The year's end brings with it the desire to identify some ideas that we hope will bear fruit in 2016. I really don't know what the markets will bring us next year, other than a great deal of volatility. So, with that in mind, I turn to a group of companies that both trade cheaply relative to their assets, and pay dividends.
Today I unveil the Double Net Dividend Portfolio, which is composed of the 11 double-nets (stocks trading at between 1x and 2x net current asset value) that also return cash to shareholders. It's a mix of the decent, the bad and the ugly, but a way to stress-test the concept that companies meeting those attributes will have the ability to outperform the Russell 2000 and Russell Microcap indices. (This is not my first venture into indexing double-nets; in late 2010 I tracked another double-net portfolio, with slightly different attributes, affectionately known as JIMS CRAB FEST.)
Criteria for inclusion:
-- Trades at between 1x and 2x net current asset value (current assets less total liabilities).
-- Minimum market cap $250 million.
-- Has paid a dividend within the past year.
The portfolio is equally weighted and the market caps of members range from about $300 million to $4.7 billion, with an average of about $1 billion. All but two of the names are profitable on a trailing 12-month basis. The portfolio has a price to book value of 1.1, and currently trades at about 1.7x net current asset value. The dividend yield is 2.9%. Many of the companies hold a decent level of cash, and the average cash to market cap ratio is about 0.18. All else being equal, this is a portfolio that only a value investor could stomach, let alone love.
The portfolio includes the following companies: Universal Corp. (UVV), Comtech Telecommunications (CMTL), Powell Industries (POWL), Arctic Cat (ACAT), CSS Industries (CSS), Miller Industries (MLR), Movado Group (MOV), AVX Corp. (AVX), PC Connection (PCCC), Tesco (TESO) and Ingram Micro (IM).
Several of these names have been beaten up badly in 2015, including oil services company Tesco, snowmobile and ATV maker Arctic Cat and communication solutions name Comtech. All are down at least 35%, and may face severe headwinds in the out-of-favor industries in which they operate.
Just tobacco name Universal Corp. and IT product distributor Ingram have managed double-digit gains for 2015. Year to date, the group is down an average of 12%.
In some respects, this is a "buying ugly" portfolio that represents several different industries. The rationale behind including dividend-paying companies is that this should add a level of stability, however small. That is, if they are able to sustain the dividend, and truth be told, there are a couple in the mix where that may be in question.
Stay tuned, I will provide periodic updates for the portfolio.