More of the Same …

Basically I took last week off.  While I pride myself in posting weekly, there was little new to reflect on in the business world.  Some earnings were good and when they weren’t the trade war was the culprit. The Fed cut rates but the White House wanted more, ostensibly because Europe’s were lower relatively.  So now Trump’s self-proclaimed “greatest economy in the history of our country” wants to compete with others in a race to the bottom? There are plenty of signals indicating troubles ahead, yet for every one I find problematic another exists with a contrarian view.  Then when all else fails to divert attention away from the clouds forming on the economic horizon, the President amps up his racist banter to ensure the focus is on antics over reality.

So I took a week off from posting to revitalize.  To clear my head of the endless back and forth. To dig a little deeper into my research on some of the oddities that appear regardless of the political view that one ascribes to.  One example being the workplace raids in Mississippi rounding up undocumented individuals. Once I got past the fact that all these plants were not publicly traded my business interest waned as there is minimal direct impact to investors such as ourselves.  The question that continues to be asked by left of center media is, “Which employers will be charged?”. The answer is probably NONE. The reasons are twofold, 1) HR functions (in at least 6 of the seven) were outsourced to a third party, and 2) the Government’s E-Verify system was used.  Plausible deniability is the buzzword of the day unless documented attempts to circumvent the process occurred. The real question should be, “What is Homeland Security doing to improve the verification system?”

The one item that left me scratching my head was if the impact of the underlying consequences was identified – or even considered.  With low unemployment, these are the types of jobs that are typically shunned by most legal workers. Higher wages may make the difference which would result in higher consumer prices.  The second consideration is according to the Mississippi Poultry Association, the feed used for the birds is a mix of corn and soybean. The state may be licking their wounds as well since their Development Authority contributed $1.5 million in federal community development money to improve a building that Pearl River Foods leases from Leake County. The county also provided $170,000 for infrastructure improvements.  As I see it, a campaign promise kept may impact the CPI, reduce soybean demand even further (following the loss of the Chinese market) and embarrass a Trump-allied governor by highlighting poor oversight of “corporate welfare”. But my dividend stream should be unimpeded.

However, as the dog days of summer are upon us, this is the time I like to reflect on the portfolio progress thus far and identify any adjustments necessary as we move towards year end.  This continues to be difficult as during this presidency the only certainty has been volatility usually caused by tweet or inconsistent positions. During times of uncertainty, my fallback view traditionally has been transportation.  But for every analysis like Wolf Street reflecting on the production backlog decreasing, there are other – not so dire measures – such as port utilization. I will say one of holdings (Volvo) has reflected some weakness in North America. Perhaps some of the answer lies in tariff front running and taxes or perhaps this time has no historical parallel. So I continue to be cautious while playing some of the dips – all the while remaining on the strategy that has not let me down over the years.

I may decide to take another week off unless the market gets even crazier!

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Who Loves a Surprise?

This week has been flowing a river of surprises and I’m not talking about the nasty ones, like dividend cuts – of which I’ve had my fair share already this year. Rather I’m talking about the good surprises, the ones that put a smile on your face and lift your spirits. The ones that validate theories and reward accordingly. In this holiday shortened week, I have three to share.

Qualcomm/Apple Peace Treaty

On the eve of their dirty laundry being aired in court, the battle ended. Worldwide. Mark Hibben covers essentially all of the thought process I had when I topped off my holdings a little last July. My current thinking is that Intel was having some difficulty engineering a design that avoided patent violations and emanating minimal heat. When asked my position on this, I allowed it is a win for all three parties – QCOM in the short tern, AAPL in the mid to long term and Intel long term. My rationale? The length of the agreement is double Moore’s law providing Intel and/or Apple the runway to leapfrog 5G and focus on 6G – securing some initial patents for themselves. (Long QCOM, AAPL)

Blackstone Converts (finally …)

The long rumored conversion of Blackrock from a partnership to C-Corp will be effective July 1st. This was greeted enthusiastically by the markets, and I applaud as well. This is a positive result of Trump’s tax plan but my reasons are more the personal impact. In my portfolio I hold Blackstone in an IRA resulting in the annoyance of a K-1 as well as the possibility of Unrelated Business Taxable Income (UBTI). Going forward I’ll have the opportunity to add to this holding without looking over my shoulder at tax consequences. (Long BX)

AB Volvo (Wow!)

The one least expected actually occurred two weeks ago but I had to spend a little time digging into their numbers a little to figure out the why. The announcement from Volvo was a dividend increase to SEK 5.00 (17.65%) plus a SEK 5.00 special dividend. As they pay annually, this will hit my account this month. As the news reports in the states depicts Europe on the brink of a recession, I just had to plow through their report.

Looking at the numbers, I see a little weakness in the bus line, likely due to uncertainty around the revised NAFTA. Their otherwise record results included increases in construction, trucks and heavy equipment. Currency was a positive impact as well. As a multinational, they appear poised for continued strength in light of the Trump team’s escalating war of sanctions with the EU. Deere and Caterpillar were named last week as possible retaliatory targets. (Long VLVLY)


All in all a nice and surprising week. Here’s hoping these April showers result in a torrent of May flowers!

Mar 2018 Update

A few days late since Easter got in the way with the markets being closed March 30th and dividends not being posted in a timely manner.  FX transactions were also delayed impacting my final accounting for the month and quarter.  This month the DOWs first quarterly loss since 2015 grabbed the headlines while the news getting my attention was the rising Libor particularly with its potential impact on adjustable rate mortgages and business loans.  March saw the S&P drop 2.69% and for the first time this year my portfolio outperformed the index by registering a drop of 0.06%!  YTD I still lag the S&P by 0.81%.

Portfolio Updates:

  • Added to PWOD, WU and ABB
  • Initiated a position in VLVLY

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 amount of semi-annual, interim/final and annual cycles have been steadily increasing.

  • March delivered an increase of 39.79% Y/Y fueled by dividend increases and purchases.  In particular, my December buys were almost exclusively March payers.
  • March delivered a 11.44% increase over last quarter (December).
  • Dividend increases averaged 11.25% with 40.3% of the portfolio delivering at least one increase (including 1 cut (GE) and 1 suspension (DST see M&A).
  • 2018 Dividends received were 29.3% of 2017 total dividends putting us on pace to exceed last year in early November.

Spinoffs:

Spirit Realty Capital (SRC) – Mar 6, Form 10 was filed publicly with spin completion targeted for 1H 2018.

Mergers:

Jan 13 – DST announced it was merging with SS&C for $84 cash per share.  As part of the merger agreement, the dividend has been suspended – the merger received shareholder approval on March 28th.   I expect the deal to complete in April or May.

Jan 31 – XRX announced a merger with Fujifilm for stock and $9.80 in cash.

A few others are rumored to be in play including Humana and Shire.

Summary

With my March call being spot on (… it appears we’re getting a preview of March Madness in the form of a Trump induced possible trade war.) the Paychex jobs data (small business) released this morning is keeping me in a cautious mood.  Yes it is only a one month view showing fewer jobs – but small businesses are supposed to be the economic driver in Trump World.  Perhaps it’s an aberration – but one to keep an eye on.  Overall a good month in spite of tariff uncertainty.

Hope all of you had a good month as well.

Dividend Increases & a Buy

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Each week I catch up on blogs, comment on a handful and generally learn a thing or two.  On occasion I take issue with a post (or a portion thereof) – and provide a (hopefully) meaningful comment.  The most recent being Lanny’s post which included, the lines:

I don’t know about you, but the dividend increases keep coming in hot, right off of the Tax Cuts, Jobs Act!  and Let’s just say tax reform has continued to be nice, as it relates to dividend increases.

The rationale for my comment being – assuming all of his US company increases were a result of the tax plan, this would be a 12.45% increase.  Not shabby by any means but a far cry from his reported total of 20.13%.  The difference being his foreign holdings which weren’t beneficiaries of a tax cut but of strength in ore prices and China shipments.  My quibble is not the numbers – only the presentation of the tax bill being a panacea for businesses.  It may well be, however the rules are still being written and the jury is still out.

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