Wednesday, December 23, 2009

Sold 100 XLU at 31.25/Bought 100 SO at 33.27/Bought 100 of the TC GJX at 25.17 and Sold PYI at 21.28

RB could not help but observe, judging from today's trading activity, that it had to have the only motor in the trading operation here at HQ, or at least the only motor capable of generating a RPM. LB, now known for all to see as the Tiny Weenie (TW), is not exactly Mr. Excitement. You know, one time the RB was in Wichita, Kansas, involuntarily of course, the LB was arguing an appeal before the 10th Circuit, and RB asked a pretty young girl what she did for fun in Wichita. And the young lady said, we go down to the grocery store on Friday night and watch the trucks' unload. Yea, that is what it is like around HQ, RB thought about that long ago conversation after being put to sleep by the TW in action today. The Nerd's approach has a similar entertainment value for the Great RB as watching grass grow in the winter. Maybe the LB needs to drink more coffee, take some stimulants, or quite taking Sominex during the day, but nothing can be done -of course- to compensate for the TW, and the absence of you know what, no need to spell it out ("balls"), oops, RB just did. Sure the LB looks like it is 16, but here is the truth of the matter. LB was 80 years old when it was 16. Yes, as pointed out on several occasions the LB has always been an old geezer or an old geezer in training. Investing process with a story illustration Left Brain & Right Brain Decision Making TBT vs. PST: Hedging Corporate Bond Positions

Headknocker wanted to make himself heard on a subject. When HK says that there needs to be some tax loss selling to offset some of the short term gains the Old Geezer took when he got the shakes, HK did not mean to take a short term gain and then offset it with a tax loss sell. LB needs to get its ass in gear, as in pronto.

1. Positive Government Reports on Personal Income and Spending: The government reported Wednesday morning that spending rose .5% and personal income increased by .4% in November. The personal savings rate was 4.7%. Real disposable income increased .2%. The price index for personal consumption expenditures rose .2% in November and has increased 1.5% year over year. News Release: Personal Income and Outlays, November 2009

2. Sold 100 XLU at $31.25 and Bought 100 Southern Company (SO) at $33.27 (see Disclaimer). XLU was bought on 11/19/09 at $29.14 and I will receive one quarterly dividend payment on 12/31. LB is mindful of the HK's fiat about not making anymore contributions to our destitute Uncle Sam in 2009, so that gain was offset by a 50 share sell of a closed end fund at a loss.

In XLU's place, I added to my U.S. electric utility holdings by buying 100 shares of Southern (SO) at $33.27, and will reinvest the dividends. Southern is one of the largest electric utilties in the country operating through susidiaries including Georgia Power Company, Gulf Power, Mississippi Power and Alabama Power Company. Southern Company Several of the subsidiaries also have exchange traded bonds available for purchase at close to the yield of the common stock. A listing, with links to the prospectuses, can be found under the tab exchange-traded debt Securities table at (free site registration required) I would prefer to own the common given the low yields on those bonds and their long maturity dates. At my cost the dividend yield is about 5.25%, and would qualify as a qualified dividend. The purchase was made in a taxable account. Earnings growth at this electric utility will be subdued, and the consensus estimates for 2009 and 2010 are currently $2.32 and $2.44, respectively. Revenues for 2010 are estimated at 17.61 billion: SO: Analyst Estimates for SOUTHERN CO

I do not expect much upside for a holding like Southern. It is important for SO to continue raising its common stock dividend, and to never cut it. A dividend cut would likely produce an immediate sell. A yearly raise in the dividend will make the common more attractive to me than one of the subsidiaries bonds over a long period of time. The bonds are more secure, but the coupon is fixed. And their distributions are taxed at my highest marginal rate. I looked at the VL data on Southern's dividends, and did not see a dividend cut. From 1998 to 2001, the annual dividend rate was unchanged at $1.34, which I view as unfavorable, after being raised every year from 1993 to 1998. Since 2001, SO has raised the rate every year. The 2009 rate will be $1.7325. This is a slow rate of dividend growth, much slower than some of the consumer staple stocks that I have discussed like KO and SYY.

The long term chart shows a steady climb, with two severe downdrafts. The last downdraft was during the last bear market: SOUTHERN CO Share Price Chart

I am familiar with this electric utility and have read numerous analyst reports on it over the years.

When I bought XLU, I mentioned that I already had positions in several of its holdings, including Duke Energy, Consolidated Edison, Pepco, Progress Energy and Pinnacle. That is one reason just to go with individual names for U.S. electric utilities rather than an ETF. I will however keep the ETF for foreign electric utility companies since there is no individual overlap with that ETF.Bought 100 DBU at 22.37

3. Bought Again 100 of the TC GJX at $25.17 and Sold 50 of the TC PYI at $21.28 (see Disclaimer): LB sold the TC PYI, which just went ex interest for its semi-annual interest payment, at $21.28. This TC contained a Time Warner bond and was bought at $19.05. To offset the short term gain, (HK just said that the LB is cruising for a bruising), LB sold 50 of the highest cost shares of another closed end fund for a loss. In the place of PYI, LB bought back the GJX just sold at $26.03 for $25.17. (See Item 11 JOBS) This Trust Certificate contains a Burlington Northern bond and was previously discussed in a prior post: Item # 10 Bought 100 GJX & ADDED to ADRD The coupon on GJX is 7% until 2026 when it turns into a floating rate bond. If this TC jumps again to $26, LB will sell it again and offset that gain by selling another 50 share lot of a CEF for a loss. RB just said thinking small is consistent with the anatomical references previously made.

GJX pays interest semi-annually too, in July and January. GJX Stock Quote - Strats Tr For Bnsf Fdg Tr I STRATS 7% The yields for GJX and PYI are both close to 7% at the prices bought and sold respectively today. (PYI went ex interest on 11/10: PYI Stock Quote - Pplus Tr TWC-1 CTF A Stock Quote RB added that it would not be surprised when the TW clips that interest payment and sells those shares for a $25 profit.

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