2020 Year End Report

Who could have foreseen the year we just experienced.  I would wager that everyone’s expectations were dashed with the first quarter Covid-19 outbreak.  The stock market recovery was more robust than anticipated even in the face of a recession, record deficits, significant unemployment and disrupted industries.  The credit – or blame – is attributable to Treasury and Fed policies throughout the year.

Whether sustainable or not is the question going into the new year particularly with a new administration taking over.  King Dollar’s reign appears over as the greenback has been in decline during 2020.  The value of my foreign dividends increased about 3% on currency alone. 

I probably set a new personal record for portfolio turnover due to eliminating some weaker actors caught in the pandemic crossfire as well as deleting some issues with Motif’s closure, although most were moved to Schwab or M1.  A case could easily have been made that riding the volatility out was a valid scenario as the bulk of the losses were recovered by Q3 – unless dividend preservation was the ultimate goal as 2020 had more dividend cuts and suspensions than I’ve ever experienced in a year.

Like 2019, 2020 presented a fourth quarter run-up topping out with record highs.  For the month, the S&P index rose 3.71% and my portfolio rose 3.95%.  Even though my purchases slowed during the last couple of months as I’m restocking my dry powder, I’m more fully invested than yearend 2019.  For the year the S&P rose 16.26% (18.26% by some measures). My Portfolio increased 25.66% (19.17% ex purchases) allowing me to extend my claim of the 35th year (of 40) I’ve beaten the index.  Hard to believe I’ve been doing this that long.  Seems like only yesterday …

Dividend cuts and suspensions were a bigger obstacle than last year as I endured nine cuts and eleven suspensions.  My Dividend Goal (10% annual increase) returned to form by being attained on October 30th versus December 1st in 2019.  The only disappointment here was that these numbers were engineered largely by taking advantage of ex-dividend dates to double up on some payments (and minimize wash sales) when moving issues between brokers.  This will be difficult to replicate in 2021.   

My watch list consists of 10 companies, half US and half Japan.  Unless we see a significant pullback I doubt any will be in my target range. With SPACs being the new fad, I may selectively add a few more.  Otherwise, much like last year’s intent, I’ll put my efforts into beefing up my Anchor and Core positions.  The pandemic nailed me on this front as my two most out-of-balance overweight positions, Comcast and Chevron, increased their dividends by 9.52% and 8.4% respectively while my portfolio average in total was a 5.35% increase.  These two did lift the averages so I guess it’s a good problem to have to address.  My other concern relates to the roughly 12% that kept their dividend steady rather than raising as normal.  None of my remaining holdings is currently in jeopardy of losing their CCC status – yet.  Check back in a few months.

Thirteen countries continued to be represented in my portfolio (19.46% of my dividends.  The top countries were Canada (11.46%), UK (2.5%), Australia (1.28%) and Japan (0.98%).  I expect to lose one of my Aussie holdings and increase my UK in 2021 due to a merger.

Notes:

  1. Generally the increase/decrease in value is driven by market fluctuation.  I’m finding that it’s rare that my net purchases/sales to exceed 1%.
  2. 2020 Dividends exceeded 2019 Dividends on October 30th
  3. Dividend suspensions were lifted from Coca-Cola European Partners and Yum China.

I’m finding it rare for the Monthly Recap to fully illustrate all the activity as much of the data rounds to 0.  So I was pleased to see at least stock dividends greater than 0.  I tend to use the Notes section for further elaboration.

Dividends:

  • December delivered an increase of 10.76% Y/Y.
  • Dividend increases averaged 5.35% with 53.09% of the portfolio delivering at least one increase (compared to 10.11% with 68.28% in 2019). A performance that is sending warning signals heading into 2021 as this is generally a lagging indicator.
  • 2020 Dividends received were 23.54% greater than 2019 dividends and exceeded last years’ total on October 30th. 

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:

IBM’s (IBM) announcement of a spinoff expected late in 2021.  I still haven’t yet formed an opinion but suspect any benefit will arise from less bureaucracy and improved strategic focus at some future point in time.  Meanwhile, this one is a hold while I figure out which sides of the business gets what I consider the crown jewels.

Mergers:

Coca-Cola European Partners (CCEP) to acquire Coca-Cola Amatil (CCLAY) for $12.00 (AUD) cash.  Amatil’s board has given tentative approval pending an independent appraisal on price.  I don’t have a major issue with the pricing as my cost basis is $6.54USD which the $12.00AUD translates to $9.10USD at current exchange rates providing a gross ~ 28% return (excluding dividends). Owning both sides of this transaction, I’ll probably increase my CCEP position on weakness and sell CCLAY prior to the acquisition assuming the price per share gets closer to $8.85USD.

The one question I have is the logic behind KO’s agreement to sell their stake at a lesser price which is not an obvious shareholder friendly move on their part, part of which was answered (I think) with a possible cash crunch with the recent Tax Court ruling.

Splits and Stock Dividends

Although splits are agnostic, I consider them a positive with reverse splits a negative.  Four of my companies split this year – MKC, SF, TU and AAPL with one reverse split (MFG) to report.  MFG’s was technical in nature – performed at the behest of the Japanese exchange to raise the share price.  The ADR ratio was modified accordingly.

Four 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%) and AROW (3%).

Summary

Last year’s adjustments for tax purposes was stellar, resulting in the lowest tax percentage I’ve ever paid.  As we slide into tax season, we’ll have to wait and see how bad this year will be.  With all the portfolio churn (Covid and Motif), I suspect a tax hit as sales generally have that effect.  Overall, a mixed bag but better than the lowered expectations once Covid hit.  At least the goals were met! 

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