2023 was an interesting year with a handful of issues driving the market. It felt more like emotions rather than substance were the market catalysts. Bank failures, interest rates, inflation, AI and Bitcoin all had a supporting role, but none emerged with any deliverable of note to warrant their price action. With banks it was the fear of loss, Interest rates brought yield inversion with stagflation concerns. AI delivered hope of enhanced future productivity and Bitcoin rose with relief that the long slog towards respectability with an ETF (or three) would soon arise. Inflation has been tamed for the moment, the future direction likely dependent on the level of government debt.
For most of the year, the S&P performance relied heavily on seven stocks, probably one of the narrowest performances I’ve experienced since the dot-com bubble, which doesn’t give me much comfort going into the new year. Although I take any analysts’ perspective with a grain of salt, some of the leading forecasters share my view. Therefore, I foresee no major changes to my current approach, with the caveat being the interest rate/inflation rate relationship.
Overview
2023 began with 161 portfolio holdings and reduced its holdings by 15 issues all considered ancillary. Most were due to lack of dividend growth with the outliers being a bank tied up in the New York Trump trial and two companies that changed business models. Our stated goals were to reduce complexity by Brokerage Consolidation (completed April 2023), Inflation Survival (success). The one objective not attained was the creation of a CD ladder (we missed a few rungs). The traditional aspirations of 10% increase in dividends and the portfolio beating the S&P index will be discussed in detail below.
Added Holdings
The one addition to the portfolio was Charles Schwab (SCHW) in the midst of the banking crisis. I was ahead of the pack in the cash sorting craze, and as they were my designated recipient, I put a little money where my mouth was. This one wound up being a bright spot sporting a 34.2% unrealized gain.
Removed Holdings
Of the fifteen sold, nine were banks and mostly dividend increase related. Two of the others were related to divesting business lines that were the basis of my investment. Going into 2024, there is more paring anticipated.
Annual Performance and Dividends
For the year, the portfolio increased 11.11% versus the S&P’s 22.87% (or 24% rebalanced/reconstituted), resulting in the first miss against the benchmark since at least 2015. Therefore, we remain at 37 years (of 43) in beating the index. A consolation prize, if there is one, is that our 11.1% was in line with the S&P’s equal weight index’s (SPXEW) 11.7% return which reduces the impact of the Mag7.
Dividend and interest growth continued to be a bright spot with a 10.99% increase year on year. The final breakdown was 96.7% dividends and 3.3% interest.
Monthly Portfolio Review
For the month, the S&P index increased 4.42% and my portfolio gained 6.4%.
We closed 2023 with 111 raises and one cut with 68.52% paying a dividend and an average increase of 9.35%. Entering 2024, 17 increases have already been announced averaging 5.12%. So, we succeeded in improving the payout percent, but the average increase is down. This trend appears to be continuing into the new year, which will require a little monitoring if we want the portfolio average increase to remain above 10%.
Dividends
December presented an increase of 14.67% over December 2022. Dividends received YTD 2023 surpassed the full year 2022 dividends on December 5th.
New Positions
- CD – OZK
Positions Increased
- TRP – positioning for spinoff
- AAPL– transfer from non-reported IRA
Completed Mergers
- none
Positions Sold
- CM (reducing exposure)
- TFSL (no div increase)
- CVLY – (announced merger)
Positions Reduced
- none
Stock Dividends
- CBSH – 5%
- LARK – 5%
Cancelled Mergers
- none
Pending Mergers
- none
Cash Position
- Cash on hand decreased to 5.62% from 5.66%.
Spinoffs
- ABBNY announced a delay in the Chargedot IPO due to “challenging market conditions”
- Baxter (BAX) announced plans to spin off their kidney care unit
- TC Energy (TRP) plans to spin their Liquid Pipelines division
Corporate Actions
- None
Summary
The measurement against the index did disappoint. Against all other metrics, it wasn’t particularly bad as the cash generated via dividends continued to increase. The current strategy will continue until some clarity emerges on the pace of dividend increases and earnings with reassessment likely after-tax time.
Have a Happy New Year!
Seeking Returns 