It's been a month since I launched my Double-Net-Dividend Portfolio, and it's time for an update. Also known as the "Buying Ugly Portfolio," this group consists of smaller-cap stocks that trade cheaply relative to net current assets, but that also pay dividends.
While there's nothing to celebrate in the portfolio's history so far, the early results are at the very least intriguing. The group is down 5% year to date, but its benchmarks -- the Russell 2000 and Russell Microcap Index -- have lost 8.8% and 10.3%, respectively.
In other words, the portfolio has performed well relative to its benchmarks, although negative performance is still negative performance and hard for me to get excited about. But what's been most interesting has been how widely the portfolio's components can swing from day to day.
Take last Friday, for instance. That was a great day for the broader markets, with the S&P 500 up 2.5%, the Russell 2000 gaining 3.2% and the Russell Microcap adding 3%. But it was an even-better day the portfolio, which rallied 5.2%.
For the year to date, the group's best performer has been CSS Industries (CSS), which was flat in January. PC Connection (PCCC) came in second place, down 0.3% so far this year. It's pretty sad when a portfolio's best performers aren't even in positive territory, but that's par for the course in today's market environment.
On the downside, the group's biggest loser has been Arctic Cat (ACAT), a snowmobile-and-ATV-maker whose terrible 2015 performance has carried into 2016. ACAT is down 24% year to date, serving as a huge drag on the portfolio. Without it, the group would have only lost 3.2% in January.
Arctic Cat's fourth-quarter results came in much worse than expected last Thursday. Revenue fell 14% year over year to just $166 million, well below the $192.5 million that consensus estimates had called for.
The company also reported an 18-cent-per-share net loss vs. the +11 cents that analysts had expected. Additionally, ACAT suspended its dividend (a wise move in my view). The shares rebounded 12% on Friday, but that's still a drop in the bucket compared to Arctic Cat's recent losses.
ACAT's dividend suspension also created a bit of a dilemma for the portfolio in that the group now contains a stock that no longer makes a quarterly payout. Still, I plan to keep Arctic Cat within the group because removing it now would be disingenuous. When I've created portfolios like this in the past, I haven't made any changes once I selected the component stocks warts and all.
I'll provide another update on this portfolio next month. Hopefully, I'll have something more positive to report by then!
