Spring Cleaning!

With the end of February coming, it’s time to prepare for spring! And spring, as you know, involves some spring cleaning. In that spirit, I’ve cleaned up my portfolio a bit, and have removed some stocks from my watchlist. Let’s get to it!

Portfolio Downgrades

Like most of you have seen, I have two kinds of portfolios, a dividend growth portfolio and a classic growth-only portfolio. The majority of my focus as an investor is on dividend-paying stocks, but sometimes, I end up with companies that don’t fit my criteria much longer. At that point, if I don’t want to outright sell them, I bump them down into my growth portfolio for further monitoring. If they don’t perform there, then it’s time to say bye-bye.

California Resources Corp (CRC) – I recently got this as a spinoff from my Occidental Petroleum (OXY). I have no real opinion on the company yet, just because it is so new. However, because it’s so new, I can’t really consider it a dividend growth stock. Hence, into the growth portfolio it goes. Again, this is not a commentary on CRC as much as it is my restrictions. On the positive side, it declared a dividend for the first time today, for the princely sum of $0.01 quarterly. I have no intention to sell, and will be watching it for a while.

Halyard Health (HYH) – My rationale is the same as above, since it was a spinoff from Kimberly-Clark (KMB). I doubt HYH will be paying a dividend any time soon, so we’ll see how it goes.

Nucor (NUE) – Ew. Ew ew ew. Honestly, I think I made a mistake buying this stock a while back, since I bought it before my criteria were in place. Looking now, I definitely wouldn’t reconsider buying it. Just look at this chart:

I mean, damn that is a terrible graph. Flat earnings before 2005, a precipitous collapse in 2009. Even after the crisis, earnings were still exceptionally volatile. Definitely not the smooth steady incline you would get with a CR Bard (BCR) or a Praxair (PX). And more importantly, the dividend increases have been truly subpar. Since 2008, the total cumulative dividend has gone up by $0.02 (quarterly). Since 2010, the dividend has been increased by $0.0025 quarterly, or $0.01 a year. That is abysmal, well under inflation. Clearly, this becomes a growth stock. And more importantly, NUE fails FIVE criteria, which is downright horrible. They are: Chowder number (4.4), EPS payout ratio (70.95%), quality ranking (B-), increasing earnings, and overvaluation according to the intrinsic P/E ratio. Basically, the only thing it does right is pay a solid dividend (3.15%) for a long time (42 years).

I already sold half of my holdings in NUE before I started this blog, and I am very confident I will be selling the rest soon. As someone who wants to live off the dividends generated by his portfolio in early retirement, it’s important that dividend increases exceed inflation by a significant amount. With this in mind, there are many, many companies with more appealing attributes than NUE. Based on my last review of my wishlist, good replacements could be MON, GWW, MDT, HCP, or XOM. I could also touch up some of my current holdings, like BAX or BBL.

Probation

Alliance Resource Partners (ARLP) and Enterprise Products Partners (EPD) – Honestly, I am bullish on both. But the fact that they’re MLPs really complicates my taxes. I don’t know if I want to deal with that anymore. It’s just that simple. I am thinking about it, and right now I am leaning towards selling, but I’ll think about it for another month or two before making a decision.

Watchlist Clean-Up 

The following companies will be removed from my watchlist for various reasons. This is not to say that I will never buy them, but is an indication that other companies are more worth my time in watching and analyzing them.

WD-40 Company (WDFC) – I am not impressed with its dividend or earnings history yet. It makes an interesting product, but it’s not quite what I’m looking for right now.

United Technologies (UTX) – I don’t like the 5 quarter raises. I already have GE in the same space as well.

Caterpillar (CAT) – The company is way too cyclical for comfort. I also feel it has a lot farther to fall, so maybe I will watch it again later.

Deere (DE) - Same as CAT

Mastercard (MA) – I’m not impressed with the dividend streak yet. I am content to own American Express (AXP), and maybe Visa (V), for my credit card exposure.

Hormel (HRL) – Lower dividend and serious overvaluation. I already own enough interesting food processing companies, and have a few more to watch.

JM Smucker (SJM) – The earnings growth is not very impressive, and I am not interested in following it as much as others in the space.

Altria Group (MO) – Their payout ratio is too high for me, and I already have Philip Morris (PM) in the tobacco space. I’m not entirely convinced that the US tobacco market will remain strong forever either. Yes, they have the stake in SABMiller, and yes, marijuana could provide growth, but that’s not enough for me, I think.

Comcast (CMCSA) – The ownership structure is weird, with CMCSA, CMCSK, and a third privately-owned class owned by the founders of the company. That doesn’t sound as if the company cares all that much about shareholders. And I am not convinced that they will survive technological advances. I do like their ownership of Universal, but I feel Disney (DIS) and Viacom (VIAB) are better choices in content creation.

Facebook (FB) – It doesn’t pay a dividend, and with how few investments I can make this year, it’s just not a priority to own for me.

Broadridge Financial (BR) – I’m not too impressed with tech monopolies, since they can so easily be challenged.

UPS – I feel it is lower quality, and the Chowder number isn’t impressive. I feel like owning UPS at this time is being diversified for the sake of diversification, which isn’t a very healthy choice to make.

Copa Airlines (CPA) – Airlines are a little too cyclical for me right now.

Probation

Wal-Mart (WMT) – Two consecutive quarters of 2% dividend increases isn’t very appealing to me. Plus, I am already long TGT, which has a higher yield, higher Chowder number, and longer dividend increase streak. I’m keeping an eye on WMT, and unless it either presents a truly compelling value or raises its dividend significantly, I will remove it from consideration.

Brookfield Infrastructure Partners (BIP) – If my other MLPs go, BIP will be removed as well for being an MLP. I think it’s an interesting company, but we need to see how I handle the two I already own.

So what do you think? Should I dump NUE, EPD, and ARLP? 

Diclosure: Long ARLP, AXP, BAX, BBL, CRC, EPD, HYH, GE, NUE, OXY, PM, TGT

Tags: portfolio, spring-cleaning, wishlist