Jeff Paul's  Instablog

Per the research discussed in my recent article on potential dividend cut signals, I created a variant of the DCC-IncomeGrowth portfolio effective today (10/15).  The new portfolio is identical to the DCC-IG, except Avon and Meredith were removed because they exhibited the 20% gap signal earlier this year.  Had I come up with this rule sooner, these stocks would not have been purchased in August, and we would not have incurred their below-market performance for the last two months.  Hopefully this rule will help this model outperform the other DCC models.  I will report on this model, along with the other 3, on a quarterly basis.  

Using the proceeds and current cash, 180 shares of Wal-Mart were purchased to replace Avon in Consumer Staples, and 180 shares of Genuine Parts replace Meredith in Consumer Discretionary. These were the next two stocks on the screen list from my original August research.  

If any stocks in this portfolio develop the 20% signal before December, they will be sold and replaced ahead of the annual rebalance.  

I reached a decision on how to handle buyouts. I decided to treat them similar to a dividend cut event. The stock will be sold on the day of the buyout (9/29 for HGIC), and depending on the premium, the proceeds + any cash will be invested in one or two replacement stocks. In general, each stock is around 3.3% of the total portfolio. In this case, HGIC had 100% premium, allowing for 2 replacements. The first will be CBU (Community Bank System; 465 sh @ $23.24). CINF and PBCT rated higher on the screen, but both have rather high payout ratios, and earnings or CF below div payout, so I skipped them. CBU has a 4.5% div and 50% payout. The other stock will be Pepsi, as the model called for another Cons Staple if it was expanded to 31 stocks. (173 sh@$62.58) At the January rebalance, the portfolio will return to 30 stocks. This rebalance will occur on the first Friday, assuming I have access to the Dec DCC data to run the screen. These transacations minimally affect the Q3 results, so I am not going to update the results to reflect the changes.

I have posted the performance results for the 3 Dividend Champion/Contender (DCC) model portfolios, based on dividend growth investing research.  The results are available at:

seekingalpha.com/article/297280-q3-updat...

Thus far, the Income-Growth portfolio has performed the best, but data was limited for this first quarter of tracking.