2019 Year End Report

Looking back at last years’ End Of Year post, the concerns raised at that point all remain valid.  I have to admit that even with the evils of tariffs, rising deficits and US dollar strength the economy remained surprisingly strong.  I did nail one right – the administration’s claim that GDP growth can outpace the deficit was wrong. If it can’t be done when the economy is hitting on all cylinders – the question becomes ‘when can it?’

For the month, the S&P index rose 2.73% and my portfolio (excluding October and November purchases) rose 4.26%.  When those purchases are included, the monthly increase was 10.51%. Yes my gain would have been larger had I re-invested the dividends throughout the year but at least I was fully in the market during the last quarter run-up.  For the year the S&P rose 30.43% (depending on how it’s calculated) the best year since 2013. My Portfolio rose 34.54% allowing me to extend my claim of the 34th year (of 39) that I’ve beaten the index.

Dividend cuts were the big obstacle for the year as I endured five in total.  Frankly, it wasn’t until December that my Dividend Goal (10% annual increase) was in the bag.  This is typically attained in late October or early November. 

I have only three new companies on my watch list with limit orders in place on two.  All are foreign with Canada, Hong Kong and Japan tagged. I have a few I’m willing to shed with a couple more needing repositioning due to mergers.  For the first time in probably five years I’m in a position to reduce my holdings while beefing up my Anchor and Core positions.

Thirteen countries were represented in my portfolio (18.5% of my dividends), losing Ireland but gaining Japan via a merger.  The top countries were Canada (9.77%), UK (2.61%), Singapore (1.21%) and Sweden (1.02%). I’m continuing the migration of Canadian companies from my taxable accounts to my IRA to take advantage of the tax treaty (no Canadian tax withholding for most issues).

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

For instance, the net purchase expense threshold is not a pure indicator of my cash position.  I’m thinking it’s in the 2-3% range as my cash position increased last month despite the purchases.  The Incr/Decr from the market — yes, 99.2% of the increase in portfolio value was due to the market.  A slight disappointment is the Dividend Raises. They weren’t enough to even round up to 0.01% (more a reflection of portfolio size than wimpy raises).

Dividends:

  • December delivered an increase of 40.87% Y/Y with most of the increase attributable to the Oct/Nov purchases, the OMI fiasco of last year aging off and a weaker US dollar (finally).
  • Dividend increases averaged 10.11% with 68.28% of the portfolio delivering at least one increase (including 5 cuts.  Basically a lackluster performance.
  • 2019 Dividends received were 13.78% greater than 2018 dividends and exceeded last years’ total on December 1st.  It would have been over 15% had there been no cuts.

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:

On Oct 4, 2018 MSG filed a confidential Form 10 to spin the sports business which remains in progress.

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.

SCHW to acquire AMTD for 1.0837 sh SCHW to 1 AMTD.  My only surprise with AMTD being taken out was the suitor – I had expected TD.  Regardless, I have three concerns over this deal, 1) profit margin compression with the onset of $0 fee trades, 2) possible liquidation of a partial TD stake to reduce their ownership share from 13.4% to 9.9% (the same issue Buffet regularly faces) and 3) 10 year phase-out of AMTD/TD cash sweep account relationship.  The third one means TD has a low cost (albeit, decreasing) source of deposits for the foreseeable future. After the first of the year, I’ll probably cash in AMTD and increase TD a little further.  

Although XRX is officially off the list with their Fujifilm settlement, Icahn & Co. couldn’t wait for the ink to dry before stirring things up with HPQ.  As of now, I am considering exiting my XRX position.

Splits and Stock Dividends

Although splits are agnostic, I consider them a positive with reverse splits a negative.  Two of my companies split this year – PWOD and FFIN with no reverse splits to report.

Five companies showered me with shares of stock ranging from 3% to 5%.  I do love stock dividends and this year the benefactors were: CBSH (5%), HWBK (4%), LARK (5%), AROW (3%) and CVLY (5%).

Summary

As we slide into tax season, we’ll see if my readjustments panned out.  My goal was to achieve the 0-10% tax bracket by taking a one year tax hit.  The first part was completed so the results will be evident in the next month or so.  Overall, not one of my better years but I did attain (at least) my minimum objectives.   

Hopefully your year was great or at least in line with the market. 

November 2019 Update

Alright, I do have a bias.  Generally I don’t pay much attention to Jim Cramer, but his recent attention grabbing headline did pull me in.  “Owning too many stocks and not enough cash can set you up for failure: Cramer” was the title.  As one who owns 200+ issues, I’m always on the lookout for alternative views.  My expectation was for the sage advice to be essentially “have a war chest and shopping list at the ready”.  But rather it was, “Limiting your holdings can be a great tool for investors who don’t have the time or the drive to do their homework for 20 or 30 different companies”.  The essential message being if you “own more than 10 stocks, you might want to consider paring back”. Say what? This recommendation doesn’t even provide exposure across all sectors. So what to do if like me you have an overabundance?  Sell, he says. “Sometimes, it can be as simple as selling some stocks and getting some cash on hand. Go sit on the sidelines — nothing wrong with that.” Very true if one has a knack for timing the markets. My methods aren’t for everyone either as my emphasis is on consolidation, typically M&A – which results in slightly higher mediocrity for this portion of my portfolio with the aspiration of getting a tape measure homer.  As they say, the devil is in the details. His view was apparently honed as a trader rather as a buy and hold type of investor as he states, “I would analyze every losing trade … I realized that good performance could be linked directly to having fewer positions”. Okey dokey, ‘nuff said ….

Certainly a long and roundabout way of saying the market was basically on an upward tear this month with only a few down days.  Try timing that movement! So the S&P rose a stellar 3.9% – the best since June while my portfolio – including the purchase spree I’ve been on – rose 9.84%.  Excluding the final round of purchases – even with no fresh money being used – the portfolio value rose by 2.43%, a tad below the index, probably due in part to buying at elevated levels.

PORTFOLIO UPDATES

  • increased my PB position and lost LTXB (merger).  I’m now overweight PB as my position doubled which I’ll reduce in the next tax year.
  • New Position – PBCT and lost UBNK (merger)
  • increased my WFC position (replication strategy)
  • New Position – KFC  (replication strategy)
  • New Position – PG (replication strategy)
  • increased my YUMC position basically as a rebellion against the President’s antics.  They derive 100% of their sales, all of their profits, no imports or exports (all domestic), and their entire supply chain is in China.  Yet they are incorporated in Delaware and pay a USD dividend. The major question is currency exchange on their P&L statement and the president’s delisting campaign.
  • increased my TD position (IRA).  I’ll increase it further and sell my taxable account shares after the first of the year.
  • New Position – KNBWY – another statement selection – message being , “Mr. President, play with tariffs all you like but there are Japanese companies other than car manufacturers employing thousands of Americans”.  Besides, I see their sales improving in 2020 with the Olympics being in Japan and it fits my bottler strategy.

DIVIDENDS

My primary focus resides on dividends with the goal being a rising flow on an annual basis.

  • November delivered an increase of 15.51% Y/Y.
  • Dividend increases averaged 10.11% with 68.72% of the portfolio delivering at least one increase (including 5 cuts). This is off last years’ pace and I believe a new personal record for dividend cuts in a single year since about 1980.
  • 2019 Dividends received were 99.63% of 2018 total dividends putting me on target to exceed last year’s total on December 1st. The YTD run rate is 110.76% of 2018, slightly over my 110.0% goal. Point of reference, this is the first time since starting this blog that I didn’t exceed the prior year dividends before the end of October.

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.

AT A GLANCE

Inspired by Simple Dividend Growth‘s reporting

Key thing I’m looking at is the ratio between market action and purchase activity. This month was roughly 80/20. I suspect most months will be 95/5 as I rebuild the war chest. Another point of interest was the M&A cash exceeding my dividends. I can assure you this is a rare occurrence. It will be interesting to see what I track going forward.

SPINOFFs

On Oct 4, 2018 MSG filed a confidential Form 10 to spin the sports business which remains in progress.

MERGERS

VLY to acquire ORIT for 1.6 sh VLY to 1 ORIT. This merger will result in a slight dividend cut November forward as the rate will be normalized to VLY’s current rate. In my view, the other positives outweigh this negative.  Should close December 1st.

Spirit MTA REIT (SMTA) voted on Sept. 4th to approve the sale of most assets to HPT for cash. A second vote was held to liquidate the REIT. The first payment was received and am awaiting final settlement payout. Fully expecting a profitable outcome for one of my most speculative positions.

SCHW to acquire AMTD for 1.0837 sh SCHW to 1 AMTD.  My only surprise with AMTD being taken out was the suitor – I had expected TD.  Regardless, I have three concerns over this deal, 1) profit margin compression with the onset of $0 fee trades, 2) possible liquidation of a partial TD stake to reduce their ownership share from 13.4% to 9.9% (the same issue Buffet regularly faces) and 3) 10 year phase-out of AMTD/TD cash sweep account relationship.  The third one means TD has a low cost (albeit, decreasing) source of deposits for the foreseeable future. After the first of the year, I’ll probably cash in AMTD and increase TD a little further.  

Although XRX is officially off the list with their Fujifilm settlement, Icahn & Co. couldn’t wait for the ink to dry before stirring things up with HPQ.  As of now, I am considering exiting my XRX position.

SUMMARY

Overall, the only complaint being not exceeding last year’s dividend haul until December. The culprits being five dividend cuts and merger timings (a couple of completions were accelerated to avoid a payment). My cash position is close to zero, but with replicating the kids’ portfolio complete, I expect this to rapidly change to rebuild a stash for my next sizable purchases (unless market conditions warrant), expected in tax season.

Here’s hoping your month was successful!

The Defunct Kid Portfolio

This week saw the completion of the rebuild of my granddaughter’s portfolio.  Basically an effort that spanned six weeks and navigated some tricky waters – earnings season, trade news, Fed meeting … Yep, we had them all.  So, I figured it was only fitting to share the whys and wherefores of this little expedition since it pertains to the market.

Background

Since coming to live with us, the kid has been given an annual present of a stock holding and as such has accumulated a nice – but not quite fully diversified portfolio.  Over the years she has been proud of this and one year participated in a ‘mock’ stock contest at school which was (I believe) sponsored by FinViz taking eighth place in the state.  So it was a sad day for her when she was advised that the majority of college aid programs (Grants, Scholarships, etc.) would be discounted by 25% of her net worth. This includes savings, portfolio …  There goes the incentive for planning ahead. End result being upon graduation, her nest egg would be 0. My wife and I are not her parents – the legal status is guardian – so at least our net worth is not considered. So the game plan evolved to maximizing the available assistance.

Liquidation

The rules are similar between 529 plans and custodial accounts, except when liquidated.  With 529s, there is a penalty and possible tax restatements. With Custodial accounts there is the obligation of the custodian to prove the liquidation benefit was on behalf of the minor.  As these accounts were Custodial, I’m now tracking application fees, ACT/SAT testing fees and much more, so if necessary I can respond to an IRS audit.

My Decision

She’s aware that I chose to replicate her portfolio as a slice of one of my M1 pies.  So I laid the groundwork to ensure no dividends were lost in this migration. Fortunately I’d been holding much of my previously paid dividends in cash just waiting for an opportunity to present itself.  As the checks arrived, I moved an equivalent sum to M1. What I haven’t shared is my intention to gift it back to her upon graduation from college.

The Process

I created a spreadsheet with the sale price and the repurchase price to determine if I made or lost money (outside of fees).  I will say that I don’t have the nerve to try to time the market for a living. On the subject of fees, company plans managed by Computershare, Broadridge and Equiniti downright suck on fees when transferring or cashing out.  To be fair, that’s an aspect that’s not at the forefront of most DGIs who buy and hold for the long term. The fees ranged from a little over $25 (BR, CMSQY) to $0 (SCHW) with EQN.L in between at $15 and change. With today’s free trading schemes, the incentive for using traditional DRIPs will likely wane as I noted in one of my infrequent comments on Seeking Alpha.

Once started, I was blindsided by some events.  WFC named a new CEO, TXN provided weak earnings guidance and KHC had an earnings beat.  For the most part, I was able to better her sale price when I did my purchase as illustrated below.

Cur price as of November 8, 2019

Takeaways

While I didn’t enjoy this exercise, had I realized in 2010 what rules would be in place in2019 I’m not sure I would have done anything differently as the kid gained an appreciation for investing and the power of compounding.  Besides, Administrations come and go, rules and policies are ever changing. The key is adjusting to whatever is most beneficial at a point in time.

Going Forward

I will be hoarding most of my dividends once again until tax time as my wife took a part time job this year.  For the first time in a couple of years I’ll be able to make an IRA contribution. 2020 portfolio reporting will likely be a little strange – at least from my view of normalcy, as I tend to like consistency rather than one-off events.  (I know … first world problems …) My concerns lie more in highlighting dividend growth performance rather than portfolio growth via cash infusions – regardless of whether it’s new cash or self generated by reported dividends. This I’m sure will become clear as we progress into the new year.

As always, thoughts and comments are welcome!

Crazy Free

I decided to pause my 3Rs series to review one particular event of this past week.  No, not the political spectrum (guilty pleas/verdicts in the US and a new PM in Australia) but the bloodbath incurred in the discount broker space following JP Morgan’s announcement of the commencement of a free trade platform.  In the event you missed it, the Tuesday morning market shudder (per Seeking Alpha) was:

Online brokers slump in premarket trading after JPMorgan (NYSE:JPM) says it’s introducing a mobile investing app bundled with free or discounted trades.

TD Ameritrade (NASDAQ:AMTD) slides 6.5%, Charles Schwab (NYSE:SCHW) -4.9%,  E*Trade (NASDAQ:ETFC-4.5%, Interactive Brokers (NASDAQ:IBKR-3.5%.

JPMorgan +0.7% in premarket trading.

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