Monday, September 24, 2012

Sold 50 BDGE at $23.01/Romney Misleads the Public About the Federal Reserve QE3/GIS WASH/Sold 100 MLPA at $15.31 & Bought 100 MDIV at $20.4-ROTH IRA/

Washington Trust (own) increased its quarterly dividend by 1 cent per share to $.24, the second dividend increase for 2012. I still own 50 shares. Bought 100 WASH at $15.26-Sold 50 of 100 WASH @ 22.44 This last dividend raise brings the yield up to 6.29% at a total cost of $15.26.  Friday's close: WASH: 26.44 +0.33 (+1.26%)

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Frequently, I read a story about a political advertisement that tells me a great deal about a candidate. I am not referring to the candidate who is attacked in the ad but to the politician who sponsors it.

FactCheck.org examines a recent Romney ad that contains numerous false statements that are intended to deceive the listener. For the ad to work, the listener would need to be both completely ignorant about the Federal Reserve and its operations and generally susceptible to reality creation.

The Atlantic calls the Romney ad bizarre for a variety of reasons including its blatant untruthfulness.  

The Federal Reserve is an independent body whose members can not be removed by the President. FRB: Who are the members of the Federal Reserve Board, and how are they selected? The current Chairman, Ben Bernanke, was first appointed by Bush and served as that President's economic advisor prior to being appointed to the Federal Reserve. The Fed is not using taxpayer money in its QE operations.

The Romney ad blames the Obama administration for the Federal Reserve's monetary policy and makes the outrageous assertion that taxpayer money is being used to purchase the $40B of mortgage securities per month under QE3. And, as pointed out in the FactCheck article, the Fed has been making tens of billions each year, resulting from its QE operations, and has been turning the profits over to the treasury.

The adoption of QE3 was by a vote of 11-1. FRB: Press Release--Federal Reserve issues FOMC statement--September 13, 2012

1. General Mills (own: Common Stock Dividend Growth Strategy): General Mills reported net income per share of 66 cents for its first fiscal quarter, excluding items, beating the consensus estimate of 62 cents. Revenues increased 5% to $4.05B. Sales in the U.S. declined 1% but gained 36% internationally excluding foreign exchange. Gross margin rose to 40.2% from 37.6%, as input costs rose .9%. Most of the volume growth was driven by acquisitions. Cash flow, provided by operating activities, was $489M for the quarter, up 11% from a year ago. GIS purchased 7 million shares at a total cost of $272M during the quarter. 

Bought 50 GIS at 35.53 (January 2011 Post). I am reinvesting the dividend.  The company has paid dividends continuously for 113 without a reduction. General Mills - Dividends and Stock Splits

On the day of this earnings release (9/19), GIS stock closed at $40.02 +0.71 (+1.81%)

Friday's Close: GIS: 40.30 -0.14 (-0.35%)

2. Sold 100 MLPA at $15.31 and Bought 100 MDIV at $20.4 Last Wednesday-Roth IRA (see Disclaimer):  I discussed MDIV in a post last week. Bought 100 MDIV at $20.51 I have nothing to add to that discussion other than to explain why I substituted MDIV for MLPA.

I mentioned in an earlier post that I would sell one of my MLP ETFs and substitute MDIV in its place.

MLPA is a MLP ETF and does not qualify as a regulated investment company under the Internal Revenue Code because it has more than 25% of its assets invested in MLPs. It will consequently be taxed as a regular corporation for federal income tax purposes. Prospectus at pp. 3, 6-7. By having more than 25% of its assets in MLPs, the MLP ETF fails to meet the Registered Investment Company tax requirements, as explained in this missive. When those requirements are met, the fund receives a deduction for the distributions made to its shareholders, thereby avoiding double taxation. The MLP ETF will be taxed at the corporate level on the taxable income received by it, creating both current and deferred tax liabilities that will cause the fund to underperform its benchmark index. (see discussion at pages 6-7 of the MLPA prospectus).

After thinking about this issue, I decided to backtrack from MLP ETFs and to keep for now only the 200 shares of YMLP.

As explained in a post last week, MDIV will own MLPs but will keep the weighting below 25%, so that it can be taxed as a Regulated Investment Company under the Investment Company Act of 1940. This seems to me to be the preferable solution to my MLP problem. I still gain some exposure to MLPs with MDIV, while avoiding the double taxation issue associated with MLP ETFs. I also avoid the creditor risk issue inherent in exchange traded notes (ETNs), which I prefer to avoid altogether, and the tax preparation headache resulting from ownership of individual issues.

Holdings

Sponsor's web page: Multi-Asset Diversified Income Index Fund (MDIV)

I recently bought the 100 shares of MLPA and sold those shares at a small profit. Bought 100 MLPA at $14.75-Roth IRA I did not own those shares long enough to receive a quarterly dividend.

Last Friday, the sponsor declared the first quarterly dividend for MDIV. First Trust Advisors The dividend was only 3.65 cents per share, with a 9/21/12 ex dividend date. Since this is a new fund, that amount would not be representative of a normal quarterly dividend. The 2012 4th quarter dividend will be the first full quarter for this fund. The fund's web page shows the index yield to be 6.88%, as of 8/31/12, and the expense ratio of .6% would have to be deducted from that number to arrive at the fund's possible yield, assuming a perfect tracking of the pertinent index. Until there are four full quarters, I do not know what the yield will be at my cost, but suspect that it will be in the 6-6.25% range.

Friday's close: MDIV: 20.39 +0.03 (+0.13%)

3. Sold 50 BDGE at $23.01 Last Friday (Regional Bank Basket Strategy)(see Disclaimer): This is another transaction where I sold the shares for a negligible profit but managed to reduced my average cost for the remaining shares using FIFO accounting. The stock blew through my limit order last Friday. My average cost for the remaining shares is $19.06 with an unrealized gain of over $450 at Friday's closing price:

BDGE Average Cost Per Share =$19.06
Since the gain does not exceed $30, I will not make a snapshot or record the trade in the main Gateway Post for this topic.Regional Bank Basket Strategy I will place a link to this kind of trade in a separate post. Regional Bank Stocks

I am reinvesting the dividend which is currently being acquired at a 5% discount due to Fidelity's participation in the DTE Discount Plan. Other brokers that I use do not participate in this plan and will buy the shares in the open market market which of course loses the available 5% discount. Item # 1 Continuation of Discussions Re: Broker Price Differences For Reinvested Dividends

I bought the shares sold last Friday at $22.14. The remaining open market purchases were made at $18 and at $19.65. The purchase of 50 shares at $19.65 was made in mid-August 2012 after selling 50 shares at $23.5 (7/3/12 Post). In this trading tactic, I will not buy the 50 shares back again unless I can lower my average cost. As a practical matter, I would not likely buy those shares back above $17.5 which I could then substitute for the 50 shares bought at $18.

Friday's close: BDGE: 23.43 +0.89 (+3.95%) 

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