Time for Another Performance Check

For some background on the idea behind the Performance Check, and the XIRR function used for the calculations, please see my first post in this series.

I’m continuing my Performance Check series with a look at another dividend paying stock from my Portfolio.  This time it’s Air Lease (AL), a mid-cap company in the Industrial sector.

Air Lease may not be familiar to most readers, so here’s some background on the company.  AL is an aircraft leasing company.  They purchase new commercial aircraft direct from the leading manufacturers (such as Airbus, Boeing, and Embraer), then lease them to various airline companies around the world.  In addition, they might sell aircraft from their leasing portfolio to third parties, other leasing or financial services companies, or airlines.  The company also provides fleet management and re-marketing services to investors and/or owners of aircraft portfolios.  The company was founded in 2010, but CEO Steven Udvar-Hazy is a long-time industry veteran with over 40 years of aviation industry experience.  In fact, in 1973, he co-founded the aircraft leasing business that became International Lease Finance Corporation (ILFC).  At the end of 2017, AL owned a fleet of 244 aircraft, including 188 narrow-body jet aircraft and 56 wide-body jet aircraft.

AL is a fairly new dividend payer, as they only began paying a dividend in 2013.  However, they have increased their dividend each year, and now have a streak of 4 consecutive years of dividend increases.  In addition, the dividend has been raised a minimum of at least 20% each time, including a 33.3% increase announced last November.

Unlike the previous 5 stocks I reviewed, my AL position is a relatively new one.  Thus, I don’t have as much data/time to factor into the return calculated in this Performance Check, and current price changes will have more of an impact on my annualized return.

 

My Personal Performance for AL

My initial purchase of AL came in December 2013.  At the time, a Dividend Reinvestment Plan (or DRiP) didn’t exist for AL, so I purchased the stock in my brokerage account.  This purchase came before I started my dividend stock Portfolio, but in 2015 when I made the decision to construct a dividend Portfolio, I wanted AL to be a part of it.

Below is a capture of the spreadsheet I keep with the AL cash flows, and the calculated XIRR.  Compared to my previously reviewed stocks, the table for AL isn’t too long, thanks to the shorter holding period.

Here’s a note with regard to the ‘Type’ column entries: EOY Value = End Of Year Value

The duplicate EOY Value entries at the end of each year (one negative, one positive) do not affect the cash flow, and can be thought of as boundary markers, allowing me to make the individual yearly return, and the annualized total return calculations.

 

 

I’ve been more active in trading AL compared to the 5 core stocks I previously reviewed (each of which I’ve held for 20+ years).  My partial sale of AL last year was a result of it becoming a larger position in my Portfolio than I wanted.  Even after the sale, AL was still my largest position, but not by much.  Today, AL still holds the top spot in my Portfolio for total $$$ value.

One item of note… In 2016, you see the stock price finished less than $1 higher than where is started, however, I was able to secure over a 12% return for the year thanks to a timely buy and sell in the first quarter of that year.

From the table, one can also see that I collected AL’s dividends (shown as outflows), but did not reinvest them until mid-2015, when I started focusing on constructing my dividend Portfolio.  The dividend in April of 2016 was an outflow as well.  It resulted from my broker not reinvesting the portion of my dividend associated with the shares I sold in March of 2016.

AL is a low yielder (less than 1%), but I expect AL to compensate me with faster growth.  My total annualized return for AL at the end of 2017 was over 15%, right where I want to be for one of my growth stocks.

My net investment in AL is currently $8,690.17.  My cost basis, which includes the reinvested dividends, is $8,959.59.

Meanwhile, the current value is $13,237.10.

The annualized total return ends up being 11.66%, covering my initial purchase on 12/13/2013, all the way through 4/19/2018.

It will be interesting to see how AL performs in a bear market, as the stock only began trading in 2011.

 

Summary

My total return for AL in 2017 was outstanding at 41.1%, and it boosted my annualized return for AL over 15%.  However, the stock has cooled off to start 2018, down about 10%.  My annualized return now stands at 11.66%.

Bringing the returns for the other Performance Check stocks (PG, RPM, AFL, PEP & JNJ) up-to-date allows for the following comparison.

As you can see, AL is the 2nd best performer of the group.  AL is not too much smaller than RPM, so RPM probably offers the best comparison in terms of company size.  I’d like to see AL’s annualized return be higher, but I can’t complain too much with more than an 11% annualized return.  As I mentioned, at the start of 2018 my total return for AL was over 15%, which I’d be very happy with for a return rate for a higher growth, lower yield, mid-cap stock in my Portfolio.  AL’s slow start to 2018 has dropped my return to less impressive levels, but with only a few years of data factoring into the calculation, an uptick in the stock price can raise my annualized return quickly.

At this point, I’m planning to hold AL for the long-term.  I’m looking for ~15% growth in EPS, and corresponding growth in the share price.  I expect the outstanding dividend growth rates to continue for at least the next 2-3 years, and the low payout ratio of less than 10% allows room for that.

I think AL may be a bit undervalued at this point, and have written a put option to buy 100 shares at a strike price of $40 should the stock drop to that level by 5/20/18.  More on this next week in my Monthly Options Income post.

 

Do you have similar performance checks for stocks in your portfolio?  If so, please share some of your annualized return numbers!  Let me know what criteria you have for acceptable performance.