Monthly Income Update – October 2022

Dear Readers,

Wishing you all a very Happy (belated) Halloween! I love this time of the year as it is so nice to see kids running around in their costumes, collecting candy and with no care whatsoever of what the world thinks of them. Considering the times that we are in, with a inflationary macro-economic environment, news about layoffs, the war-like situation in Ukraine continuing to persist etc. it is nice to ignore all that and join these kids in the fun.

We also had several families in our neighborhood celebrate Diwali, the festival of lights, around the last week of October. It was fun to see those families deck their homes with earthen lamps and kids lighting some sparklers and firecrackers.

Speaking of firecrackers, we are in the midst of a very very busy earnings season, and it was very hard to keep up with how all of the companies in my portfolio and some other big names in the industry performed in the last quarter. I am yet to look into the earnings release for Amazon (ticker: AMZN), Meta (ticker: FB) and Google (ticker: GOOGL) but all these stocks got slaughtered after what seemed like some pretty horrendous earnings calls. Among the other big tech names, especially the ones that I hold in this portfolio, Microsoft (ticker: MSFT) is also down near its 52 week-low after its earnings report. In comparison to all these names, Apple (ticker: AAPL) had a rather excellent quarter with revenue growths in its major segments.

It is worth emphasizing that all of these tickers were heading to the moon for the best part of the last two years and, obviously, that is not something that is sustainable in the long-run. So in my opinion, we might be seeing an event where the broader market is coming back to its “senses” and there is a “reversion to the mean”-like occurrence with these stocks.

October was crazy. And as we head into the final two months of the years, I am very excited about the possibility of adding to my core positions when their valuations start entering my “fair value” range. Fingers crossed!

Lets get into the monthly income numbers.

Dividend Income Received

Sl. No.Company / ETF (ticker)Amount
1JP Morgan Chase (JPM)$34.49
2Realty Income (O)$21.76
3CareTrust REIT (CTRE)$6.70
4STAG Industrial (STAG)$3.94
5Orion Office REIT (ONL)$0.30
6JP Morgan Equity Premium Income ETF (JEPI)$5.62
Total$72.81

So a total of 6 companies contributed a total of $72.81 in terms of monthly income. I did not write any new option contracts during this time as the market situation was not conducive to my strategy. At the same time last year, I had earned a total of $26.72. So from a YoY growth perspective, the numbers are pretty attractive again.

Dividend Increases and other Dividend news

With earnings season, there were also a few companies that were slated to announce their dividend hikes to the quarterly dividend. I enlist a few of these here:

Obviously, I am thrilled with the inflation-beating hikes from Visa and Snap-on. Both these companies reported strong quarterly results, have an incredible management team and are great businesses to own for the long-term investor.

AbbVie had an OKish quarter and also an OKish hike to their dividend. With AbbVie, I am more interested in what new drugs are under development in their pipeline. They have been able to generate solid revenues over the last few years with their super-star drug, Humira. They are hoping to do the same with their two other drugs, Skyrizi and Rinvoq. But beyond that, I would like to see other drugs in their Phase 3 bucket of their development pipeline go through FDA approval. The last update on the pipeline from earlier in the year showed that they have several drugs in the oncology space that are in the Phase 3 cycle.

I’ll be keeping a close eye to look for any updates on their R&D pipeline in this regard.

The other news that made the rounds this month was the merger agreement between Kroger (ticker: KR) and Alberstons companies (ticker: ACI). As an ACI shareholder, I wanted to dive into the details of this agreement and covered it as a part of a twitter thread.

What was interesting was that as a part of the agreement, the ACI management had decided to pay out its shareholders a special dividend amounting to $6.85/share, payable on Nov. 7th. This announcement, for some vague reasons, did not go down well with the AGs of several states and Sen. Elizabeth Warren, who claimed this dividend payment to be “illegal”. Long story short, the special dividend payment has now been temporarily halted after a restraint order by a Washington state court judge. ACI has since come out with a press-release explaining their stance on the subject.

My take: As an outsider, I can see how the merger agreement can be viewed as anti-competitive. Per the market share data of the major grocery stores in the US (Source: statisca) (discl: data from 2017, but lets assume numbers are close enough for argument sake), we are looking at the #2 and #3 combining here. In some states and remote towns, it would leave consumers with only one option as far as grocery shopping.

That said, both KR and ACI seemed to have considered this and have talked about spinning-off a separate company (called “SpinCo”) under ACI’s management as a part of their divestitures.

However, as an ACI shareholde, the opposition to the special dividend payment is something that I do not understand completely. I wanted to dig a little deeper to understand this and I ran into this letter from Sen. Warren. Quoting from the letter:

The “special cash dividend” included in the proposed Kroger-Albertsons acquisition is
particularly troublesome because of the adverse impact on long-term competition in this
industry. Rather than using these funds to invest in workers, improve stores, reduce prices, or
simply strengthen Albertsons’ cash reserve, the $4 billion will go directly to Cerberus and other
shareholders – a hit that risks “bankrupt[ing] the debt-ridden supermarket chain.”14

One quick look at the balance sheet and we can see that the even after the special dividend payment of $4 billion, ACI will still have atleast $3 billion in liquidity. One cannot help but wonder what other political motives are at play here behind the scenes. We shall see.

Summary

So a pretty slow month compared to last month when my portfolio breached the $500/month mark for the first time. But I am happy that I am making pretty steady progress towards my overall goals for the year.

Best Wishes,

LWD

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