July 2017 Update

The general upward trend continued in July with major indices again hitting new highs.  With my strategy shift in place, I did deploy new capital but only in a positioning move ahead of a spin. The S&P ended the month up 1.93% while my portfolio trailed with a gain of 1.77% largely due to the financial sector lagging the market.  For the year, I’m ahead of the index by 4.86%.

Headlines impacting my portfolio (bold are owned):

  • 7/5 – YUMC indicates reviewing possible dividend payout
  • 7/7 – MET acquires FIG’s asset management business
  • 7/10 – CM acquires Geneva Advisors
  • 7/11 –BR acquires Spence Johnson Ltd
  • 7/12 – ABM acquires GCA Services
  • 7/12 – AAPL adds PYPL as appstore pymt option
  • 7/13 – MFC reportedly reviewing sale or IPO of John Hancock
  • 7/17 – CHD to buy waterpik
  • 7/17 – China places restrictions on loans to Wanda (AMC)
  • 7/18 – MKC to buy RBGPF’s food business
  • 7/18 – CCI acquires Lightower
  • 7/19 – HRNNF (H.TO) to acquire AVA
  • 7/20 – SRC considering spinoff of Shopko properties
  • 7/21 – BX and CVC Capital offer $3.7B for Paysafe (PAYS.L)
  • 7/26 – SHPG rumored to be takeover target
  • 7/27 – Ackman discloses stake in ADP
  • 7/28 – IRM acquires Mag Datacenters LLC
  • 7/31 – BX (w/ ETP 50.1%) buys 49.9% of holding co. that owns 65% of Rover pipeline

 Note: my comment of July 21st on AMC (Dividend Diplomats) remains prescient in light of their warning on August 1st.  I believe now is a viable entry point if cognizant of possible risk to the dividend particularly as related to lender covenants.  EPR may have a slight risk as well.

Portfolio Updates:

  • Added to MET (spinoff positioning)

Dividends:

  • July delivered an increase of 2.14% Y/Y with the vast majority of the increase being attributable dividend increases.
  • July delivered a decrease of 8.85% over last quarter (Apr) with TIS (dividend suspension) and foreign cycles (interim/final) being the culprits.
  • Declared dividend increases averaged 10.81% with 61.02% of the portfolio delivering at least one increase (including 2 cuts and 1 suspension)
  • YTD dividends received were 69.81% of total 2016 dividends which if the current run rate is maintained would exceed last years’ total in early November

Spinoffs:

MET has declared their spinoff – Brighthouse Financial (BHF) – effective August 4th.  Holders as of July 19th will be entitled to 1 share for each 11 MET shares owned.

Mergers:

AGU/POT (Nutrien), SGBK/HOMB remain pending

Summary

Overall another positive month with the only disappointment being the Q/Q dividend decline – which was expected.  The primary metric (annual dividend increase) remains on target and well ahead of inflation.

Jun 2016 Update

June was a roller coaster month starting with lackluster jobs numbers and ending with Brexit.  In between was the Fed leaving rates unchanged yet again.  The sleeper story being the CCAR results being released (partial results here).  Notably, Citi received approval to increase their dividend by 220%.    Although the DOW lost 871 points over two days, it recovered at month end while the S&P was flat for the month.

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Getting the Year Started

The worst kept secret is now official, Baxalta (BXLT) is being acquired by Shire (SHPG) in a stock and cash transaction valued (10 Jan 2016) at $45.57 per share of BXLT.  I was late to the Baxter party, buying into it just prior to the Baxalta spinoff due to valuation concerns.  These were confirmed shortly after spinoff with Baxter now a resident of my penalty box following the delivery of my very first (and currently only) dividend cut.

 

Having persevered, we are now being justly rewarded.  To break out the benefits – it’s a cash and stock transaction:

  • .1482 sh of SHPG and $18 for every BXLT share.

This represents a 13.8% premium over Friday’s close and a 22.5% premium over cost.  Not too shabby a return for six months.  Then reality sets in.  The negatives are many:

  • Has a formal ruling been received regarding tax consequences due to the spinoff
  • Impact of Shire’s impending move from Ireland to the UK on taxes
  • Shires’ dividend rate (currently ~.3%) on an interim/final schedule

Although I like the combination and the pipeline, this deal calls for a longer term view than I’m willing to provide.  Therefore, I anticipate selling prior to or shortly following the merger depending on valuation (i.e., is the $18 premium effectively priced in).

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