BOSTON ( TheStreet Ratings)-- The Dividend Stars portfolio returned 2.23% in January on a total return basis, underperforming the benchmark S&P 500 Index over the same period by approximately 2.25%. Since launching on November 10th, the Dividend Stars portfolio has returned 5.96%, versus 6.34% for the S&P 500 Index, an underperformance of 38 basis points. The current portfolio offers an average dividend yield of 2.9% versus 2.04% for the S&P 500.
Stocks got off to great start in 2012, with the S&P 500 turning in its best January performance since 1997. Investors welcomed an 8.5% unemployment rate here in the US (the lowest in over three years), while shrugging off an unexpected drop in consumer sentiment and lower housing prices. An appetite for risk returned during the month as stocks with higher betas and no dividend yields outperformed in January. No excuses to be made here, but January turned out to be a tough environment for any high dividend yielding portfolio.
Positions Sold in the Month: ProShares Ultrashort FTSE China ETF (FXP), Honeywell (HON - Get Report), Deere (DE - Get Report) and Chubb (CB). FXP was sold due to meeting my pre-determined stop loss. Honeywell was sold due to a change in rating by TheStreet Ratings from 'Buy' to 'Hold'. Deere was sold due to no longer meeting the requirement of a dividend yield in excess of the S&P, while Chubb fell below the required efficiency threshold. Of all the positions, the one that hurts to sell the most is Deere, which I believe has good upside still-- ( back in Dec, I noted that shares could hit $102 by the end of 2012). But I have to play by the rules, and with Deere currently yielding only 1.9% (less than the S&P), the stock was sold from the portfolio. Fortunately, I ending up making a little over 14% on the position.
The following stocks were added to the portfolio as full position sizes at month end: Aflac (AFL), United Parcel Service (UPS - Get Report) and Eaton Vance (EV - Get Report). I've also started smaller size positions in the following names: National Research (NRCI), Tim Participacoes (TSU), Miller Industries (MLR) and Copa Holdings (CPA).Aflac should continue to benefit from its dominant position in the Japanese life insurance market (Aflac generates roughly 75% of earnings from Japan) and improvements here in the US. Management remains committed to returning capital to shareholders (Aflac has said that it plans to quadruple share buybacks in the next two years) and with a 20% payout ratio, there is a good chance of a dividend hike in the near future...... UPS is one of my favorite stories for 2012. As more and more consumers shift to online shopping, the brick and mortar retailers lose, and the companies that deliver those goods will gain. UPS, in its latest report noted that e-commerce shipments grew 15% in Q4, representing 50% of its volume flow for the quarter. Add in the fact that the US Postal service is closing branches and near the brink of collapse, and UPS makes for a stock to own in 2012....Funds are starting to come back into the equity market, and the asset managers should do well this year. I like Eaton Vance due to the low valuation in relation to competitors (14x forward P/E and EV/EBITDA at 7x) and the attractive dividend yield (currently at 2.95%). Copa Holdings, a Latin American airline has been averaging 30% quarterly revenue growth and 20% passenger traffic growth over the past year. Expectations call for another strong year of GDP growth throughout Latin America in 2012, which will likely keep traffic and profits up at Copa.... Tim Participacoes, the leading wireless provider in Brazil, is my other play on growth in Latin America. Subscriber trends have been robust and TSU looks cheap trading at just 5x EV/EBITDA while also offering up a nice Dividend Yield of 4.5%..... Miller Industries sells vehicle towing and recovery equipment. With used automobiles recently hitting an all time high at an average age of 10.8 years old, Miller could be a big benefactor as consumers try to squeeze every last mile out of their aging vehicles.
Highlights:Microsoft (MSFT - Get Report) (+13.75%), left for dead by many, is starting to gain momentum. Microsoft announced lower Windows' sales in the quarter, offset by growth in its Server and Tools business along with strong results in its Xbox division. The stock appears to be getting a boost due to the buzz surrounding Windows 8, tentatively scheduled to be released in October 2012. Microsoft is certainly late to the party in the smartphone/tablet market, but Windows 8 could be the savior for CEO Steve Ballmer. I like the moves Microsoft is making; the company has slowly built an arsenal of products (Kinect, Skype, various Cloud based Services) that will transform the way consumers interact with and experience multimedia over time. Add Windows 8 to the mix, and you have a seamlessly integrated operating system across all devices (PC/Tablet/Phone/TV). Based on the initial purchase price of $26.31, I have a 14% gain in shares thus far. I'm still liking the prospects for Microsoft and think shares could be bid up further in anticipation of the Windows 8 release later this year. Mattel (MAT - Get Report) (+11.67%) was the second best performer in the month. The toy maker announced strong holiday demand for toys including Barbie and Hot Wheels, as fourth-quarter profit was up a better-than-expected 14 percent. Mattel also announced a whopping 35% quarterly dividend increase to $0.31 share (from $0.23) -equating to a current annual dividend yield of 4%. I initially had called for a $33 target on Mattel, but given the dividend hike and the relative weakness in shares of competitor Hasbro, I may be raising my target. Stay tuned.
Lowlights:ProShares Ultrashort FTSE China 25 ETF (FXP), which was last month's best performer, turned out to be this month's worst performer (-6.42%, -0.5% Contribution to Overall Returns); even after exiting the position in early January. I noted last month that the volatility was a bit extreme, and decided to cut ties after the ETF fell through my entry point of $28 on January 9th. While the news in China in regards to housing continues to look bad (a recent report noted that Shanghai new home prices plummeted by 41 percent in the week ended January 29), the overall economy seems to be showing no imminent signs of any major slowdown. I still believe in the whole China Real Estate bubble story, but for now, it's time to move on.
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