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INTRODUCTION

It has been an interesting few weeks in the market lately. Given most companies have now reported their earnings, the Federal Reserve has finally made the taper situation clearer, and that there has been quite a bit of price fluctuations in the market. Let's take a look at how the F-Score Dividend Portfolio is doing. This is the third article since the inception of the F-Score Dividend Portfolio. You can read how we got here by looking at the first and second articles.

F-SCORE DIVIDEND PORTFOLIO

Let's quickly review what the Piotroski F-Score is. Piotroski started by selecting the top 20% of book-to-market or lowest price-to-book stocks. The nine variables that constitute the F-Score evaluate the financial strength of a stock by using simple accounting based variables. Here are the nine variables used to calculate the F-Score. Each variable gets scored a one (1) if the condition is met.

  1. Positive (+) net income in the current year.
  2. Positive (+) cash flow from operations in the current year.
  3. Return on Assets [ROA] is higher in the current period compared to the previous year.
  4. Cash flow from operations exceeds net income before extraordinary items.
  5. Lower ratio of long-term debt to assets in the current period compared to the previous year.
  6. Higher current ratio this year compared to the previous year.
  7. Company did not issue new shares/equity in the preceding year.
  8. Higher gross margin compared to the previous year.
  9. Higher asset turnover ratio year on year.

Piotroski only selected stocks that scored 7 or above (maximum of 9). Now this is a dividend-focused portfolio. Therefore, I added some additional criteria to help screen the stocks for this portfolio.

  1. Minimum dividend yield of 1.9%
  2. F-Score between 8 and 9
  3. Minimum of one (1) year in paying a dividend
  4. Must be included in the CCC lists prepared by David Fish, otherwise, have increased the dividend annually for as long as the company has paid a dividend (essentially, the company has not frozen or cut their dividend)

As I explained in the second article, we no longer screened for stocks with an F-Score of 7 as we wanted to reduce the amount of rotation in the stocks entering and exiting the portfolio and to try and obtain a better value. Stocks that dip down to a 7 will still be held in the portfolio but if they fall below 7 they will be sold. Table 1 presents the F-Score Dividend Portfolio as it stands.

Table 1: F-Score Dividend Portfolio

Symbol

Company Name

# Shares

Purchase Price

Market Price*

Price Difference

% Change

Previous F-Score

Current F-Score

(PEP)

PepsiCo Inc.

59

$84.56

$81.66

($2.90)

-3.43%

9

9

(OTC:ABSSF)

Airboss of America

710

$7.04

$6.83

($0.21)

-2.98%

8

8

(BIN)

Progressive Waste Solutions Ltd

193

$25.88

$24.66

($1.22)

-4.71%

8

8

(BMS)

Bemis Co Inc.

125

$39.83

$39.85

$0.02

0.05%

8

8

(EMR)

Emerson Electric Co.

74

$66.99

$68.66

$1.67

2.49%

8

8

(FRS)

Frisch's Restaurants, Inc.

212

$23.55

$23.92

$0.37

1.57%

8

8

(HCP)

HCP Inc

135

$36.77

$35.80

($0.97)

-2.64%

8

8

(JNJ)

Johnson & Johnson

53

$93.97

$91.98

($1.99)

-2.12%

8

8

(NVE)

NV Energy Inc

211

$23.65

$23.71

$0.06

0.25%

8

8

(ODC)

Oil-Dri Corporation of America

141

$35.32

$35.90

$0.58

1.64%

8

8

(SJM)

J.M. Smucker Co.

47

$104.24

$101.95

($2.29)

-2.20%

8

8

(TIS)

Orchids Paper Products Company

152

$32.74

$31.15

($1.59)

-4.86%

8

8

(TU)

TELUS Corp

141

$35.39

$34.03

($1.36)

-3.84%

8

8

(UNP)

Union Pacific Corp.

32

$152.77

$164.19

$11.42

7.48%

8

8

(WSM)

Williams-Sonoma, Inc.

84

$59.12

$58.53

($0.59)

-1.00%

8

8

(ATNI)

Atlantic Tele-Network, Inc.

92

$54.12

$54.40

$0.28

0.52%

7

7

(O)

Realty Income Corporation

119

$41.95

$38.04

($3.91)

-9.32%

7

7

(OHI)

Omega Healthcare Investors

152

$32.76

$29.96

($2.80)

-8.55%

7

7

(PG)

Procter & Gamble Co.

51

$81.15

$81.90

$0.75

0.92%

7

7

(PSA)

Public Storage

29

$168.99

$151.16

($17.83)

-10.55%

7

7

(SJR)

Shaw Communications, Inc.

208

$23.95

$23.74

($0.21)

-0.88%

7

6

(SXL)

Sunoco Logistics Partners

71

$69.97

$70.17

$0.20

0.29%

7

7

(WEYS)

Weyco Group, Inc.

174

$28.73

$29.08

$0.35

1.22%

7

7

*Market Price is the price as of the close of 2013-12-21. Figures in brackets in the Price Difference column represent negative values or losses.

It appears that the portfolio was hit hard. At this moment the portfolio has lost $22.17 (or 40.67%) in principle. Although this does not seem like a big deal, in the last report I gave we had a capital appreciation totaling $1,186.52. Once again the REITs were hit hard as the fear of rising Treasury Yields continues to weigh on this sector. On another note, the month of December will collect $265.33 in dividends.

CHANGES TO THE PORTFOLIO

Despite all the recent activity and news surrounding the market, there was basically no change to the F-Scores of the companies in the portfolio except for one. SJR now has an F-Score of 6 and as a result will be sold off. This will result in a loss of $0.21 (or -0.88%). Now that one is gone, is there another that will take its place. In fact there is, and there is only one. The new stock to be added to the F-Score Dividend Portfolio is Bonterra Energy Corp (OTC:BNEFF). This stock comes in with an F-Score of 8. Here are some details about the company:

"Bonterra Energy Corp is a junior oil and gas company headquartered in Calgary, Alberta. It is an oil and gas exploration company operating in the Western Canadian Sedimentary Basin. The company develops, produces and sells crude oil, natural gas and natural gas liquids. Its oil and natural gas properties are located in the Provinces of Alberta, Saskatchewan and British Columbia. Its main property is Pembina, located in West Central Alberta." (Source: MSN Money)

BNEFF has a dividend yield of 6.40%, and has been paying a dividend since December 2008. Here is a graph of the dividend increases since BNEFF began paying a dividend.

(click to enlarge)

Source: Gurufocus.com

The 1-year DGR is 5.10%, 3-year DGR is 22.00% and the 5-year DGR is 56.10%. So the dividend increases are slowing down. It has a TTM P/E of 28.40, a Market Cap of 1.58 BIL, and a TTM EPS of $1.78. The EPS had been on a 3-year decline since 2009. 2013 will mark the first time since 2009 that the EPS has grown.

Now, I said at the beginning that the metrics used to screen the stocks would be the only consideration when adding a stock to the portfolio. I feel it important to note that the dividend payout ratio of BNEFF is 168%. As a dividend-growth investor, I would not personally purchase a stock with such a high payout ratio due to the risk associated with a dividend cut. Because this portfolio is fictional (not real money on the table) and exploratory, there is no harm in adding it here. However, due your own research if you are planning on buying this stock. For the sake of the portfolio, this stock will be purchased on 2013-12-23 at a price of $51.40. With a price of $51.40, we were able to add 97 shares of BNEFF for a book value of $4,985.80. Also, we just missed the recent dividend payout which occurred on 2013-12-12.

F-SCORE DIVIDEND PORTFOLIO AS IT STANDS

Table 2 shows how what the F-Score Dividend Portfolio now looks like. The portfolio remains at 23 stocks.

Table 2: F-Score Dividend Portfolio

Symbol

Company Name

# Shares

Purchase Price

Market Price*

Price Difference

% Change

Previous F-Score

Current F-Score

PEP

PepsiCo Inc.

59

$84.56

$81.66

($2.90)

-3.43%

9

9

ABSSF

Airboss of America

710

$7.04

$6.83

($0.21)

-2.98%

8

8

BIN

Progressive Waste Solutions Ltd

193

$25.88

$24.66

($1.22)

-4.71%

8

8

BMS

Bemis Co Inc.

125

$39.83

$39.85

$0.02

0.05%

8

8

EMR

Emerson Electric Co.

74

$66.99

$68.66

$1.67

2.49%

8

8

FRS

Frisch's Restaurants, Inc.

212

$23.55

$23.92

$0.37

1.57%

8

8

HCP

HCP Inc

135

$36.77

$35.80

($0.97)

-2.64%

8

8

JNJ

Johnson & Johnson

53

$93.97

$91.98

($1.99)

-2.12%

8

8

NVE

NV Energy Inc

211

$23.65

$23.71

$0.06

0.25%

8

8

ODC

Oil-Dri Corporation of America

141

$35.32

$35.90

$0.58

1.64%

8

8

SJM

J.M. Smucker Co.

47

$104.24

$101.95

($2.29)

-2.20%

8

8

TIS

Orchids Paper Products Company

152

$32.74

$31.15

($1.59)

-4.86%

8

8

TU

TELUS Corp

141

$35.39

$34.03

($1.36)

-3.84%

8

8

UNP

Union Pacific Corp.

32

$152.77

$164.19

$11.42

7.48%

8

8

WSM

Williams-Sonoma, Inc.

84

$59.12

$58.53

($0.59)

-1.00%

8

8

BNEFF

Bonterra Energy Corp

97

$51.40

$51.40

0

0.00%

N/A

8

ATNI

Atlantic Tele-Network, Inc.

92

$54.12

$54.40

$0.28

0.52%

7

7

O

Realty Income Corporation

119

$41.95

$38.04

($3.91)

-9.32%

7

7

OHI

Omega Healthcare Investors

152

$32.76

$29.96

($2.80)

-8.55%

7

7

PG

Procter & Gamble Co.

51

$81.15

$81.90

$0.75

0.92%

7

7

PSA

Public Storage

29

$168.99

$151.16

($17.83)

-10.55%

7

7

SJR

Sunoco Logistics Partners

71

$69.97

$70.17

$0.20

0.29%

7

7

SXL

Weyco Group, Inc.

174

$28.73

$29.08

$0.35

1.22%

7

7

Figure 1 shows the diversification of the portfolio by sector. The portfolio remains heavy in the consumer goods sector and with the removal of SJR (services sector) and the inclusion of BNEFF, the basic materials sector proportion increases.

(click to enlarge)

CONCLUSION

There were not a great deal of changes despite the news from the Federal Reserve, the reported earnings of most companies and all the price fluctuations recently. The real change is the capital appreciation of the portfolio which was nicely in positive territory only a few weeks ago and is now just below par. The market has also suffered some losses but it will be interesting to see if these stocks will recover their losses as quickly as the market or not.

Source: The F-Score Dividend Portfolio: Holding Its Own