August 2018 Update

The markets took comfort by rising on a possible trade deal with Mexico with hopes of Canada being a slam dunk being dashed (until possibly next month) by the president’s own words (albeit off-record) that shot the negotiations down.  Kind of have to wonder about the art of that deal :).  Anyway, earnings were generally good with only a few surprises although several companies guided lower on tariff concerns and the inability to maintain the run rate that was accelerated by the tax plan.  I did come off the sidelines a little this month with mostly repositioning moves on the few dips.  August saw a rise in the S&P of 3.03% while my portfolio lagged a little by registering an increase of 3.02%.  YTD I’m ahead of the S&P by 1.06%.

Portfolio Updates:

  • Initiated GNBC (hedge on VBTX merger)
  • added to LUV on weakness
  • added to CHD (repositioning move – now overweight through the dividend)
  • Initiated MSCI on weakness (capturing their 52.63% dividend increase)
  • added to JNJ (repositioning move – now overweight through the dividend)
  • added to COBZ (merger approved by regulators)

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.

  • August delivered an increase of 53.11% Y/Y, the impacts being a Sep dividend paid in Aug (10%), last month’s rebalance (5%), dividend increases (5%), interim/final cycle (5%), purchases (1%) and the remainder being dividend reinvestment.
  • August delivered a 17.93% increase over last quarter (May) due to an interim/final cycle.
  • Dividend increases averaged 14.83% with 69.16% of the portfolio delivering at least one increase (including 1 cut (GE).
  • 2018 Dividends received were 77.59% 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

NVS proposed spin of Alcon scheduled for shareholder approval Feb 2019

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

The Y/Y dividend result is a great illustration of the power of reinvestment – particularly in light of the fact that “fresh” money investment is minimal.  Next week will be the continuation of the 3Rs series which will highlight some of the moves I’m making going into 2019.  You might guess at a couple of them based on my portfolio additions.

Hope all of you had a good month as well.

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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.

Takeda/Shire Merger

This morning, the long-rumored merger between Takeda Pharmaceutical Company Ltd (TPKYY) and Shire plc (SHPG) has been approved by both companies boards for the consideration of $30.33 in cash and either .839 shares stock or 1.679 ADS for each Shire share.  (Takeda’s current NYSE listing is at a 2:1 ratio, hence the differential).  Shire shareholders will also be entitled to dividends paid or declared through the merger effective date.

The combination is expected to complete in the first half of 2019 and will result (I believe) in the eighth largest pharma company.  Takeda expects to maintain both its’ dividend policy and investment grade rating.

My investment came about via Baxter’s spin of Baxalta which was subsequently acquired by Shire.  The overall investment is currently a little under water but the cash portion of this deal should mitigate this to a degree.  Apparently a major concern is that some large holders don’t care to hold Japanese paper.  Although Japan’s monetary policy (and resulting exchange rate) is a potential issue, my belief is that the combined company will have enough of a worldwide footprint to offset this.

Therefore I favor this deal and expect to increase my Shire holdings enough to avoid a weird fractional allocation of shares based on the merger terms.

April Showers

Below the shifting landscape that debates the notion as to whether tariffs are a negotiating ploy or the real deal, some pig farmers are now operating at a loss of thousands of dollars per week (futures markets have priced in tariffs) and soybean growers are considering whether to reduce their plantings to avoid the same fate.  Meanwhile the impact on our NAFTA partners is also being considered across the borders.  Canada can increase their soybean and pork sales to China but the net impact will still be negative to them considering the magnitude of trade volumes.  Mexico is expanding ties to China in an effort to mitigate the ‘Trump’ effect.  All the while, the administration has to be aware that China holds the ultimate ‘trump’ card in the debt held.  Some bearish views posit US interest rates could rise to 14% if China ceases their bond purchases.

With these headlines staring at us, it would be excusable to have missed some of the underlying news – one being in healthcare.  Two of my companies made the news this past week with possible or rumored deals; Shire (SHPG) and Humana (HUM).  Takeda’s interest in Shire has all the appearances of industry consolidation, Wal-Mart and Humana’s discussions are more along the lines of being one of the last gorillas.

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