It’s getting to be that time of the year and since I don’t think the grandkid reads this thing, I figured I’d share one of the presents she’ll be getting. Just to review, each year since she came to live with us she has received shares in a company as a gift. This gift has been purchased in a company DRIP, established as a Custodial Account of which I’m the custodian. Generally, the company is one in which she can relate, i.e., Trix was her favorite cereal as a kid hence the General Mills stock.
The news cycle appears to be churning ever faster. Whether as a reaction to events, an attempt to manage the narrative or obscure the message is a debate that will occur for some time with the real answer becoming apparent in the hindsight of history. Not to minimize the Charlottesville tragedy or the headline grabbing Bannon ouster, but these stories are playing out in several flavors depending on the source. As one who attempts to discern the impact of issues on my investments, two (possible) financial headlines crossed my desk amid the other events that intrigued me.
Naysayers of this market (of which I include myself to a degree) have been voicing a concern regarding market valuations. When reviewing my February results I noticed the average size of dividend increases was lagging last years’ pace (12.3% in 2016 vs. 7.96% YTD 2017). One could say it’s too early to make an assessment and that could be true. But it could also be said that companies are being cautious due to uncertainty in regulations, taxes, inflation and economic growth. If this were a one-off issue, that would be one thing. On the other hand I’m starting to see some parallels to times when bubbles existed.
Exhibit #1 – SNAP
When was the last time an IPO was launched successfully with an increased price, profitability uncertain, a twelve month lockup for outside investors and founder retention of roughly 88% of the voting rights? If so inclined, the safest play is through Comcast (CMCSA)’s roughly 5% ownership of Class A shares. Can we say dot-com revisited?
Exhibit 2 – Target
Target (TGT – #19) whiffed on earnings and guidance last week. On one of Lanny’s posts, my comment How many were blindsided by TGT’s report yesterday, how many updated their forward estimates and how many incorporated the fact (illustrated by mgmt) that a turn around was (minimally) two years out and would incur additional costs in store conversions and IT expense? raised the question Did you, by any chance, seize the opportunity, by the way, at TGT? Or waiting for some dust to settle?.
The short answer is no and not likely near term. All retailers are struggling against Amazon (AMZN). I have exposure to Wal-mart (WMT) through a trust I manage. WMT is about a year ahead of TGT via their Jet acquisition but still significantly lag AMZN. The good news is TGT now recognizes a problem. My question surrounds their execution (and time required). Yet several bloggers bought this dip. They may be correct but this one currently carries more risk than reward in my book.
Exhibit 3 – Caterpillar
It’s always disconcerting to have Federal agents raiding corporate offices. To have it broadcast live on television raises the stakes. Caterpillar (CAT – #32) experienced this treatment last week. Not overly surprising as CAT has been embroiled in a dispute with the IRS regarding alleged shifting of profits offshore to a Swiss subsidiary. What I found interesting was that FDIC regulators participated … which perhaps raises a new question of money laundering?
Exhibit 4 – Costco
Sliding back to the retail space, we have another DGI darling illustrating how customer loyalty should be rewarded. Costco (COST- #156) reported Y/Y revenue growth due only to new stores and membership fees. Their response? Let’s boost revenue growth by raising membership fees further! Talk about a counter-intuitive response.
These are but a few reasons I believe this market warrants an abundance of caution.
Long: CMCSA, WMT (trust). Ranking based on DGI popularity list.
January saw DOW 20,000 being attained before dropping under once again. The post inauguration euphoria beat a hasty retreat in the wake of record protests, a wave of executive orders and a record number of lawsuits filed against a president in his first eleven days. In finance terms, this uncertainty translated into concerns about the the ability or time required to effect change through the legislative process – in particular tax reform. This month The S&P gained 1.79%. while my portfolio recorded a gain of 3.51% largely due to the final significant merger completing. After a great 2016, I’m making some changes in my 2017 strategy that will (hopefully) accelerate performance in 2018. Meanwhile I’ll be content with a slight win versus the S&P this year.
Headlines impacting my portfolio:
- 1/5 – WMT ends V ban in Canada
- 1/9 – SBUX discontinues Evenings concept
- 1/10 – NWBI divests MD assets to SHBI
- 1/13 – LSBG/BHB merger completes
- 1/17 – ADP acquires Marcus Buckingham Co.
- 1/20 – IRM acquires Kane Office Archives LLC through BK court
- 1/23 – AMC acquires Nordic Cinema
- 1/24 – Executive order moving Keystone (TRP) forward signed
- 1/25 – DOW 20,000
- 1/25 – BLK moves 1T$ from STT to JPM
- 1/26 – JNJ to acquire ALIOY then spin R&D unit to ALIOY shareowners
- 1/30 – GDOT buys UniRush (RushCard)
- 1/31 – BX prices INVH IPO
posts under consideration for Feb are Methods to my Madness Pt 3 update, Anti-Trump strategy, My Coca-Cola strategy and The Commonality Between Trump and Me
- Added to CLX
- New position – CCLAY
- New position – BHB (LSBG merger)
- New position – SWRAY
- January delivered an increase of 15.46% over January 2016. This requires normalization due to PEP and WRE paying in January rather than December, KO paying in December rather than January and BUSE paying in February. On a normalized basis, this represents a Y/Y increase of 3.1% which is attributable to dividend increases (Y/Y). This means my October purchases from merger proceeds were successful in maintaining my Jan,Apr,Jul,Oct income stream.
- January had a 3.0% increase over the prior quarter.
- Declared dividend increases averaged 7.44% with 19.65% of my portfolio delivering at least one raise (1 cut – YUM).
- Dividends received were 9.2% of total 2016 dividends and if the current run rate is maintained would exceed this total around October 15th.
The MET spin (Brighthouse Financial – BHF) remains pending.
Agrium/POT, JNS/HGG.L remain pending
Month 2 of each quarter are my lowest dividend payment months of the year. And it’s destined to get worse now that my last First Niagara dividend check has arrived. Their merger with KeyBank makes them a month 3 payer now. Since I’ve got a couple of mergers left in left in the portfolio, it appears I’ll be reassessing the monthly payment flattening issue going into the new year. On to Rant #2 …
Six degrees of separation is the theory that everything is six or fewer steps …
“Invest in what you know (coupled with serious fundamental stock research)” attributed to Peter Lynch
“Own What You Love” Loyal3 slogan