Tuesday, March 17, 2009

Buy 50 LXPPRD, Bought PG/ Lexington Realty/Outrage at AIG/

Lexington Realty (LXP) joined the parade of REITs that are trying to conserve cash by paying most of its common share dividends in stock. I do not own the common but I do have a small position in LXPPRD. Lexington has previously cut it common dividend to 18 cents a quarter in cash and now has changed that to a mostly stock dividend.  

This is one reason that I have focused over the past nine months on buying the cumulative preferred securities. Lexington can not fiddle with my cash dividend on LXPPRD as long as it pays a common dividend in cash. LXP did declare its regular cash dividend on its cumulative preferred stocks. Any investor in REIT preferred stocks that pay close to 30% has to understand that this kind of yield only comes with substantial risks. Lexington Realty (LXP) & LXPPRD 

I am going to start gradually switching some of my more dangerous equity preferred positions to a retirement account.  The reason has mostly to do with the tax consequences in the event of a deferral of a cumulative dividend.  

My position in LXPPRD fits that category so I bought 50 in my Roth today at 7. 

What I will do is what for an opportunity to sell the 50 in my taxable account and then keep the 50 in the retirement account.

Another position that I intend to transfer entirely to the retirement account is an ING preferred, INZ, that I currently own in both the taxable and retirement accounts. So, I will just look for an opportunity to sell the 100 owned in the taxable account and keep the two ING preferred positions currently in my regular IRA which includes INZ and ISF. 

REITs are without question a disfavored asset class now. Some are facing difficult refinancings. All face at least some erosion in occupancy levels. Many have reduced or even eliminated their common stock dividends.  While looking at the carnage in both common and preferred stock prices, I know that I am taking a gamble by buying anything in this environment. 

But, the rewards are also large since many of them are being priced as if a recovery is not likely to happen in years which might cause them to bankrupt. Thus, pricing is based on the fear of a worst case scenario being close to a certainty. 

If, for example, Lexington survives and never misses paying a cumulative preferred dividend, and the economy starts to improve and doubts about its survival ebb, then I would not suspect to see one of its $25 par value cumulative preferred issues trading at $7 to yield 27% at that price. 

I would anticipate that more favorable economic conditions than prevalent now would lead to a higher price and consequently a lower yield. LXPPRD was trading near its $25 par value at the close of 2007 before the onset of the current bear. I did not buy hoping for a return to that level. But a return to 14, which is where it was before the Lehman failure, would be a 100% gain on the security plus the dividend. That is what I hope to see for the shares bought today. 

For the shares held in the taxable account, I would settle for a move back to 10. And it does not matter to me if that move occurs before or after the dividend (Tennessee does not have an income tax on earned income, but does have a 6% tax on dividends after an exemption) This security did hit 12 at the end of 2008. It is very risky and extremely volatile, both up and down, which allows the trader in me some opportunity to take advantage of the sheer movement in price. But nothing I own is as volatile as the ING and Aegon preferred securities.     

I used the proceeds from the KSA sale and then some to initiate a position in Procter & Gamble (PG) at 47.59. Although I would expect negligible growth in earnings in 2009 and possibly 2010, this entry point for a long term hold is satisfactory to me. Assuming PG earns $4.2 in its fiscal 2009, this is less than a 12 P/E for a quality company with a relatively secure dividend. I have not had a position for some time.  

I also bought 500 shares of stock at 26 cents that I am not going to mention.  It is of course a lottery ticket. The market cap is less than the net cash. Zachs has one of the few reports on it. Its name starts with a W. I may mention the name once I dispose of it, probably at closer to zero than my purchase. I am  critical of the way the company is being managed too. 

When politicians express outrage, there is always a certain amount of posturing and showmanship involved, but their recent reaction to the bonuses for AIG's financial wizards is probably mostly genuine. Give the AIG Masters of Disaster my New Medal of Chutzpah/Sold AEV in Risk Reduction MoveCongress threatens to tax AIG executives' bonuses: Financial News - Yahoo! Finance  NY atty gen says 73 AIG execs got $1M bonuses: Financial News - Yahoo! Finance

The Masters had some of their public servants write favorable provisions in the tax code that convert their wages into capital gains taxed at a much more favorable tax rate, a practice that Obama has pledged to end. Reuters So they might want to head for cover and keep their heads down. 

Senator Grassley suggested that the executives at AIG may want to commit suicide, a comment that Reuters interpreted to be made in jest. Reuters I have made similar comments, likewise in jest I think. I have been suggesting Seppuku for months as a means for our financial leaders to bring honor to their names. Managers of the American Financial Institutions: In need of Ritual Seppuku?/ IBM: A RAY OF SUNSHINEWhat Exactly is a Commode on Legs?/GOOGLE, COF, WFR/JOHN THAIN AND ARTHUR NADEL But, as it is hard to see one of the Masters of Disaster charging Omaha beach on D-Day, it is equally farfetched to expect those executives to do what the Japanese would consider the only honorable way out. 

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

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