% of their political accounts are Democratic.  Or the International Bank of Commerce (IBOC) with their CEO an ardent Trump supporter headquartered in a border town with both their political accounts being Democratic.  Or First Republic (FRC) that had some interesting – if not questionable – dealings with Trump associates entrusted by two Democrats. So much for preconceived notions …

The top ten publicly traded banks holding political campaign money are (# of accounts):

Bank of America Corp BAC 115
Amalgamated Bank AMAL 89
Wells Fargo & Co WFC 87
Truist Financial Corp TFC 81
PNC Financial Services Group Inc PNC 23
Citigroup Inc C 19
JPMorgan Chase & Co. JPM 17
Eagle Bancorp, Inc. EGBN 14
Cadence Bancorp CADE 13
Capital One Financial Corp. COF 13

If I were to wager a guess, Amalgamated and Chain Bridge have the number of accounts to move the needle a little where the others either don’t have the critical mass or their sheer size dwarfs any impact to earnings.

I currently own AMAL, BAC, BANF, BMO, BOKF, C, CBSH, CFR, CHCO, CMA, FFIC, FHN, FMBH, HOMB, HTH, IBOC, JPM, KEY, ONB, PB, PBCT, PNC, RY, TD, UMBF, USB, VLY and WFC all with varying degrees of campaign funds.

Various Updates and Thoughts

Transition Status

I decided to take last week off as there was essentially nothing new to mull over – at least stuff that others aren’t already considering.  Besides – I had my hands full keeping abreast of forced reshuffling of the portfolio.  All full shares arrived as expected via ACATS.  Most – if not all – of the cash and accrued dividends has been arriving in cryptic form, with multiple transactions grouped together.  Partial example:

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September 2018 Update

It was a tale of two markets this month with highs being set on the 20th before pulling back through month end.  It’s a riddle of sorts when consumer sentiment is off the charts and the ultimate consumer stock (BBBY) plunges on terrible sales.  How about the Fed raising rates again but bank stocks fall?  Then Mexico appears to tap the brakes on a possible bilateral trade deal in favor of retaining a trilateral including Canada with the Trump threat being tariffs on Canadian cars.  Yes, a conundrum indeed. I was off the sidelines during the first half of the month but going silent during options expiration and the sector changes later in the month.  September saw a rise in the S&P of 0.43% while my portfolio lagged by registering a decrease of 0.42%.  YTD I’m ahead of the S&P by 0.21%.  The biggest factor being my cash position – which is normally minimal.  I only report stock positions – but if cash were reported the results would have been a wash.

Portfolio Updates:

  • added to KMB prior to ex-div
  • added to GBNK (hedge on IBTX merger)
  • sold IBTX (locking in a 46% gain – I’ll get these back post merger)
  • sold one CHD position (completed last month’s repositioning)
  • sold one JNJ position (completed last month’s repositioning)
  • added to CMA (minor rebalance)
  • added to EPR (minor rebalance)
  • added to CBSH (minor rebalance)
  • added to FFIN (minor rebalance)
  • added to MAIN (minor rebalance)
  • added to MKC (minor rebalance)
  • added to PYPL (minor rebalance)
  • added to PNC (minor rebalance)
  • added to PRI (minor rebalance)
  • added to SHPG (minor rebalance)
  • added to TSS (minor rebalance)
  • added to UNH (minor rebalance)
  • added to VLO (minor rebalance)
  • added to V (minor rebalance)

DIVIDENDS

My main focus resides on dividends.  Market gyrations are to be expected but my goal is to see a rising flow of dividends on an annual basis.  I’m placing less emphasis on the quarterly numbers as the number of semi-annual, interim/final and annual cycles have been steadily increasing in my portfolio.

  • September delivered an increase of 13.54% Y/Y, the impacts being dividend increases and a sizable special dividend (AMC).
  • September delivered a 15.65% increase over last quarter (Jun).
  • Dividend increases averaged 14.96% with 71.03% of the portfolio delivering at least one increase (including 1 cut (GE).
  • 2018 Dividends received were 92.71% of 2017 total dividends putting us on pace to exceed last year next month.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

Spinoffs:

GE‘s rail unit to spin then merge with WEB

GE to spin 80% of the health business

NVS proposed spin of Alcon scheduled for shareholder approval Feb 2019

Mergers:

XRX merger with Fujifilm cancelled (now being litigated).

SHPG to merge into TKPYY

GBNK to merge into IBTX (shareholders approved)

COBZ to merge into BOKF (expected completion 1 Oct 2018)

GNBC to merge into VBTX (semi-reverse)

Summary

My repositioning is almost complete so next month I can begin to front load into 2019.   Dividends this month hit a new record.

Hope all of you had a good month as well.

Johnny-come-latelies

Generally I refrain from back-to-back posts with similar topics but decided to make an exception this week as the moving parts have kicked into high gear.  My post last week addressed my uneasiness with cryptocurrency as well as my interest in the underlying blockchain technology.  It appears that my view has some support as two blockchain ETFs debuted on January 17th (BLOK and BLCN) and one January 25th (LEGR).  This should be followed by KOIN next week.  Horizons and Harvest (HBLK) also have ETF applications pending.  Grenadier penned a piece on Seeking Alpha that did some analysis on the first two.  Four of LEGR’s top five holdings are included in either one or both of the originals so it will probably be similar.  David Snowball highlights this sentiment in his piece There’s no idea so dumb that it won’t attract a dozen ETFs stating, “…there are no publicly traded companies that specialize in blockchain; there are mostly companies with a dozen other lines of business that have some sort of efforts going into blockchain.”  This is 100% correct.

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Dec 2017 Update and Year End Review

The upward trend continued this month with catalysts being the tax plan and holiday sales.  My guess remains that the first half of 2018 will be good for corporations (i.e., dividends and buybacks) with a shift in focus later with deficits and mid-term elections playing a leading role.  I remain convinced the yearlong weakness in the US Dollar will continue and expect to allocate more cash into foreign equities during the first half 2018.  I will review this plan as my personal tax implications become clearer.  For the month,   the S&P index increased by .98% while my portfolio increased by 3.29% largely fueled by Financials (again).  For the year the S&P increased by a stellar 16.26% while I came in at +20.58%! The S&P return with all dividends reinvested adds about 2.41% which my hybrid approach still beat.

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November 2017 Update

The upward trend continued this month fueled by the progress on the tax plan.  If finalized, my guess is that the first half of 2018 will be good for corporations (i.e., dividends) with reality setting in later in the year that the average consumer received a raw deal and has less disposable income than advertised.  That is unless trickle down really works.  The wild card being the government (or lack thereof) as a second felony plea was accepted with individuals tied to the campaign or administration.  The S&P index increased by 2.81% while my portfolio increased by 3.22% largely fueled by Financials.  For the year I’m still ahead of the index by 3.12%.

Headlines impacting my portfolio (bold are owned):

  • 11/1 – OMI buys HYH‘s Surgical and Infection Prevention (S&IP) business
  • 11/2 – SBUX sells Tazo line to UL
  • 11/6 – AVGO bids to acquire QCOM at $60 cash & $10 stock per share
  • 11/6 – BCE acquiring ARFCF
  • 11/9 – AAPL acquires InVisage Technologies
  • 11/13 – GE cuts dividend by 50%
  • 11/13 – AMT buys Idea/VOD Cellular towers in India
  • 11/13 – VER selling Cole Capital to CIM Group
  • 11/14 – Baupost Group initiates 3,565,361 sh position (abt 6.25%) in AMC
  • 11/14 – MSG to sell WNBA team (Liberty)
  • 11/15 – SQ launches ability to buy and sell Bitcoin
  • 11/16 – PYPL sells $5.8B loan package to SYF
  • 11/16 – IRM buys China assets from SFG.CO
  • 11/20 – MSG acquires Obscura Digital
  • 11/27 – PNC acquires The Trout Group, LLC
  • 11/28 – BLK to acquire C‘s Mexican asset management business

Portfolio Updates:

  • increased position in existing DRE holding

Dividends:

  • November delivered an increase of 18.3% Y/Y with the about 60% of the increase being attributable dividend increases and the remainder purchases.
  • November delivered a 1.0% decrease over last quarter (August) due to two payouts being moved to December.
  • Declared dividend increases averaged 11.9% with 71.75% of the portfolio delivering at least one increase (including 2 cuts (XRX and YUM) and and 1 suspension (TIS)).  Note: GE’s announced cut is counted as 2018.
  • YTD dividends received were 109.86% of total 2016 dividends which exceeded last years’ total on October 25th.

Spinoffs:

Spirit Realty Capital (SRC) – Nov 21, Form 10 was filed confidentially with spin completion targeted for 1H 2018.

Mergers:

AGU/POT (Nutrien) remains pending with the US being the only approval pending.

Summary

My 2018 strategy is forming with the focus turning towards Consumer Staples and Utilities (existing holdings).  I expect to incorporate a side strategy on lower yielding but faster growing companies which I’ll publish in the next week or two.   Of course I will continue to also pursue opportunities as they arise.

And how was your month?

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.