It's now been nine months since I unveiled my 2017 Double-Net Dividend portfolio last May, a combination of companies that were trading cheaply relative to net current assets (between 1 and 2 X) at portfolio inception, that also return cash to shareholders. This is another proof-of-concept stock screening idea that was intended to combine the best of both worlds -- cheap companies that pay dividends.
Nine months in, I am fairly pleased with the results; so far that is. The portfolio is up about 24.5% versus 17.3% for the Russell 2000 Index, and 18.6% for the Russell Microcap Index. It is also outpacing the value components of both indexes, which are up 13.8% and 18.9%, respectively. All but two of the 10 names in the portfolio are in positive territory.
Just nine names remain active, however. As you may recall, boating-retailer West Marine was taken private, over the summer for $12.97/share. While the 30% return from that deal has helped portfolio performance, it was a disappointing takeout price for a retailer that will likely benefit from tax reform and an economy that is heating up. This comes with the territory, however, as the types of companies comprising this portfolio are often ripe for acquisition.
The big winner so far, has been retailer Guess? (GES) , which is up nearly 90%. Shares were in the doldrums at portfolio inception; this was yet another clothing retailer that few wanted to own. The point was driven home by the company's then 9% dividend yield and it was clear that the market was pricing in a dividend cut. A couple of positive earnings surprises in May and August provided a boost, and the market is no longer as sour on the name, which now yields around 4.5%.
Higher-end watchmaker Movado (MOV) , which has bounced on and off several of my deep value-related screens over the years has also performed well, up about 50%. A surge beginning in May was halted by the great specialty retailer pullback in August, but the stock has moved higher ever since, putting up solid, better-than-expected results in August and November. The shares now trade at about 17x next year's consensus estimates, and about 2.4x net current asset value.
Rounding out the big winners are two more retailers. Shoe Carnival (SCVL) is up about 30%, and Citi Trends (CTRN) , which has gained 32%. If you are wondering why this portfolio is chock full of retailers, it's because those were the "cheap" dividend payers when I put this portfolio together. Running it today, and I expect in May, when I put the next vintage together, will likely yield a dramatically different set of companies.
Other portfolio names in positive territory are Avnet (AVT) (+19%), AVX Corp. (AVX) (+10%), and CSS Industries (CSS) (+6%). Universal Corp (UVV) (-25%) is the worst performer, followed by FreightCar America (RAIL) (-6%).
Ironically, positive performance so far has been due primarily to specialty retail, a very slippery slope.
