I was busy working on another matter yesterday and did not have more than a few minutes to devote to this blog.
1. DKI (own): This recently purchased TC, containing a senior bond from Sprint Capital, has been called by the owner of the call warrant at its $25 par value plus accrued interest. Structured Asset Trust Unit Repackagings (SATURNS) Series 2003-2 Trust Receipt of Notice of Intent to Exercise Call Options in Full The call date is 11/1/2010. I just bought these shares at 24.95. The underlying security was trading recently at around a 10% premium to its par value. FINRA
2. Added 40 to Intel at $19.16 (see Disclaimer): I used the proceeds realized from selling 100 Brooks Automation to add to my Intel position. The $19.16 is at the top of my range for buying Intel shares. My last add was at 18.35. My previous buys of Intel were noted in the following posts: Bought INTC at 14.46 Bought Intel at 15.25 Bought Intel at $15.87 Added to Intel at $19.08 I try to remain disciplined about my buy and sell ranges.
The dividend yield for INTC is about 3.26% at a total cost of $19.16, significantly higher than the current yield of a ten year treasury bond which is currently hovering around 2.5%. While the treasury bond has a fixed coupon, Intel has been raising its dividend in recent years. If the dividend raises continue, the current yield differential of .75% will continue to widen. The current price is less than 10 times the consensus estimate for 2010 and 2011. INTC Analyst Estimates The 5 year P.E.G. ratio is .79: INTC Key Statistics
One knock on Intel is the widespread belief that the current up cycle has peaked or is near peaking. This is one of the unknowables. At the current price, I believe that any positive news that calls into question the herd opinion will cause a spike in the price, hopefully into the mid-20s where I would anticipate paring the position. I am reinvesting the dividends.
3. Added 100 HPF at $19.14 (see Disclaimer): This brings me to 300 shares of this bond CEF that has been correcting some after crossing $20 in late September: HPF Historical Prices As discussed in Monday's post, this CEF owns mostly junior and senior bonds, and has only a few securities properly characterized as "equity preferred" stocks. The few equity preferred stocks are from REITs. At the current monthly dividend rate of 12.4 cents, the yield at a total cost of $19.14 is around 7.77%. The fund does use leverage.
As of 10/15/2010, the net asset value was $20.4 and the closing share price last Friday was $19.57. This created a discount at that time of -4.43, slightly higher than the similar CEF HPI. Information about these funds can be found at the sponsor's web site: John Hancock Funds - Closed-End Funds - Daily Prices The discount did expand yesterday to -5.35 based a closing price of $19.27 and a NAV of $20.36.
The discount on BHK is also expanding some, closing at -5.91 yesterday and at -3.72 on Friday. The NAV for BHK was $14.05 per share as of 10/18/2010. The NAV increased by nine cents from last Friday while the share price declined by 22 cents, thereby increasing the size of the discount to net asset value.
The expense ratio for HPI, before interest expense, is 1.29% before fee waivers and 1.2% after waivers. With the interest expense, the expense ratio was 1.8% for the F/Y ending in July 2010, down from 2.55% in F/Y 2011: see page 17, www.sec.gov. The current interest rate paid by the fund is 1 month Libor plus .85%, plus a commitment fee paid annually (see page 24). The 1 month LIBOR rate is around .26% currently: Key Rates Rates - Bloomberg 1 Month LIBOR As of 7/31/2010, the fund had borrowed 205.3 million at an interest rate of 1.155%. So, for now at least, there is a good spread between the cost of borrowing and the yield produced by the securities bought with leverage. But the 1 month LIBOR rate is currently at an abnormally low rate by historical standards. LIBOR Rates History (Historical)