I discussed buying 100 shares of Microsoft in yesterday's post. RB BOUGHT 100 MSFT at 27.08 My default option is to take all dividend payments in cash. I changed that option for MSFT to reinvestment into additional shares. After moving in and out of that stock for years, I decided to stay with it for a few years. I will buy some additional shares only at lower prices, probably in 50 share increments. If I do average down, then I might sell part of the 100 share lot when and if the price goes above $30, which is a standard trading process for me, as I book some profits and hopefully lower my average cost over time using FIFO accounting.
The Federal Reserve upgraded its estimate for 2011 GDP to a range of 3.4% to 3.9%. The last estimate, made in November, was for growth between 3% to 3.6%. The FED raised only the low end of its inflation estimate, moving the range from 1.3% to 1.7%, up from 1.1% to 1.7%. FRB: FOMC Minutes, January 25-26, 2011 I am going to hazard a guess that the CPI will run 2.4% to 2.6% in 2011 and will be accelerating in the back end at over a 3% annualized rate.
The Labor Department reported that the producer price index rose .8% in January, seasonally adjusted. The index rose .9% in December and .7% in November. Producer Price Index News Release text The core rose .5% in January 2011.
1. Sold 200 of the Canadian REIT ETF XRE:CA at $14.13 CAD on Tuesday (Canadian Dollar Strategy)(see disclaimer): This REIT ETF has an expense ratio of .55% and only has 13 holdings. XRE Overview - iShares ETFs I decided to focus solely on individual Canadian REITs, and I already own several of them. I have sufficient funds to achieve the diversity of an ETF without having to incur that annual management fee. I made a small profit on the XRE shares plus a few monthly dividends. Bought: 200 XRE:CA @ 13.78 CAD. Some of my Canadian REIT positions include the following: Bought 100 TGA-UN:TO at 10.3 CAD (Transglobe); Bought 200 AX-UN.TO @ 13.41 CAD (Artis); Bought: 200 SRQ-UN.TO @7.53 CAD (Scott's Real Estate); Bought: 100 CAR-UN.TO @ 17.35 (Canadian Apartments); Bought 100 CUF-UN.TO @ 21.68 CAD (Cominar); Bought: 100 KMP:CA @ 10.17 CAD (Killam).
2. Sold 100 of the ETF VFH at 34.88 on Tuesday (see Disclaimer): VFH is a Vanguard sector ETF for financial stocks. I bought 100 shares at 30.85 last November. By buying and selling that Vanguard ETF in a Vanguard brokerage account, I avoid commissions. I intend to use the proceeds to buy another Vanguard ETF with a broader scope. I probably own stock in 50 or so individual U.S. financial institutions, mostly in my Regional Bank Stocks' basket strategy.
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| VFH 100 SHARES +$403.28 |
3. FirstEnergy (FE)(own-core electric utility strategy): I recently pared my position in FE by selling 50 shares at $40.7. After reviewing the 4th quarter earnings report, I am in no hurry to buy back those shares. I am reinvesting the dividend.
FirstEnergy reported Non-GAAP earnings of 70 cents per diluted share, down from 77 cents on a comparable basis in the 4th quarter of 2009. This missed the consensus estimate by five cents. On the positive side, electric generation sales made by FirstEnergy Solutions rose 23% in the quarter compared to the year ago 4th quarter. Part of the negative year-over-year comparison was due to a 2009 income tax adjustment which was absent in the last quarter.
Although FE is part of my core electric utility strategy, I will manage the position by selling and buying odd lots to harvest some gains and to lower my average cost over time. The average cost of my remaining shares is $38.32. So to add those 50 shares back, I would need to have at a minimum a price below that number and preferably below $36.32.
FirstEnergy closed at $38.43, down 78 cents in trading yesterday.
4. Dean Foods (DF)(own only senior bonds- Junk Bond Ladder Strategy): Since I have a position in Dean Food's bonds, I will look at the earnings reports solely to make a judgment on the likelihood of my loan being paid off. Bought: 1 Dean Foods 7% Senior Bond at 93.8 Maturing 8/1/2016 Bought 1 Senior 6.9% Dean Foods Bond @ 89.48 Maturing 10/15/2017
Basically, I still have concerns given the lackluster earnings, competitive pressures, commodity inflation and most importantly the amount of debt and the short maturity schedules. However, there is nothing in the 4th quarter report that exacerbates those concerns. The market responded positively as shown by the commons shares rising 6.64% in price yesterday. My reaction was far more subdued.
Dean Foods reported earnings of 15 cents, excluding items, down from 32 cents in the year ago period. Net cash provided by operations for 2010 was 224 million, down from 390 million in 2009. SEC Filed Earnings Release
Two events will raise interest expense in 2011. First, the company issued 400 million in 8% senior notes replacing nearer term but "considerably" less expensive bank debt. Second, the company extended its credit agreement which will increase its interest costs. As a consequence, the company is predicting that interest expense will be approximately 265 million in 2011, up from 236 million in 2010. This will penalize earnings by 10 cents per share. It is relevant also to me as a bondholder. I believe the 8% senior note was offered in a private placement last December.
5. Sold 100 of the LT MUELLER WATER PRODUCTS (MWA) at $4.25 on Wednesday (LOTTERY TICKET strategy) (see Disclaimer): I decided to limit my MWA exposure to just the 1 Mueller Water Senior 7.375% Bond Maturing on 6/1/2017. My YTM on that bond is over 8%. And, I have traded the common twice as LTs, booking a modest profit of $83.54 on the first round trip and less on the last one. {Bought 50 MWA as a Lottery Ticket at $3.62 Sold LT MWA at $5.61} I bought the 100 shares sold on Wednesday in two fifty share lots: Bought 50 Mueller Water (MWA) at $3.74 Bought 50 MWA @ 3.04. I was not impressed with the last earnings report, though that report did not increase my concerns as a bondholder. Form 10-Q
6. Added 50 shares of KRBPRE at $25.19 in the Roth IRA (see Disclaimer): KRBPRE is a trust preferred (TP), originally issued by the a Delaware trust created by the credit card company, MBNA, for the purpose of buying a junior bond issued by MBNA with the proceeds realized from the sale of the TPs to the public. MBNA is now part of Bank of America, and I believe this TP, along with KRBPRD, are the highest yielding BAC TPs based on their respective current prices.
KRBPRE just went ex interest for its quarterly interest payment, and I owned 100 shares before that ex date. The add on Wednesday brings me to 150 shares of KRBPRE and 50 shares of KRBPRD. Bought 50 KRBPRE at 24.62 in Roth IRA Bought 50 KRBPRE @ 25.07 (taxable account) Bought 50 KRBPRD @ 25.14 I will probably at some point dispose of the fifty shares of KRBPRE bought in a taxable account. It just makes more sense for me to own this type of security in an IRA, primarily due to the distributions being taxed as interest. Another consideration is that I would not want to own a security in a taxable account that has deferred its distributions. (see pages S-31 and S-32 of the prospectus) While this has never happened with BAC, it could conceivably happen with a currently unforeseeable series of calamities.
KRBPRE pays a 8.1% coupon on a $25 par value. It is scheduled to mature on 2/15/2033. The stopper provision is normal for this type of security. BAC may redeem at its option the underlying bond owned by the trust which would cause the redemption of the TPs at their $25 par value plus accrued interest. This is a possibility, given the BAC's ability to refinance now at a lower rate and the phase out of BAC's ability to use TPs as part of Tier 1 capital: Trust Preferred Securities & Financial Reform
KRBPRE Prospectus: www.sec.gov
KRBPRD Prospectus: www.sec.gov
See also ratings of BAC TPs at Bank of America | Investor Relations | Fixed Income Investor Relations. Moody's and Fitch now have the TPs at an investment grade rating while S & P still has a junk rating of BB+.
A list of the equity preferred stocks that are now BAC obligations can be found at Bank of America | Investor Relations | Capital Issuances. Those securities are junior to the bonds owned by the Delaware trusts which are listed at the same page, just click Trust Preferred and Hybrid Securities Issues. I own three non-cumulative equity preferred stocks that pay qualified dividends at the greater of a guarantee or some percentage over the 3 month LIBOR rate, also on a $25 par value. {Advantages and Disadvantages of Equity Preferred Floating Rate Securities; Floaters: Links in One Post} While I have traded a number of BAC TPs, I only own KRBPRE and KRBPRD at the present time.
More information can be found at the QuantumOnline.com (free site, registration required).
KRBPRE and KRBPRD are functionally equivalent in my opinion. They do have different quarterly schedules for making their interest distributions. Functional Equivalence in Bond Trading
At a total cost of $25.19 for KRBPRE, the current yield is around 8%.
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