Author: Chris Santiago
Covestor model: Dividend Value
Disclosure: Long VFC
In a not so surprising move, the Swiss National Bank announced it would set a floor for the Euro/Swiss franc exchange rate at 1.20 francs, saying it is prepared to buy unlimited quantities of foreign currency to defend it (“Franc plunges as Swiss set euro-franc floor” William Watts, MarketWatch 9/6/11 https://www.marketwatch.com/story/franc-plunges-as-swiss-set-euro-franc-floor-2011-09-06).
Early in August, the Dividend Value model closed out our Swiss Franc position (held via the CurrencyShares Swiss Franc Trust – FXF). In a previous report (https://investing.interactiveadvisors.com/?p=10476) I had mentioned the possibility of exiting the FXF position, as the trade seemed crowded; though originally I had planned only to halve the position, I decided it more prudent to exit the entire position. The strength of the Swiss Franc was having too negative an impact on Switzerland’s economy, and equities, to expect the SNB to stand by and not intervene.
The horrific jobs report for August, which showed zero change in nonfarm payrolls, led to a selloff in the S&P 500 and it looks as if that downward trend will continue. I expect that we will revisit the 1100 level on the S&P 500 in the very near future, and we could experience further price declines in the coming weeks of September.
As stated in our strategy, the Dividend Value model will not attempt to engage in market timing, nor do we have any plans to dramatically change its holdings. Our mix includes a large number of cyclical industrial holdings, but an equally large number of defensive staples. I’ve structured the portfolio to include companies that should weather weaker economic times better than the companies comprising the S&P 500 index. The portfolio also has close to a 10% cash position as of 9/12, so should the opportunity to add any positions present itself, we’ll be ready.
One of the positions I’d like to highlight is VF Corp. (NYSE: VFC). The stock, which yields over 2% as of 9/12, is one of Standard & Poor’s “Dividend Aristocrats” . The Dividend Aristocrats are defined by S&P as large cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years. (Google Finance http://www.google.com/finance?client=ob&q=NYSE:VFC ; http://www.standardandpoors.com/indices/sp-500-dividend-aristocrats/en/us/?indexId=spusa-500dusdff–p-us—-)
VFC has performed very well versus the S&P 500 from July through the recent August low, and year to date:
Chart: Google Finance as of 9/12/11 http://bit.ly/riCyr9
The company owns a clothing portfolio of over 30 brands, which gives it a diverse reach to consumers, wherever they shop. In its most recent earnings report, in July, VFC announced an increase in revenues, earnings-per-share and raised their 2011 guidance, for both. With all the talk of input cost inflation and weak consumer spending, VF Corp has still managed double-digit revenue growth for three consecutive quarters. (Company press release, 7/21/11 http://www.vfc.com/news/press-releases?nws_id=A893555B-8939-20A8-E043-A740E3EA20A8)
Looking ahead, Emerson Electric (EMR) is starting to look appealing, with its dividend yield slightly above 3% as of 9/12 (Google Finance http://www.google.com/finance?q=NYSE%3AEMR). As the stock market drifts downward, I believe any price below $40 would be a great opportunity to add to our EMR position.
C. Santiago
