August 2019 Update


The market had significant bouts of volatility this month triggered by some weaker than expected earnings reports – though the consumer still is spending, continuing yield curve inversion – but I remain uncertain as to the weight that should be factored into this, the ongoing tariff whiplash coupled with all the pronouncements of terrific trade deals that seem to whither on the vine, increased international tensions with Russia and Iran having failed military tests and yesterday’s Russian incursion into Georgia. This list doesn’t even include European economic weakness centered in Germany. With all this, the S&P lost some ground dropping 1.84% while my portfolio lost 0.34%. For the year, I’m outperforming the benchmark by 2.5%.

As a reminder to the older readers and a refresher to my newer ones, I am technically in the distribution phase of my investing career – meaning I have minimal new cash (other than self-generated dividends) being deployed. Other than RMDs (required minimum distributions – coming from an account I exclude from this report and are not reinvested in the market), what is reflected is basically a result of market valuation. For August, total cash invested was less than 0.00% of the portfolio value even when rounding generously. The source of funds being accrued (non-reinvested) dividends (42.0%), new cash (49.4%) and reinvested dividends (8.6%. Basically for the month, over half my purchases were funded by the snowball resulting in an even larger forthcoming dividend stream.

PORTFOLIO UPDATES

  • increased my BLK position
  • new position MFG (Japan)
  • new position ERIC (Sweden)
  • new position G (Bermuda)
  • new position CSCO

DIVIDENDS

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

  • August delivered an increase of 13.89% Y/Y.
  • Dividend increases averaged 10.2% with 58.59% of the portfolio delivering at least one increase (including 4 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 71.11% of 2018 total dividends putting me on target to exceed last year’s total in late October. The YTD run rate is 108.5% of 2018, slightly under my 110.0% goal – but still recoverable and an improvement over last 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

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

MERGERS

XRX merger with Fujifilm cancelled (still being litigated). Pending settlement expected in September.

TSS to merge into GPN (all stock, .8101 sh GPN for each TSS sh) estimated to complete in October – Upon the announcement, I was prepared to sell my TSS position to book almost a triple in just over 4 years as GPN currently pays only a penny per share dividend per quarter. However, page 14 of their slideshow states: Dividend – maintain TSYS’ dividend yield. This would appear to indicate an increase in GPN’s dividend, so for now I’ll hold.

PB to acquire LTXB for 0.528 shares and $6.28 cash for each LTXB share. I plan to vote in favor of the transaction (on both sides), pocket the cash and sell the new shares – retaining the old and perhaps use some of the cash to purchase additional PB shares post-merger.

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.

PBCT to aquire UBNK for .875 sh PBCT to 1 UBNK. I plan to hold this one as I wouldn’t be surprised if PBCT gets taken out at come point.

Spirit MTA REIT (SMTA) will vote on Sept. 4th to approve the sale of most assets to HPT for cash. A second vote will be held to liquidate the REIT. If approved in total, this would be a profitable outcome for one of my most speculative positions.

The three banks continue to validate my strategy of bank consolidations from a few years ago. The only flaw (so far) was the holding period required – but dividends were received while waiting.

SUMMARY

Overall, no complaints. It appears the pending mergers/liquidation might provide enough of a premium to improve my performance over the index, but I don’t want to get too far ahead of myself yet. I still see a little consolidation in my holdings through the last half of the year and migrating to a slightly risk off stance, offset slightly by companies with compelling stories. My cash position still remains slightly above mean as I do expect further volatility.

Here’s hoping your month was successful!



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July 2019 Update

The market continued to defy gravity this month as the only external turmoil was leveled at the Fed with encouragement to cut rates in excess of a quarter point. At month end, the Fed chose their own path and the market tailed off from the highs recently attained. Earnings season has been generally good to mixed with ongoing concern regarding Trump’s Tariff strategy the main issue. This month the S&P gained 1.3% while my portfolio gained 1.8%. For the year, I remain ahead of the benchmark by 1.0%.

PORTFOLIO UPDATES

  • finally sold out my OMI position (prior dividend cut) and used the proceeds to increase my RY position
  • Sold my UNIT (dividend cut/debt covenant issue) and LAMR (reporting discrepancies (my opinion)) positions using the proceeds to increase positions in ABM, ARD, BLL, CHCO, KOF, CCEP, CTBI, AKO.B, HOMB, IRM, NWFL, OCFC, OUT, PLD, QCOM, SRC, SMTA, BATRA and VALU as a rebalance
  • increased my CHD position
  • increased my JNJ position

DIVIDENDS

My primary focus resides on dividends with the goal being a rising flow on an annual basis. This month marks the removal of the quarterly comparison as this has proved to be steadily meaningless.

  • July delivered an increase of 4.64% Y/Y. This is off my typical run-rate due to two foreign pay cycles hitting in August this year, rather than the July of last year.
  • Dividend increases averaged 10.13% with 57.27% of the portfolio delivering at least one increase (including 4 cuts (two being OMI)). 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 64.31% of 2018 total dividends putting me on target to exceed last years’ total in late October. The YTD run rate is 107.66% of 2018, slightly under my 110.0% goal – but still recoverable.

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

XRX merger with Fujifilm cancelled (still being litigated). Pending settlement expected in September.

TSS to merge into GPN (all stock, .8101 sh GPN for each TSS sh) estimated to complete in October – Upon the announcement, I was prepared to sell my TSS position to book almost a triple in just over 4 years as GPN currently pays only a penny per share dividend per quarter. However, page 14 of their slideshow states: Dividend – maintain TSYS’ dividend yield. This would appear to indicate an increase in GPN’s dividend, so for now I’ll hold.

PB to acquire LTXB for 0.528 shares and $6.28 cash for each LTXB share. I plan to vote in favor of the transaction (on both sides), pocket the cash and sell the new shares – retaining the old and perhaps use some of the cash to purchase additional PB shares post-merger.

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.

PBCT to aquire UBNK for .875 sh PBCT to 1 UBNK. I plan to hold this one as I wouldn’t be surprised if PBCT gets taken out at come point.

The last three continue to validate my strategy of bank consolidations from a few years ago. The only flaw (so far) was the holding period required – but dividends were received while waiting.

SUMMARY

Overall, no complaints. It appears the pending mergers might provide premium to improve my performance over the index, but I don’t want to get too far ahead of myself yet. I still see a little consolidation in my holdings through the last half by migrating to a slightly risk off stance, offset slightly by companies with compelling stories. My cash position does remain slightly above mean.

Here’s hoping your month was successful!

Tax Efficiency

I figured a little reflection was the order of the day as we recently completed tax season in the US, and yes, I had to pay for the first time in years. My initial take was Trump’s tax law did no favors to those of us on fixed incomes – rather tilting the scales to benefit the wealthy and to a lesser degree the working class – though there were winners and losers across the board. In preparation for next year’s fiasco, I’ve been attempting to ascertain some of the intricacies of the changes. Previously, I opined on the foreign tax credit remaining in place. Today’s revelation potentially turns conventional wisdom on REITs on its’ head.

Sage advice has typically been – with a few exceptions – REITs are best held in tax advantaged accounts, like IRAs. The new tax law adds a few wrinkles to this concept, which Justin Law outlines nicely. The essence of his piece is that Section 199A distributions now have a 20% deduction which may warrant a review how tax advantageous REITs are in ones tax deferred versus taxable portfolio. DGI darling Realty Income (O), recently reviewed by Tom at Dividends Diversify, could well be a poster child for this type of analysis as last year’s payouts were 77.1% Section 199A and the remainder Return of Capital. The delay in this week’s post was due to some difficulty in completing a review of the fourteen REITs in my portfolio.

Two of my REITs were excluded from this analysis as I have them classified as probable sales, Uniti as their dividend cut was likely a debt covenant issue and Lamar as their IRS reporting is not straightforward (the corporate filings differ from the filings on the shareholders’ behalf). As all of my REITs are in taxable accounts, using Justin’s generic template, they were first ranked by the new Section 199A exclusion.

  1. American Tower (AMT) 99.68%
  2. EPR Properties (EPR) 95.94%
  3. Washington RE (WRE) 91.89%
  4. Outfront Media (OUT) 86.10%
  5. Iron Mountain (IRM) 83.04%

The next tier combined Qualified dividends and Cap Gains as their tax treatment is similar (and not onerous):

  1. Duke Realty (DRE) 22.59%
  2. Kimco Realty (KIM) 18.29%
  3. Prologis (PLD) 17.33%

The one tier I need to keep an eye on is the Return on Capital with Vereit (VER) 86.17% and Crown Castle (CCI) 34.39%. This part of their distribution is tax deferred until sold or the cost basis reaches 0.

The ugly tier is the Section 1250 gains with a 25% tax rate.

  1. Spirit Realty (SRC) 49.2%
  2. Spirit MTA REIT (SMTA) 21.2%

I consider this to be a one-off due to the spin of SMTA from SRC. Kimco (26.94%) could fit in this category as well although my sense is that their portfolio repositioning is the culprit, but there are opposing views to mine.

Bottom line, I’m willing – even eager – to pay taxes. Yet the rules of the game reward those able to minimize the government’s share. While the key resides in understanding the nuances of the rules, I say, “Seek the rewards and let the games begin!”

Dec 2018 Update and Year End Review

he fourth quarter swoon continued in earnest this month resulting in an annual loss for the markets.  While the final trading day closed higher (DJIA up 265, NASDAQ up 51 and the S&P up 21) it was nowhere near close enough to avoid the worst December since 1931.  Though surprised by the resiliency of the US dollar, last year’s intent to migrate further into foreign equities was largely preempted by tariff uncertainty. My other 2018 concern of rising federal deficits stifling the economy did not manifest itself as yet – though I remain skeptical of  administration claims that growth can outpace the deficit. For the month, the S&P index dropped by 9.18% while my portfolio dropped by ‘only’ 8.44%. For the year the S&P posted an unusual loss of 6.65% while my overall loss was 3.57%. In an otherwise ugly ending to the year, my primary goal of exceeding the S&P’s return was attained marking the 33rd year (of 38) that I’ve been able to make this claim.

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July 2018 Update

The markets generally shook off potential tariff impacts, choosing instead to focus on earnings and GDP.  Any future concerns being tabled by investors to essentially celebrate the present.   Being a contrarian by nature brings out the caution signs when the market ignores some warning signals.  Tariff advocates Alcoa and Whirlpool took hits when they acknowledged the benefits anticipated were not materializing as expected.  Signs of profiteering are beginning to emerge.  The list of companies indirectly impacted continues to grow.  Technology had issues due in part to China exposure.  Perhaps I can be forgiven for seeing the glass half empty rather than half full.  This month had me on the sidelines with only one transaction to report.  July saw a rise in the S&P of 3.6% while my portfolio outperformed by registering an increase of 5.36%.  YTD I’m now ahead of the S&P by 1.06%.

Portfolio Updates:

Performed a rebalance on a portion of the portfolio.  I reduced the overage in DGX created in May and added shares to the others in this group (ABM, AMT, ARD, BLL, CASY, CHCO, KOF, CCE, CTBI, CCI, AKO.B, HOMB, IRM, LAMR, OUT, NWFL, OCFC, ONB, PLD, QCOM, SRC, SMTA, BATRA, UNIT, VALU, VER).  My DGX holdings remain higher than they were in May and the increase in dividends on this rebalance is negligible.

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.

  • July delivered an increase of 29.76% Y/Y, the biggest impact being a June dividend paid in July.   Pro-forma was 19%.
  • July delivered a 3.29% decrease over last quarter (April) due to an interim/final cycle (and would’ve been greater without the dividend move).
  • Dividend increases averaged 14.39% with 66.51% of the portfolio delivering at least one increase (including 1 cut (GE).
  • 2018 Dividends received were 70.19% of 2017 total dividends putting us on pace to exceed last year in early November.

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

Mergers:

XRX merger with Fujifilm cancelled (now being litigated).

SHPG to merge into TKPYY

GBNK to merge into IBTX

COBZ to merge into BOKF

GNBC to merge into VBTX (semi-reverse)

Summary

All in all a good month but it appears my continuing financial overweight is literally reaping dividends.  This probably needs to be addressed in 2019.

Hope all of you had a good month as well.

May 2018 Update

The month was fairly normal until the final week with Italy followed by Trump’s tariff rollout.  In between we saw the on again – off again negotiating style with North Korea and China.  Other than a couple of down days it appears the market is learning to ignore the noise.  Again I used the dips to my advantage and stayed the course.  May saw a rise in the S&P of 2.16% while my portfolio outperformed the index by registering a rise of 2.24%.  YTD I still lag the S&P by 0.35%.

Portfolio Updates:

  • Added to CMCSA (making another round lot)
  • Added to my ETF group (CUT, EWA, EWW, JPMV, VGK)
  • Added to GE (on the rail spin (WAB) news)
  • Added SMTA (via SRC spin)
  • Added to BKSC (via 10% stock dividend)
  • Added to DGX on news of UNH strategic partnership

DIVIDENDS

This is where my main focus resides.  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.

  • May delivered an increase of 12.97% Y/Y fueled by dividend increases.
  • May delivered a 15.98% increase over last quarter (February).
  • Dividend increases averaged 12.14% with 55.98% of the portfolio delivering at least one increase (including 1 cut (GE).
  • 2018 Dividends received were 46.53% of 2017 total dividends putting us on pace to exceed last year in early November.

Notes: the Q/Q shows an increasing trend line due only to timing of dividend payouts (pay date shifts).  Y/Y is only on par with dividend increases as dividends received were used to purchase next quarter (rather than current quarter) dividends.

Spinoffs:

GE‘s rail unit to spin then merge with WEB

Mergers:

XRX merger with Fujifilm cancelled.

SHPG to merge into TKPYY

Summary

Any month with increasing dividends and beating the S&P has to be considered a good one.

Hope all of you had a good month as well.