Showing posts with label MHLD. Show all posts
Showing posts with label MHLD. Show all posts

Sunday, March 31, 2019

Ten Dividend Failures over 8 years

Thinking as an income investor, would you be happy if ninety percent of your stocks increased their dividend since you bought them?

I have the luxury of being able to go through the stock picks I published  over the past 8 years and report on their dividend growth.

  • Dividend Growth is critical to income investors who no longer work
  • We expect 90% of our stock picks to deliver safe dividends and dividends that grow
  • Overall portfolio performance is positive when using dividend machine criteria to select dividend stocks

The rule of 90 and 10 is similar to the my rule of threes.

*Rule of threes: When two similar, unexpected  events happen, look out for the third.   I just went through this scenario with the sprinkler system in my condo building.    Rule of 90/10: I always believed in picking stocks that meet my dividend machine criteria and over all, 90 to 10, I will be able to count on a safe and increasing income.  You can find the criteria I used to pick stocks by clicking here:


I started publishing my annual portfolios after I retired from managing other people's money.  These portfolios are buy and hold only portfolios.  If a stock is bought out, we took the money. If there was a merger, that is reflected as are spin offs.

Cash from buyouts is held in the portfolio as cash.  One could think of it as an emergency fund.    Retirees who bought these stocks in a qualified retirement plan, could use this cash as a cushion or to fund part of the required minimum distribution.   The savvy investor will buy short term rolling certificates of deposit.


The table below presents the dividend increase data from my 2011 - 2018 portfolios.  Note that in 2016 I published only a covered call portfolio which I sold in February 2017; that portfolio is not included in this analysis.

2014 was the worst portfolio, on every level.  Not only did 4 of 18 stocks reduce their dividend, 2014 stocks have not appreciated as much as the other portfolios.  When you look at all seven portfolios, you can see in 5 of the 7 years, less than 10% of stocks picked reduced their dividend.  If you consider all the stocks which number nearly 100 names, you will see only 9 have reduced the dividend, pretty close to 90 and 10.


One stock, Conoco Phillips, symbol COP, affected four portfolios.  In COP's defense, in the 2011 and 2012 portfolios investors received 50 shares of Phillips 66, symbol PSX, when combined the dividend stayed about the same until COP made a huge dividend cut in 2016.  Since then, the dividend increases have resumed but are not yet back up to the pre split amount.  The PSX spin off has been very good with dividend increases averaging 23% per year.

MHLD, Maiden Holdings, is a re-insurer that got pummeled with the natural disasters of recent years and with their alliance with another insurer with questionable fundamentals.  MHLD reduced the dividend in September, 2018 and have since suspended the dividend.  Moreover, I fear that MHLD will be the first stock of these portfolios to go "belly up."

WPZ, Williams Partners, was a master limited partnership bought by its master.  Holders of WPZ stock received 1.494 shares of WMB for each share of WPZ.  Fractional shares were paid in cash.  Even with that increase in shares the dividend reduction is about 33%.

PBI, a stock with a good history when it was purchased just could not keep up with modern technology.  A bad pick on my part which shows you might want to use more than just my minimal criteria when picking a stock.

NTR, Nutrien, is the new company made from the merger of Agrium and Potash.  The dividend increase since the merger is a substantial 72% over the past 6 quarters but still not up the dividend paid by POT (Potash.)

JCS is a very small ethernet and communications equipment company with no debt but declining and revenues and negative earnings per share, ARLP, a coal provider split the stock early but could not keep up with the pressure of reducing coal production.  Then there is SJR, a communications company who pays their dividend every month rather than quarterly, but the dividend is down slightly recently.  DBD, Diebold is now Diebold Nixdof , it still trades under DBD, has negative earnings.  The last dividend DBD paid was February of 2018.  Finally WDR, Waddell and Reed, has suffered mightily due to the competition from low cost wealth managers.  Their mutual funds just do not cut it anymore.

10 stocks out of the 100 symbols picked over time is a pretty good track record.   We don't yet know what will happen to the 2017 and 2018 portfolios over time.  Hopefully, I learned how to pick better than earlier and these stocks will do even better than 90/10.


Over all, these portfolios all are doing pretty well.  Again, 2014 is a relative laggard.  Duration of time is important with the early portfolios 2011 and 2012 doing better than the others.  That could be that the market was low when I started publishing my picks.

You can click to go to the portfolios tab to see the holdings of each portfolio.    The table below is a summary of these portfolios.   If you were building up to retirement and invested regularly over time, you would probably reinvest the dividend and you might have been tempted to sell some of the dividend losers as I did.   For the sake of ease of reporting.  These portfolios are long only with no active management.


Over time, I added a review of revenues to my stock picking screen.  I thought that perhaps if I paid a little more attention to revenue growth, I would have a better chance of avoiding the stocks with shaky dividends.    I took a look back at these ten stock and see their revenue trends are revealing.

The final table shows the change in revenue over the past three years.  Provided that a stock meets all the other criteria for a quality dividend stocks, this metric will determine what to do with the stock.

Symbol Current Rev Revenue 3 years ago Change from 3 years ago
DBD $4,578 $2,419 89.25%
COP $36,417 $29,456 23.63%
WPZ/WB $8,686 $7,360 18.02%
PBI $3,522 $3,578 -1.57%
SJR $5,239 $5,488 -4.54%
ARLP $2,002 $2,273 -11.92%
WDR $1,153 $1,516 -23.94%
JCS $65,762 $107,669 -38.92%
MHLD $2,164 $5,488 -60.57%

In reality, what did I do:  what should we do?  In summary, I have one buy, and one hold, and the rest avoid.

In my personal portfolio I can move in and out of stocks.  Listed below are the actions I took with these losers as well as my current recommendation.

Conoco Phillips, symbol COP - Buy

I sold COP but bought it back and continue to sell calls against my position.  I like the revenue growth and I like the return of dividend growth.  But, because the yield is so low, I don't care if my shares are assigned to a call buyer.  I can find someplace else to put the money.

I call this a Buy - except for the puny yield, their dividend machine fundamentals are solid.

COP E.P.S. Dividend Yield 3 Yr Div Growth D/E Ratio
$66.74 $5.32 $1.22 1.83% 7.33% 0.47

WIlliams Companies WPZ/WMB - Hold

I sold when the merger occurred.  Looking at recent revenue growth and a yield of 5.4% makes WMB a hold for sure and with more investigation perhaps a buy.  However, E.P.S. is less than the dividend.

WMB E.P.S. Dividend Yield 3 Yr Div Growth D/E Ratio
$28.72 -$0.16 $1.52 5.29% 8.89% 1.53

Pitney Bowes PBI

Dividend cuts are hard to take and when they reduced the dividend I sold.  Revenue is holding its own lately but not worth the effort to own this company that is trying to get up to date

JCS Communications

Sold when dividend was cut.  Not worth the effort.

ARLP Partnership

Sold when dividend was cut.  Only for non qualified money as the tax complications make holding in an IRA not recommended.

Nutrien NTR

I suffered through the Potash merger and did not like having my income reduced.  I was able to sell calls on all shares and sold through being assigned at a profit.   Too much drama for a conservative investor's portfolio.  

Shaw Communications SJR

The monthly payout was nice but once they cut the dividend, the weakness of their business was exposed.  Stick with larger, solid stocks.

Maiden Holdings MHLD

Most painful buy here. I chased yield and got hurt.  I did sell after cashing their juicy dividend and selling some calls.  All in all I am even.  They still have a business but their entire structure is a mess.  Stay away.

Waddell and Reed WDR

My very first investment was in a WDR fund that my collage roommate's dad sold me.  They are no longer relevant.  Again I chased yield.  Sold. In that field, I still like Westwood Holdings which has been hammered but is solid.


This is the strangest stock of the group.  Diebold is into security and one would think that would have been a foolproof area of business.  Through partnerships Diebold is international.  I sold this shortly after I bought it because it seemed to have little direction.  They no longer pay a dividend, but among these stocks it is only one of three with dividend growth over the past 3 years.


My conclusion is I remain comfortable picking stocks using the dividend machine basic criteria. I will stick with larger stocks to provide income from dividends.  I will stick with a mix of higher yielding stocks and those with more modest yields but on which covered call income is available. 

Readers of my blog know I do more active managing of my money.  These portfolios are buy and hold so I could measure the results easily and quickly.  In my own portfolios, I tend to sell calls on stocks with price momentum and therefore, have some stocks called away.  I use those gains to buy other dividend stocks.  This works out for me.

I hope the analysis of the past 8 years will help you become a better income investor.  You can use a disciplined income investing approach and expect 90% of your picks to continue to pay and grow your dividend income.

M* MoneyMadam

*Rule of Threes is a writing principle

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Wednesday, March 29, 2017

Next 2017 Dividend Machine an insurer

I have found my next Dividend Machine.  A Dividend Machine to me must meet my minimal criteria to be included in my long only target 2017 portfolio.  I don't trade these stocks, I don't sell calls on them, I don't reinvest the dividends.  The stocks I pick for  my target portfolios are long only.  By tracking my long only portfolios, income investors  can simply measure how well we do over time when we carefully select income stocks and stick with them.

In this post I am writing about insurance stocks.
  • With a low P/E (price earnings ratio) in a high P/E environment.
  • Dividend yield must beat the yield on a 10 year U.S. treasury bond.
  • Analysis of dividend growth tips the scale as to which stock will be added to the 2017 portfolio.

Low P/E stocks

The S&P 500 index has a P/E of about 26.25 (source and Barron's.)  The universe with low P/E's is the insurers.  According to the property and casualty industry P/E ratio is about 9.26 using the 4th quarter of 2016 data.  

Without a doubt,  not all insurers have low P/E's.  The universe is quite large,.  Some have P/E's in the triple digits. I looked at no fewer than 20 stocks with P/E's less than the S&P 500.  I found none with P/E's as low as 9.26. The seven stocks I evaluate in this post have P/E ratios ranging between 11.74 and 21.86.  All are below the S&P 500 average.  See the P/E comparisons of seven insurance stocks I include in this post below.

I also like the fact that insurers should benefit from increasing interest rates.  Interest rates have declined a touch lately but the Federal Reserve will continue to raise as inflation and tight labor markets demand.  I don't expect explosive interest rate increases just steady increases.  Insurers are like banks and benefit when they can earn more money from increased interest rates.

Dividend Yield

If you are an income investor, you are by definition prone to conservative investing. You tend to be risk averse and prefer safety.  We older folks yearn for the period when we could get a U.S. treasury above 10%.   We do not have the time to wait for 10% US Treasury yields so we go with lower yields but since we are taking risk, we have to get something more than the US treasury which is about 2.3%.  

Dividend yield is the metric that narrowed my list to 3 stocks.  You will see in the table below the dividend yield of all seven stocks that all criteria  divided into those whose yield beats the U.S. treasury and those whose yield does not.  The dividend yield range of the three stocks I present below is 2.77% - 3.46%.  See the table below.

Dividend Yield Growth

We are not looking at a dividend stock that is also a growth stock, one that would command call premiums, we are looking for a steady, safe dividend growth stock.  Without the ability to juice our income with covered calls, we have to invest for future income growth.  The 3 year dividend growth rate of the seven stocks ranges between 3.17% and 61.11%.

FAF doubled their dividend in 2014 and I find it highly unlikely that it will double it again soon.  However, their most recent dividend increase, three quarters ago, was above 30%: 34 cents from 26 cents.  However, the two prior the dividend increases were just a penny. 

 If we buy all of them, we are pretty sure our income will go up over time. The question here is which single stock should I pick for the 2017 target portfolio?  The answer is revealed later in this post. 

One stock Baldwin and Lyons, symbol BWINB meets all my criteria except dividend growth so although I thought it would be included in an earlier version of this post, I am counting on my dividend stocks to increase my income and therefore, I eliminated BWINB from consideration.


Comparison of Dividend Machine Criteria 

I mentioned the universe of insurance stocks is quite large.  I was surprised to find stocks like Aflac not make the hurdle.   Aflac has negative revenue growth. Traveler's has anemic revenue growth as well.  AIG has negative EPS.  Progressive has an odd dividend policy.  James River Group looks promising but has only a 2 year dividend history.

My 2017 Dividend Machine criteria are presented in the table below.  

I am presenting the Dividend Machine Fundamentals for the three stocks that meet all criteria except for call option opportunities.

First American Corp. symbol FAF.   FAF is a title and specialty insurer. 

FAF has a history of only 6.8 years; chart source: Nasdaq

stock chart


HCI Group is a property and casualty and re-insurer that found its mojo over the past 5 years or so.  The chart below is 8.5 years and the table shows HCI to have very attractive dividend growth.

HCI 102 month chart source: Nasdaq

stock chart


If you read this blog, you are familiar with Cincinnati Financial, CINF.  It was a Dividend Machine in 2012 and 2013.  CINF is a property and casualty insurer.  Technically, CINF made the grade but among these four stocks, CINF has the lowest yield, the lowest dividend growth rate, and the highest P/E but, it also has the best revenue growth.  If you believe that revenues drive dividends, you want to pay attention to this stock.  CINF Dividend Machine fundamentals are presented below as is their 10 chart.

CINF - 10 year chart source :Nasdaq

stock chart

Future Income Analysis:


This is a tricky subject.  Sophisticated analysis would include a net present value analysis that I think would bore my readers.   I chose to make it as simple as possible.  First I calculated how much dividend you would receive for $1 invested in each of  the seven stocks.  Then, using the dividend growth rate, I calculated how much your $1.00's worth of dividends would grow.

I analyzed all seven stocks because you may want to see how each stock would perform.  I also have to note that I think the FAF dividend growth is unrealistic.

This final table shows you the change of income I am expecting from each stock.

My Take:

The analysis tells me that HCI will deliver the most income now and in the future should FAF not live up to its past.   I will add HCI to the 2017 target portfolio as well as to my own portfolio.  By the way I already own Maiden Holdings, MHLD, a re-insurer as well as, Mercury Insurance, MCY a property and casualty insurer. MHLD was a 2014 and 2015 Dividend Machine but no longer qualifies because EPS are less than dividend paid out.  MCY is in a similar situation EPS are less than dividend paid out. 

Only you can decide if you want to add an insurer to your portfolio.  If you do decide to add stock in this industry you have many quality choices.  If, like me, your major goal is to retire with income that grows, then HCI is a good bet.

M* MoneyMadam

 Disclosure:  Expect to add HCI soon.  

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