Stocks Of The Month: CSX, NSC, UNP

Welcome to the fourth (and final) edition of the The Fourth Quarter Dividend (Overtime Edition). Previous editions can be found here, here, and here.

This month I will choose from the "1"s of my portfolio. (Meaning, each of these stocks are roughly target allocated for 1% of my total portfolio.) The candidate stocks are:

American Water Works (AWK)
Canadian National Railway (CNI)
CSX (CSX)
Kansas City Southern (KSU)
Norfolk Southern (NSC)
Union Pacific (UNP)
Aqua America (WTR)

AWK: 2.04% dividend yield, 69% payout ratio, $3.4B revenue, 4% revenue growth, $1.4B operating cash flow, -$0.6B free cash flow
CNI: 1.86% dividend yield, 23% payout ratio, $10.4B revenue, 15% revenue growth, $4.0B operating cash flow, $0.9B free cash flow
CSX: 1.42% dividend yield, 12% payout ratio, $12.0B revenue, 14% revenue growth, $4.0B operating cash flow, $1.9B free cash flow
KSU: 1.50% dividend yield, 15% payout ratio, $2.7B revenue, 7% revenue growth, $1.0B operating cash flow, $0.2B free cash flow
NSC: 2.15% dividend yield, 14% payout ratio, $11.2B revenue, 10% revenue growth, $3.7B operating cash flow, $1.5B free cash flow
UNP: 2.33% dividend yield, 20% payout ratio, $22.5B revenue, 10% revenue growth, $8.2B operating cash flow, $3.6B free cash flow
WTR: 2.61% dividend yield, 60% payout ratio, $0.8B revenue, 5% revenue growth, $0.4B operating cash flow, -$0.2B free cash flow

Amongst a free cash flow-challenged group, CSX, Norfolk Southern, and Union Pacific are the winners. These three stocks also have a promising combination of low payout ratios and good revenue growth, which should support dividend payout growth.

Looking forward to the rest of 2019 - I have a few goals, reflected in the updated buy/hold assignments below, resulting from the yearly exercise that is The Ongoing Concerns:

• Reward winners:  Salesforce (+34% in 2018), Intuitive Surgical (+31%), Adobe (+29%), Amazon (+28%), Autodesk (+23%), Microsoft (+19%)
• Buy values:  NVIDIA (-31% in 2018), Comcast (-15%)
• Add to high-quality, under-allocated dividend stocks quarterly...as of this writing:  Microsoft, Starbucks (+12% in 2018), Costco Wholesale (+9%), Norfolk Southern (+3%), Comcast

Here's my current portfolio (buy and hold). As always, I believe in all of these stocks - until I sell them.

Amazon (AMZN) 15.10%
Tesla (TSLA) 15.05%
Apple (AAPL) 11.26%
NVIDIA (NVDA) 9.25%
Alphabet (GOOGL) 7.05%
Microsoft (MSFT) 4.36%
Intuitive Surgical (ISRG) 4.27%
Facebook (FB) 3.95%
Adobe (ADBE) 2.73%
Nike (NKE) 2.48%
Salesforce (CRM) 2.43%
Intel (INTC) 2.37%
Visa (V) 2.32%
UnitedHealth Group (UNH) 2.11%
Starbucks (SBUX) 1.69%
Waste Management (WM) 1.69%
Chubb Limited (CB) 1.39%
Costco Wholesale (COST) 1.35%
Booking Holdings (BKNG) 1.30%
BlackRock (BLK) 1.28%
Union Pacific (UNP) 1.00%
CSX (CSX) 0.98%
Autodesk (ADSK) 0.97%
Norfolk Southern (NSC) 0.76%
Comcast (CMCSA) 0.67%
American Water Works (AWK) 0.59%
Aqua America (WTR) 0.44%
Canadian National Railway (CNI) 0.42%
Activision Blizzard (ATVI) 0.40%
Kansas City Southern (KSU) 0.34%

2018 Stock Recap: The Ongoing Concerns

For the first time ever in my 20 year investment career:

• I did not sell a single stock during a calendar year; and
• I did not purchase a new stock during a calendar year

This is either a sign of newly-found investor maturity, or I'm running out of ideas. Hopefully, the former.

2018 was a good year...through October, then it all went wrong. By the end of the year, my portfolio outperformed the S&P 500, losing -0.6% vs. -4.8% (+4.2%). I'm not particularly pleased about a year of negative returns, but of course, it could have been worse. From a savings return perspective, my portfolio was up 14.9% - which is all that really matters, anyway.

We're going to keep 2019 just like 2018: as boring as possible, and keep hammering away at limited number of winning investments.

And now, let's look at all the stocks I've held going into this year, from worst to best - based solely on 2018's performance, while mostly ignoring any intra-year volatility:


NVIDIA (NVDA)
Year-opening price: $193.50
Bought more: Jan @ $204.20, Feb @ $237.03, Mar @ $228.12, Apr @ $227.84, Jun @ $259.00, Aug @ $243.43, Sep @ $282.95
Year-closing price: $133.50 (-31%)
Fundamentals unchanged, and wildly mispriced. Their new chip (Turing) being so much better than their old chip (Pascal) is a high-quality problem.

Activision Blizzard (ATVI)
Year-opening price: $63.32
Year-closing price: $46.57 (-27%)
Growth story busted, part one.

Facebook (FB)
Year-opening price: $176.46
Bought: May @ $174.30
Year-closing price: $131.09 (-26%)
Sentiment turned negative in all regards. Still a cash cow.

BlackRock (BLK)
Year-opening price: $513.71
Year-closing price: $392.82 (-24%)
Growth story busted, part two.

Comcast (CMCSA)
Year-opening price: $40.05
Year-closing price: $34.05 (-15%)
Good fundamentals. Seems like a bargain.

Aqua America (WTR)
Year-opening price: $39.23
Year-closing price: $34.19 (-13%)
Reversion back to underperforming American Water Works.

Chubb Limited (CB)
Year-opening price: $146.13
Year-closing price: $129.18 (-12%)
Growth story busted, part three.

Canadian National Railway (CNI)
Year-opening price: $82.50
Year-closing price: $74.11 (-10%)
The best growth of my railroad stocks; seems to have been unfairly punished.

Kansas City Southern (KSU)
Year-opening price: $105.22
Year-closing price: $95.45 (-9%)
The worst growth of my railroad stocks; seems to have been fairly punished.

Apple (AAPL)
Year-opening price: $169.23
Bought more: Jan @ $172.61, Feb @ $166.34, Mar @ $172.67, Apr @ $167.58, Oct @ $227.23
Year-closing price: $157.74 (-7%)
The best company in the world, bar none.

Priceline Group (PCLN)
Year-closing price: $1737.74
Year-closing price: $1722.42 (-1%)
Bought at the peak; underwhelming ever since.

Alphabet (GOOGL)
Year-opening price: $1053.40
Year-closing price: $1044.96 (-1%)
The best proxy for tech that money can buy. Automated driving will become a(nother) cash cow.

American Water Works (AWK)
Year-opening price: $91.49
Year-closing price: $90.77 (-1%)
Reversion back to outperforming Aqua America.

Intel (INTC)
Year-opening price: $46.16
Bought more: Dec @ $49.52
Year-closing price: $46.93 (2%)
Has been surpassed by NVIDIA, but will still make lots of money.

Union Pacific (UNP)
Year-opening price: $134.10
Year-closing price: $138.23 (3%)
Hauling heavy things will always be useful, part one.

Waste Management (WM)
Year-opening price: $86.30
Year-closing price: $88.99 (3%)
Growth story busted, part four.

Norfolk Southern (NSC)
Year-opening price: $144.90
Year-closing price: $149.54 (3%)
Hauling heavy things will always be useful, part two.

Tesla Motors (TSLA)
Year-opening price: $311.35
Bought more: Jan @ $321.00, Feb @ $348.44, Jul @ $331.75
Year-closing price: $332.80 (7%)
A volatile year, to say the least. Model 3 an undeniable success.

Costco Wholesale (COST)
Year-opening price: $186.12
Year-closing price: $203.71 (9%)
The finest (brick and mortar) retailer in the world.

Starbucks (SBUX)
Year-opening price: $57.43
Year-closing price: $64.40 (12%)
Strong fundamentals. Finally showing signs of life after 3 years of underperformance.

CSX (CSX)
Year-opening price: $55.01
Year-closing price: $62.13 (13%)
Precision Scheduled Railroading in full effect.

UnitedHealth Group (UNH)
Year-opening price: $220.46
Bought more: Dec @ $286.15
Year-closing price: $249.12 (13%)
Monster revenues, cash flows, dividend.

Visa (V)
Year-opening price: $114.02
Bought more: Dec @ $143.12
Year-closing price: $131.94 (16%)
The best proxy for commerce that money can buy.

Nike (NKE)
Year-opening price: $62.55
Year-closing price: $74.14 (19%)
Continued great performance from last year. Long-term growth story.

Microsoft (MSFT)
Year-opening price: $85.54
Bought more: Jan @ $86.11, Nov @ $106.43
Year-closing price: $101.57 (19%)
The Satya Nadella winning streak continues.

Autodesk (ADSK)
Year-opening price: $104.83
Year-closing price: $128.61 (23%)
Software-as-a-service, part one.

Amazon (AMZN)
Year-opening price: $1169.47
Bought more: Feb @ $1475.88, May @ $1580.98
Year-closing price: $1501.97 (28%)
Having wrecked traditional retail, incredibly well positioned to dominate the next decade.

Adobe (ADBE)
Year-opening price: $175.24
Year-closing price: $226.24 (29%)
Software-as-a-service, part two.

Intuitive Surgical (ISRG)
Year-opening price: $364.94
Year-closing price: $478.92 (31%)
A company without peers.

Salesforce (CRM)
Year-opening price: $102.23
Year-closing price: $136.97 (34%)
Software-as-a-service, part three.