Friday, August 29, 2014

Some Thoughts on Portfolio Performance

Several weeks back, I started looking at performance of the Chump IRA vs. the S&P on a week to week basis, to see if I could learn anything interesting.  I read lots of articles where authors state that they have different goals, and that they don't use the the S&P benchmark, or any other, to measure their performance.  The argument goes something like this,  "My goals are different, therefore I don't benchmark.  As long as the portfolio is on track doing its job, I leave it alone, and I'm happy."  Certainly, I'm over simplifying, but this is the gist.

To this investor I say "NONSENSE!"

**Unless you are retired, and need a nice yield from your portfolio to supplement your income**, you should be growing your "pile" of assets as fast as you can, as much as you can.  Track your performance, learn and improve, and failing improvement, put all your money into a low cost Vanguard ETF like VOO (S&P 500).  It's just that simple.  If you are consistently trailing the S&P over every period you measure, stop, and redeploy.

The whole point of this blog is to see if I can beat the S&P 500 over different periods of time.  If I continually fall short, I will liquidate, and put the money in ETFs until I retire.  End of story.

This comment may seem like heresy to some of my dividend growth investment friends, but it isn't.  I love dividend growth stocks, and I'm invested almost exclusively in them.  However, I've also been beating the S&P 500, collecting more yield for reinvestment, and enjoying a lower than 1.0 volatility (beta) in the portfolio.  I do this by picking undervalued stocks in which to invest.

Here is my YTD total performance for the past several weeks vs. the S&P:

I'm kind of angry this week, because the S&P caught me, and stands slightly above the Chump IRA at 9.87% vs. Chump at 9.80% for YTD total return.  As you can see from the graphic, I went into week 31 with a nice 300 basis point lead, then fell short of my benchmark in every week since.  I know that this can change quickly, and I had some bad luck the past couple of weeks, especially with WAG, but this graph serves as a warning, so I'm going to try and learn a few things, take a deep dive into my holdings, and come back with a strategy to re-build my lead! So there!



Today, A Political Message

This is a very good article by Wayne LaPierre at the NRA.  Give it a read.

Chump is "long" NRA!

Tuesday, August 26, 2014

Good Article on Valmont Industries (VMI)

Nice write up and comments regarding VMI on Seeking Alpha here:

I'm long VMI in the Chump IRA, here is an up to date FASTGraph:

The stock is selling at a decent entry point today.  They have a small, but growing dividend, and I like their long term prospects.



Friday, August 15, 2014

More on KMI and KMP

As discussed previously, all the Kinder Morgan entities are merging into KMI.  I own KMI in the Chump IRA, but also have a full position of KMP in my taxable account.  So I'm wondering, should I sell my KMP while the shares are up, or should I wait for the deal to complete?

Here is the math attached to the deal: 1 KMP unit = 2.1931 shares of KMI + $10.77

Using prices from right now, KMI = $41.40, and KMP = $98.78

Solving for KMP in the above equation = 2.1931($41.40) + $10.77 = $101.56, which around $2.75 more than I get selling today, or roughly 2.5% higher.  The difficulty comes with the two moving parts....if the price of KMI drops, my payout declines, and if the price of KMP rises, it might make sense to sell my shares.

I'm tempted to sell my KMP shares and be done with this, but I want to investigate the tax implications of selling now vs. holding until the deal closes....



Monday, August 11, 2014

Kinder Morgan News

Kinder Morgan made headlines this weekend with the news that all four entities will combined into KMI, which I own in the Chump IRA.  From the Wall Street Journal:

Kinder Morgan to Consolidate Empire

Gas-Pipeline Company Says Master Limited Partnerships Structure Has Become Too Unwieldy

Updated Aug. 10, 2014 7:37 p.m. ET
Company founder and Chief Executive Richard Kinder, pictured in 2009 Reuters
Kinder Morgan Inc. KMI +7.20% is consolidating its vast oil-and-gas pipeline empire into a single company in a $44 billion deal amid investor worries about the enterprises' growth prospects.
The reorganized company will abandon the financial structure it helped popularize in the late 1990s: the master limited partnership. These complex tax-oriented offerings have caught on among energy companies facing substantial investments in infrastructure because of the U.S. oil and gas boom.
But Kinder now is so big that the MLP structure is limiting, said Richard Kinder, the companies' founder and chief executive. Combining all four of its publicly traded units into one corporation, he said in an interview, "will allow us to further expand the reach of the kind of projects we can do."
Acknowledging the difficulty that companies like his are having building big new pipelines because of regulatory scrutiny and public opposition, Mr. Kinder suggested that the newly consolidated Kinder Morgan would be able to move aggressively to acquire rivals and to expand its existing 80,000 miles of pipelines.
Kinder Morgan said it would pay about $40 billion in stock and $4 billion in cash to investors in the other three related companies. The company also will assume $27 billion in debt, bringing the total value to approximately $71 billion, Kinder Morgan said.
Master limited partnerships basically give special tax breaks to companies that get almost all their revenues from natural-resource businesses. That typically has meant pipeline companies, which charge toll-like fees to move oil and gas. The partnerships don't pay corporate taxes to the federal government, distributing most of their cash flow to shareholders—and to the general partners who run the MLPs—in dividend-like payments.
These payouts have made them increasingly popular with investors, especially baby boomers hungry for high yields in an era of ultralow interest rates. Energy companies have also embraced them as a way to raise equity and issue debt backed by specific assets such as pipelines.
But investors have been concerned that with a $37 billion market value, Kinder Morgan's flagship partnership, Kinder Morgan Energy Partners KMP +15.75% LP, is so big that it is difficult for the partnership to achieve substantial revenue growth—and thus increase its distributions to shareholders. Analysts also have cited the hefty payments—about 46% of its cash—that the partnership has been making to the publicly traded company that runs it, Kinder Morgan Inc. Mr. Kinder owns 23% of that company, though his stake will decline to about 11% after the consolidation.
"The biggest problem facing Kinder Morgan is how to maintain growth," Morningstar analyst Jason Stevens wrote last month. To increase its distributions by a projected 5% to 6%, he continued, Kinder would have to put "$3 billion-$4 billion to work each year on attractive projects, a daunting task for any firm."
Kinder Morgan's interrelated companies include a smaller master limited partnership, El Paso Pipeline Partners EPB +19.37% LP, and Kinder Morgan ManagementKMR +22.24% LLC, which has a slightly different financial structure intended to attract institutional investors.
"This is a very simple and elegant solution to a problem of complexity," said Robert W. Baird analyst Ethan Bellamy. "I think ultimately this will prove to be a very good deal." He doesn't think other master limited partnerships will follow in Kinder Morgan's footsteps because other companies still benefit from the financial structure as a way to attract investment.
After the deal announced Sunday is completed, only Kinder Morgan Inc. will remain. In exchange, owners of the other three other securities will receive a mixture of cash and shares of Kinder Morgan Inc. at premiums ranging from 12% to 16.5%, based on last Friday's closing prices. Each of the stocks has slipped about 5% since late last month, however. Kinder Morgan said it had secured financing for the cash needed to pay its investors.
Under the consolidation, many individual investors in Kinder Morgan partnerships at first could receive smaller regular distributions, though the investors will also receive an initial cash payment of $4.65 or $10.77 a unit, depending on which partnership they own. The new combined entity will offer a $2 annual dividend that is expected to increase 10% annually through 2020, the company said. The value of the new entity's debt and equity is expected to be $140 billion.
Mr. Kinder, a lawyer with a penchant for deal making, left Enron Corp. in 1996 after being passed over for the CEO position. He and another lawyer, William Morgan, created Kinder Morgan the next year. They started with $40 million in assets purchased from Enron, which was eager to jettison the staid pipeline business in favor of conducting flashier financial engineering.
In 2006, Mr. Kinder announced a plan to take Kinder Morgan Inc. private in what was then the largest management-led buyout of a public company. Five years later, the company went public again in a large public offering. Later that year, a $21.1 billion purchase of rival El Paso Corp. made Kinder Morgan the largest natural-gas pipeline operator in the U.S.
U.S. energy production has soared since 2009 because of widespread use of hydraulic fracturing and other technologies that have made it possible to tap energy trapped in shale deposits. Oil output has increased 55%, or nearly three million barrels a day, over the period, while natural-gas production has risen 23%, much of it in parts of the country without sufficient existing pipelines.
At the same time, getting new pipelines off the drawing board has been tough. Heightened regulatory scrutiny and public opposition have derailed or delayed some of the largest pipeline projects, including Kinder Morgan's proposed Trans Mountain Pipeline to Canada's West Coast. Infrastructure companies including Kinder have increasingly have invested in rail terminals and other equipment so that oil can be shipped by railroad, barge and truck.
Kinder Morgan's new structure, Mr. Kinder said, will allow the company to move more rapidly to take advantage of the need for more energy infrastructure.
"What has happened in shale plays across country has stood the transportation network on its ear," he said. "We would look upon this as an opportunity to grow even faster in the future."
The deal is expected to be completed by year-end, subject to shareholder and regulatory approval.
—Ryan Dezember contributed to this article.

Wednesday, August 6, 2014


WAG was in the news today.  Here is the article from the Wall Street Journal (below).

In short, they are buying the rest of Alliance Boots (Europe) for $15B, they are NOT moving there HQ to Switzerland, a tax "inversion" play that would have saved them several hundred million $, they raised their dividend 7.1%, and lowered their earnings guidance for 2015.  Wow, that was a lot to digest, and market definitely didn't like the news.  WAG closed today down 14.55%!  While I've trimmed WAG several times over the past two years, I considered selling it completely when it hit $72-$73, but decided to hold and see if would hit $75.  Ouch, big loss today.

I have a very full position, so will not be adding on the weakness.  Further, I plan to read some more about the future for WAG before I add or sell.  Holding for now.

Walgreen to Buy Remaining Stake in Alliance Boots

Drugstore Chain to Remain in the U.S., Says Won't Pursue So-Called Tax Inversion

Updated Aug. 6, 2014 11:42 a.m. ET
Walgreen announces its plan to accelerate its purchase of European retailer Alliance Boots, and to keep its headquarters in the U.S. Reuters
Walgreen Co. said Wednesday that it would buy the remaining 55% of Alliance Boots GmbH that it doesn't already own for more than $15 billion, while the drugstore chain confirmed it would keep its headquarters in the U.S. and not pursue a so-called tax inversion overseas.
Walgreen said it decided to exercise its option to buy the rest of Alliance Boots earlier than the original option period of between February and August 2015. The company, which expects the deal to close in the first quarter next year, struck a deal to buy 45% of Alliance Boots in 2012 for about $6.7 billion.
Under the terms of the revised agreement, Walgreen will acquire the remaining 55% for $5.29 billion and about 144.3 million shares, worth about $10 billion, based on the closing price Tuesday.
Related Video: Time Warner Inc., Sprint Corp. and Walgreen Co. are among top stocks to watch. WSJ's Polya Lesova joins Simon Constable on the News Hub with the details. Photo: Getty
Drug companies and medical device makers are making multi-billion-dollar merger deals to avoid high U.S. corporate taxes. How do so-called "inversion deals" work? WSJ's Jason Bellini has The Short Answer.
The fully merged company will combine leadership from both companies. Walgreen Chief Executive Gregory D. Wasson would have the same role with the combined holding company, which will be called Walgreens Boots Alliance Inc. Alliance Boots Executive Chairman Stefano Pessina will be the executive vice chairman of Walgreens Boots.
The new company will be based in the Chicago area and will have four divisions: U.S. drugstore chain Walgreen Co., U.K. and Irish pharmacy retailer Boots, a division focusing on pharmaceutical wholesale and international retail, and global brands. Boots operations will remain based in Nottingham, U.K.
Walgreen said Wednesday that it "thoroughly evaluated the possibility of combining Walgreens and Alliance Boots under a foreign parent company in an 'inversion' transaction," although the original deal didn't qualify under inversion rules. After examining "a wide range of issues," it decided not to pursue moving its headquarters outside the U.S.
"The company also was mindful of the ongoing public reaction to a potential inversion and Walgreens unique role as an iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement programs," Walgreen wrote in its news release.
A group of investors had pressured Walgreen to consider pursuing a so-called tax inversion overseas by relocating its headquarters to tax-friendly Switzerland, where Alliance Boots is based.
Walgreen's decision comes after the U.S. Treasury Department on Tuesday said it "is reviewing a broad range of authorities for possible administrative actions that could limit the ability of companies to engage in inversions, as well as approaches that could meaningfully reduce the tax benefits after inversions take place." President Obama had previously labeled inversions as "wrong" and called for congressional action to curb the action.
Chicago Mayor Rahm Emanuel, who once served as President Barack Obama's chief of staff, lauded the company for keeping its base in the city's metropolitan area. "Their decision today speaks volumes about their determination to be a strong business, good corporate citizen, and vital community neighbors," he said in a statement.
The Wall Street Journal had reported Tuesday that Walgreen would seek to buy the rest of Alliance Boots and remain in the U.S.
Walgreen on Wednesday also said it authorized a $3 billion share-buyback program that will run through the end of fiscal 2016, while it also boosted its quarterly dividend by 7.1% to 33.75 cents a share.
In addition, Walgreen established a new earnings goal for fiscal 2016 of $4.25 to $4.60 per adjusted share.
Write to Michael Calia at