Obama jinxed Vanderbilt by picking Murray State to beat them in the opening round of the NCAA Tournament.
1. CPI: The CPI floaters that I own, PFK and OSM, use the non-seasonally adjusted consumer price inflation data. Yesterday, the CPI for February 2010 was released and there was a slight uptick from the January number. The February index level used in the CPI calculation for both OSM and PFK is 216.741: research.stlouisfed.org
This would be the calculation for the June 2010 monthly payment:
February 2010 216.741
February 2009 212.193
Difference=4.548
Divided by 212.193=.02143
Add the Spread (02% for OSM; .024% for PFK)= .04143% for OSM
Multiply .04123% by $25 par value=$1.03575
Divide by 12 (months since payment is monthly)= $.0863
On a seasonally adjusted basis, CPI was unchanged in February. Over the past 12 months, the CPI has risen 2.1% on a non-seasonally adjusted basis: Consumer Price Index Summary The index has risen 1.3% over the past 12 months excluding food and energy, the lowest since February 2004.
I am far more comfortable with the credit risk of the Prudential floater PFK than the Sallie Mae floater. However, OSM is still selling at a significant discount to its $25 par value whereas PFK is selling at less than a $1 discount to its $25 par value now. With the exception of a 50 share purchase of PFK at 20.88, all of my purchases of that CPI floater have been below $20 and I am content to hold all shares until maturity in 2018. Bought 100 PFK at 18.47/ /Added 50 PFK at $17.83 Bought 90 PFK in IRA at 18.94 I started discussing these floaters in 2008, when PFK was selling at close to a 50% discount to its par value and OSM at less than $10: CPI FLoaters PFK AND OSM CPI FLOATER: OSM
OSM rose to over $18 in yesterday's trading. PFK is selling at near its par value. Although I have no intention of selling my shares in PFK, I also have zero interest in buying more shares at anywhere near the current price.
2. KIMBERLY CLARK (KMB)(Owned): The analyst at BofA/Merrill maintained a buy rating on KMB but cut its price target and earnings estimates due to rising pulp prices. The price target was reduced to $70 from $75. The 2010 estimate was reduced to $4.80 and the 2011 is now at $5.23. Kimberly will be holding an analyst conference Monday morning where some of the issues recently raised by analysts may be confirmed or explained by management.
3. Synovus (owned-category 1: Regional Bank Stocks strategy): Tom Brown met with the management of Synovus recently, and came away convinced that SNV was on the way to an earnings recovery, which would cause the stock to hit $9 within the next two or three years. Seeking Alpha I mentioned his analysis, which is far more in depth than my own, in a prior post. Item # 1 SNV . An interview with Brown can be found at TheStreet.
A SunTrust Robinson Humphrey analyst, Jennifer Demba, downgraded six regional banks including Synovus, due to her concerns that those banks will have to raise additional capital to pay back TARP. SNV is one of those banks who sold a boat load of stock to shore up its balance sheet and did not use the proceeds to pay back TARP. SNV received 968 million in TARP funds. SNV massively diluted long time shareholders by selling 150 million shares at $4 last September: Page 48 e10vq. I recently discussed how I divide banks who sell shares now into three categories, with the worst and most undesirable category being a bank who dilutes shareholders with a massive stock sale at prices prevalent almost 20 years ago and does not use the funds to repay TARP. Item # 3 GBCI SNV is in that category.
If SNV was to attempt to pay back the government anytime soon, it is hard to see how that could be done without another massive stock dilution. But, I suspect that a bank in SNV's situation is not in any hurry to do that at its current stock price. The government was very generous with the banks, charging only 5% for the first five years after issuance of the preferred stock bought with the TARP funds. EX-3.1 So, a bank willing to live with that stigma, and many have no real choice, there is time for earnings to recover and possibly the recovery will be sufficient to allow for repayment out of internally generated funds over a several year time frame. Since SNV and many other banks are only paying out a penny a quarter in common dividends, this will also help them build up a chest to repay TARP. I seriously doubt that SNV will raise its dividend until TARP is repaid.
There is also the possibility that SNV might sell some of its operations when conditions improve: MarketWatch I would view any attempt to raise more capital to repay TARP, anywhere near the current price, to be a major negative. Personally, I would not assume that the banks who are still struggling will pay back TARP with a massive share sale at currently depressed prices, so it would be premature to downgrade them for that reason.
This author at TheStreet.com gives his five reasons for avoiding bank stocks now.
This article in Seeking Alpha listed 33 community banks yielding more than 5%. Of that list, I have numbers 1, 10, 12, 13, 19, 21 and 32 in my regional bank strategy basket. Several more are already on a monitor list. I did note that at least two of the banks on this list have eliminated their dividends (CBKN & RBNF), and consequently should have not been included on this list. Also several others are too small for me to consider. Another one on the list, First United Corporation (FUNC), has reduced its dividend to 1 cent per quarter, and no longer yields the 7.36% shown in the list. So this is a little sloppy by the author of that article. I did not have any of those three banks on a monitor list. I did pick up two new names for me from the list to monitor.
4. Bought 100 KFT at $29.86 (See Disclaimer)(dividend growth strategy): I have started to dip some into my cash allocation that has been in place since 2007, based on the movement of the VIX and in response to the Jihad by the Federal Reserve against savers and responsible Americans. The Old Geezer is just being worn down by zero interest on short term funds. Part of my cash stash was in Norwegian Krone. I sold some Krone yesterday and plowed the proceeds into the buy of Kraft at $29.86. I was surprised about how well I did last year (+42%) with such a large allocation to cash, especially with my conservative nature. Lightening will not hit the same spot twice, so I need to be more aggressive and venturesome in 2010.
Prior to its acquisition of Cadbury, KFT had been raising its dividend every year. I suspect that will not resume for an undermined period. The dividend was last raised to 29 cents in 2008, and no increases were made by the company in 2009. Still, I view Kraft as a dividend grower, and would hope that it resumes its dividend raises after it digests Cadbury later this year. The dividend rate was 56 cents in 2002 and had risen to $1.16 in 2009.
Most of the reports that I read yesterday, including ones from S & P and Morningstar, have Kraft rated as an average selection. I am inclined to agree with those assessments, but view the company to have decent total return possibilities over the next five years.
And, I have already realized several profitable trades in Kraft noted in this blog. Admittedly, I would have been better off holding onto those shares bought at $22.26 in March 2009, rather than creating a tax event thereafter by selling those shares at 26.75. /BOUGHT Kraft & NESTLE/ Bought Lottery Ticket in CBG at 2.39 SOLD 100 KRAFT A previous trade noted in this blog from 2008 was a clip of the dividend and a quick short term gain on the shares: SOLD KRAFT/GOP & GUNS IN BARS (buy of 100 shares at 26.52 in December 2008 and then sold all shares at 28.06 in January after clipping a dividend, typical LB thinking)
Still another way to look at the trading in Kraft is that I am buying back those shares sold at 28.06 in January 2009 back at a slight premium, and have used the funds more productively in the interim including another trade in Kraft shares that netted Headknocker $450 or so bucks. This is how the LB looks at it which was just labeled asinine tunnel vision by the RB.
The current analyst estimate for 2010 is for an E.P.S. of just 2.08 and then accelerating to 2.33 in 2011. KFT: Analyst Estimates for Kraft Foods If that 2011 estimate is hit, then KFT is selling now at about a 12.5 P/E for 2011 at the $29.85 price with a dividend yield of close to 3.9% at the current $1.16 annual rate. While I may be optimistic at times, there is a least a possibility that Kraft will double that dividend by 2018 which would be a 7.8% yield in 2018, at my constant cost assuming that optimistic future forecast proves to be accurate.
No comments:
Post a Comment