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Week In Review

Week 10 of Lockdown – I Need A Haircut

I Need A Haircut and Hayford Pierce. We finished Week 10 of the lockdown here and we are in Memorial Day Weekend. I need a haircut. So, there are two definitions of “haircut” according to Merriam-Webster. First is the “act or process of cutting or shaping the hair”, whereas the second is “a reduction in the value of an asset,” meaning a financial asset, like a stock. Let me be clear, I need the first one and not the second one. I last had a haircut in February. So, at this point my hair is much too long. I will get a haircut soon once the barber opens up again. Many are still closed. Strangely, in the time of COVID-19, getting a haircut is a higher risk activity due to the close proximity of the barber and customer. Barbers probably need to be a little creative to give haircuts. I was reading about some barbers that are making house calls where the give haircuts on back porches or patios. So, that may be the way to go for some. Other barbers were giving virtual haircuts. They guide you to cut your own hair over Zoom.

I think most people are fairly optimistic about the lockdowns now since they are able to get out of the house and go more places. Being in a lock down is not fun and most people have probably gotten a little stir crazy. My eldest child has said, “Can we just go somewhere, even to the grocery store?” I said, sure in June. The kids are a little restless. They are used to being in school and with their friends playing sports. Yes, they can talk on Zoom or Facetime, but it is not the same to them.

There was almost no problem finding consumer staples and basic necessities this past week. The grocery store was fully stocked. The toilet paper aisle was essentially overflowing. They even put steaks, chops, and fish back in the display case. I saw that the store was cleaning, and I assume sanitizing the salad bar and olive bar. More and more things are returning back to normal.

Coronavirus Dividend Cuts and Suspensions List in 2020

I updated my coronavirus dividend cuts and suspensions list this past Wednesday. The number of companies on the list has risen to 268. We are now at about 9% of companies that pay dividends having cut or suspended them. The list is still growing, but the growth rate has slowed quite a bit. We will still have a few more cuts and suspensions in the coming weeks but my guess is that the numbers will only trickle in, at least until the second quarter earnings season.

The big dividend suspension this past week (after the dividend cuts and suspensions list was updated) was from a Dividend Aristocrat, Ross Stores (ROST). Ross Stores is relatively new Dividend Aristocrat having been added to the list earlier this year in January 2020. The company has not yet been formally deleted from the Dividend Aristocrat list as of this writing. But if the dividend suspension is for one or two quarters then it is likely that the Ross will likely be deleted from the Dividend Aristocrat list. I will have an article out on Ross Stores soon, so check my blog for that in a couple of days.

I Need A Haircut – Dividend Suspension

I have made it through with only one dividend cut or suspension so far, which was KAR Auction Services (KAR). I do not consider this a part of my core dividend growth portfolio. Instead, it was a special situation stock for me due to the recent spin off of the salvage business. The company essentially connects sellers and buyers of used cars. This business was seemingly hit hard by the lock downs as volumes declined dramatically due to low demand. Since KAR was a small position for me and in my opinion recovery in the used car business will take many months if not years, I sold the stock. My reasoning was that with over 36 million people unemployed, people will hold onto their old cars longer and not trade them in for a new one. So, yes, I did unfortunately get a haircut here in context of the second definition of the phrase. This just reinforces the fact that no one is correct in investing 100% of the time. There will always be some stocks that just do not work out. This will lead to a loss or a “haircut”. Hence, one must always consider risk when investing in stocks.

Stock Market Volatility – I Need A Haircut

The CBOE VIX is now below 30. I think that it will be consistently below 30 going forward barring some unforeseen spike in COVID-19 cases or a failure of a vaccine trial. You can see the impact of COVID-19 on the CBOE VIX in the graph below. Volatility was very low until late-February when the pandemic started to spread around the world. It spiked to over 80 and then has been slowly returning to normal. We will eventually get to the long-term average of 19.

Source: Google

I have also been tracking the Fear & Greed Index. It has been roughly between about 40 to 50 for the past several weeks in Fear. The index trended up to 50 in Neutral, which is the highest it has been since I started tracking it during the pandemic. It looks like the range is shifting up a bit as economies open, the number of new COVID-19 infections trend down, and market volatility decreases.

Source: CNN Business

U.S. and China Trade War is Back On

One effect of the coronavirus pandemic was that the trade war between the U.S. and China faded to the background. The back and forth of tariffs and trade restrictions were on the way to being partly resolved with the Phase I trade deal between the U.S. and China. The pandemic largely supplanted news about that for many weeks. However, this past week the trade war war is seemingly resurfacing. 

This time the tensions are not in tariffs or physical trade of goods, but rather about Chinese company listings on U.S. stock exchanges. The Senate passed a bill entitled the Holding Foreign Companies Accountable Act. A similar or parallel bill was then introduced into the House. The bill, if passed, would require foreign companies to let the U.S. Public Company Accounting Oversight Board to oversee the auditing of finances if they want to list on U.S. exchanges and raise money from the American public.

This would have an impact on Chinese companies listed on U.S exchanges since they use foreign accounting firms and the Public Company Accounting Oversight Board does not have complete access in order to review audits. Reportedly, the PCAOB is blocked from reviewing audits of about 200 companies. My guess is that this new bill is at least partly a result of the recent Luckin Coffee (LK) scandal that led to a dramatic crash in the stock price, missed margin calls, a trading halt, and possible loan defaults.

Further, one only has to look at recent headlines to see that there is talk about restoring tariffs and providing incentives for U.S. companies to move supply chains back to the U.S. for some industries. In addition, 33 more Chinese companies and agencies were blacklisted by the U.S. It will be interesting to see how this will develop over the next few months.

A New Dividend King

MSA Safety just announced an increase in the dividend for the 50th year in a row. It is a new Dividend King, and the 30th company on the Dividend Kings list. MSA Safety produces and sells safety products for firefighters, the oil and gas industry, the petrochemical industry, the construction industry, mining, utilities, and the military. The company has the No. 1 market position in self-contained breathing apparatus (SCBA), firefighter helmets and protective apparel, fixed gas and flame detection, and industrial head protection. It is also a market leader in portable gas detection and fall protection. This is a company that flies under the radar but provides needed products. You can check my article on MSA Safety at my profile on Seeking Alpha.

Secret Dividend Millionaires – Hayford Pierce

In this installment of my series on Secret Dividend Millionaires I am highlighting the story of Hayford Pierce. Hayford Pierce was a science-fiction author. At the age of 53 in 1995, he sat down in a Tahitian café and began examining his investments. He had two groups of investments. One group were about a dozen higher yielding stocks, but these grew slowly. The other group were blue-chip stocks that grew faster. He largest holding was Philip Morris (PM). Hayford Pierce predicted that he would receive about $14,000 in dividends in 1995. He then made his plan of increasing the dividend payout 10% each year for 30 years. 

In reality, he was able to increase the dividend payouts by 8.54% per year to 2017. He did not meet his goal for dividend growth rate but still the growth rate he did achieve was enough to make him a Dividend Millionaire. He did this by holding a concentrated portfolio of investments of common dividend growth stocks, master limited partnerships or ‘MLPs’, one bond, and one annuity. I do not think that this allocation is for everyone, but it worked for Hayford Pierce.

Today, he has nearly the same portfolio with some minor changes. Hayford Pierce gets about half of his income from the bond and annuity and the other half from the common stocks and MLPs. He does have one regret. He was not able to reinvest the dividends since he needed the income. If he had been able to reinvest the income, he would arguably be worth much more today.

In my opinion, Hayford Pierce did many of the things that dividend growth investors should do. He made a plan, he set a goal, he stayed the course, and he tracked his portfolio and tweaked it. Ultimately, Hayford Pierce leveraged the power of compounding over many years to meet his goal and became a Dividend Millionaire.

You can also read about the other Secret Dividend Millionaires.

Here are my recommendations:

If you are unsure on how to invest in dividend stocks or are just getting started with dividend investing. Take a look at my Review of the Simply Investing Report. I also provide a Review of the Simply Investing Course. Note that I an affiliate of Simply Investing.

If you are interested in an excellent resource for DIY dividend growth investors. I suggest reading my Review of The Sure Dividend NewsletterNote that I am an affiliate of Sure Dividend.

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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

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