Microchip Tech Increases Its Dividend

Besides issuing a decent earnings report, MCHP increased its annual dividend rate from $1.00 to $1.06, or $0.265 per quarter. Six percent increase doesn't sound like much, but they have increased their dividend rate every quarter since August 2003.

Problems with Google Docs

We were having problems with Google spreadsheets, and for awhile we were without portfolio data. Looks like they fixed it. We'll see if this beta project gets more stable.

I can tell from daily tracking that our relative performance to the Wilshire hasn't been very good lately. We'll see if things can improve over the next couple weeks.

In the meantime here's an article you may want to check out...

Dividend Increases Falling Behind

Various Items

"Four Stocks Take a (dividend) Hike" from Motley Fool

Microsoft's Intrinsic Value

Eaton is Hammered

Ugly day for the markets...

Eaton (ETN) Ups its Dividend

Also they announced a share buyback program. Earnings met expectations, but they project flat sales in 2007. The dividend was increased 10 percent.

Tracking Relative Performance

We can see how well a given portfolio composition stacks up to a benchmark index using graphical tools, such as Excel. Simply take the daily portfolio values for a given period of time, and calculate the daily percent change. Then, do the same for the benchmark index. Once you do that, calculate the difference in percent change between the portfolio and the benchmark index. In this example we are comparing our portfolio to the Wilshire 5000. This chart has two different measures. One is the daily portfolio performance relative to the Wilshire 5000. The other is the cumulative relative performance. It is then easy to see how well a given portfolio stacks up versus the index over time. Of course you want to see the cumulative performance line going up over time, not down. Our current portfolio composition has performed well relative to the benchmark, at least historically, but is recently lagging. My guess is that the banks are to blame.

Adding UPS

I added UPS to the portfolio today. Why not Fedex? Well, both are extraordinary companies, but UPS' dividend growth rate was the deciding factor. A 2% yield, but around a 17% dividend growth rate. Also, transportation stocks as a sector look pretty good about now.

A Chart of the Portfolio

I wrote a cool little program that can graphically track portfolio performance like you would for an individual stock. This covers 143 trading days, and shows a very consistent rate of price appreciation over time. It is not likely that this trend line will hold forever, but this could show the break when it happens, and that would provide some kind of notice that a more defensive posture is warranted.

Note also the low rate of volatility. I have a separate program that tracks portfolio beta relative to the Wilshire 5000 and whether historically the total composition has outperformed the index over time.

I exclude dividend payments from these charting calculations and performance calculations because my hope is that we can outperform the Wilshire on price appreciation alone. Perhaps I should track both ways.

Banks' Recent Underperformance

Bank stocks have been laggards of late. Maybe I shouldn't be surprised. The yield curve is inverted, Fed sentiment is tilting toward raising of rates, not easing them, and economic growth is moderating compared with last year's energetic pace.

The portfolio's bank holdings consist of:

Bank of America (BAC)
Citigroup (C)
Bank of Montreal (BMO)
Suntrust Banks (STI)
Bank of Nova Scotia (BNS)

Only Suntrust is showing a gain in our bank group. It didn't help that the timing of acquiring these positions was more than a bit late. These positions were all picked up in October 2006 or later. In the case of Citigroup and particularly Bank of Montreal, we missed a huge run-up, and just caught the downdraft.

It helps to think about the high quality of earnings these banks all have, and it really helps to imagine what dividends lie ahead. All of them have superior growth in dividends.

While waiting for banks to recover, it is reassuring that financials and insurance are all doing just fine. Diversification is a wonderful thing.

Citigroup will be posting earnings tomorrow. We'll see if they can jump start the group. It's due for some good news for a change.

2007 Dividend Yield Prediction

For the record, our estimate for the portfolio's 'historical' yield by the end of calendar 2007 is 3.8%. We'll check back next January to see how close or far we were from this call.

On a different note, here is a superb blog piece from the American Shareholders Association on dividend trends for 2006. A real eye-opener to say the least.

Juicing Dividend Growth

Quite a few changes in the portfolio to report. Sold Ford for a quick 8% profit, and sold our hedge too early in SDS, but made a small gain anyway. Added Citigroup (C), Eaton (ETN), Black Rock (BLK), and some small positions in foreign (and volatile) ADRs to juice up the yield while considering potential for dividend growth. Added were Chungwa Telecom (CHT), Bank of Nova Scotia (BNS), and Southern Copper (PCU).

The table below illustrates the improvement in yield from using the dividend growth strategy. Based on current holdings, and prices at which the positions were acquired, we can see how the yield has improved in the last few years. Although it is not clear how much the yield will improve in future years, it looks quite positive. Note that the 2006 yield is not the current 'indicated' yield, which is 3.35% based on acquisition cost. '% Alloc' means the percentage of the portfolio of a given holding.