1. Aegon and ING: I noticed in the WSJ dividend page last night that Aegon declared its regular dividends on its perpetual capital securities, AEV, AEH, AEF, AED, and AEB. I classify those securities as equity preferred because they are included in Aegon's capital base for regulatory purposes. They are included among those "preferred" stocks that pay qualified dividends at the Quantum site. Preferreds eligible for the 15% Tax Rate Table - QuantumOnline.com I can confirm that the dividends paid in connection with my investment in AEB, held in part in a taxable account, were classified as qualified dividends in my 2008 1099. There was 4.192 billion of these capital securities outstanding as of 12/31/2008 (see page 285: Form 20-F)
These securities "rank junior to all other liabilities" according to the annual report filed with the SEC by Aegon. In reality, they are the most junior in priority bonds. Aegon refers to them as bonds at its website: Capital securities - Aegon
I believe that my discussion about the hybrid ING capital securities also applies to these Aegon securities. That is, for regulatory purposes, they are considered part of capital, but are really bonds. /ING Hybrid Securities/
If and when current U.S. tax law changes, and the U.S. starts to tax distributions from these capital securities to its citizens as interest rather than qualified dividends, I will stop referring to them as perpetual equity preferred securities, and start calling them simply junior debt issues. I know that it is confusing, but these securities from European firms are strange. I can not think of a single issue from a U.S. firm that is both equity and debt at the same time.
Since Aegon is no longer paying a dividend on common stock, which may be the only publicly traded security more junior than AEB and AEV, both owned by me, Buy of AEH in IRA/Aegon Statement of Intent to Pay Dividends/, I constantly monitor Aegon's dividend declarations for these junior securities. The same is true for the 3 hybrid securities issued by ING that I currently own, IND, INZ and ISF, and I have noted that ING has also recently declared dividends for those three securities. Both the AEGON and ING capital securities, which I own, will go ex dividend later this month.
Aegon is scheduled to report earnings on Thursday. Credit Suisse downgraded the stock to neutral from outperform yesterday, apparently based on valuation.
2. Glen Beck and Bill O'Reilly: I am not able to watch virtually all of the major network programs. Last night, the airwaves were filled with such fare as Big Brother and America's Got Talent, so I found myself channel surfing until I reached Bill O'Reilly's show on Fox, the fair and balanced network. For the next two minutes, I sat and watched Bill and Glen Beck talk about how "evil" General Electric was, the parent company of NBC . Many viewers would find their banter to be thoughtful and intelligent, that is why they watch FOX. I did a google search and someone had already posted this segment on YouTube.
I, on the other hand, just kept thinking to myself how was it even possible that anyone would want to know their opinions, something beyond my comprehension, so I asked myself what qualified them to voice opinions on national television on any subject. I was curious about Glen Beck's background and qualifications to be a commentator so I looked him up in Wikipedia. He did graduate from high school and took a single theology class. Prior to becoming a commentator and spokesman for the True Believers, he was a DJ on a top 40 radio station. He graduated to his own radio program aired in Tampa that was launched nationally in 2007. Glenn Beck - Wikipedia, the free encyclopedia It all makes sense to me now. You really do not need to know anything. Just talk the TB talk. I could do that. And, I have a lot of free time.
What I am about to say is not politically correct, so Headknocker disavows it and the usual apology is given in advance to anyone offended by it. Any politically incorrect comment comes from the RB, and is consequently automatically disavowed. RB just said that LB would have to lose 50 to 75 IQ points before Bill and Glen would make any sense to the LB.
3. More on IPB: IPB is the trust certificate containing 15 corporate bonds and treasury strips maturing in the 2029 to 2033 time frame. I have discussed this one in detail in two prior posts. More on IPB Bought 100 of the TC IPB at $16.99 I did another calculation this morning comparing IPB with what a new IPB would look like if I bought all of the same securities yesterday. In this calculation, I used a 38 price for the Treasury strips, the last trade data from FINRA for 12 of the 15 corporate bonds, and a comparable exchange traded bond for 3 of the corporate bonds where I had trouble locating the FINRA data. All of this data of course will change as prices of the various securities change. And, readers have to remember that I am not as sharp as I use to be, sometimes I think my mind is turning into mush, and I was never very good at math. In fact, as I have pointed out many times in this blog, I went to Tulane in 1969 because that University allowed me to substitute Philosophy for Calculus.
I found that a new IPB would be selling at around a 15.5% discount to par value, compared to the old IPB's current 31%. The new IPB would have a current yield of 7.64%, compared to 8.77% for the old IPB at $17.25 . So that confirmed what I already suspected. IPB provided a current yield advantage to buying the same securities now in the same percentages, and has more capital gains potential. That is 2 reasons supporting my decision to buy it. Of almost equal importance to me, the security provides diversity in my bond holdings at a negligible cost, and provides me with a fixed income stream for the next 20 to 24 years. It also hits a spot in my bond allocation that I wanted to hit. I say fixed income stream with the usual caveat. My current yield is almost 8.9% at my cost to 2029, when the bonds start to mature which will of course lower the yield as the pro rata principal amount is paid. The fixed amount, year in and year out, is dependent on all companies paying their obligation. As soon as one defaults, my yield will go down, and down some more if 2 default.
I own only 100 shares. I did the foregoing calculation to justify another 100 share purchase, but only at a lower price than my last purchase at $16.99. The buy would have to be a retirement account due to the presence of a zero coupon treasury strip in IPB.
4. Penn West (PWE) (owned): I have not been following my holdings in the Canadian energy trusts this month. I know that Enerplus reported but I have not looked at ERF's release yet. Penn West, another holding, reported this morning and I looked at its release briefly. Anyone investing in PWE needs to be aware of the changes in Canadian tax law that will start in 2011. Penn West reported a net loss of 10 cents per share for the 2nd quarter. The non-GAAP measure of "funds flow" for the quarter was 430 million ($1.05 per unit) down from 753 million in the year ago quarter. The funds flow of $1.05 was sequentially higher than the $.87 per unit from the first quarter. PWE reduced net debt by 350 million in the first six months of 2009. The firm is forecasting a 175 to 180 thousand boe per day in average production for 2009. This firm and many other energy producers have been hurt by the fall in natural gas prices. About 22% of the natural gas production for 2009 is hedged. Eleven per cent of the 2010 natural gas production is hedged with collars having floors averaging $6.5 per GJ. I discussed PWE previously after making a buy late in December of 2008: NOT A RESEARCH SERVICE/Add of PWE Last Week I am a long term holder of these Canadian companies, but I would not expect much improvement in the stock prices until natural gas prices start to move back up with an economic recovery and a return to more normal industrial demand.
Morningstar has good reports on all of the canadian energy trusts that I own. Morningstar has an unfavorable report on PWE. The report makes a number of good points, and that has kept my position in PWE small at 100 shares.
5. Bought 30 Yamana Gold (AUY) at $8.98 in Regular IRA as Lottery Ticket: (see Disclaimer) This purchase exhausted the remaining cash in my regular IRA, with less than $40 left to invest. This account is about 98% bonds now, so I thought that I would add a gold stock as sort of a hedge. Yamana has declined from over 11 in June, and a high of $19.39 in March 2008. The buy this morning was based on the recommendation in a Morningstar report that I read last night, which rates AUY 5 stars. Yahoo shows the price to book at .98. The consensus forecast for 2010 is currently 56 cents. AUY: Analyst Estimates for YAMANA GOLD INC
I follow your commentary on Aegon preferreds with interest (oh dear, a pun).
ReplyDeleteI own AED, one of Aegon's perpetual capital instruments that has a coupon of 6.5%. I paid a very slight discount to par for it ($24.90, which barely qualifies as a discount, but still...). It has a call date of Dec 2010, but no maturity. It is currently trading at $18.xx.
I note with envy your sub-$5 entry earlier this year on AEH. If I were in that position, I would almost certainly harvest my gains, notwithstanding the future interest foregone. A bird in the hand...and so on.
I am tempted by AUY, but since I view nearly my entire portfolio as a lottery ticket at this point, I will have to watch Yamana Gold from the sidelines. Good luck to you, and thanks for the blog.
CATHIE: There were a large number of corporate debt securities that went into a death spiral last October and again in late February and March of this year. This presented what may be prove to be a once in a lifetime buying opportunity for corporate debt, at least for someone my age. I wish that I could have been more brave. AEH and the other Aegon capital securities have no maturity dates, a major disadvantage for them in my view, and I would be shocked if Aegon ever called any of them.
ReplyDeleteMy yield on AEH at my cost is 33% per cent a year, most likely for the remaining years of my life. I only have to be concerned about Aegon's ability to pay that dividend which is why I will read its earning release tomorrow. I also own AEB. So why not harvest the gain now? I may live another 40 or more years. At 33% an investment will double every 2.43 years or possibly 16 or so doubles remaining. As long as Aegon remains solvent, I know what my return will be, unlike a common stock, year in and year out. If I sold it, I might invest in something else that goes down anyway. That is why I will keep it and many others like it.