I am mired in another matter, so there will not be much of an introduction in today's post.
When I opened my main taxable account yesterday, I noted a number of anomalies. For example, I own Quicksilver Resources (KWK) as a Lottery Ticket, which had jumped to $6.05 from Tuesday's close at $4.52. Maybe the Darden family had to decided to sell the company, the OG thought wishfully. So I checked the news and did not see anything. I thought for a moment, about two seconds was all it was worth, and decided to keep those shares. It would look silly to sell 50 shares bought at $5.3-LT at $6.05, after all the RB started to howl at that prospect. I was more interested anyway in the impact on my KWK senior bonds. I own three KWK senior bonds. I looked at their prices, and saw no upward movement. Shouldn't the bonds go up if KWK was going to be acquired by a more financially sound company, the OG mused? As it turned out, there was another trading glitch that impacted a large number of NYSE listed securities, including KWK, and it was just another screw up. KWK's stock faded from that intra-day high back to a $4.75 closing price. The NYSE will reportedly cancel the KWK trades at or above $5.91, WSJ, leaving at large number of investors who bought at lower prices directly impacted by the glitch in the usual "you are screwed mode, get over it".
I want to make a note relevant to Google searches of my blog. I find the search box to the right a handy tool and use it frequently myself to find material. I have noted two peculiar results from those searches that would also apply to searches at Google's site.
Sometimes, the search result will return a link to a Post from 2009, for example, that purports to contain a reference to a post written in 2012. I am not sure how that happens. Sometimes it may be due to a reference to that earlier post in a later post. I see that search issue frequently, and someone who is an expert may be able to explain how it happens. Another strange result happens when a search includes a reference to a subsequent post written shortly thereafter (e.g. search result shows a reference to the header (e.g. "using google search box") of a 8/2 post as if it was included in a 8/1 post on an entirely different matter, where there never was a reference to the 8/2 topic). I suspect that happens when the Google search engine groups together an archive of posts for a particular month which apparently is done by their machines. Anyone who uses Google searches for this blog will see these anomalies frequently.
I am having issues with some of my junk bonds. Anyone investing in this area is going to get clobbered on a few of them, and hopefully I will be able to realize enough gains to offset the inevitable losses. The reason for taking this risk, which is an uncomfortable one for the OG, is the Fed's Jihad Against the Saving Class likely to continue at least until the end of 2014. I am at least receiving a steady stream of income from that diverse assortment of senior bonds. I took a snapshot of the income paid by junk bonds into my main taxable account yesterday.
Payments for the most part occur on the 1st and 15th day of every month. Some months have higher rates than others:
I own just 2 Exide and Boise Cascade (now known as OfficeMax) bonds, and 1 bond each of the other two shown in this snapshot. Since I bought the Exide senior secured near 80, this will be highest yielding bond in this grouping based on my cost basis.
1. PCS (own 1 senior 2018: Junk Bond Ladder Basket Strategy): MetroPCS reported second quarter net income of $148.8 million or 41 cents per share, handily beating the consensus estimate of 22 cents, on a 6% increase in revenues to $1.28 billion.
When I opened my main taxable account yesterday, I noted a number of anomalies. For example, I own Quicksilver Resources (KWK) as a Lottery Ticket, which had jumped to $6.05 from Tuesday's close at $4.52. Maybe the Darden family had to decided to sell the company, the OG thought wishfully. So I checked the news and did not see anything. I thought for a moment, about two seconds was all it was worth, and decided to keep those shares. It would look silly to sell 50 shares bought at $5.3-LT at $6.05, after all the RB started to howl at that prospect. I was more interested anyway in the impact on my KWK senior bonds. I own three KWK senior bonds. I looked at their prices, and saw no upward movement. Shouldn't the bonds go up if KWK was going to be acquired by a more financially sound company, the OG mused? As it turned out, there was another trading glitch that impacted a large number of NYSE listed securities, including KWK, and it was just another screw up. KWK's stock faded from that intra-day high back to a $4.75 closing price. The NYSE will reportedly cancel the KWK trades at or above $5.91, WSJ, leaving at large number of investors who bought at lower prices directly impacted by the glitch in the usual "you are screwed mode, get over it".
I want to make a note relevant to Google searches of my blog. I find the search box to the right a handy tool and use it frequently myself to find material. I have noted two peculiar results from those searches that would also apply to searches at Google's site.
Sometimes, the search result will return a link to a Post from 2009, for example, that purports to contain a reference to a post written in 2012. I am not sure how that happens. Sometimes it may be due to a reference to that earlier post in a later post. I see that search issue frequently, and someone who is an expert may be able to explain how it happens. Another strange result happens when a search includes a reference to a subsequent post written shortly thereafter (e.g. search result shows a reference to the header (e.g. "using google search box") of a 8/2 post as if it was included in a 8/1 post on an entirely different matter, where there never was a reference to the 8/2 topic). I suspect that happens when the Google search engine groups together an archive of posts for a particular month which apparently is done by their machines. Anyone who uses Google searches for this blog will see these anomalies frequently.
I am having issues with some of my junk bonds. Anyone investing in this area is going to get clobbered on a few of them, and hopefully I will be able to realize enough gains to offset the inevitable losses. The reason for taking this risk, which is an uncomfortable one for the OG, is the Fed's Jihad Against the Saving Class likely to continue at least until the end of 2014. I am at least receiving a steady stream of income from that diverse assortment of senior bonds. I took a snapshot of the income paid by junk bonds into my main taxable account yesterday.
Payments for the most part occur on the 1st and 15th day of every month. Some months have higher rates than others:
I own just 2 Exide and Boise Cascade (now known as OfficeMax) bonds, and 1 bond each of the other two shown in this snapshot. Since I bought the Exide senior secured near 80, this will be highest yielding bond in this grouping based on my cost basis.
1. PCS (own 1 senior 2018: Junk Bond Ladder Basket Strategy): MetroPCS reported second quarter net income of $148.8 million or 41 cents per share, handily beating the consensus estimate of 22 cents, on a 6% increase in revenues to $1.28 billion.
This report is discussed in an article at Bloomberg The common shares soared 36.78% to close at $8.59 on the day of this release (7/26/12). PCS Historical Prices
Bought 1 MetroPCS 7.875% Senior Bond Maturing 9/1/2018 at 98 (August 2011)
2. KFN (own 150 shares/"units"): KKR Financial Holdings reported net income of $71.2 million or 39 cents per share. Book value per share was reports at $9.79.
The Board also announced a 21 cent quarterly dividend payment, up from 18 cents in the prior quarter. The ex dividend date is 8/7/12.
I briefly discuss in a post my understanding of a tax issue relating to owning KFN in a retirement account which is where I own 150 shares. That issue needs to be kept in mind. Item # 1 Added 50 KFN at $8.81-Regular IRA; see also National Association of Publicly Traded Partnerships
Quote: KKR Financial Holdings LLC (KFN)
3. Telefonica (own 3 senior bonds): Telefónica reported net profit of €2.075 billion for the first half of 2012. Of that amount, €1.327 billion was earned in the second quarter. Total accesses increased by 6% year-on-year to 312 million by 6/30/12. Accesses increased by 10% in Latin America to 208 million.Mobile broadband in Latin America doubled to 21.5 million. Revenues for the first six months totaled €30.96 billion. Operating income before depreciation and amortization declined 7.7% year-over-year to €10.431 billion. Free cash flow for the first six months was €1.727 billion. At the end of June, the net financial debt amounted to €58.31 billion.
TEF scrapped its 1.5 Euro per share dividend for 2012 and will resume only 1/2 of the payout in 2013. Next years payment will be €.75 per share paid in the 2013 4th quarter and another €.75 per share in second quarter of 2014. Together, those dividend savings will amount to about €10.2 billion. While unpleasant for stockholders, this reduction will be beneficial to TEF bond owners and will help TEF maintain its investment grade rating. The dividend cut is discussed in article at Reuters, the NYT and Businessweek.
Bought 1 Telefonica Emisions 5.877% Senior Note Maturing 7/16/19 at $91.067
Bought 1 MetroPCS 7.875% Senior Bond Maturing 9/1/2018 at 98 (August 2011)
2. KFN (own 150 shares/"units"): KKR Financial Holdings reported net income of $71.2 million or 39 cents per share. Book value per share was reports at $9.79.
The Board also announced a 21 cent quarterly dividend payment, up from 18 cents in the prior quarter. The ex dividend date is 8/7/12.
I briefly discuss in a post my understanding of a tax issue relating to owning KFN in a retirement account which is where I own 150 shares. That issue needs to be kept in mind. Item # 1 Added 50 KFN at $8.81-Regular IRA; see also National Association of Publicly Traded Partnerships
Quote: KKR Financial Holdings LLC (KFN)
3. Telefonica (own 3 senior bonds): Telefónica reported net profit of €2.075 billion for the first half of 2012. Of that amount, €1.327 billion was earned in the second quarter. Total accesses increased by 6% year-on-year to 312 million by 6/30/12. Accesses increased by 10% in Latin America to 208 million.Mobile broadband in Latin America doubled to 21.5 million. Revenues for the first six months totaled €30.96 billion. Operating income before depreciation and amortization declined 7.7% year-over-year to €10.431 billion. Free cash flow for the first six months was €1.727 billion. At the end of June, the net financial debt amounted to €58.31 billion.
TEF scrapped its 1.5 Euro per share dividend for 2012 and will resume only 1/2 of the payout in 2013. Next years payment will be €.75 per share paid in the 2013 4th quarter and another €.75 per share in second quarter of 2014. Together, those dividend savings will amount to about €10.2 billion. While unpleasant for stockholders, this reduction will be beneficial to TEF bond owners and will help TEF maintain its investment grade rating. The dividend cut is discussed in article at Reuters, the NYT and Businessweek.
4. PVR (own 1 senior 2018: Junk Bond Ladder Basket Strategy): Penn Virginia Resource Partners reported adjusted net of $9.6 million, compared to $23 million in the 2011 second quarter. SEC Filed Press Release The company was adversely impacted by "a very challenging coal market, low NGL prices and the migration to lower-margin fee-based contracts in the Mid-Continent segment".
Bought 1 Penn Virginia Resources 8.25% Senior Bond Maturing 4/15/2018 at 98
5. Bought 50 of the MLP ETF YMLP at 19.08 Last Friday (see Disclaimer): I would have bought a 100 shares of this ETF if it had been offered by a major fund family. Instead, the offering originates from a company (Yorkville) that was just off my radar screen altogether. I will probably add to the fund some in some lots at lower prices. This buy was in a taxable account.
Stock Quote: Yorkville High Income MLP ETF (YMLP)
This is a new fund. The first quarterly dividend payment was $.400503 per share. Yorkville High Income MLP ETF Distributions The website claims that the distribution yield is 8.45% based on last Friday's cling price of $19.08.
Added Later in the Day of Publication: I found at the fund's website a IRS Form 8937, wherein the fund estimated that the entire amount of this last payment would be classified as a return of capital. www.yetfs.com.pdf
The expense ratio is shown as .85%.
The fund holdings include energy exploration companies, unlike the other MLP ETFs that I own, which is why I decided to buy some shares. Yorkville High Income MLP ETF Holdings
One of those companies is Linn Energy, which I sold after pulling my hair out one year preparing the Linn section of my tax return:
Sold 100 LINE at 25.90 (June 2010)
With the ETF, I avoid that kind of headache. I am willing to give up some yield to avoid the tax preparation issues. If you have an accountant and enjoy paying them for the time spent figuring out the K-1s, then you may end up being worse off going that route. LB prepares Headknocker's return for free. The avoidance of this tax issue is discussed in the following article at Motley Fool.
At my age and my unwillingness to pay an accountant to prepare my tax return, I try to avoid tax headaches whenever possible.
Quote: Yorkville High Income MLP (YMLP)
6. France Telecom (own 100 Shares): FTE reported consolidated net income for the first six months of €1.909 billion on a 1.9% decline in revenues to €21.843 billion. France Telecom SEC Filed Press Release The company confirmed its target of achieving operating cash flow of close to €8 billion. The company stated that it dividend distribution policy was to pay 40% to 50% of its operating cash flow. The amount of the next dividend will be € .58 per share:
France Telecom SEC Filed Investor Presentation
This report is discussed in a Reuters article.
Earning Call Transcript - Seeking Alpha
Morningstar has a 5 star rating on FTE with a consider to buy price at $16.1 or below.
An investor has no foreign tax credit associated with dividends paid into a retirement account. A good article on this topic, which lists the countries and their tax rates, can be found at Foreign Tax Credit. Some countries, like Canada, do not apply their withholding tax for dividends paid into an IRA. France will require a tax withholding irrespective of whether the dividend is paid into a taxable or retirement account.
Quote: France Telecom ADS (FTE)
I will only add to FTE in my Vanguard and Fidelity accounts, since those are the only two brokerage firms which I use that applied for and received "relief at source" which reduced my tax withholding by France from 30% to 15%. I recently sold at a small profit 105+ shares of FTE held by a broker who would not file for "relief at source". Item # 2 Sold 105+FTE at $13.4 (7/23/12 Post)
Bought 1 Penn Virginia Resources 8.25% Senior Bond Maturing 4/15/2018 at 98
5. Bought 50 of the MLP ETF YMLP at 19.08 Last Friday (see Disclaimer): I would have bought a 100 shares of this ETF if it had been offered by a major fund family. Instead, the offering originates from a company (Yorkville) that was just off my radar screen altogether. I will probably add to the fund some in some lots at lower prices. This buy was in a taxable account.
Stock Quote: Yorkville High Income MLP ETF (YMLP)
This is a new fund. The first quarterly dividend payment was $.400503 per share. Yorkville High Income MLP ETF Distributions The website claims that the distribution yield is 8.45% based on last Friday's cling price of $19.08.
Added Later in the Day of Publication: I found at the fund's website a IRS Form 8937, wherein the fund estimated that the entire amount of this last payment would be classified as a return of capital. www.yetfs.com.pdf
The expense ratio is shown as .85%.
The fund holdings include energy exploration companies, unlike the other MLP ETFs that I own, which is why I decided to buy some shares. Yorkville High Income MLP ETF Holdings
One of those companies is Linn Energy, which I sold after pulling my hair out one year preparing the Linn section of my tax return:
 |
| 2010 LINN 100 Shares +$971.28 |
With the ETF, I avoid that kind of headache. I am willing to give up some yield to avoid the tax preparation issues. If you have an accountant and enjoy paying them for the time spent figuring out the K-1s, then you may end up being worse off going that route. LB prepares Headknocker's return for free. The avoidance of this tax issue is discussed in the following article at Motley Fool.
At my age and my unwillingness to pay an accountant to prepare my tax return, I try to avoid tax headaches whenever possible.
Quote: Yorkville High Income MLP (YMLP)
6. France Telecom (own 100 Shares): FTE reported consolidated net income for the first six months of €1.909 billion on a 1.9% decline in revenues to €21.843 billion. France Telecom SEC Filed Press Release The company confirmed its target of achieving operating cash flow of close to €8 billion. The company stated that it dividend distribution policy was to pay 40% to 50% of its operating cash flow. The amount of the next dividend will be € .58 per share:
France Telecom SEC Filed Investor Presentation
This report is discussed in a Reuters article.
Earning Call Transcript - Seeking Alpha
Morningstar has a 5 star rating on FTE with a consider to buy price at $16.1 or below.
An investor has no foreign tax credit associated with dividends paid into a retirement account. A good article on this topic, which lists the countries and their tax rates, can be found at Foreign Tax Credit. Some countries, like Canada, do not apply their withholding tax for dividends paid into an IRA. France will require a tax withholding irrespective of whether the dividend is paid into a taxable or retirement account.
Quote: France Telecom ADS (FTE)
I will only add to FTE in my Vanguard and Fidelity accounts, since those are the only two brokerage firms which I use that applied for and received "relief at source" which reduced my tax withholding by France from 30% to 15%. I recently sold at a small profit 105+ shares of FTE held by a broker who would not file for "relief at source". Item # 2 Sold 105+FTE at $13.4 (7/23/12 Post)
Don't feel bad about your junk bonds, I got too cocky after having successes, I over-reached for (3) Thompson Creek @ $96, now they are $78 and I figure I need 3 more($135) coupons to make up my loss. That new mine is costing them a bunch to finish.
ReplyDeleteRead "Short side of long..." here, very interesting divergences when comparing equal-weighted S&P (Value Line)
ReplyDeletehttp://www.etfmaintrends.com/wordpress/
The costs for Thompson Creek's Mount Milligan project seems to be raised fairly frequently and in significant amounts. Production is not scheduled to start until the later part of 2013, and no one would be surprised with more cost estimate increases.
ReplyDeleteAnd will the final cost be worth it? The estimated life of the mine is 22 years, with an annual copper production of around 81 million tons of copper. I believe that a lot of the gold income stream has been sold to help finance the construction. I may be wrong about that point. My memory on those kind of issues is always subject to dispute.
I have not bought either of the two TC senior unsecured bonds. Possibly, if someone would let me buy just one, I might take a flyer on your 2018 bond, with the 7.375% coupon, at below 80. Or, if I could buy the newer one with a 12.5% coupon and a 2019 maturity at around 95. I am likely to buy more than 1 TC bond, until I have a much better feel for the profit potential, if any, of this Milligan project.
By reaping a number of small gains in the junk bond basket, I have a net profit so far, which covers the near total loss on 1 General Maritime and some Edison Mission bonds. But, I have unrealized losses in 4 bonds that have defaulted, with 1 AMR being the only one so far with a relatively small loss. Altogether, after netting out net realized gains and net unrealized gains and losses, I may be down around 3 grand, so I have my work cut out to achieve my ultimate goal of break-even on the bonds, when I move out of this strategy into a similar one for investment grade bonds, hopefully in 4 to 6 years when I may be able to pick up much better yields than now with those better quality bonds.
For now, junk is where I can still find yield, but I would much prefer playing in an entirely different sandbox.
I am receiving a good income stream from these securities. I am not comfortable owning more than seventy thousand in principal amount and my current exposure is closer to 60.
Yes, buy only one of most. I had to buy 3 min of TC bonds at the time :~(
ReplyDeleteThen there's the issue w/ Fidelity that they won't let you sell less than 5 often :~(
I have avoided losing on TC because no one will sell me one bond. I do buy bonds at Fidelity. The TC bonds, one or both, will come up in my daily search of high yield bonds yielding more than 7% at the ask price and selling for less than 100. I click that button that shows the order book and the minimum number is invariably to high.
ReplyDeleteYou would pay slightly more commission by calling a Fidelity bond broker who could, if they choose, put a sell order "out to bid" for less bonds than the minimum bid shown in their order book. If there is a dealer wiling to buy 3 at a specific price, then you would receive an email from Fidelity and you could actually enter an order for 3 at that price. The order would then be routed to the dealer who gave you the quote. I have never done it, but Fidelity told me how that would work