End of Year Thoughts

It's been quite a year - we had extreme bear market lows followed by a huge bounce. Although we are still not back to the prior market high, steep losses have been significantly lessened since March.

We are not seeing the returns being expressed via any significant dividend growth. In fact most increases have been in the single digits. Still, we have not endured any more cuts for many months now, and dividend growth performance tends to be a lagging indicator of economic recovery, so we expect the rate of dividend growth to improve in the coming year.

We will continue to focus on companies with wide moats, strong cash flows and good dividend growth history, and sell any remaining 'dividend losers' into strength.

New Positions

We didn't get a 10% correction, which is not uncommon in a bull market. We took new positions in SJI, MCD, BF/B, SWK, and FDO. Pretty conservative, dividend-growth-wise, but reliable and stable growers.

With a high emphasis on both consumer staples and consumer non-discretionary stocks, we should be able to take advantage of the lower dollar and the expected growth in exports and repatriated earnings from higher-value currencies associated with those exports.

Still, we would be surprised if we do not see some kind of correction, but it certainly appears the market is signaling its recognition that the new, higher growth earnings cycle is indeed here. While we cautiously look for signs of accelerating inflation and tighter monetary policy to control it, we trust that the Fed will do the right thing and reign in monetary growth when appropriate, and thus avoid another bubble redux caused by loose fiscal policy that has overstayed its welcome...

Clearing the Deck

Where to begin...

Well, we are still here. I have finally updated the QDV and portfolio holdings to reflect our current portfolio. Our QDV has been decimated to say the least. Currently it is 2.4%, down from well over 20%. Many companies cut or have frozen their dividends. Those that cut or eliminated their dividends were sold into the current market rebound. We weren't willing to sell as the March lows were being made, and in retrospect, that was a good idea.

We have several companies who have held or grown their dividend payouts during this turmoil on the radar to replace the companies we sold. Interestingly, as we replace the companies, we will be able to substantially restore dividend revenue very close to what it was at the peak. How can that be? Well, the companies we are buying are paying and they are yielding higher because prices are historically low.

Although the market has been volatile, we are beating the Wilshire to date by over 3% - not bad considering dividends are excluded from this calculation, and this is covering a period marked by record volatility.

Sales made were USB, LYTS, CCL, ACAS, SCS, MOV, PBG, HIG, GE, and STI due to dividends being cut or eliminated. PBG was sold due to being bought out by Pepsico.

We anticipate a moderate (5-10%) correction from these levels, and await good entries to add new holdings to 'rebuild' from proceeds of these sold positions.