Baseball and Screeners

This is one of the times that another blogger’s post has triggered my (loosely defined) creative juices.  The post in question was Lanny’s (Dividend Diplomats)  Waste Management analysis.  Now I have no disagreement with his conclusion, in fact you could compare the DD Screener to delivering a fastball right down the middle.  The only alternatives to a strike are whether the pitch is high or in the dirt.

Personally, I like a little more strategy – the brush back before throwing a curve that nicks the corner.  Questions like EPA regulations or NIMBY impact on landfills.  Or the number of municipal contracts that are competitive versus monopolistic.  Issues obscured by a strict reading of batting and earned run averages.

The jewel in his analysis was:

I was driving around my neighborhood and was surrounded by a few waste disposal service trucks …

Aha!  A twist on the old kitchen cupboard investing strategy.  You know the drill … identify the companies behind the products you use.  I’m not sure of the absolute merits of this strategy, but there is comfort in investing in companies whose products and/or brands are familiar.  And it is one I use (to a degree) as well.  My assumption being, why not have my spending subsidized by companies I do business with through dividends?

I think I stated earlier I thrive in the obscurities, case in point being that last week I required a new prescription.  My meds generally delivered by mail from Humana (HUM).  One-off situations are handled by a local pharmacy.  In this case I chose Tom Thumb grocery as they accepted Humana insurance and I could wait at the Starbucks (SBUX) nearby.  I noticed on my paperwork that Argus Health was used for claim processing.  Argus is owned by one of my companies, DST.

There we have it.  Humana paid Tom Thumb which paid a processing fee to DST while I paid Starbucks while waiting.  Of which HUM, DST and SBUX all will provide a rebate (dividend) to me.  Although a topic I’ve mused on before, it is also one I feel never gets old.  One can always posit that this level of detail is irrelevant and perhaps it is.  But I feel it provides a broader snapshot of the business when inter-relationships are recognized.

 

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.

My 2017 Strategy (Coca-Cola)

Usually during the third quarter of each year I analyze my portfolio’s performance, do a little tweaking and cast about for an underlying strategy for the new year.  2016 was especially difficult due to a couple of mergers wreaking havoc on my portfolio structure as well as the uncertainty caused by the election.  The easy fix is to add to my anchor, core and satellite holdings at reasonable price points to get them to their target weightings.  This is illustrated by my recent purchases of KMB, CLX and SBUX with more to come.  The more difficult issue was identifying potential value plays for an ancillary portion of the portfolio.

Continue reading

Feb 2017 Update

February saw DOW 20,000 being attained (again) then forging a streak of 12 days of record closes.  Uncertainty remains in areas of the ability or  time required to effect change through the legislative process – in particular tax reform, healthcare and border adjustment taxes.  This month The S&P gained 3.72%.  while my portfolio recorded a gain of 0.05%.  The index had a decent earnings season (until TGT) as its tailwind.  After two months, my performance lags the S&P by 1.95%.

Headlines impacting my portfolio:

  • 2/6 – BUSE acquiring FCFP
  • 2/7 – AMC prices secondary
  • 2/10 – BX buys AON HR assets
  • 2/14 – PYPL buys TNCGF
  • 2/17 – KHC announced pursuit of UL
  • 2/21 – PNC acquires US assets of ECNCF
  • 2/21 – JNJ buys Torax (pvt)

Blog Updates:

posts under consideration for Mar are My 2017 Coca-Cola strategy outlined

Portfolio Updates:

  • Added to LB prior to ex-div (a little gamble on earnings that failed)
  • Added to SBUX on weakness prior to ex-div
  • Added to CHD prior to ex-div and the day before the UL/KHC sector bump

Subsequent to the KHC/UL announcement, I made the determination to divest my UL holdings.  Unfortunately over the holiday weekend the offer was withdrawn so my opportunity to sell at a premium evaporated.  So – no sale.

Dividends:

  • February delivered an increase of 24.89% over February 2016.  12.96% of this increase is attributable to purchases with the remaining 87.04% a result of dividend increases.
  • February was flat over the prior quarter (actually $0.01 lower due to exchange rates and a cut).
  • Declared dividend increases averaged 8.06% with 30.64% of my portfolio delivering at least one raise (1 cut – YUM).
  • Dividends received were 14.3% of total 2016 dividends and if the current run rate is maintained would exceed 2016 around October 15th.

Spinoffs:

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

Mergers:

Agrium/POT, JNS/HGG.L remain pending

Jan 2017 Update

January saw DOW 20,000 being attained before dropping under once again.  The post inauguration euphoria  beat a hasty retreat in the wake of record protests, a wave of executive orders and a record number of lawsuits filed against a president in his first eleven days.  In finance terms, this uncertainty translated into concerns about the the ability or  time required to effect change through the legislative process – in particular tax reform.  This month The S&P gained 1.79%.  while my portfolio recorded a gain of 3.51% largely due to the final significant merger completing.  After a great 2016, I’m making some changes in my 2017 strategy that will (hopefully) accelerate performance in 2018.  Meanwhile I’ll be content with a slight win versus the S&P this year.

Headlines impacting my portfolio:

  • 1/5 – WMT ends V ban in Canada
  • 1/9 – SBUX discontinues Evenings concept
  • 1/10 – NWBI divests MD assets to SHBI
  • 1/13 – LSBG/BHB merger completes
  • 1/17 – ADP acquires Marcus Buckingham Co.
  • 1/20 – IRM acquires Kane Office Archives LLC through BK court
  • 1/23 – AMC acquires Nordic Cinema
  • 1/24 – Executive order moving Keystone (TRP) forward signed
  • 1/25 – DOW 20,000
  • 1/25 – BLK moves 1T$ from STT to JPM
  • 1/26 – JNJ to acquire ALIOY then spin R&D unit to ALIOY shareowners
  • 1/30 – GDOT buys UniRush (RushCard)
  • 1/31 – BX prices INVH IPO

Blog Updates:

posts under consideration for Feb are Methods to my Madness Pt 3 update, Anti-Trump strategy, My Coca-Cola strategy and The Commonality Between Trump and Me

Portfolio Updates:

  • Added to CLX
  • New position – CCLAY
  • New position – BHB (LSBG merger)
  • New position – SWRAY

Dividends:

  • January delivered an increase of 15.46% over January 2016.  This requires normalization due to PEP and WRE paying in January rather than December, KO paying in December rather than January and BUSE paying in February.  On a normalized basis, this represents a Y/Y increase of 3.1% which is attributable to dividend increases (Y/Y).  This means my October purchases from merger proceeds were successful in maintaining my Jan,Apr,Jul,Oct income stream.
  • January had a 3.0% increase over the prior quarter.
  • Declared dividend increases averaged 7.44% with 19.65% of my portfolio delivering at least one raise (1 cut – YUM).
  • Dividends received were 9.2% of total 2016 dividends and if the current run rate is maintained would exceed this total around October 15th.

Spinoffs:

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

Mergers:

Agrium/POT, JNS/HGG.L remain pending