Cash Is King Again

Last week was a tough one for the market, as the S&P 500 fell nearly 2%. For the real-money Inflation-Protected Income Growth portfolio, the news wasn't quite as bad. Since last week's update, the portfolio's market value fell by only 1.2%. The key difference? Cash. Nine of the portfolio's holdings paid their dividends in the past week, adding more than $100 to the portfolio's cash coffers.

Unfortunately, not all that cash stayed in place. Teva Pharmaceutical's (NYSE: TEVA  ) dividend got reduced by an Israeli foreign investor withholding tax that chopped off $1.97. In addition, Mine Safety Appliances (NYSE: MSA  ) reorganized its shares, for which the IPIG portfolio's broker charged a $20 reorganization fee. Still, even after those charges, the IPIG portfolio's net cash position increased by $85.09, making cash the best performing asset in the portfolio on the week.

Say what?
For Teva, that withholding tax is nothing new. The company is based in Israel, and so American investors who own shares of Teva pay a 15% withholding tax to Israel on any dividends they earn. The real news on Teva's dividend is that the dividend represented a 5% increase versus last year's level. While not all that much, the small increase in spite of the company's troubles, does showcase the company's commitment to rewarding investors.

As for Mine Safety Appliances -- the move created a holding company and transferred the original company to be a wholly owned subsidiary of that holding company. The net result was that the IPIG portfolio started week with 36 shares of Mine Safety Appliance's stock and ended the week with 36 shares of the reorganized Mine Safety Appliances stock but still had to pay the $20 to go essentially nowhere. As that $20 fee is about two quarters' worth of dividends from Mine Safety Appliances to the iPIG portfolio, the reorganization had better be worth it.

Did anything else gain?
Aside from cash, the only asset in the IPIG portfolio that gained on the week was fast-food titan McDonald's (NYSE: MCD  ) . McDonald's bucked the trend and gained in spite of reporting lousy same store sales numbers  and getting sued over pay. About the only reasonably "good" news coming out of McDonald's last week was an announcement as part of an investor conference that it intended to spend around $5 billion on dividends and stock buybacks in 2014 -- about in line with last year's level. 

Still, McDonald's shares gained about 2.2% on the week, adding $33.28 in market value to the IPIG portfolio and well outpacing the market and every asset in the portfolio other than cash. That just goes to show how much pessimism had been priced into McDonald's shares to enable them to rise like that on such a down week, in spite of the bad-to-neutral news it reported.

A worthwhile result in a rough week
As of Friday's close, the IPIG portfolio's total lifetime return since inception stood at 34.6%. Because the portfolio held up better than the market last week, that total return is now slightly ahead of the 34.3% an investor would have gotten by buying the S&P 500 tracking SPDRs (NYSEMKT: SPY  ) and reinvesting dividends over the same period of time

As the IPIG portfolio's manager, I'd love to take credit for that success, but as this week's results showed, it really was a case of "cash is king." As of the market's close on Friday, March 15, the IPIG portfolio looked like this:

Company Name

Purchase Date

Total Investment (Including Commissions)

Current Value
March 14, 2014

Current Yield
March 14, 2014

United Technologies

Dec. 10, 2012

$1,464.82

$2,026.80

2.10%

Teva Pharmaceutical

Dec. 12, 2012

$1,519.40

$1,857.44

2.61%

J.M. Smucker

Dec. 13, 2012

$1,483.45

$1,635.06

2.41%

Genuine Parts

Dec. 21, 2012

$1,476.47

$1,964.89

2.69%

Mine Safety Appliances

Dec. 21, 2012

$1,504.96

$1,913.04

2.26%

Microsoft

Dec. 26, 2012

$1,499.15

$2,073.50

2.97%

Hasbro

Dec. 28, 2012

$1,520.60

$2,350.38

3.15%

UPS

Jan. 2, 2013

$1,524.00

$1,925.40

2.78%

Walgreen

Jan. 4, 2013

$1,501.80

$2,682.80

1.88%

Texas Instruments

Jan. 7, 2013

$1,515.70

$2,082.57

2.71%

Union Pacific

Jan. 22, 2013

$805.42

$1,110.84

1.97%

CSX

Jan. 22, 2013

$712.50

$964.92

2.11%

McDonald's

Jan. 24, 2013

$1,499.64

$1,561.28

3.32%

Becton, Dickinson

Jan. 31, 2013

$1,518.64

$2,076.30

1.89%

Aflac

Feb. 5, 2013

$1,466.35

$1,730.97

2.31%

Air Products & Chemicals

Feb. 11, 2013

$1,510.99

$2,036.09

2.37%

Raytheon

Feb. 22, 2013

$1,473.91

$2,702.43

2.20%

Emerson Electric

April 3, 2013

$1,548.12

$1,751.68

2.75%

Wells Fargo

May 30, 2013

$1,525.48

$1,753.80

2.53%

Kinder Morgan

June 21, 2013

$1,518.37

$1,331.40

5.17%

Scotts Miracle-Gro

Jan. 3, 2014

$1,974.68

$1,893.76

2.96%

Cash

   

$958.41

 

Total Portfolio

   

$40,383.76

 

Data from the IPIG portfolio brokerage account, as of March 14, 2014.

On the hunt for great dividends?
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To follow the IPIG portfolio as buy and sell decisions are made, watch Chuck's article feed by clicking here. To join The Motley Fool's free discussion board dedicated to the IPIG portfolio, simply click here.


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  • Report this Comment On March 17, 2014, at 4:47 AM, Interventizio wrote:

    Good points here, especially the comment on the pessimism sorrounding MCD. MCD has to fix some mistakes and the fallout of bad strategies and it'll do all right over time.

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