Monday, February 27, 2012

Norwegian Krone/Colt Defense/Bought 50 SDIV at $22.33/RRD/Sold 50 ZBPRA at $20.43/Bought 50 ERF at $24.39-ROTH IRA

I was asked whether there are any ETFs for Norwegian companies. I have bought one, an offering by Global X, called the Global X FTSE Norway 30 ETF. The fund has over a 20% weighting in Statoil. I have considered buying at ETF that includes companies from Denmark, Norway, Finland and Sweden, called Global X FTSE Nordic Region ETF, but have not bought that one. The Nordic ETF includes some significant weights in stocks that I do not favor at the current time. These ETFs will be purchased primarily for diversification purposes. Part of that diversification objective involves the acquisition of assets priced in currencies viewed with some favor here at HQ.

This is a link to a long term chart of the NOK/USD. The NOK was gaining steadily against the USD until the Near Depression period when investors flocked to the USD. The NOK has started to rise again in fits and starts after bottoming at around .1376 in December 2008. Last Friday's close was at .1794.

Just by way of example, $10,000 USDs would have bought about 72,689 NOKs on 12/5/08, near the height of the USD rally against the NOK, and 55,747 NOKs last Friday. Ideally, a U.S. investor, wanting to buy a Norwegian company, would have picked his spot sometime in December 2008, where he could have gotten the best bang for his USDs and stock prices were really in the pits. {when the NOK/USD was near .2 on 6/2/08, before the temporary ascendancy of the USD, $10,000 USDs would have bought about 51,282 NOKs.} Bloomberg

Colt Defense filed its 2011 Annual Report with the SEC last Friday. For the year, the company reported net income of $5.196 million on $208.81 million in revenues, up from a 2010 loss of $11.17 million on $175.805 million in revenues. Sales to the U.S. government declined 34% in 2011 compared to 2010. That is a matter of concern. A large international order received early in 2011 helped the company increase international sales by 76%. The higher overall sales volume improved the efficiency of Colt's two plants.

Colt's right to be the sole source of M4 carbine sales to the U.S. government expired in July 2009 and sales since that time has been on terms of an indefinite quantity and delivery. The U.S. Army is evaluating new carbines to potentially replace the M4. (see page 26, 2011 Annual Report). Backlog was $176.7 million as of 12/31/2011, up from $165.7 million as of 12/31/2010. The company also discussed the possibility of a strike when its labor contract expires on 3/3112. (see page 27). The company ended 2011 with $38.236 million in cash and cash equivalents. Page 68 reveals an operating profit for the 4th quarter of $5.437 million on 64.886 million in revenues. I am barely comfortable owning just 1 bond and will not buy another one. I own 1 of the 8.75% senior notes maturing in 2017, discussed at page 55. FINRA According to FINRA, that bond is currently rated Caa1 by Moody's and B- by S & P.

1. Bought 50 of the ETF SDIV at $22.33 Last Tuesday-ROTH IRA (see Disclaimer): This ETF may be the highest yielding ETF that focuses on dividend paying stocks. Global X Funds I examined the portfolio, and there was an eclectic selection of securities. Global X  SuperDividend ETF Holding The fund seeks to track the performance of the Solactive Global SuperDividend index. That index "tracks the performance of 100 equally weighted companies that rank among the highest dividend yielding equity securities in the world".   The management fee is .58%. When you include the acquired fund fees of Business Development Companies, the expense ratio is .79%. The fund owns several American BDCs and Mortgage REITs which is what I expected to see. 

Dividends are paid monthly and will be variable based on the income received by the fund. Distributions The fund's first distribution was in July 2011. Since the dividend rate is variable, financial websites have the yield wrong, making the incorrect assumption that the last dividend payment is a fixed amount applicable for a 12 month period. With 5 months left in its first year, the fund has paid about $1.01 per share cumulatively for 7 months. I would just hazard a guess that the yield for the entire first year will end up being over 6% assuming a total cost of $22.33 per share. 

I am increasing to a slight extent my equity exposure in the ROTH IRA. 

Last Tuesday, the day of my purchase, the Global X SuperDividend ETF (SDIV) closed at $22.36, slightly above my purchase price. On Friday, this ETF closed at $22.57.

2. RR Donnelley (own 3 bonds only): For the 4th quarter, RRD reported non-GAAP earnings of $85.2 million or 46 cents per share, down from 51 cents in 2010 4th quarter.  SEC Filed Press Release The GAAP number was a loss of $1.78 per diluted share, due primarily to a non-cash impairment charge. The company expects adjusted earnings per share of $1.85 to $1.92 for 2012. Year end debt totaled $3.7 billion or $278.7 million less than at the end of the 2011 third quarter.

The bonds performed better after the report. The 2021 senior bond closed at 102 last Friday, and I bought it recently at 92.69 (2/13/2012 Post), though most of the trades were in the 99 to 101 range. The common stock (RRD) rose 55 cents in trading last Friday to close at $14.1.

3. Sold 50 ZBPRA at $20.43 Last Wednesday (see Disclaimer): This non-cumulative equity preferred stock goes ex dividend for its quarterly distribution on 2/28/11. I decided to exit the position near break-even. Bought 50 ZBPRA at $20 (JULY 2011 Post). I had more success with this security when I initiated my position  at much lower levels: Bought 100 ZBPRA at $7.8Sold 100 ZBPRA @ 18.95Bought 50 ZBPRA at 12.5 in IRA-SOLD ZBPRA in IRA at $16.85

ZBPRA pays qualified dividends on a non-cumulative basis at the greater of 4% or .52% above the 3 month LIBOR rate on a $25 par value.

Advantages and Disadvantages of Equity Preferred Floating Rate Securities
Floaters: Links in One Post

Zions Bancorp Dep. Pfd. (Rep. 1/40th Interest in a Share of Fltg. Rate Non-Cum. Perp. Pfd. Series A closed at $20.32 last Friday.

4. Bought 50 ERF at $24.39 Last Wednesday-ROTH IRA/Earnings for 4th Quarter a Mild Disappointment (see Disclaimer): I mentioned in a post last week that I would test whether or not Canada would apply its 15% withholding tax for a dividend paid into a retirement account. ERF is a Canadian company that pays monthly dividends, so I will soon find out whether that claim is true. I recently discussed Enerplus: Bought 50 of the ETF VWO at $39.73/Added 90 ERF at $24.69 USDs (1/17/2012). One knock on the company is that about 50% of its production is natural gas. The price natural gas is depressed and likely to remain so for some time.

Recent events have contributed to positive price action for Canadian energy companies. Iran's decision to cut off supplies to Britain and France just highlights the importance of energy production from Canada.

Richard Lehmann recommended Enerplus in a recent Forbes column. ERF and MSPRA Mentioned In Latest Richard Lehmann Forbes Column He mentioned then that Canada exempted dividends paid into U.S. retirement accounts from its withholding tax. I could neither confirm or deny that claim. I read another article recently that claimed that Canada changed its law in 2009 providing for such an exemption. Withholding Tax Rates In another article, the author  asserts that dividends paid by regular Canadian corporations (as distinguished from trusts) into an IRA or 401 (k), for securities held in those retirement accounts, are exempt from the tax.  Canadian Tax Resource Blog  ERF used to be a trust but converted into a regular corporation over a year ago.

I am armed with enough material to complain to my broker in the event a tax is collected on the dividend paid into the ROTH IRA. Of course, for the dividend paid on ERF shares held in a taxable account, the tax will be deducted from the dividend payment. I will then claim a tax credit to recoup those payments.

After I made my purchase, Enerplus reported mildly disappointing results for the 4th quarter.    SEC Filed Press Release The NYSE traded shares fell 68 cents in response to that release and closed at $23.96 last Friday. ERF reported a 4th quarter loss of 299.4M due to a non-cash impairment charge of 334M relating to its natural gas assets. That is not surprising or disturbing given the recent nat gas prices and the likely persistence of low prices given the foreseeable supply-demand factors.

The real negative, from my point of view, is that cash flow fell to C$156.7 million (87 cents per share) from C$162.6 million (92 cents per share) in the year ago quarter.  MarketWatch (called "funds flow" in the ERF report at page 3) Either natural gas prices need to go up significantly, which I do not view as likely for at least a year, or ERF will need to move to a more profitable production mix.

On the positive side, ERF stated in a separate release that it replaced 175% of production in 2011 through the drill bit.

I would view a dividend cut, sometime this year or early in 2013, to be a significant and realistic possibility.

I now own 150 ERF shares and will probably not buy more until I see significantly more oil production or much better nat gas prices. 

No comments:

Post a Comment