Congratulations to Neal Macneale; this month marks 25 years of publication of his 2-for-1 newsletter. Here, the split expert continues his monthly look at announced splits and selects one stock to be addd to his 2-for-1 model portfolio.
Upon reflection, I'm thinking it's nice to have a hobby that pays for itself. The 2-for-1 investment strategy and methodology has been personally rewarding, both monetarily and in the satisfaction of knowing I have achieved the goals set out in that first issue in 1996.
The original idea for the 2-for-1 portfolio and newsletter came from an article by Mark Hulbert entitled “A Strong Signal” that appeared in the April 22, 1996 of Forbes magazine.
The piece discussed a study undertaken at Rice University where the performance of stocks split 2-for-1 is measured in relation to performance of the market as a whole.
The final results of the study are published in the Journal of Financial and Quantitative Analysis and would indicate that there is a measurable difference in the performance, for up to three years, of stocks that have split 2-for-1 as opposed to those that have not.
Since inception, as of 12/31/20, the 2-for-1 Index has returned over 12% annualized, far exceeding the overall +/-9% return of the S&P 500 total return index over the same period.
We admit that our approach is sort of boring. 2-for-1 is not written for day traders, market timers, or speculators. If a reader wants to “play” the market, I recommend they take a sum they can afford to lose and get their excitement trading with that money. However, for their IRA or kids’ college fund, I recommend a proven long-term strategy that’s about as exciting as watching paint dry.
Recent split announcements have slowed down a bit but we do have two to consider for July. FS Bancorp, Inc. (FSBW), which recently delivered its 2-for-1 split, is thinly traded. In addition, we already have several banks so it gets a pass.
Shoe Carnival Inc. (SCVL), on the other hand, has a lot to offer and will be our pick for July. SCVL's stock price has been on a tear all year but it has pulled back from its high of just a few weeks ago.
Shoe Carnival is retailer of footwear and accessories through its 383 stores in 35 states and Puerto Rico. Insiders own about a third of this company so they definitely have shareholders' interests in focus.
The company has no long-term debt, a PE under 15, and has been increasing its dividend consistently for the last seven years.
The company's strong balance sheet and conservative management have allowed SCVL to make it through the Covid pandemic relatively unscathed, with prospects for significant increases in business as shoppers return to the malls.
As long-time readers know, I am not a fan of apparel and fashion businesses. However, Shoe Carnival is definitely not in the high-end fashion business.
This is a retailer focused on middle-class families, selling a product that we all need and will continue to need forever. I welcome the opportunity to add a quality small-cap retail business to the Index.