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If You Think The Recession is Over----How About
Ship Finance (SFL)?
September 18, 2009
If you believe that on a worldwide basis the worst of the recession is behind us a person has to give a
close look at Ship Finance LTD (SFL) as strong potential BUY.
While the Dry Bulk Carriers (Diana, Dryships etc.) were big dividend payers in previous years, almost
without exception all dividends have stopped. The reason is simple---day rates for ship charters have
Ship Finance (SFL)?
September 18, 2009
If you believe that on a worldwide basis the worst of the recession is behind us a person has to give a
close look at Ship Finance LTD (SFL) as strong potential BUY.
While the Dry Bulk Carriers (Diana, Dryships etc.) were big dividend payers in previous years, almost
without exception all dividends have stopped. The reason is simple---day rates for ship charters have
fallen by as much as 75% with the decreased demand. SFL does have some dry bulk ships, but that
is only a small part of their business.
Why is Ship Finance Limited different? They are different because they have their ships chartered out
with an average charter length of over 13 Years! Now be aware that SFL was originally wholly owned
by Frontline Limited and most of their fleet is leased to Frontline (FRO).
Frontline is the worlds largest shipping company and the majority of the business is transporting
Crude Oil. Most of their ships are owned by SFL and they have a profit sharing agreement on top of
the base charter rate. But the real bottom line is that the company had a charter backlog of over 7
billion dollars (over $95.00 per share) as of 6/30/2009.
For a closer look at what Ship Finance (SFL) has to offer check here.
To look further at Frontline (FRO) check here.
SFL has a current yield of 9.9% and has traded as high as $26.50---and now is trading at $12.44. We
think with any economic strength worldwide that there is good odds that SFL will give one a nice
capital gain along with the 9.9% yield.
We will be adding some of this to our personal account as well as adding a 5% position to the
'Blended Income' Model Portfolio.
As always do your due diligence and remember that buy and hold is an old strategy (so check your
investments daily).
NOTE--Added 9/20/09--SFL has call options available and we will sell covered calls against our
positions in both our personal portfolio and Model Portfolio. This will limit our upside but add a bit
of return to our healthy dividend return.
is only a small part of their business.
Why is Ship Finance Limited different? They are different because they have their ships chartered out
with an average charter length of over 13 Years! Now be aware that SFL was originally wholly owned
by Frontline Limited and most of their fleet is leased to Frontline (FRO).
Frontline is the worlds largest shipping company and the majority of the business is transporting
Crude Oil. Most of their ships are owned by SFL and they have a profit sharing agreement on top of
the base charter rate. But the real bottom line is that the company had a charter backlog of over 7
billion dollars (over $95.00 per share) as of 6/30/2009.
For a closer look at what Ship Finance (SFL) has to offer check here.
To look further at Frontline (FRO) check here.
SFL has a current yield of 9.9% and has traded as high as $26.50---and now is trading at $12.44. We
think with any economic strength worldwide that there is good odds that SFL will give one a nice
capital gain along with the 9.9% yield.
We will be adding some of this to our personal account as well as adding a 5% position to the
'Blended Income' Model Portfolio.
As always do your due diligence and remember that buy and hold is an old strategy (so check your
investments daily).
NOTE--Added 9/20/09--SFL has call options available and we will sell covered calls against our
positions in both our personal portfolio and Model Portfolio. This will limit our upside but add a bit
of return to our healthy dividend return.
Chicken Investing
October 1, 2009
There is nothing we hate more than 'trading' excessively in our accounts. Not that commissions are
meaningful, but we spend a fair amount of time building a solid portfolio so to blow a bunch of issues
out is contrary to the way we wish to operate.
Starting yesterday morning we DID start blowing out issues in our personal portfolio that we had solid
gains in--to go to a heavier cash position. We are greatly disturbed by the lack of consumer confidence
and the weak employment numbers. We were up to 70-75% invested and have taken it down to 40%
since yesterday. We are up 13% YTD and plan to keep those gains and income issues are not acting
right since yesterday. Issues such as the Xcel Energy Exchange Traded Debt (XCJ) have tumbled hard.
As you can see below it has taken a fairly large 2 day drop. While I expected it to back off a bit as it went
ex-dividend a few days ago--this is something extraordinary.
October 1, 2009
There is nothing we hate more than 'trading' excessively in our accounts. Not that commissions are
meaningful, but we spend a fair amount of time building a solid portfolio so to blow a bunch of issues
out is contrary to the way we wish to operate.
Starting yesterday morning we DID start blowing out issues in our personal portfolio that we had solid
gains in--to go to a heavier cash position. We are greatly disturbed by the lack of consumer confidence
and the weak employment numbers. We were up to 70-75% invested and have taken it down to 40%
since yesterday. We are up 13% YTD and plan to keep those gains and income issues are not acting
right since yesterday. Issues such as the Xcel Energy Exchange Traded Debt (XCJ) have tumbled hard.
As you can see below it has taken a fairly large 2 day drop. While I expected it to back off a bit as it went
ex-dividend a few days ago--this is something extraordinary.
XCJ is not one of the issues we sold--we did sell Ship Finance (SFL), Ford Motor Debt (F-PA),
Windstream (WIN), Stonmor (STON), Bankamerica Preferred (BAC-PZ), Constellation Energy
Preferred (CEG-PA) and Provident Energy (PVX). These issues are not as strong as we would like if
we are going into a tough economy again (or still).
We will be looking to weed issues out of the model portfolios tomorrow and you can count on us
moving out weak issues.
Any moves we make at this point in time are simply to preserve capital (and nice gains for the year),
with the intent to start moving back in as the picture gets a bit clearer in the economy. In reality if we go
into a weak period there may again be opportunities to buy back some of the same securities that we
are selling at lower prices.
Windstream (WIN), Stonmor (STON), Bankamerica Preferred (BAC-PZ), Constellation Energy
Preferred (CEG-PA) and Provident Energy (PVX). These issues are not as strong as we would like if
we are going into a tough economy again (or still).
We will be looking to weed issues out of the model portfolios tomorrow and you can count on us
moving out weak issues.
Any moves we make at this point in time are simply to preserve capital (and nice gains for the year),
with the intent to start moving back in as the picture gets a bit clearer in the economy. In reality if we go
into a weak period there may again be opportunities to buy back some of the same securities that we
are selling at lower prices.
Chicken Investing Continued
November 1, 2009
We have continued to be damned busy in our 'real' jobs and have had little time to be keeping up with
our writing on here---but we have paid attention to our personal investments.
Here is how we have been handling our personal investments this past month.
We have purchased only 1 item--a 3% position in National Rural Utilities exchange traded debt (Ticker:
NRC)--which we have sold already after capturing the dividend--for a net gain of 1.5%. We have sold
many items that we still held after the month ago sales (see below). We sold large holdings of Xcel
Energy Debt (XCJ) and TCF BankDebt (TCB-PA)--both
November 1, 2009
We have continued to be damned busy in our 'real' jobs and have had little time to be keeping up with
our writing on here---but we have paid attention to our personal investments.
Here is how we have been handling our personal investments this past month.
We have purchased only 1 item--a 3% position in National Rural Utilities exchange traded debt (Ticker:
NRC)--which we have sold already after capturing the dividend--for a net gain of 1.5%. We have sold
many items that we still held after the month ago sales (see below). We sold large holdings of Xcel
Energy Debt (XCJ) and TCF BankDebt (TCB-PA)--both
great holdings which we will buy back after we get some market stabilization. We are now only 20%
invested.
We look for some very rocky times in the next week with employment numbers out later in the week.
Capital conservation--and maintaining our 13% YTD gain is our goal and we believe that we will see
opportunities ahead---but only after a market setback.
We most definitely will empty part of the model portfolios starting on Monday to maintain those gains
invested.
We look for some very rocky times in the next week with employment numbers out later in the week.
Capital conservation--and maintaining our 13% YTD gain is our goal and we believe that we will see
opportunities ahead---but only after a market setback.
We most definitely will empty part of the model portfolios starting on Monday to maintain those gains
High Yield Porfolio Updated
through 11/2/2009
11/4/2009
We have updated our High Yield Model
Portfolio through 11/2/2009.
YTD our gain is a snappy 15.9% while only
being 44% invested on 11/2.
Additionally it should be noted that we have
sold the Prudential Subordinated Debt (PHR)
from the portfolio. We are simply lightening
up even further consistent with our capital
preservation goal. Additionally we believe we
may have substantial setbacks in the market
in the months ahead and want to be even
more conservative than we already have
been YTD.
through 11/2/2009
11/4/2009
We have updated our High Yield Model
Portfolio through 11/2/2009.
YTD our gain is a snappy 15.9% while only
being 44% invested on 11/2.
Additionally it should be noted that we have
sold the Prudential Subordinated Debt (PHR)
from the portfolio. We are simply lightening
up even further consistent with our capital
preservation goal. Additionally we believe we
may have substantial setbacks in the market
in the months ahead and want to be even
more conservative than we already have
been YTD.
Junk Stuff Sprints Ahead--Much Faster Than the Quality Stuff
March 14, 2010
We have been very cautious of late (of course we are always chickens) and have weeded out some of
the 'crap' from the 'High Yield Model Portfolio'--only to watch those issued march ahead (Stonemor
Ticker:STON in particular). Here is a chart of the gains on Stonemor (which we consider a true 'high
yield' issue (read--high risk). We are relatively certain that Stonemor will get beat up in the near future as
they release earnings this coming Monday and the odds that they will disappoint have become pretty
high with the units trading at this high level.
We also sold some Royal Bank of Scotland Preferred (RBS-PG) which is a very low grade preferred--as
evidenced by its $13.00 share price.
In the last few months we added Otelco (OTT) which is a high yield telecom that had a 12% yield--now
the share price has sprinted ahead 20% (and of course the current yield has dropped). Recently we
purchased Red Lion Hotels Trust Preferred (RLH-PA) for the over 10% yield--and now it has moved
ahead in the last week---we would have been quite happy with just the yield--and once they race ahead
10-20% in a short period of time we question whether we should just take the capital gain and exit the
position (of course this is a good position to be in). Given that we think the 'high yield' sector has gotten
so far ahead of its self I guess something with a relatively quick 20% gain should just be sold and
repurchased if it sets back.
Speaking of chasing yield---Citigroup came with a huge Trust Preferred offering which was
oversubscribed and it comes to the market 1/4 to 3/8% less than expected. Nevermind that they are
government controlled---and remain a low quality issue.
The 1 month treasury bill which had a yield of just 1 basis point as recently as 6 weeks ago is now
yielding 10 basis points. As fear is introduced into the marketplace rates go very low--as investors
become complacent and chase risk (yield) these yields rise .
It is becoming obvious to us that investors are really stretching for yields--no not to the point where we
see a market collapse--YET, but as time goes by there is no doubt that interest rates are going to streak
higher--the only question is when?
And it is our opinion that if you listen to any of the large Wall Street houses (Goldman, Morgan Stanley
etc.)--and don't form your own logical opinion you are being lead down the path to slaughter. They want
you all in the markets as quickly as possible--you can bet that they are making bets directly against many
of the investments that you are making---if it is legal (forget about morally justifiable) Goldman is doing it.
Adding to the High Quality Model Portfolio
March 8, 2010
We are adding shares of SY Bancorp Trust Preferred to our High Quality Model Portfolio. These shares
have a current yield of 8.8%---and in our view are top notch qualiy. The company has not lost money in
the last 4 years and recent results are great in this environment.
This selection went out in our email highlight to subscribers during the last 8 days (and volume spiked
way above average) and the pricing of the issue remains attractive at this time.
Check it out here--SY Bancorp Trust Preferred.
If you are 100% Invested You Are Asking For Trouble
March 2, 2010
We have kept our personal portfolio and all of the model portfolios in the 30 to 60% invested range for
the last 3 months specifically because we remain cautious as we have not been able to figure out if the
next economic cycle is another recession--a depression or a recovery. While we need to be further
invested to make our goals---the first priority is capital conservation.
Only 2 weeks ago the Fed raised the discount rate--primarily as a 'shot across the bow' signaling that
rates won't remain low forever. Then yesterday the Obama administration begins to tone down
expectations for the employment numbers to be released later in the week. One month consumer
confidences goes up--the next month it plunges
Then we have the sovereign debt situation -- in Greece ---and really everywhere. In the case of Greece
Goldman Sachs gave help to the governmental 'cooking of the books' (what won't they do if it is legal and
they can make a buck?).
The U.S just continues down the road of one stimulus package after another. We had cash for clunkers
and now we may have a new program for home energy efficiency - on top of various tax credits we
already have available.
Unemployment compensation extensions just never seem to end and new debt is issued every week
which equals our total annual deficit from just a few years ago.
Now with all that being said we are simply positioned in such a way that we can exit the market quickly if
it is required----and because a major market moving event could come quickly it is most important that
one preserve their capital (in our case by letting half of it rest at paltry money market rates).
Time For More Extreme Caution
February 18, 2010
Well the Fed hiked the discount rate today in a move that they had telegraphed was coming, but the after
market hours move put the futures market in a tailspin. While this doesn't really mean much in the short
term to the general public it does send the message that extremely low rates will not last
forever---this could send the various markets into a tail spin for a day or 2 it likely will blow over relatively
quick.
This is just one more reason that we have kept our personal portfolio relatively liquid and have not
rushed to get the models fully invested (although we make some changes below)--there are too many
uncertainties out there and the employment market doesn't really seem to be improving much, if any.
Some Changes to the Model Portfolio
We will make the following changes to the model portfolios early next week.
To the Blended Income Portfolio
We will add 400 shares of Red Lion Hotels Capital Trust (Ticker--RLH-PA). This is a 10% yield
issue----we highlighted this issue in our last email note.
Additionally we will sell calls against our 500 shares of Ship Finance (SFL). Selling the May $15.00
strike has a potential to add 1-2% per month to our return on this issue. Remember that selling covered
calls is considered more conservative than simply owning the common stock---assuming you plan to
hold the stock indefinitely.
To the High Yield Income Model Portfolio we will add the same Red Lion Capital Trust--400 shares.
With the 10% current yield the issue fits both of these portolios quite well and we feel that Red Lion is a
well manages corporation and as safe as possible in this environment.
Whats Next???
February 7, 2010
After a week in which the S & P 500 index fell as much as 5% from the weekly high to the weekly
low--and ended up down 2% on the week what is next, for us, the income investor?
We have reviewed the model portfolios and are considering whether it is time to unload energy related
common shares (Provident Energy-PVX and TC Pipelines-TCLP). We think it is likely that we will keep
TCLP and sell the PVX in which we have a rather large gain. Energy prices continue their move down
and the continued weakness in the employment marketplace indicates that demand is going to remain
weak. Given that the models remain underweighted in equities we don't see urgency in making further
changes at this time. The models and the personal portfolios took only minor damage last week--and
unless we see further fiscal turmoil in the European economies we don't expect too much further
weakness in our issues.
As we are searching for new investments we likely will only make commitments in the near future to high
quality issues---as the lower quality issues will get hit if we are wrong on economic stability and we start
to double dip the economy.
Interest rates which had traded in a 15-20 basis point range the last month or 2 fell out of the range with
the announcement of the poor employment numbers. We think they likely will creep back up this week
(unless we get more panic in Europe and a big flight to safety takes place)--but it looks like we are
months away from what we think will be a 1/2% (or more) rise in rates. Of course this thought could
change if we escalate trade fights with the Chinese and they stay away from our treasury auctions.
Third Leg to Recovery Not Likely to Appear Soon
Employment isn't going to improve anytime soon
February 4, 2010 Noon
With the equity markets in somewhat of a freefall today and treasury yields plunging because of
lackluster employment prospects and sovereign debt issues around the world we would be quite
surprised to see a recovery of any magnitude in the U.S. anytime soon.
We have reviewed the model portfolios (as well as our personal portfolio) and are well satisfied that we
will generally weather the current storm in fine fashion. While we haven't calculated the model portfolio
damage--we have calculated our personal portfolio and our losses are a tiny fraction of the general
equity market losses (1/4 of 1% loss versus over 2% on the S & P 500 loss).
At this time and with the current uncertainties one should be reviewing their income issues and
considering weeding out some of the lower quality issues---if we should double dip this recession the
weak issues will be at high risk for loss of payouts.
We are maintaining fairly high levels of cash in all portfolios as there is no rush to invest---there are
always bargains coming available.
Still a Slowly Improving Economy???
January 26, 2010
With the Conference Boards Consumer Confidence numbers we have now fulfilled 2 of our 3 legs that
we need for a real recovery. Consumer Confidence is not moving hugely higher but instead is just
moving gradually--which we prefer for a lasting recovery.
Prices of fuel, and in particular gasoline, are moving a bit lower (although we need this to be only slightly
lower--just not dramatically higher--not higher than around 2.70 on gasoline).
Our third leg is employment--the most important and likely the most difficult to get moving in the right
directly. The next employment data is released released on February 5, 2010. Our view is that this will
be a somewhat neutral number -- we are not personally seeing anecdotal evidence of employment
We get the feeling that this is going to be a very gradual recovery. With 1 month Treasury Bills trading at
1 basis point it is obvious that there is still a lot of fear out there and the possibility of a 'double dip' is
still looked at as a possibility--in fact it is personally our greatest worry
Our best guess is that the equity markets will essentially go no where in the next month and income
issues that we invest in will remain stable.
We continue to stay away from most REITs and the Shipping and Transportation issues (excepting
select REIT preferred issues) as they do not fulfill the goal of giving us decent 'income' at this time. The
biggest hazard to equity markets right now is the Obama Administration which is continually beating on
the marketplace as it is the populist thing to do.
Dow and S & P Get Smacked--Income Issues hold Up Well
January 22, 2010
Finally with the big smackdown of Thursday on the Dow and S & P stocks we can see the good results of
holding a decently diversified income portfolio. With the Dow off 2% and the S & P 500 off 1.9%, in
general, our models and personal portfolios were off much less than 1%. These are the types of results
we have looked for--a preservation of capital with decent income on the portfolios. Our expectations are
that when the equity markets are down we will see much smaller directional moves in our portfolios.
As you may have noted we quit covering REITS more than a year ago simply because with the exception
of selected Preferred issues (as well as some of the healthcare REITS) the REITS are very dangerous.
Just glancing over the Commercial/Industrial REIT Sector we noticed that on average they were off 4%
on Thursday--twice the Dow loss. There really is no improvement in sight for many REIT areas and we
believe that before improvement comes there is much more pain to be had by some of the companies.
Use extreme care around the REITS.
Time to Let Supertel Preferred Go
January 16, 2010
We have held 400 SuperTel Hospitality Preferred shares (Ticker:SPPRP) in our Blended Income Model
Portfolio since 3/18/2009 and they have paid us an annualized yield of over 10% (based upon our
$6.44/share purchase price)---but at this time we think it is time to sell these out of the model. We have
a decent capital gain on the shares and it is seldom wrong to take a profit.
The issue is this---like most Hotel/Motel REITS SuperTels (Ticker: SPPR) profits have been poor over the
last year----Funds From Operations (FFO) remains very modestly positive. Obviously they are paying no
dividend on the common shares--which conserves cash--and they sold 2 more properties in October,
2009 which again will help generate some cash. Even with these measures It is our belief that the
hotel/motel business is only marginally improving and if a REIT needs to conserve more cash they will
turn to a suspension of any preferred stock dividends they are paying. The December quarter is a slow
quarter for SuperTel and depending on results they could look at suspending the preferred payout.
Quite simply---we had counted on an improvement in the sector by this time and not seeing that
happening we are happy to take our profits and search elsewhere.
It is our belief that any dividend suspension would send the share price from the current $8.25 to around
$2.00.
Model Portfolio Additions
January 5, 2010
Today we have added a few issues to our model portfolio.
1st we have added almost a 7% position in TC Pipelines (Ticker:TCLP) to our Blended Income Model
Portfolio. This is a Master Limited Partnership which was the subject of an email we sent out a few
weeks ago--you can read our info here.
2nd we are adding BGE 6.2% Capital Trust Preferred (BGE-PB) to our High Quality Model Portfolio --we
will add almost a 6% position. This issue has a current yield of just under 7% and at around $22/Share
we think it has a good 5% of upside on the capital gain side in the next year--which would give a total
return of 12%--way above our 7.5% goal for this portfolio. You can check out BGE (Baltimore Gas and
Electric--a unit of Constellation Energy) here.
Watch Your Bond Funds
December 29, 2009
As we get close to closing out 2009 and are looking at interest rates that have now moved up near 1/2%
in the last couple of weeks you need to review your portfolio with particular emphasis on high yield bond
funds.
Through the course of the year high yield funds have had dramatic returns--we have held a number of
funds off and on and the capital gains have been hugely helpful to our portfolios. Currently we hold the
Pimco High Income Fund (PHK) in our Blended Income Model Portfolio as well as in our personal
portfolio and have more than doubled our investment. These high yield funds ARE leveraged funds and
could give back a fair portion of their share price gains in the next 6 months if interest rates rise. While
the yields are good we plan to sell these from our portfolio this week and not give back any gains on
these issues.
OTELCO Goes on Sale
December 17, 2009--Noon CST
Earlier this week we sent out an email note to those signed up to receive it on a little Telecom company
named OTELCO (Ticker:OTT). Today the general market selloff has presented an opportunity for us to
pick up some of this issue for our personal account and for our HIGH YIELD MODEL PORTFOLIO at sale
prices. The issue started the week in the $14.50 range and now has traded down to $13.80, as we write
this, on some large block sales. The current yield is over 12%.
Check the company out here.
Seemingly Closer to Recovery?
December 10, 2009
We have said in this column for a number of years that the recovery of the U.S. economy is predicated by
3 items---consumer confidence, fuel prices and employment Of course a large part of confidence is
driven by employment and fuel prices (for transportation and for heat).It appears that employment is
healing (if you believe the numbers) and in recent days energy prices have moderated (although nat gas
has moved up some--the one we see day in and day out is 'at the pump')---so we need the confidence
part to get to the positive side of things.
As this chart shows (from 'The Conference Board")
confidence has been relatively flat the last couple of
months and we believe that we are due for a move
up with the next reading (around 12/23) simply
because of the lowering of the unemployment rate
and the declining price of fuel at the pump. These
types of data tend to 'feed' on each other and we think
that is the case here.
What does it mean outside of things are getting a little better? We think it means very little
at this point in time--we think stocks are going nowhere over the next 6 months as they have gotten
ahead of themselves. We think interest rates are going nowhere over the next month, but may move
higher in the next 60-90 days in reaction to perceived economic strength.
PLEASE NOTE that 1and 3 month treasury bill rates remain at extremely low rates meaning that there is
a lot of money willing to accept a negative (inflation adjusted) return to keep their money safe. Quite a
few people are NOT willing to believe that things are getting better.
Caution Needed on Royalty Trusts and Limited Partnerships
December 7, 2009
We spent time this weekend reading some quarterly reports which reminded us of the particular care
that must be taken when purchasing Canadian and US Royalty Trusts or Master Limited Partnerships.
We all know that the companies of the sectors mentioned generally explore for and produce oil and
natural gas. Of course they forward sell much of their production when prices spike up which helps
maintain their generous distributions to holders of their securities. With these hedges there are benefits
and in some cases there are high risks. Some of the companies simply explore for and produce natural
resources---others explore for, produce and transport natural resources. Others explore for, produce
and process products---and this may included purchasing product from others and this can produce
large future cash liabilities--which are a hazard to the distribution.
For Instance take Paramount Energy--a Canadian Royalty Trust--mainly focusing on natural gas. Over
50% of their stated revenue is hedging income from forward sales or financial hedges of gas (actual
price for the quarter was $3.41/mcfe (Canadian Dollars) while the realized price with hedging was
$7.51). If we are to assume that natural gas prices stay low---over time-- the company will not have the
financial hedges in place to replace the revenue--and thus the payouts will have to be reduced further
(the current yield is 12.5%).
These companies are not foolish---when prices go way up they forward sell their production---but not all
their production and only forward for a year or 2 at most---so while they are able to maintain payouts for
some amount if time it is a future risk.
Now if you look at Provident Energy Trust (which we have held, but are considering selling) which has a
midstream business it is a different story. The midstream business purchases natural gas on a forward
basis from others -- and currently they have a liability of 143 million (Canadian) because they have
contracted to buy gas at a price much higher than the current market price. Quarterly they must 'mark to
market', but these are unrealized gains/losses-so that doesn't affect cash. As time passes and
settlement is made cash will be affected---thus the ability to pay distributions is affected.
The point of this windy rambling is that you must know the derivatives that your trust has in place to know
how safe your payout is in the future.
US Cellular Calls Exchange Traded Debt
December 2, 2009
We missed the announcement 10 days ago from US Cellular that they have called their exchange traded
debt (8 3/4% Senior Notes) (Ticker:UZG). The call is effective 12/24/2009 at the price of $25.00 plus
accrued interest (around 35 cents). These were issued in 11/2002 and thus have been callable for 2
years. We have 200 shares of this issue in the High Yield Model Portfolio which were purchased in
March at a price of $19.75. With interest payments this gives us a gain of about 30% in 9 months.
We will go ahead and let these go to call.
This goes to show that there may be other calls of undervalued high yielding issues if the issuer is able
to go the credit markets and borrow at a rate less than those paid on outstanding issues.
Adding Double Eagle Petroleum Preferred
November 29, 2009 10 PM
We are adding a 5% position of Double Eagle Petroleum Preferred Shares (Ticker:DBLEP) to our
Blended Model Portfolio.
These preferred shares were highlighted in our email suggestion from 2 weeks ago--of course we
waited a bit thinking we might get them on 'sale' one day--instead they are up over 5% since our email.
These shares have a current yield of 9.84% and the shares go ex-dividend in mid December.
This purchase will bring this portfolio up near 50% invested and will help us get our end of year return on
this portfolio up over 10% (we hope).
Please go to this page for further links on this security.
A 'Shoe' Drops!!!!
November 26, 2009 4 PM Central
It appears that Dubai World (controlled by the emirate of Dubai in the United Arab Emirates) is bankrupt.
In our article below from 6 days ago we asked 'what shoe' was about to drop--now we know. We are
highly suspicious of who knew this in advance and started the heavy movement into treasury bills.
While we can't totally predict tomorrows reaction---or whether UAE will step in at the last minute for a bail
out--we can say foreign markets are down 2 to 4 % and the S&P futures are off 2-3% in the U.S.
The true damage is probably less important that what it may portend for all the others on the edge of
bankruptcy.
We are fortunate to be only 25% invested in our personal portfolio and in fact hold calls on the SDS
(double short S&P 500)---essentially we have no risk in the downside at this minute. Of course the
models are at risk--although not nearly the risk they would have if they were fully invested. Expect
treasuries to melt UP.
Safety Seekers Out in Force
November 20, 2009
Watching T-Bill yields this week has to make you wonder what shoe is going to drop soon. While we
have seen the 1 month bill trading with yields of 1 basis point quite a lot in the last year-we have not
seen the 3 month bill trading at that level since last December. Here is a chart of 3 month treasury
yields for the last 2 years.
Obviously there is a dramatic rush to 'safety'. When it happened in 2008 it happened as the equity
markets were crashing down.
To understand the overall market sentiment you need to watch the t-bill rates---as we now see a lot of
money piling into instruments that will pay 10 cents a year (annualized) on a $1000 investment. You
have to believe that there are some serious coming issues in the next couple of months if you are willing
to invest at these rates.
Market Euphoria Continues--Treasury Bond Yields Plunge
November 16, 2009 11 pm
The melt up in the equity markets continues--seemingly without an end in sight. It feeds on itself---here
again what are you going to do. We don't buy regular equities generally so we just sit and watch what we
are missing (or not missing--since we are most happy to sleep well at nights and collect our dividends
and interest).
Interest rates are falling again---seemingly saying 'things are tough out there'. The talking heads are
quite happy not facing up to the fact that gold is going crazy, the dollar is falling daily, the federal
government is issuing $100 billion in new debt every month and I am afraid the housing and
employment situation is not even close to improving.
Regardless of the above we are hunting and buying good income issues (while keeping one eye on the
potential economic surprises out there).
We have updated the High Quality Income Model---and it has not done nearly as well as the High Yield
Model--gaining only 4.5% year to date. This is mostly a function of being totally underinvested. On the
other hand we are happy with the portfolio being built and look forward to better days ahead as the
portfolio becomes more fully invested.
Protective Life Corp.--Solidly in the Black--a Number of Available Picks
November 16, 2009
Proptective Life Corp., which is a smallish life insurance company located in Birmingham, Alabama
has gotten the company going back in the right direction--with the write offs behind it. Like most insurers
they had large write downs last year and hopefully with the economy healing they will not have those
large negatives ahead.
The company has a number of issues available for the income investor--3 trust preferred issues, 2
exchange traded debt issues and of course the common shares which carry a 2.75% yield.
The way we look at the available issues is they are 5 debt issues and then the common. The 5 issues
are all senior to the common and of course somewhat safer.
The issues are
PLC Capital Trust IV--7 1/4% (Ticker--PL-PA)
PLC Capital Trust V--6 1/8% (Ticker--PL-PB)
PLC Capital Trust III--7 1/2% (Ticker--PL-PS)
Protective Life Capital Securities --7 1/4% (Ticker---PL-PD)
Protective Life 8% Senior Notes (Ticker--PLP)
All of these issues trade with current yields of 8.6 to 8.85%---super yields when they have become
increasingly hard to find. Only the PL-PD issue goes ex-dividend in December if you are just looking to
capture the dividend.
We will be adding a full 10% position (500 Shares) to our High Quality Model Portfolio of the PL-PD
issue today.
Chicken Investing Over--Back to the Grind
November 11, 2009
We have determined that no one wants to look at the realities of this dangerous market and the economy
so we just as well go about the business of getting the model portfolios invested. Needless to say the
good odds of a 'double dip' in this economy over the winter makes us quite nervous.
Note that we have updated the High Yield Model and it has been performing very well--up over 15%
through November 2. We did sell just one item out of that portfolio--and now will begin to add some
more items in. The Blended and the High Quality Income models remain underinvested and we hope
we will have time to get some more securities in these in the weeks ahead.
It should be noted that we are staying away from the REIT common stocks--as we have all year.
Certainly there are some decent companies out in that universe--but we just don't care to buy the risk.
Better to stay with the preferreds that many of the companies have available.
We will be purchasing mostly exchange traded debt and trust preferreds (as we have mostly done in the
past) as these are senior to all preferreds that are out there (Trust Preferreds are preferreds issued by a
trust which holds the debt of the issuing corporation and receives interest from the corporation which
they then pay you as a dividend).
But beyond the above we will be watching this economy damned closely as the employment situation,
fuel prices and consumer confidence are all negative and we could easily tip this economy into
recession in the months ahead.
March 14, 2010
We have been very cautious of late (of course we are always chickens) and have weeded out some of
the 'crap' from the 'High Yield Model Portfolio'--only to watch those issued march ahead (Stonemor
Ticker:STON in particular). Here is a chart of the gains on Stonemor (which we consider a true 'high
yield' issue (read--high risk). We are relatively certain that Stonemor will get beat up in the near future as
they release earnings this coming Monday and the odds that they will disappoint have become pretty
high with the units trading at this high level.
We also sold some Royal Bank of Scotland Preferred (RBS-PG) which is a very low grade preferred--as
evidenced by its $13.00 share price.
In the last few months we added Otelco (OTT) which is a high yield telecom that had a 12% yield--now
the share price has sprinted ahead 20% (and of course the current yield has dropped). Recently we
purchased Red Lion Hotels Trust Preferred (RLH-PA) for the over 10% yield--and now it has moved
ahead in the last week---we would have been quite happy with just the yield--and once they race ahead
10-20% in a short period of time we question whether we should just take the capital gain and exit the
position (of course this is a good position to be in). Given that we think the 'high yield' sector has gotten
so far ahead of its self I guess something with a relatively quick 20% gain should just be sold and
repurchased if it sets back.
Speaking of chasing yield---Citigroup came with a huge Trust Preferred offering which was
oversubscribed and it comes to the market 1/4 to 3/8% less than expected. Nevermind that they are
government controlled---and remain a low quality issue.
The 1 month treasury bill which had a yield of just 1 basis point as recently as 6 weeks ago is now
yielding 10 basis points. As fear is introduced into the marketplace rates go very low--as investors
become complacent and chase risk (yield) these yields rise .
It is becoming obvious to us that investors are really stretching for yields--no not to the point where we
see a market collapse--YET, but as time goes by there is no doubt that interest rates are going to streak
higher--the only question is when?
And it is our opinion that if you listen to any of the large Wall Street houses (Goldman, Morgan Stanley
etc.)--and don't form your own logical opinion you are being lead down the path to slaughter. They want
you all in the markets as quickly as possible--you can bet that they are making bets directly against many
of the investments that you are making---if it is legal (forget about morally justifiable) Goldman is doing it.
Adding to the High Quality Model Portfolio
March 8, 2010
We are adding shares of SY Bancorp Trust Preferred to our High Quality Model Portfolio. These shares
have a current yield of 8.8%---and in our view are top notch qualiy. The company has not lost money in
the last 4 years and recent results are great in this environment.
This selection went out in our email highlight to subscribers during the last 8 days (and volume spiked
way above average) and the pricing of the issue remains attractive at this time.
Check it out here--SY Bancorp Trust Preferred.
If you are 100% Invested You Are Asking For Trouble
March 2, 2010
We have kept our personal portfolio and all of the model portfolios in the 30 to 60% invested range for
the last 3 months specifically because we remain cautious as we have not been able to figure out if the
next economic cycle is another recession--a depression or a recovery. While we need to be further
invested to make our goals---the first priority is capital conservation.
Only 2 weeks ago the Fed raised the discount rate--primarily as a 'shot across the bow' signaling that
rates won't remain low forever. Then yesterday the Obama administration begins to tone down
expectations for the employment numbers to be released later in the week. One month consumer
confidences goes up--the next month it plunges
Then we have the sovereign debt situation -- in Greece ---and really everywhere. In the case of Greece
Goldman Sachs gave help to the governmental 'cooking of the books' (what won't they do if it is legal and
they can make a buck?).
The U.S just continues down the road of one stimulus package after another. We had cash for clunkers
and now we may have a new program for home energy efficiency - on top of various tax credits we
already have available.
Unemployment compensation extensions just never seem to end and new debt is issued every week
which equals our total annual deficit from just a few years ago.
Now with all that being said we are simply positioned in such a way that we can exit the market quickly if
it is required----and because a major market moving event could come quickly it is most important that
one preserve their capital (in our case by letting half of it rest at paltry money market rates).
Time For More Extreme Caution
February 18, 2010
Well the Fed hiked the discount rate today in a move that they had telegraphed was coming, but the after
market hours move put the futures market in a tailspin. While this doesn't really mean much in the short
term to the general public it does send the message that extremely low rates will not last
forever---this could send the various markets into a tail spin for a day or 2 it likely will blow over relatively
quick.
This is just one more reason that we have kept our personal portfolio relatively liquid and have not
rushed to get the models fully invested (although we make some changes below)--there are too many
uncertainties out there and the employment market doesn't really seem to be improving much, if any.
Some Changes to the Model Portfolio
We will make the following changes to the model portfolios early next week.
To the Blended Income Portfolio
We will add 400 shares of Red Lion Hotels Capital Trust (Ticker--RLH-PA). This is a 10% yield
issue----we highlighted this issue in our last email note.
Additionally we will sell calls against our 500 shares of Ship Finance (SFL). Selling the May $15.00
strike has a potential to add 1-2% per month to our return on this issue. Remember that selling covered
calls is considered more conservative than simply owning the common stock---assuming you plan to
hold the stock indefinitely.
To the High Yield Income Model Portfolio we will add the same Red Lion Capital Trust--400 shares.
With the 10% current yield the issue fits both of these portolios quite well and we feel that Red Lion is a
well manages corporation and as safe as possible in this environment.
Whats Next???
February 7, 2010
After a week in which the S & P 500 index fell as much as 5% from the weekly high to the weekly
low--and ended up down 2% on the week what is next, for us, the income investor?
We have reviewed the model portfolios and are considering whether it is time to unload energy related
common shares (Provident Energy-PVX and TC Pipelines-TCLP). We think it is likely that we will keep
TCLP and sell the PVX in which we have a rather large gain. Energy prices continue their move down
and the continued weakness in the employment marketplace indicates that demand is going to remain
weak. Given that the models remain underweighted in equities we don't see urgency in making further
changes at this time. The models and the personal portfolios took only minor damage last week--and
unless we see further fiscal turmoil in the European economies we don't expect too much further
weakness in our issues.
As we are searching for new investments we likely will only make commitments in the near future to high
quality issues---as the lower quality issues will get hit if we are wrong on economic stability and we start
to double dip the economy.
Interest rates which had traded in a 15-20 basis point range the last month or 2 fell out of the range with
the announcement of the poor employment numbers. We think they likely will creep back up this week
(unless we get more panic in Europe and a big flight to safety takes place)--but it looks like we are
months away from what we think will be a 1/2% (or more) rise in rates. Of course this thought could
change if we escalate trade fights with the Chinese and they stay away from our treasury auctions.
Third Leg to Recovery Not Likely to Appear Soon
Employment isn't going to improve anytime soon
February 4, 2010 Noon
With the equity markets in somewhat of a freefall today and treasury yields plunging because of
lackluster employment prospects and sovereign debt issues around the world we would be quite
surprised to see a recovery of any magnitude in the U.S. anytime soon.
We have reviewed the model portfolios (as well as our personal portfolio) and are well satisfied that we
will generally weather the current storm in fine fashion. While we haven't calculated the model portfolio
damage--we have calculated our personal portfolio and our losses are a tiny fraction of the general
equity market losses (1/4 of 1% loss versus over 2% on the S & P 500 loss).
At this time and with the current uncertainties one should be reviewing their income issues and
considering weeding out some of the lower quality issues---if we should double dip this recession the
weak issues will be at high risk for loss of payouts.
We are maintaining fairly high levels of cash in all portfolios as there is no rush to invest---there are
always bargains coming available.
Still a Slowly Improving Economy???
January 26, 2010
With the Conference Boards Consumer Confidence numbers we have now fulfilled 2 of our 3 legs that
we need for a real recovery. Consumer Confidence is not moving hugely higher but instead is just
moving gradually--which we prefer for a lasting recovery.
Prices of fuel, and in particular gasoline, are moving a bit lower (although we need this to be only slightly
lower--just not dramatically higher--not higher than around 2.70 on gasoline).
Our third leg is employment--the most important and likely the most difficult to get moving in the right
directly. The next employment data is released released on February 5, 2010. Our view is that this will
be a somewhat neutral number -- we are not personally seeing anecdotal evidence of employment
We get the feeling that this is going to be a very gradual recovery. With 1 month Treasury Bills trading at
1 basis point it is obvious that there is still a lot of fear out there and the possibility of a 'double dip' is
still looked at as a possibility--in fact it is personally our greatest worry
Our best guess is that the equity markets will essentially go no where in the next month and income
issues that we invest in will remain stable.
We continue to stay away from most REITs and the Shipping and Transportation issues (excepting
select REIT preferred issues) as they do not fulfill the goal of giving us decent 'income' at this time. The
biggest hazard to equity markets right now is the Obama Administration which is continually beating on
the marketplace as it is the populist thing to do.
Dow and S & P Get Smacked--Income Issues hold Up Well
January 22, 2010
Finally with the big smackdown of Thursday on the Dow and S & P stocks we can see the good results of
holding a decently diversified income portfolio. With the Dow off 2% and the S & P 500 off 1.9%, in
general, our models and personal portfolios were off much less than 1%. These are the types of results
we have looked for--a preservation of capital with decent income on the portfolios. Our expectations are
that when the equity markets are down we will see much smaller directional moves in our portfolios.
As you may have noted we quit covering REITS more than a year ago simply because with the exception
of selected Preferred issues (as well as some of the healthcare REITS) the REITS are very dangerous.
Just glancing over the Commercial/Industrial REIT Sector we noticed that on average they were off 4%
on Thursday--twice the Dow loss. There really is no improvement in sight for many REIT areas and we
believe that before improvement comes there is much more pain to be had by some of the companies.
Use extreme care around the REITS.
Time to Let Supertel Preferred Go
January 16, 2010
We have held 400 SuperTel Hospitality Preferred shares (Ticker:SPPRP) in our Blended Income Model
Portfolio since 3/18/2009 and they have paid us an annualized yield of over 10% (based upon our
$6.44/share purchase price)---but at this time we think it is time to sell these out of the model. We have
a decent capital gain on the shares and it is seldom wrong to take a profit.
The issue is this---like most Hotel/Motel REITS SuperTels (Ticker: SPPR) profits have been poor over the
last year----Funds From Operations (FFO) remains very modestly positive. Obviously they are paying no
dividend on the common shares--which conserves cash--and they sold 2 more properties in October,
2009 which again will help generate some cash. Even with these measures It is our belief that the
hotel/motel business is only marginally improving and if a REIT needs to conserve more cash they will
turn to a suspension of any preferred stock dividends they are paying. The December quarter is a slow
quarter for SuperTel and depending on results they could look at suspending the preferred payout.
Quite simply---we had counted on an improvement in the sector by this time and not seeing that
happening we are happy to take our profits and search elsewhere.
It is our belief that any dividend suspension would send the share price from the current $8.25 to around
$2.00.
Model Portfolio Additions
January 5, 2010
Today we have added a few issues to our model portfolio.
1st we have added almost a 7% position in TC Pipelines (Ticker:TCLP) to our Blended Income Model
Portfolio. This is a Master Limited Partnership which was the subject of an email we sent out a few
weeks ago--you can read our info here.
2nd we are adding BGE 6.2% Capital Trust Preferred (BGE-PB) to our High Quality Model Portfolio --we
will add almost a 6% position. This issue has a current yield of just under 7% and at around $22/Share
we think it has a good 5% of upside on the capital gain side in the next year--which would give a total
return of 12%--way above our 7.5% goal for this portfolio. You can check out BGE (Baltimore Gas and
Electric--a unit of Constellation Energy) here.
Watch Your Bond Funds
December 29, 2009
As we get close to closing out 2009 and are looking at interest rates that have now moved up near 1/2%
in the last couple of weeks you need to review your portfolio with particular emphasis on high yield bond
funds.
Through the course of the year high yield funds have had dramatic returns--we have held a number of
funds off and on and the capital gains have been hugely helpful to our portfolios. Currently we hold the
Pimco High Income Fund (PHK) in our Blended Income Model Portfolio as well as in our personal
portfolio and have more than doubled our investment. These high yield funds ARE leveraged funds and
could give back a fair portion of their share price gains in the next 6 months if interest rates rise. While
the yields are good we plan to sell these from our portfolio this week and not give back any gains on
these issues.
OTELCO Goes on Sale
December 17, 2009--Noon CST
Earlier this week we sent out an email note to those signed up to receive it on a little Telecom company
named OTELCO (Ticker:OTT). Today the general market selloff has presented an opportunity for us to
pick up some of this issue for our personal account and for our HIGH YIELD MODEL PORTFOLIO at sale
prices. The issue started the week in the $14.50 range and now has traded down to $13.80, as we write
this, on some large block sales. The current yield is over 12%.
Check the company out here.
Seemingly Closer to Recovery?
December 10, 2009
We have said in this column for a number of years that the recovery of the U.S. economy is predicated by
3 items---consumer confidence, fuel prices and employment Of course a large part of confidence is
driven by employment and fuel prices (for transportation and for heat).It appears that employment is
healing (if you believe the numbers) and in recent days energy prices have moderated (although nat gas
has moved up some--the one we see day in and day out is 'at the pump')---so we need the confidence
part to get to the positive side of things.
As this chart shows (from 'The Conference Board")
confidence has been relatively flat the last couple of
months and we believe that we are due for a move
up with the next reading (around 12/23) simply
because of the lowering of the unemployment rate
and the declining price of fuel at the pump. These
types of data tend to 'feed' on each other and we think
that is the case here.
What does it mean outside of things are getting a little better? We think it means very little
at this point in time--we think stocks are going nowhere over the next 6 months as they have gotten
ahead of themselves. We think interest rates are going nowhere over the next month, but may move
higher in the next 60-90 days in reaction to perceived economic strength.
PLEASE NOTE that 1and 3 month treasury bill rates remain at extremely low rates meaning that there is
a lot of money willing to accept a negative (inflation adjusted) return to keep their money safe. Quite a
few people are NOT willing to believe that things are getting better.
Caution Needed on Royalty Trusts and Limited Partnerships
December 7, 2009
We spent time this weekend reading some quarterly reports which reminded us of the particular care
that must be taken when purchasing Canadian and US Royalty Trusts or Master Limited Partnerships.
We all know that the companies of the sectors mentioned generally explore for and produce oil and
natural gas. Of course they forward sell much of their production when prices spike up which helps
maintain their generous distributions to holders of their securities. With these hedges there are benefits
and in some cases there are high risks. Some of the companies simply explore for and produce natural
resources---others explore for, produce and transport natural resources. Others explore for, produce
and process products---and this may included purchasing product from others and this can produce
large future cash liabilities--which are a hazard to the distribution.
For Instance take Paramount Energy--a Canadian Royalty Trust--mainly focusing on natural gas. Over
50% of their stated revenue is hedging income from forward sales or financial hedges of gas (actual
price for the quarter was $3.41/mcfe (Canadian Dollars) while the realized price with hedging was
$7.51). If we are to assume that natural gas prices stay low---over time-- the company will not have the
financial hedges in place to replace the revenue--and thus the payouts will have to be reduced further
(the current yield is 12.5%).
These companies are not foolish---when prices go way up they forward sell their production---but not all
their production and only forward for a year or 2 at most---so while they are able to maintain payouts for
some amount if time it is a future risk.
Now if you look at Provident Energy Trust (which we have held, but are considering selling) which has a
midstream business it is a different story. The midstream business purchases natural gas on a forward
basis from others -- and currently they have a liability of 143 million (Canadian) because they have
contracted to buy gas at a price much higher than the current market price. Quarterly they must 'mark to
market', but these are unrealized gains/losses-so that doesn't affect cash. As time passes and
settlement is made cash will be affected---thus the ability to pay distributions is affected.
The point of this windy rambling is that you must know the derivatives that your trust has in place to know
how safe your payout is in the future.
US Cellular Calls Exchange Traded Debt
December 2, 2009
We missed the announcement 10 days ago from US Cellular that they have called their exchange traded
debt (8 3/4% Senior Notes) (Ticker:UZG). The call is effective 12/24/2009 at the price of $25.00 plus
accrued interest (around 35 cents). These were issued in 11/2002 and thus have been callable for 2
years. We have 200 shares of this issue in the High Yield Model Portfolio which were purchased in
March at a price of $19.75. With interest payments this gives us a gain of about 30% in 9 months.
We will go ahead and let these go to call.
This goes to show that there may be other calls of undervalued high yielding issues if the issuer is able
to go the credit markets and borrow at a rate less than those paid on outstanding issues.
Adding Double Eagle Petroleum Preferred
November 29, 2009 10 PM
We are adding a 5% position of Double Eagle Petroleum Preferred Shares (Ticker:DBLEP) to our
Blended Model Portfolio.
These preferred shares were highlighted in our email suggestion from 2 weeks ago--of course we
waited a bit thinking we might get them on 'sale' one day--instead they are up over 5% since our email.
These shares have a current yield of 9.84% and the shares go ex-dividend in mid December.
This purchase will bring this portfolio up near 50% invested and will help us get our end of year return on
this portfolio up over 10% (we hope).
Please go to this page for further links on this security.
A 'Shoe' Drops!!!!
November 26, 2009 4 PM Central
It appears that Dubai World (controlled by the emirate of Dubai in the United Arab Emirates) is bankrupt.
In our article below from 6 days ago we asked 'what shoe' was about to drop--now we know. We are
highly suspicious of who knew this in advance and started the heavy movement into treasury bills.
While we can't totally predict tomorrows reaction---or whether UAE will step in at the last minute for a bail
out--we can say foreign markets are down 2 to 4 % and the S&P futures are off 2-3% in the U.S.
The true damage is probably less important that what it may portend for all the others on the edge of
bankruptcy.
We are fortunate to be only 25% invested in our personal portfolio and in fact hold calls on the SDS
(double short S&P 500)---essentially we have no risk in the downside at this minute. Of course the
models are at risk--although not nearly the risk they would have if they were fully invested. Expect
treasuries to melt UP.
Safety Seekers Out in Force
November 20, 2009
Watching T-Bill yields this week has to make you wonder what shoe is going to drop soon. While we
have seen the 1 month bill trading with yields of 1 basis point quite a lot in the last year-we have not
seen the 3 month bill trading at that level since last December. Here is a chart of 3 month treasury
yields for the last 2 years.
Obviously there is a dramatic rush to 'safety'. When it happened in 2008 it happened as the equity
markets were crashing down.
To understand the overall market sentiment you need to watch the t-bill rates---as we now see a lot of
money piling into instruments that will pay 10 cents a year (annualized) on a $1000 investment. You
have to believe that there are some serious coming issues in the next couple of months if you are willing
to invest at these rates.
Market Euphoria Continues--Treasury Bond Yields Plunge
November 16, 2009 11 pm
The melt up in the equity markets continues--seemingly without an end in sight. It feeds on itself---here
again what are you going to do. We don't buy regular equities generally so we just sit and watch what we
are missing (or not missing--since we are most happy to sleep well at nights and collect our dividends
and interest).
Interest rates are falling again---seemingly saying 'things are tough out there'. The talking heads are
quite happy not facing up to the fact that gold is going crazy, the dollar is falling daily, the federal
government is issuing $100 billion in new debt every month and I am afraid the housing and
employment situation is not even close to improving.
Regardless of the above we are hunting and buying good income issues (while keeping one eye on the
potential economic surprises out there).
We have updated the High Quality Income Model---and it has not done nearly as well as the High Yield
Model--gaining only 4.5% year to date. This is mostly a function of being totally underinvested. On the
other hand we are happy with the portfolio being built and look forward to better days ahead as the
portfolio becomes more fully invested.
Protective Life Corp.--Solidly in the Black--a Number of Available Picks
November 16, 2009
Proptective Life Corp., which is a smallish life insurance company located in Birmingham, Alabama
has gotten the company going back in the right direction--with the write offs behind it. Like most insurers
they had large write downs last year and hopefully with the economy healing they will not have those
large negatives ahead.
The company has a number of issues available for the income investor--3 trust preferred issues, 2
exchange traded debt issues and of course the common shares which carry a 2.75% yield.
The way we look at the available issues is they are 5 debt issues and then the common. The 5 issues
are all senior to the common and of course somewhat safer.
The issues are
PLC Capital Trust IV--7 1/4% (Ticker--PL-PA)
PLC Capital Trust V--6 1/8% (Ticker--PL-PB)
PLC Capital Trust III--7 1/2% (Ticker--PL-PS)
Protective Life Capital Securities --7 1/4% (Ticker---PL-PD)
Protective Life 8% Senior Notes (Ticker--PLP)
All of these issues trade with current yields of 8.6 to 8.85%---super yields when they have become
increasingly hard to find. Only the PL-PD issue goes ex-dividend in December if you are just looking to
capture the dividend.
We will be adding a full 10% position (500 Shares) to our High Quality Model Portfolio of the PL-PD
issue today.
Chicken Investing Over--Back to the Grind
November 11, 2009
We have determined that no one wants to look at the realities of this dangerous market and the economy
so we just as well go about the business of getting the model portfolios invested. Needless to say the
good odds of a 'double dip' in this economy over the winter makes us quite nervous.
Note that we have updated the High Yield Model and it has been performing very well--up over 15%
through November 2. We did sell just one item out of that portfolio--and now will begin to add some
more items in. The Blended and the High Quality Income models remain underinvested and we hope
we will have time to get some more securities in these in the weeks ahead.
It should be noted that we are staying away from the REIT common stocks--as we have all year.
Certainly there are some decent companies out in that universe--but we just don't care to buy the risk.
Better to stay with the preferreds that many of the companies have available.
We will be purchasing mostly exchange traded debt and trust preferreds (as we have mostly done in the
past) as these are senior to all preferreds that are out there (Trust Preferreds are preferreds issued by a
trust which holds the debt of the issuing corporation and receives interest from the corporation which
they then pay you as a dividend).
But beyond the above we will be watching this economy damned closely as the employment situation,
fuel prices and consumer confidence are all negative and we could easily tip this economy into
recession in the months ahead.
| Check Income Issues Going ex-dividend |
Quality Income Model Portfolio
Updated
November 16, 2009
Our High Quality Model has done relatively
poorly given its continual under invested
position most of the year. We have had this
model only 30-35% invested most of the year
and have only started to add again today with
a 10% position add of Protective Life Capital
Securities (PL-PD).
The 2 common share issues have been no
help as both Pfizer and Great Plains Energy
cut dividends during the year leaving both of
these issues with small capital losses year
to date.
The 4.5% gain year to date in this model
should move to 6% as end of year dividends
help us---but just the same it pales
compared to over 15% for the High Yield
Model.
Updated
November 16, 2009
Our High Quality Model has done relatively
poorly given its continual under invested
position most of the year. We have had this
model only 30-35% invested most of the year
and have only started to add again today with
a 10% position add of Protective Life Capital
Securities (PL-PD).
The 2 common share issues have been no
help as both Pfizer and Great Plains Energy
cut dividends during the year leaving both of
these issues with small capital losses year
to date.
The 4.5% gain year to date in this model
should move to 6% as end of year dividends
help us---but just the same it pales
compared to over 15% for the High Yield
Model.
Blended Income Model Portfolio
Updated----Nice 10% Gain with Only 43%
Invested
November 21, 2009
Although we only succeeded in getting 43%
of the Blended Income Model invested we
achieved a very nice 10% gain through
11/20/2009.
We do not feel compelled to rush into
purchases until we find the right
situation--the precarious position the
economy is in makes us nervous so we will
tread carefully.
Updated----Nice 10% Gain with Only 43%
Invested
November 21, 2009
Although we only succeeded in getting 43%
of the Blended Income Model invested we
achieved a very nice 10% gain through
11/20/2009.
We do not feel compelled to rush into
purchases until we find the right
situation--the precarious position the
economy is in makes us nervous so we will
tread carefully.
High Yield Model Portfolio
Updated
December 15, 2009
(Note that the last update was understated
by approximately 1%.)
We have updated our High Yield Income
Model Portfolio. We have scored a gain of
18.6% Year To Date.
We sold our B&G Foods Enhanced Income
shares (BGF) as they were called by the
company and we had sold the Prudential
Debt (PHR) 6 weeks ago. All issues have
performed very nicely in the last month and
of course we picked up November and
December income. Unfortunately we are
now down to 33% invested and are going to
have to get invested if we are going to have a
shot at our 11% goal for 2010.
We are searching for mispriced preferred
shares so we can garner further capital
gains in 2010--but caution has to be used
as we stare higher interest rates for this
economy in the near future.
Updated
December 15, 2009
(Note that the last update was understated
by approximately 1%.)
We have updated our High Yield Income
Model Portfolio. We have scored a gain of
18.6% Year To Date.
We sold our B&G Foods Enhanced Income
shares (BGF) as they were called by the
company and we had sold the Prudential
Debt (PHR) 6 weeks ago. All issues have
performed very nicely in the last month and
of course we picked up November and
December income. Unfortunately we are
now down to 33% invested and are going to
have to get invested if we are going to have a
shot at our 11% goal for 2010.
We are searching for mispriced preferred
shares so we can garner further capital
gains in 2010--but caution has to be used
as we stare higher interest rates for this
economy in the near future.
High Yield Model Portfolio - End
of Year Recap
January 2, 2010
The High Yield Model Portfolio ends the year
with a very solid 20% gain.
The portfolio is now only 35% invested as we
had the US Cellular debt called away on
12/24/2009 and we purchased the telecom
company Otelco on 12/17/2009.
We had over $5100 in interest and dividends,
almost $3500 in closed out gains and over
$11,000 in capital gains on owned securities.
As always our challenge is to get the portfolio
invested versus holding so much cash and
we believe that we can root out some
bargains to keep this portfolio humming.
of Year Recap
January 2, 2010
The High Yield Model Portfolio ends the year
with a very solid 20% gain.
The portfolio is now only 35% invested as we
had the US Cellular debt called away on
12/24/2009 and we purchased the telecom
company Otelco on 12/17/2009.
We had over $5100 in interest and dividends,
almost $3500 in closed out gains and over
$11,000 in capital gains on owned securities.
As always our challenge is to get the portfolio
invested versus holding so much cash and
we believe that we can root out some
bargains to keep this portfolio humming.
Blended Income Model Portfolio
End of Year Review
January 11, 2010
We have gotten the Blended Income Model
Portfolio updated and the results for the year
have been pretty good---a gain of
11.6%--which is very satisfying for a portfolio
that has been only 50% invested.
The gains break down like this---$3591 in
dividends and interest, $2824 on a realized
gain and $5161 on unrealized gains.
With a goal of 9% for 2010 we are going to
have to work hard to get further invested.
End of Year Review
January 11, 2010
We have gotten the Blended Income Model
Portfolio updated and the results for the year
have been pretty good---a gain of
11.6%--which is very satisfying for a portfolio
that has been only 50% invested.
The gains break down like this---$3591 in
dividends and interest, $2824 on a realized
gain and $5161 on unrealized gains.
With a goal of 9% for 2010 we are going to
have to work hard to get further invested.
We Will Sell Stonemor Partners
from High Income Model
Portfolio
February 24, 2010
We have decided it is time to sell Stonemor
Partners LP (STON) from our High Yield
Model Portfolio. Stonemor is a Master
Limited Partnership which has performed
greatly for us.
As you know, if you have followed Stonemor,
they are a cemetery and funeral home
company which has paid a very healthy
dividend ($2.20 annualized)---given that our
model paid $11.83/Share for the units in
12/2008 and they closed today at $19.75 we
have a huge gain.
The reason we are taking profits now is
because the current price may well have
outpaced the ability of the company to keep
income up in this poor economy. The
companies income is derived of net income
from operations and income from the
'Perpetual Trust'. We question whether either
of these will remain adequate to continue the
high payout level. The company went
ex-dividend on 2/3 with a payout on 2/12 and
is to report earnings next month.
Part of the reason we are selling is because
of the falling fortunes of the casket
makers-read more here. Stonemor of
course is fairly dependant upon traditional
death care versus cremation and thus the
more cremations and any reduction in the
average revenue generated by services will
be a hit to net income. We believe that if
there is even a hint of possible dividend cuts
Stonemor will fall quite dramatically.
On the flip side we simply have locked in a
near double on our investment (capital gain
plus dividends).
from High Income Model
Portfolio
February 24, 2010
We have decided it is time to sell Stonemor
Partners LP (STON) from our High Yield
Model Portfolio. Stonemor is a Master
Limited Partnership which has performed
greatly for us.
As you know, if you have followed Stonemor,
they are a cemetery and funeral home
company which has paid a very healthy
dividend ($2.20 annualized)---given that our
model paid $11.83/Share for the units in
12/2008 and they closed today at $19.75 we
have a huge gain.
The reason we are taking profits now is
because the current price may well have
outpaced the ability of the company to keep
income up in this poor economy. The
companies income is derived of net income
from operations and income from the
'Perpetual Trust'. We question whether either
of these will remain adequate to continue the
high payout level. The company went
ex-dividend on 2/3 with a payout on 2/12 and
is to report earnings next month.
Part of the reason we are selling is because
of the falling fortunes of the casket
makers-read more here. Stonemor of
course is fairly dependant upon traditional
death care versus cremation and thus the
more cremations and any reduction in the
average revenue generated by services will
be a hit to net income. We believe that if
there is even a hint of possible dividend cuts
Stonemor will fall quite dramatically.
On the flip side we simply have locked in a
near double on our investment (capital gain
plus dividends).
What is 'The Yield Hunter'?
We are not an investment
service--nor are we a subscription
service.
The Yield Hunter website is
simply the opinion of 1 person (TK
McPartland) who has been investing
for almost 40 years.
There are not really many good
websites for income
investors--unless you pay large
subscription fees (and then who
knows what you are getting).
We highlight many securities that
we like and buy ourselves.
Additionally we run some 'Model
Portfolios'-- testing some ideas
such as 'buy and hold'--'High
Yield'---etc.
We do not recommend securities
as everyone has their own
needs----and we are not licensed
investment advisors.
We are really beholden to no one in
our opinions--and since we don't
charge for our information we are
generally not looking for feedback
---we realize we make some
typos--and certainly everyone has
their own investment ideas.
We are not an investment
service--nor are we a subscription
service.
The Yield Hunter website is
simply the opinion of 1 person (TK
McPartland) who has been investing
for almost 40 years.
There are not really many good
websites for income
investors--unless you pay large
subscription fees (and then who
knows what you are getting).
We highlight many securities that
we like and buy ourselves.
Additionally we run some 'Model
Portfolios'-- testing some ideas
such as 'buy and hold'--'High
Yield'---etc.
We do not recommend securities
as everyone has their own
needs----and we are not licensed
investment advisors.
We are really beholden to no one in
our opinions--and since we don't
charge for our information we are
generally not looking for feedback
---we realize we make some
typos--and certainly everyone has
their own investment ideas.
Time to Unload Another High
Yield Holding
March 8, 2010
After large losses for last year (although
better than the year before)--including in the
most recent period for the Royal Bank of
Scotland and the revelation of large unfunded
pension liabilities we have decided to exit the
ABN Preferred (Ticker RBS-PG) (ABN was
acquired by RBS) that we have owned for 6
months.
Simply put these are non cumulative
preferreds--we have a good gain---and our
belief is they may not be able to continue to
pay for their dividends (essentially they are
owned by the British government--so who
knows what the politics may demand).
With the High Yield issues you must watch
them closer for 'surprises' which can
absolutely kill your portfolio.
Yield Holding
March 8, 2010
After large losses for last year (although
better than the year before)--including in the
most recent period for the Royal Bank of
Scotland and the revelation of large unfunded
pension liabilities we have decided to exit the
ABN Preferred (Ticker RBS-PG) (ABN was
acquired by RBS) that we have owned for 6
months.
Simply put these are non cumulative
preferreds--we have a good gain---and our
belief is they may not be able to continue to
pay for their dividends (essentially they are
owned by the British government--so who
knows what the politics may demand).
With the High Yield issues you must watch
them closer for 'surprises' which can
absolutely kill your portfolio.
