June Transactions So Far

I had a reader request a few weeks ago to try and give a heads up when I make transactions. Typically my transactions are on a month lag until I write my portfolio review article. I am trying to get ahead of that and provide some insight as to what I’ve been up to so far in June.

Buys

TickerNameSharesYieldIncome (Yr)
SDIVGlobal X SuperDividend ETF1009.5%$162
IRMIron Mountain1007.9%$244
SPYDSPDR Portfolio S&P 500 High Dividend ETF1004.15%$161

The trend here has been to find more yield plays in this increasingly difficult environment.

  • SDIV is my global basket approach to yield and continues to pay a nice monthly dividend which helps fuel future purchases.
  • IRM had been on my watchlist for close to two years before a large enough pullback to warrant an individual purchase.
  • SPYD I wrote about twice recently and decided to take a starter position while waiting for a more opportunistic buying opportunity

Sells

TickerNameSell TypeReturn
ABTAbbott LabsAll>100%
CSCOCisco SystemsAll>100%
SBUXStarbucksTrim33%
WPCW.P. CareyAll40%

All four of these trades have to do with valuation concerns. With an elevated market once more, the individual valuations seem less compelling. One of the great advantages of having individual stocks is being able to take advantage of mean reversion over the short to medium term. All four seem to be stretched and have done better than both my own expectations and the market. The question is whether that continues or not.

Possible Trades

TickerNameBuy/SellWant PriceDesired Yield
MMM3MBuy$153.563.75%
BRPBrookfield Property REITBuy$16.508%
STAGSTAG IndustrialTrim$30
TRVTravelersTrim$148
AMPAmeripriseSell$145
CMICumminsSell$160

I have some possible trades on both sides. On the buy side, I’m interested in adding more 3M or starting a position in Brookfield Property REIT at the listed prices.

On the flip side, I’m looking to possibly trim my STAG and Travelers holdings. I’m also open to closing out my positions in both Ameriprise and Cummins at those listed prices. All of the sells would represent large, market beating gains.

Here’s a sample alert I have setup for Cummins. I’ll be notified if it dips below $160 with my memo stating that it was sold.

Monopoly dividends

Making An About-Face On A Dividend ETF

May 29th, just about two weeks ago, I wrote an article here about a dividend ETF not for me (at least not yet). I’ve decided to make an about face on this ETF and take another look. This is covering the SPDR® Portfolio S&P 500® High Dividend ETF (SPYD).

Firstly, I do recommend you read over my initial article if you have not. Now some of the same major components stand:

  • Contains an equal weight of the 80 highest yielding companies in the S&P
  • Rebalances bi-annually (last of January and last of July)
  • No other quality metric is applied
  • Carries a very low 7 basis point expense ratio

Holdings Revisited

Going down my analysis, I did dive into some of the top holdings and while I still question the thesis behind owning some of them individually, I did leave out one important tidbit.

Coty for example, was the top holding because at the end of January it was yielding close to 7% which put it in the index. On top of that, the stock has since doubled in a few months which makes its weight stand out on this list. This is actually a good problem to have, the stock was stupid cheap and quickly rebounded.

I used my stock return calculator to also generate a list of returns if we bought various ETFs on the day that SPYD went live (only in late 2015). It includes the S&P as a whole, SPYD, SCHD which is my favorite dividend ETF, and SPHD which is similar to SPYD in that it seeks out higher yield names from the S&P (though it also has a low volatility factor included).

The S&P won though the results were fairly close over this time period. Don’t believe me? Look at the results over time:

You would be hard pressed to find much delta between those ETFs. In any event, this is clearly an income focused ETF and I think it does a good job at that. Another follow-up to this article would be to see how the index historically has fared against the S&P.

The kicker for buying SPYD is actually the interest rate environment we are in. It looks like not only are interest rate increases off the table, the market is pricing in at least several rate cuts this year! There is a normal premium for equities over the safe return offered by a treasury. If the return by a treasury drops (in the event of a rate cut), the return offered by an equity can be lower. Since price and yield move in opposite directions, it may increase prices, dropping yield to keep that balance between the two.

This is a defensive ETF and will hold up better during times of volatility or market declines. It’s during the broad market rallies that this would fall behind the S&P and that’s OK. It’s another tool in the toolbox and it’s important to know when to use it.

Conclusion

Though I just wrote it two weeks ago, I gave a second look at my analysis and conclusion behind SPYD. I actually do think SPYD is a decent ETF. It’s a simple and low cost way to gain both instant diversity and boost your portfolio yield.

My plan is to start an initial position but then being more strategic on future purchases. I have some alerts setup to help me achieve that when a better opportunity arises.

Added To Simon Property Group

Simon Logo

Simon Property Group (SPG) is a global leader in the ownership of premier shopping, dining, entertainment and mixed-use destinations and an S&P 100 company (Simon Property Group, NYSE:SPG). Our properties across North America, Europe and Asia provide community gathering places for millions of people every day and generate billions in annual sales.

To begin with, there has been a constant drum beat about the death of retail and the death of malls. Simon is the big fish in this pond as the largest operator of class A malls around the country. The stock has been in a downward trend since peaking in July of 2016.

Fast Graph Analysis

Fast Graph of SPG

The Fast Graph pictured above shows a few important elements to call out. Firstly as I noted, the stock price has declined for nearly the past 3 years. At the same time, the FFO (funds from operation) have continued to grow each year. This multiplying effect of increased earnings with a declining stock price has made the P/FFO multiple decline rapidly. At the peak in 2016 shares traded at about 22x FFO. Compare that with a value of 13x today and you can see the P/FFO contraction in full force.

This creates a great opportunity for a long term investor to create a margin of safety by buying great companies when they are temporarily hated. Based on historical values, the “normal” P/FFO ratio for SPG is about 16.8. That is about a 30% increase from where we sit today if FFO were to not grow.

That is one positive effect waiting in our corner though that can take time to play out. The second is the continued FFO growth per year. Best estimates still peg growth in the low single digits for the next few years. In the meantime however we can collect a fantastic 5% dividend yield from this company.

YCharts Dividend Yield for SPG

Looking at the historical dividend yield for SPG from YCharts, the yield has not been this high since the great recession. There was another brief blip in the beginning of 2018 when the yield also touched 5%.

Another bright spot to point out is the credit quality of SPG. They are A rated from S&P which is both fantastic in absolute terms but incredible when you consider that REITs must pay out most of their earnings to shareholders. REITs tend to rely on a lot of leverage and constant share issuance to continue growing which negatively impacts their credit quality. Simon is battle-tested and prepared going forward.

Simply Safe Dividends

Simply Safe Dividends

From Simply Safe Dividends, the scorecard for SPG rates quite well. Recall that these figures are percentile based based on the whole universe of dividend paying stocks. Based on the combination of many factors, SPG scores safer than 74% of dividend stocks. This is crucial importance for us to not have to worry whether they can pay their dividend obligations. The growth will be a tad slower as it needs to move in conjunction with FFO growth. Finally the yield at 5% is obviously higher than most dividend stocks.

My Purchase

For me – I added more shares to this holding at the end of May. This was a new position for me all together only in April. In April I had about 3/4 of a position with my initial buy and with this add I’ve now filled it out. At this point shares may need to touch about a 5.5% yield for me to consider going overweight.

SPG Alerts from Custom Stock Alerts

From Custom Stock Alerts that’s what I’ve done. I revised my alert based on dividend yield to let me know if crosses above a 5.5% yield.

For me personally, SPG also offers a different option from an ETF. I try to look to ETFs first when adding to gain the instance diversity they provide. What I think SPG offers is both a higher yield than many REIT ETFs as well as some great upside when the pricing eventually returns to historical norms.

Conclusion

Simon Property Group continues to be in a downtrend though underlying business results don’t reflect the pricing reality. This has created a nice opportunity to either start or add to a position in the company. Enjoy a safe 5% dividend yield until the narrative changes.