Tuesday, March 22, 2011

Added 30 Intel at 19.91/AGNC SVU/Alon Refining Krotz Springs/Added 300 of the bond CEF MMT at 6.61/Cisco's Miserly Dividend/Google/

Cisco (owned) announced last week its first dividend, a 6 cent per share quarterly dividend.  That is just ridiculous. At a $17 price, the annualized yield would only be 1.41%. It would be better for this cash rich company to just continuing stiffing its shareholders than to pay them at such a miserly rate. Although the shares rose some in response to the news last Friday, it is impossible for me to understand why.

Benchmark raised its earnings estimates for Google, noting that its channel checks revealed strong search advertising.  The estimate for the 1st quarter was raised to $8.17 per share and to $34.77 for 2011. Barrons.com The analyst noted that Google was selling at a P.E.G. ratio of 1 and 16 times earnings, a point that I made a few days ago when the RB bought 5 shares.  RB Buys 5 GOOG at 578 (3/16/2011 Post) The RB actually tried to buy a million shares, but was restrained by the Nerd Machine, LB.

An article in this week's Barrons, written by Jonathan Laing, attempts to make the case for SuperValu (SVU) as a value stock.  SVU made a really serious mistake in acquiring Albertson's in 2006, thereby increasing its debt by 6 billion dollars.  SVU's shareholders would be far better off without that acquisition and the debt load that came with it. The shares topped out in 2007 at near $49 and traded below $7.50 earlier this year. SuperValu Chart | SVU Interactive Chart   Instead, as noted in the article, the proper strategy was to expand the no-frills discount stores that are largely located in densely populated areas, whose population is not likely to be served by Wal-Mart, Target and Costco anytime soon. SVU is making progress in paring its large debt burden with cash flow, but is not showing revenue growth in its traditional grocery store business. I noted recently that the last earnings report was disappointing, and competition is fierce in that business. Item # 3  SVU EARNINGS

Instead of buying the common shares, which do have turnaround potential, I have opted to buy four different senior bonds.  I am taking credit risks with all of the bonds.  I am comfortable with both the interest rate and credit risk for the two bonds maturing in 2014 and 2016, issued by SuperValu. 1 SuperValu 7.5% Senior Bond Maturing 11/15/2014 at 97.8 (12/29/2010 Post);  1 SuperValu 8% Senior Bond Maturing 5/1/2016 at 98.73 (12/1/2010 Post) I have also bought two Albertson senior bonds with YTM's of over 10% at my cost but have maturities that enhance my credit and interest rate risk due to their duration. 1 Albertsons 7.75% Senior Bond Maturing 6/15/2026 at 80 (2/8/2011 Post);  1 Albertsons 7.45% Senior Bond (now part of SVU) Maturing 8/1/2029  at 77 (12/6/2010). The intent now is to hold the shorter term bonds until maturity and to sell the longer dated maturities when and if I can make a 10+% profit on the sale excluding interest payments.  SVU's long-term debt is listed at page 11 of its last filed Form 10-Q.

American Capital Agency (AGNC) was ex dividend yesterday for its quarterly distribution of $1.4 per share.  American Capital Agency announced another large stock offering after the market's close yesterday. This company is just way too hyper-active in issuing new shares, which is one reason why I limited my purchase to just 35 shares.   Bought AGNC at 29.29 The foregoing linked press release indicates that 28 million shares were sold, estimated to raise 780 million dollars. The company did not state the price in the press release but my math indicates $27.86.  The stock closed at $29.10 in trading yesterday. A similar company, Annaly Capital Management, announced a 62 cent quarterly dividend, a two cent reduction from the prior penny rate.   

1. Added 300 of the Bond CEF MMT at 6.61 on Friday-Satellite Taxable Account (see Disclaimer): This last purchase of the bond CEF MMT brings me up to 700 shares, with 100 shares held in a retirement account.  Dividends are paid monthly at the current rate of $.044 per share. MFS Multimarket Income Trust-Distributions At a total cost of $6.61, this equates to a 7.99% yield.  

As of last Friday's close, the net asset value per share was $7.36 and the discount to NAV was -10.05.   The current net asset value can be found at the fund's web page: MFS Closed-End Funds.  It is also available at the Closed-End Fund Association web site and at the WSJ.  The NAV increased a penny on Monday. 

The fund is weighted in junk rated bonds:  Portfolio Characteristics

The last SEC filed shareholder report is for the period ending 10/31/2010: MFS MULTIMARKET INCOME TRUST

Further discussions of this bond CEF can be found in earlier posts:  Bought 300 MMT at 6.95 (10/4/2010) and  Bought 100 MMT @ 6.67 (11/18/2010). After paying several monthly dividends, the fund's net asset value closed last Friday three cents above the net asset value noted in the post discussing the October 2010 purchase at $6.95.  The decline in market price has been due solely to an expansion of the discount to net asset value.  This is a fairly common phenomenon among closed end bond funds over the past several weeks.  

2. Added 30 to Intel Position at 19.91 on Friday (Large Cap Valuation Strategy) (see Disclaimer): At a total cost of $19.91, the dividend yield is about 3.65%.  That is the highest price paid that I have paid for Intel shares. Prior to this purchase, I have bought Intel shares between $14.46 and $19.08:  Bought INTC at 14.46 (October 2008); Bought Intel at $15.87 (October 2008); Bought Intel at 15.25 (May 2009); Added to Intel at $19.08 (November 2009); Added 40 Intel at 18.35 (August 2010);  Added:   40 INTC @ 19.16 (October 2010).

Intel declared its regular quarterly distribution of 18.2 cents, payable to stockholders of record on 5/7/2011.  This is a link to  Intel Corporation's Dividend Summary going back to 1992.  I am reinvesting the dividend to buy additional shares.

I discussed Intel's last earnings report in Item # 3  Intel

At $19.91, the P/E on estimated 2011 earnings is less than 10. The five year expected P.E.G. ratio is .83: INTC Key Statistics | Intel  Total cash per share is $3.99. Return on equity is over 25%. Return on asset is shown at the YF statistics page as 16.76.

3. Alon Refining Krotz Springs (own senior secured bond only)(Junk Bond Ladder Strategy):  This company operates the Krotz Spring refinery in Louisiana and is a subsidiary of Alon USA (ALJ).  Alon Refining recently filed its 2010 Annual Report.  For 2010, the company had 1.254663 billion dollars in revenues and lost 114.376 million dollars.  The company lost 101.966 million in the first nine months. Form 10 Q  Refinery utilization was reported at 46% for 2010, down from 65.3% in 2009.

I did not receive any solace from a brief review of this report. My only positive comment is that the OG did not tremble with anxiety after reviewing it.

Even though this bond has some security backing it up, it is still rated well within junk territory and has a 13.5% coupon.   Bought 2 Alon Refining Krotz Springs 13 1/2% Senior Secured bonds Maturing 10/15/2014  I view the bond as being extremely risky given the firm's awful earnings.

This is a link to the FINRA - Investor Information on this bond. This is a link to the prospectus.  Given the high level of risk, I will not even consider the possibility of owning more than 2 bonds.

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