Dazed and Confused

Which is my state of mind this week. For the most part earnings reports arrived with a caveat – Coronavirus impact to arrive at a future point in time. And the markets generally rose as the can got kicked down the road. So I too moved on to more mundane matters, like:

This is So Wrong!

There comes a time when ones’ sanity is legitimately questioned.  Such a time occurred this past week when reading what I thought was a recent post by the Conservative Income Investor.  Note the publish date of February 3. 2020. While reading this I felt a little like Bill Murray in Groundhog Day while saying over and over this is so wrong.  The root of my disagreement was the section: It pays no dividend. It does one thing especially well: Compound the retained profits, which in this case is all of the profits because the company pays no dividend, at a rate of 15% per year. Over the past ten years, the profits compounded at a rate of 18% per year. The book value has grown by 21% annually.  I mean are we talking about the same SF I added to my portfolio in 2018?  The one that raised this non-dividend by 25% last year? Determined to correct this egregious oversight, I found myself stymied by the inability to leave a comment – which was deactivated.  Perplexed, it was only then I found the small print, “Originally posted 2015-02-26 21:35:26”.  Fact of the matter is they initiated a modern day dividend policy September 15, 2017 – subsequent to the original post.  Fact of the matter is Conservative Income Investor regurgitated the original without regard to updating an environment that changed, leaving me – and who knows how many other readers (if knowledgeable) – in a Twilight Zone scenario.

Up, Up and Away …

The meteoric performance of Tesla has to leave one scratching their heads a little.  Granted, it has finally started to perform as a company rather than a performer in Elon’s three ring circus and recent China results have been favorable – pre Coronavirus.  My assumption had been a significant portion of the rise was a result of a short squeeze as it was one of the most shorted stocks. But this may not be the case as a convergence of factors could be at play.  Like their fourth quarter profit – although largely overlooked is the reason (sale of $133 million worth of regulatory credits to other automakers). It is possible that the corner has been turned though. Then there’s the rise of ESG which you know has become mainstream when Blackrock’s on board.  Perhaps it’s an old-fashioned bubble as millennials flocked to the stock on the SoFi platform. I guess Warren Buffett’s advice is best followed here … “Never invest in a business you cannot understand.”  In this case, I don’t understand the fundamentals at play.

Rounding Down?

I did confirm something I had long suspected.  It is the rare occurrence that I hold the same issue in different accounts but the move of my Canadian stocks from my taxable account to my IRA temporarily accomplished that for at least one dividend payment:

Toronto-Dominion Bank (TD)
    Schwab – $0.56 (USD)
    Motif – $0.5534 (USD)

Now the reasons could legitimately be either 1) Rounding on the exchange rate, 2) Rounding on the applied payment, 3) FX rate when applied, rounding on the handoff between platforms (BK/Motif) or 5) a combination thereof.  

It’s not worth my time to figure out why as I realize the differences are minimal.  But extrapolating a little, these fractional cents on 100 shares would result in an annual difference of $2.64 (assuming a constant exchange rate) which will go into my pocket once the conversion is complete.  Just another little tidbit to assist in keeping the snowball rolling!

Note: This anomaly has only been identified with foreign issues, not domestic

Conundrum of the Week

Last, a side note on ESG investing.  On my to-do list is to develop a framework or mission statement on my strategy.  This is difficult at best on both the macro and micro levels. Will it be a hard core approach or more a negative screening?  Will it acknowledge incremental improvement or pursue a scorched earth policy? Will it recognize that some suspect companies do not profit directly from the market unless possibly through a secondary offering?  Can one be both a contributor and a destroyer?

I present these questions as food for thought as the answers become increasingly murkier as the popularity of ESG increases.

And here’s to your week ahead!

January 2019 Update

The new year began with a flourish shrugging off the December selloff and recovering most of the losses. With the month exhibiting minimal turbulence outside some earnings misses, my purchases were essentially toppers to existing holdings (except one) – all in the first week. The S&P rose 7.29% while my portfolio lagged a little rising 6.48%. In reality, I was probably even but my cash position was abnormally high as I failed to deploy the cash received from a merger (I exclude cash from my investing positions). I expect this will normalize during February.

PORTFOLIO UPDATES

  • Lost GBNK, GNBC and SHPG via mergers
  • Added TAK and regained IBTX via mergers
  • Added new position BDXA
  • Increased VGK, MSCI, SF, JPMV, HTH, GNTY, EBSB, EWA, DGX, CUT, CL, BNCL and BHBK positions

DIVIDENDS

While my primary focus resides on dividends with the goal being 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.

  • January delivered an increase of 19.63% Y/Y, the impacts being dividend increases, special dividends and reinvesting merger cash proceeds into the portfolio.
  • January delivered a 0.83% decrease over last quarter (Oct) – the impact of two dividend cuts.
  • Dividend increases averaged 8.84% with 20.81% of the portfolio delivering at least one increase (including 2 cuts (GE, OMI).
  • 2019 Dividends received were 9.33% of 2018 total dividends putting me on target to exceed last years’ total in 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.

2019 conversion remains pending

SPINOFFs

GE‘s rail unit to spin then merge with WEB. This was restructured in January to generate more cash for GE – end result being a taxable event for shareowners

GE to spin 80% of the health business

NVS proposed spin of Alcon scheduled for shareholder approval Feb 2019

On Oct 4,2018 MSG filed a confidential Form 10 to spin the sports business

MERGERS

XRX merger with Fujifilm cancelled (still being litigated).

BNCL to merge into WSFS

BHBK to merge into INDB

SUMMARY

To escape January’s dividend cuts relatively unscathed is monumental. Back in October my expectation was for the effects to linger through the first quarter. Now I can just put my head down and focus on the long game.

October 2018 Update

Octobers carry the weight of history on their shoulders and this year was true to form with some wild swings.  Though some sectors touched bear market territory (think housing), basically this month was a mere – but tumultuous – correction.  As we head towards this years’ finish line, there is no room for complacency as my fear is that storm clouds are forming heading into 2019 – basically a tale of two economies.  At the forefront of my mind are the two companies delivering notice of dividend cuts effective January.  I’ll dive into them in more detail next week but Owens & Minor  (OMI) a soon to be former Dividend Achiever which will probably be sold (-71.15% cut) and General Electric (GE) which will cut for the second year in a row this time by -91.67% to which I’ll probably add.  At least I have two months lead time to execute a strategy on my terms as the losses are already baked in.  October saw the S&P of drop 6.96% while my portfolio outperformed the index by decreasing 5.8%. YTD I’m ahead of the S&P by 1.36%.

Portfolio Updates:

  • lost COBZ, added additional BOKF as stock/cash merger completed
  • initiated new position: CL
  • initiated new position: BHBK
  • initiated new position: BNCL
  • initiated new position: HTH
  • initiated new position: SF
  • rebalanced and added to my ETF group (CUT, EWA, EWW, JPMV, VGK)
  • averaged down on OZK
  • added to CLX prior to ex-div

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.

  • October delivered an increase of 32.12% Y/Y, the impacts being dividend increases, special dividends and reinvesting merger cash proceeds into the portfolio.
  • October delivered a 10.52% increase over last quarter (Jul).
  • Dividend increases averaged 15.56% with 74.77% of the portfolio delivering at least one increase (including 2 cuts (GE, SRC).
  • 2018 Dividends received were 104.04% of 2017 total dividends exceeding last year’s on October 19th.

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

On Oct 4, MSG filed a confidential Form 10 to spin the sports business

Mergers:

XRX merger with Fujifilm cancelled (still being litigated).

SHPG to merge into TKPYY

GBNK to merge into IBTX (shareholders approved)

GNBC to merge into VBTX (semi-reverse)

BNCL to merge into WSFS

BHBK to merge into INDB

Summary

My repositioning was completed and my 2018 dividends pretty much locked in.  I’ll  now focus on 2019 as it appears I need a head start with the dividend cuts looming.   🙂

Hope your October was equally as good – or better!

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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