Portfolio Update September 2017

september_2017_update

Another month – another update!

Purchases

Company Stock Units Price Date Cost
TEVA TEVA 100 $15.86 2017-09-01 $1586.00
Ensco ESV 400 $4.49 2017-09-05 $1796.00
Helmerich & Payne HP 30 $43.81 2017-09-05 $1314.00

 

Sells

none
 

TEVA was added to my watchlist as it’s the largest generic drug manufacturer in the world and the stock price just seemed to fall without a bottom. Cutting the dividend by 75% didn’t helped either. I was reading more and more about this company and the current situation and I was a little bit surprised by the huge amount of generated cash flow. All things considered (debt, decreasing operating margin, no CEO) the risk/reward ratio just seemed very compelling to me and I bought a small position.
Today they approved a new CEO and I’m very pleased with this decision. Kare Schultz is a former COO of Novo Nordisk. And as you know, I’m a big fan of Novo Nordisk. After leaving Novo Nordisk he helped with the turnaround and restructuring of Lundbeck (another Danish pharmaceutical company). So I’m eager to see the next steps of the company and would even add if falls below my entry price.

I also added to my Ensco position. As a cheesy side note: by looking at my portfolio , my stock position in Ensco and the company itself have one thing in common: they operate under water.
When I started with my investment journey I was compelled by the dividend growth rate and high yield of the offshore drillers. Needless to say, I was short sighted and it ended very badly for me. Ensco is the last offshore driller in my dividend portfolio. I’m holding to it and added to my position because I still think there will be a turnaround at some point. I’m not convinced the supply/demand oil situation is forever in the favor of supply. The big oil majors were slashing their deep sea capex by big numbers in the last years. But who is replacing the depleting wells, when there is no or minimal investment in new offshore wells? Just to confirm my perspective: in 2015 the global offshore production were contributing nearly 30% of the global crude oil output. To make a long story short (no pun intended): I speculate about the recovery of the sector at some time and when I see a stabilization of the WTI/Brent price in the last months, but nearly no reaction to the declining stock price of Ensco or every other offshore driller, I know this sector is abandoned and hated and it’s time to add to my position. I don’t think there will be a big increase in oil price over the next years, but I hope for a stabilization in the mid $60s for Brent which would lead to new contracts, although with minimal day rates.

But I also have to add, that with the acquisition of Atwood (another offshore driller) and the associated debt, Ensco may have only little over two years left of liquidity before it will need to look how to repay debt without a proper improvement of the backlog. So it’s a big speculation and we’ll see how it goes.

Another speculation position, although not nearly as drastic, is my buy of Helmerich & Payne. Another oil contract driller but with most of the revenue coming from US shale (land) rigs. The balance sheet looks solid to me, although the dividend isn’t covered and is indeed in risk of cutting. This was also confirmed by the CFO:

As mentioned in the past, it is unlikely that the company would issue additional debt with the sole purpose of sustaining or increasing current dividend levels.

If they cut the dividend, the price will experience a fallout and I will add to my position because without the high payout ratio the balance sheet will look even better. This contradicts the intentions of a dividend growth investor, but I already acknowledged that I’m more risk-tolerant and I like the idea of being opportunistic.

Portfolio News

Gilead acquired KITE! From Wikipedia:

Kite Pharma is a publicly held, clinical-stage biopharmaceutical company engaged in the development of novel cancer immunotherapy products with a primary focus on engineered autologous T cell therapy designed to restore the immune system’s ability to recognize and eradicate tumors.

As I’m still heavily overweight in GILD, I’m more than happy with this move.

Portfolio Update

august_update

It’s been a while since I’ve updated my Blog in March. Here are my latest updates since then:

Purchases

Company Stock Units Price Date Cost
STORE Capital STOR 100 $20.35 2017-05-09 $2035.00
Washington Prime Group WPG 200 $7.97 2017-05-12 $1594.00
Novo Nordisk NOVC 50 €35.08 2017-08-08 €1753.85
Altria Group MO 20 $63.39 2017-08-24 $1267.8

 

REITs did get cheap in May and I bought STOR and WPG. There were some more on my list, but they didn’t quite reached my buy zone (but all were very close to it). STORE is my substitute for O(also on my list) which seems always too expensive for me. In many aspects STOR has even better metrics, so I choose to buy it instead of O. Since Warren Buffett also decided to buy STORE, the price got a big lift and now I’ll have to wait a little longer to increase my position.

WPG on the other side was just too cheap to ignore. Still plenty of room to cover the big dividend, I bought a small position. But I didn’t expect it to rise so quickly, so I sold it two months later for a nice gain of $274.00 (17,2%) including the dividend. Long term I think SKT or even SPG are better positions in this declining sector for me. But I’m always open to some opportunities.

I’m a big fan of Novo Nordisk and bought another batch just before the latest report which lifted the stock quite a bit. I also managed to catch the dividend with this buy (DKK 300 in August). If the price will dive again to the lower 30s I will most likely continue to accumulate.

And today I started a small position in Altria (MO) and I’ll also continue to accumulate if it falls any lower (which seems most likely at the moment).

Sells

Company Stock Units Price Date Total Gain
Washington Prime Group WPG 200 $9.09 2017-07-24 $1818.00 $224.00 + $50

 

Portfolio News

In the meantime CCP got acquired by SBRA which will change the dividend rate. I’m still not quite sure what to do with it, but until then I’ll get paid even though the new yield is a little lower.

TIS stopped paying the dividend completely and I moved the position into my “speculative portfolio”. It’s still not sold and way under water(-55%). Not one year ago it was nearly the same amount, but the other way around. Again I’ve to blame myself for ignoring the payout ratio, not reading the quarterly reports and generally ignoring the rule “less market cap means more babysitting/risk”.

Recent Buy: Care Capital Properties

ccp

As expected, the Fed hiked interest rates today and I was waiting for the market reaction. It wasn’t as I expected (or hoped for), but let’s start with a short introduction first.

Right now, I’m especially interested in the attractive priced healthcare REITs. I already own OHI and wouldn’t mind to add here too, but my watchlist suggested to look into Care Capital Properties (CCP) first. They operate both almost exclusively in the skilled nursing segment (CCP 91%, OHI 89%):
ccp_overview
(Source)

It seems the political risk of possible changes of the operating environment together with the omnipresent hike rates really discount pure play skilled nursing REITs (and senior housing):
ccp_pe_overview
(Source)

I accept the risk and I would love to add more healthcare REITs to diversify more into this sector. As initially stated, I was hoping for a bigger drop in the sector today, but it was the other way around (as always) and so I started a position in CCP and bought 50 shares at $24.55 this added $ 114.00 to my annual income.

Recent Buy: Gilead

Gilead_Sciences_Logo.svg

Gilead reported Q4 2016 yesterday and it finally looks like the disaster everyone was anticipating. Big declines in revenue, sales of the HCV products are dropping like a falling stone (flagship product Harvoni with over 50% Q/Q decline). To make it worse, management was anything but determined or showing any signs of leadership in the conference call. The guidance for sales in 2017 was dropped to $23.5 B (from $30 B in 2016). Adding a pending law suit with a potential one time payment of $2.5 B – $7.5 B plus a 10% license royalty of all HCV sales and I’m finally at a point where I’ve to think about my initial investment.

When assessing the situation, it’s important for me to remember the initial investment thesis. When I started to accumulate GILD, I bought it for the low P/E and the growing cash reserves, which I thought, would be used to buy another revenue producing assets.

So trying to be objective – there is no change in my thesis. Even though I’m still waiting, cash is still pouring in, but the cash source dries up faster than expected and the once promised HIV pipeline doesn’t show the long term quality I was hoping for (there seems to be two important patent cliffs before 2020). So I’m going from an optimistic to a more speculative view. I’m still hoping for an acquisition, which would at least stabilize the revenue. But in the meantime I will collect the increased dividend (by 10.6 %) payment. I really don’t hope to enter another Seadrill / Kinder Morgan type of “catching the falling knife” episode. But I really don’t see the case here – even with increased competition. I still see a future Gilead finding new cures and enhancing their existing products. I don’t see them falling back to the pre-HCV company, but utilizing their new sales experience, grown R&D department and liquidity.

Therefore today I added 50 shares at $64.82 to my existing GILD position. My averaged cost per share gets lowered to $78.17 and I’ve added $104 to my annual dividend income.

Goals updated

goals-2016

As I want to revive my blog, I’ve updated my past 2015 goals and added the goals for 2016. As I wrote in my last post, I sold most holdings end 2015 and mid 2016 and my dividend income was cut in half.

It seems silly two month before end of year to write down the goals for 2016, but especially the projected forward annual dividend income will be tough to achieve.
At the moment I’m at $ 1,406 and $ 300 more means putting $ 10.000 at 3% yield (or $ 15,000 at 2%) to work. This implies selling one or more of my speculative holdings to free up cash.

We’ll see how it goes.

Thanks to DividendTIME for reminding me to update the goals 🙂