Monday, April 28, 2014

Update for Regional Bank, REIT and Lottery Ticket Basket Strategies/Bought: 50 RSO at $5.56 and 150 RSHYY at $1.536/Sold RSH and LF for Losses/FISI, FNB, MBVT, HBAN, WTBA, CBU, WASH, TRST, CCNE, CZNC

Closing Prices Last Friday:
^IXIC: 4,075.56 -72.78 (-1.75%) : NASDAQ Composite
^RUT: 1,123.03 -21.32 (-1.86%) : Russell 2000
KRE: $38.77 -0.52 (-1.32%) : SPDR S&P Regional Banking ETF
VNQ: $72.07 -0.28 (-0.39%) : Vanguard REIT ETF
PFF: $39.24 +0.08 (+0.20%) : iShares US Preferred Stock ETF

The regional bank and lottery ticket basket strategies are updated on the last Monday of each Month. The price shown in the following tables will be from last Friday.

Last Update: Stocks, Bonds & Politics: Update for Lottery Ticket, Equity REIT and Regional Bank Basket Strategies/RFMD/Bought in LT Basket: 30 ARCO at $9.03, 30 CYS at $8.58/Cash Flow Main Taxable Account 3/31

I frequently use a basket approach, particularly with industry sectors, that will vary in size as to the number of components. The focus will be on the total return of the basket, rather than individual components. Some of the advantage to this approach include diversification and risk mitigation. I am not concerned about a few mishaps provided other components are doing better than I anticipated when I made the initial purchase. As noted previously, I have been surprised by some of best and worst performers in the regional bank basket.

I will periodically include an update of the REIT Common and Preferred Stock Basket. I recently published the first table of a recently initiated basket featuring equity REIT common and preferred shares. Stocks, Bonds & Politics: Equity REIT Common and Preferred Stock Table as of 3/5/14

1. Update of Lottery Ticket Basket Strategy 

The Lottery Ticket Basket Strategy uses a deep contrarian value strategy, appropriately characterized as catching a "falling knife". A common criteria for the stocks contained in this basket is a smashed stock price at the time of purchase and an ugly looking chart, though I may occasionally buy one who does not fit those common criteria. Any technical analyst would most likely have a sell rating on the stock.

See 2004 Study by the Brandes Institute: "Falling Knives Around the World" 

Selections are made primarily on statistical criteria including price to book, price to sales, forward P/E, cash per share and/or free cash flow. I spend anywhere from thirty minutes to an hour researching a potential purchase prior to purchase.

For many selections, I may be pessimistic about the firm's future, but not as pessimistic as the market. I will also occasionally see a ray of light at the end of a dark tunnel. Since I expect failures, which are inevitable and unavoidable in this kind of approach, I limit my exposure to $300 per stock plus any prior trading profits. 

After experiencing some success with this strategy, I now have a requirement that my total investment in all LT holdings can not exceed my total realized gains for this basket strategy. My total exposure is currently slightly under $6,000.

The name of the strategy aptly describes the risk. It is somewhat analogous in many cases to playing a hand of blackjack for the purchase amount knowing that the card count favors the house. It is a form of entertainment and an alternative to a casino visit. Based on the results to date, this strategy is far more likely to produce positive results even with the LB's skill at the tables. The primary purpose of the LT strategy is to entertain Right Brain, let it swing for the fences with up to $300, and to keep the Nit Wit from interfering with Left Brain's management of Headknocker's portfolio.

Snapshots of realized gains can be found at the end of the Gateway Post on this topic: Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post
Net Realized Gains: $14,024.

 Click to Enlarge:
Lottery Ticket Basket as of 4/25/14
Leading Unrealized Gains as of 4/25:

 AMOT remains in first place:
AMOT 88.82%
FCE/A at +57.87% and FCF at 40.9%
ING +50.43%
RFMD +49.65% (fell 6.44% last Friday; only buy this year in top 5 unrealized gains)
New Entrant:
Alumina (AWCMY) +40.98%
A. Bought 150 of RSHYY at $1.536 (see Disclaimer): RB went way off the reservation and into outer space with this buy.

RB has a fondness for hydroelectric power plants, clean energy and all of that stuff, and it apparently did not matter to the NIT WIT that the RSHYY power plants are located in Russia (soon to be renamed PutinStein), and the ordinary shares are priced in depreciating Rubles.

Snapshot of Trade:


RusHydro JSC is a Russian company that owns hydro-electric plants in the motherland which immediately required the LB to categorize this stock as a Lottery Ticket. According to the profile at the pink sheet exchange, RSHYY is the largest hydro-generating company in Russia and the second largest in the world.

LB refused to do any research, noting that it was too dangerous to visit any website in Russia and highlighting the recent experiences of unsuspecting foreigners who used their cellphones during the winter Olympics. Within a few minutes, the phone would be infected with all kinds of viruses. CNET (some disputed those reports, but I had no trouble believing them) So, since I could not find any earnings reports available outside of the Russian Federation, I did not review any.

Instead, I simply made the selection based on statistical data found at YF:

RSHYY Key Statistics as of 4/9/14
TTM P/E: 7.68
P/S: .56
P/B: .31
Operating Margin (ttm): 17.71%

I was not looking for a Russian company to buy as a LT. I simply read at an article published by Barrons.com, who quoted a "savvy" money manager who identified this company as one poised to double or triple. The article references that analyst estimates compiled by FactSet show earnings per share rising from 9 rubles in 2014 to 13 rubles in 2016. Assuming that estimate is based on the ADR per share, rather than the ordinary share E.P.S., and that is not clear, the USD 2016 E.P.S. for the ADR would be about $.3645 at the 4/9/14 exchange rate or around a 4.225 P/E.

I am okay with refusing to review reports which may be available at this firm's website, since I would not place much faith in them anyways. Vlad has created a state built on "cronyism and Kleptocracy", as noted by The Washington Post, and that kind of economic system is not run for the benefit of shareholders or average citizens.

And, it is well known what happens to a company that upsets Vlad. Tax problems will be discovered capable of sinking the company who has offended Putin, and there is no protection from a compliant judiciary who would never challenge the official line. One only need to remember what happened to Yukos.

Another problem is that the perpetual mismanagement of the Russian economic system is causing a devaluation of the Ruble against the USD. USD/RUB Currency Conversion Chart Russia is like Argentina, where the ruling elite has found myriad ways to keep the nation from ever coming close to its potential.

I did translate Rubles into USDs before entering the order. Each ADR equals 100 ordinary shares. The ordinary shares closed on the day of my purchase at .55 Rubles.Federal Hydro-Generating Company RusHydro OAO (HYDR.MM) So, I converted 55 Rubles into USDs and came up with a $1.54 price for the ADR:


Needless to say, I would not view the Ruble as a desirable store of value, and there is considerable risk without question that its value may continue to slide against all major currencies including the USD. A further decline in the RUB versus the USD after my purchase will be reflected in the USD price of RSHYY. Russia is a terribly mismanaged country.

B. Bought 50 RSO at $5.56 (See Disclaimer):

Snapshot of Trade:




Resource Capital Corp. (RSO) is a paper REIT that primarily focuses on "originating, holding, and managing commercial mortgage loans and other commercial real estate-related debt and equity investments". Risks associated with those companies are both numerous and significant, as shown in RSO's long summary of them starting at page 17 of its recently filed 2013 Annual Report: RSO-2013.12.31-10K  Paper REITs had an awful 2013 which is reflected in the ETF REM chart, which is not adjusted for dividend payments: iShares Mortgage Real Estate ETF Chart

Resource Capital Corp. (RSO) Dividend Date & History - NASDAQ.com

If I assumed a continuation of the current $.2 per share quarterly distribution, which does not appear to be a reasonable one to me at least, then the dividend yield at a total cost of $5.56 would be about 14.39%.  A reduction to $.15 would equate to a 10.79% yield at the $5.56 total cost number.

I own 150 shares of RSO's cumulative equity preferred shares. I last discussed this REIT when buying 50 shares of  RSOPRA: Item # 6 Bought 50 RSOPRA at $23.79 (3/24/14 Post)

The common shares have a higher current yield, but it would not be surprising to see a dividend cut based on the current payout of per share and the last earnings for the Q/E 12/31/2013. Adjusted FFO for 2013 was $.74 per share and RSO paid out $.8 per share in dividends.

3. Sold 40 RSH at $1.79 (see Disclaimer): LB wanted to emphasize that this is what happens when RB is allowed to do anything without adult supervision:

Snapshot of Loss
20l4 Sold 40 RSH -219.91
I just gave up on this one.

4. Sold 40 LF at $6.76  (see disclaimer): 

Snapshot of Loss:

2014 LF 40 shares -$45.11
Bought 40 LF at $7.49 (November 2013)

I simply view the trend toward lower cost tablets with more free or lower cost programs for children to be a major headwind for LeapFrog.

I netted $199.1 on a prior 100 share flip. Sold 100 LF at $10.01 (6/15/13 POST)

I will quit while I am ahead.

Staff here at HQ has noted that the RB has tilted the recent LTs buys toward those producing income and slightly away from non-income producing LTs like RSH and LF.

2. Update for REIT Common and Preferred Stock Basket:

 The REIT basket held up well last Friday, declining only $135.85 or .18%, slightly better than the VNQ decline of .39%.

This basket continues to expand, though there have been some preferred stock deletions under the current trading guidelines. The first publication of this basket was made on 3/5/14: Stocks, Bonds & Politics: Equity REIT Common and Preferred Stock Table as of 3/5/14 I am using a blended strategy of including both common and preferred stocks. I have also recently initiated a starter type position in VNQ which can be bought commission free in my Vanguard brokerage account. I am not discussing most of those small ETF adds.

Since the last update on 3/31/14, I have deleted a few preferred stock holdings in this basket:

Sold 50 AREPRE at $24.8-Regular IRA;

Sold: 50 NNNPRD at $24.06

I have added some common stock positions and one preferred stock:

Bought 200 Northwest Healthcare REIT at C$9.79;

Bought 200 KMP:CA at C$10.16;

Bought 100 ARCPP at $22.76;

Bought: 100 CSG at $7.73 and 100 Cominar REIT at C$18.14

The table also reflects some additions and one deletion that will be discussed in subsequent posts. The two additions are Canadian REITs. The deletion was SLGPRI. 

Click to Enlarge:

REIT Basket as of 4/25/14
This table does not include one of two recently added Canadian REITs.

3. Update for Regional Bank Basket Strategy:

This strategy is explained in my Gateway Post on this topic:

There were no positions sold or added since the last update. 

Snapshots of realized gains and losses can be found at the end of that post.

The dividend yield showed in this table is calculated by Yahoo Finance based on last Friday's close. My dividend yield for each position will be different based on my total cost numbers. In most cases, with FNFG and VLY being notable exceptions, my dividend yield will be higher.

Dividend Yields Based on Total Cost Over 5%:
NYCB: 8.44%
UBCI: 7.66%
WASH: 7.56%
TRST: 5.1%

I am not tracking reinvested dividends in the following table. The unrealized gains per holding do not include reinvested dividends.

Over the life of this basket strategy, I anticipate that the dividends will provide 40% to 50% of the total return. I am generally keeping my total exposure between $40,000 to $50,000.

I am currently about $5,000 below the lower end of that range, as shown in the table below (subtract total unrealized gain from total value shown)

Several stocks previously sold at higher prices are moving back into my fair value range. The price declines over the past few weeks have brought a few others near the upper end of my fair valuation range.

I have not been impressed with several of the 2013 4th quarter and the 2014 first quarter earnings reports from regional banks. While net interest margin has not contracted much, it is yet to show any expansion either for most banks. Chart: Net Interest Margin for all U.S. Banks - St. Louis Fed

One ETF will own several of the small cap regional banks and REITs that I own now or have owned in the past: PSCF | S&P SmallCap Financials Portfolio

In 2013, my dividend total from this basket totaled $1,932,93, up from $1,896.25 in 2012 and $1,660.57 in 2011. I will have to increase my current exposure significantly in order to exceed the 2013 amount this year.   

Regional bank stocks have declined since my last update, as interest rates started to go back down. The abnormally low rates benefited banks some when deposit yields were repriced down, but even 5 year bank CDs taken out in 2008 at higher rates have now matured, and the positive impact of that repricing is no longer present. Instead, the decline in rates compresses net interest margin. When rates were rising last year, regional bank stocks were in an uptrend based on the common belief that higher intermediate and long rates would be a net positive for them, particularly when short terms were likely to remain near zero through mid-2015 and then rise slowly and modestly in 2016-2017. The rate spike starting last May impacted intermediate and long term rates. Short term rates remained anchored by ZIRP. 

The SPDR S&P Regional Banking ETF closed at $42.15 on 4/1/14. KRE closed last Friday at $38.77, or an 8% decline since 4/1/14. It looks like this sector will be in correction territory soon.

 The problem is highlighted by regional bank earnings for the first quarter. Money center banks have sources of income that are not meaningfully available to small banks whose bread and butter primarily involves taking deposits and lending those funds to small businesses and individuals. 

 A story last week in the WSJ.com noted that new home loans, an important lending activity for smaller banks, fell to a 14 year low during the first quarter. The refinancing tsunami has just about run its course.

Realized Gains: $15,808.58
Dividends Computed Annually Only 2010-2013: $6,623.72 
Total=$22,432.3
Click to Enlarge:
Regional Bank Basket as of 4/25/14
 A. Citizens & Northern (CZNC): The 2014 first quarter report for this small PA bank is about what I expected given the current conditions. Net income was reported at $4.288M or $.34 per share, unchanged from the 2013 first quarter. SEC Filed Press Release

Data Taken from ex99-2
Net Interest Margin: 3.89% (down from 4.18% in 2013 1st quarter)
ROA: 1.41% (above average)
ROE: 9.41% (prefer over 10%)
Tangible Book Value Per Share: $13.9

The decline in net interest margin highlights the problem.

The capital ratios are very high, but the NPA ratio increased to 1.44% from .83% in the year ago quarter. The increase in NPA was due to two large commercial loans going into non-accrual. Needless to say, that is a negative. An investor wants to see both the NPA and NPL ratios declining as the economy improves.

Ratios: 2014 1st Q vs. 2013 1st Q
The dividend yield is good at the current quarterly rate of $.26 per share. Citizens & Northern Corp (CZNC) Dividend Date & History - NASDAQ.com While the payout ratio is high, the bank has a large capital cushion as shown in the preceding snapshot.

B. CNB Financial (CCNE): CNB is another small bank based in PA and had a better report than CZNC.  SEC Filed Press Release

2014 1st Q vs. 2013 1st Q:
E.P.S.: $. 36 / $.34
Net Interest Margin: 3.79% / 3.41% (a notable increase)
ROA= .97% (okay, prefer over 1% or higher)
ROE: 11.97% (fine)
Net Charge Offs-Total Loans: .18% / .47% (good to go down)
NPA Ratio: .62% / .93% (better)
Total Risk Based Capital Ratio: 14% / 15.53%
Tangible Common Equity/Tangible Assets: 6.7% / 7.51% (a negative)

C. Washington Trust: WASH reported net income of $9.3M or $.55 per share for the 2014 first quarter, up from $.45 in the 2013 first quarter. The consensus was for $.57 per share.

SEC Filed Press Release
Net Interest Margin: 3.34%, up from 3.24% in the 2013 4th quarter
NPA Ratio: .45%
Coverage Ratio: 199.23%
ROA: 1.17%
ROE: 11.1%
ROTE: 13.7%
Tangible Equity to Tangible Assets: 8.7%
Total Risk Based Capital Ratio: 13.56%

My largest unrealized percentage gain is in my remaining 50 WASH shares: Bought 100 WASH at $15.26 (January 2010)-Sold 50 of 100 WASH @ $22.44 (January 2011)

The current E.P.S. estimate for 2015 is $2.51.

D. TrustCo Bank Corp of New York: TRST reported net income for the 2014 first quarter of $11M, up from $9.2M in the 2013 first quarter. SEC Filed Press Release

E.P.S.= $.116, up from $.113
Net Interest Margin: 3.13%
Efficiency Ratio: 51.28%
ROA: .99%
ROE: 12.09%
NPA Ratio: 1.18%
Annualized Charge-Offs=.3%
Coverage Ratio: 104.7%
Tangible Equity Ratio: 8.11%
Branches: 139

Earnings Call Transcript - Seeking Alpha

E. Community Bank System (CBU): Community Bank System reported net income of $22.2M, up 9.5% from the year ago quarter. E.P.S. increased to $.54 from $.5. The consensus estimate was for $.52. Net interest margin increased to 3.94% from 3.86%, while the efficiency ratio decreased to 59.2% from 60.3%.



CBU Analyst Estimates

Earnings Call Transcript - Seeking Alpha

For a bank, CBU has a good dividend history. Community Bank The dividend was not cut during the last recession. The quarterly dividend did remain at $.22 from the 2008 third quarter through the 2010 first quarter. The dividend has been raised $.0438 per share in 1986 to the current rate of $.28 per share, without any cuts during that period. Recently, the bank has been raising the dividend in the third quarter.

Bought 50 CBU @ $23.18 (October 2010)

F. Merchants Bancshares (MBVT): Earnings Release: Merchants Bancshares, Inc. Announces First Quarter 2014 Results, Loans Up 6% From March 31, 2013

This was an overall lackluster report with E.P.S. declining to $.54 from the $.57 per share reported in the 2013 first quarter. The current quarter included a $171,000 expense or $.02 per share relating to the conversion of the "core banking systems" which will end up costing about $1.21M this year. So earnings were down before this item and will suffer for the remainder of the year also. I will just forget about this year. I own 50 shares and have booked a profit already on another 50 share lot. Item # 5 Bought 50 MBVT at $26.25 (5/2/2012)(snapshot of prior profit at $160.1); SOLD 50 MBVT at $26.5-Bought 50 MBVT at $22.9 (April 2010)

The ratios continue to be good, with the NPL and NPA ratios being exceptionally good:


The current quarterly dividend is $.26 per share. Dividends-Merchants Bancshares

G. FNB: F.N.B. Corporation reported net income of $32.2M or $.2 per share, up from $.18 in the 2013 first quarter.The consensus estimate was for $.19 per share. The E.P.S. consensus for 2014 is $.84 and $.94 in 2015. Organic commercial loan growth increased by 9.8% annualized.

Net Interest Margin: 3.62%
Efficiency Ratio: 58.99%
ROA: 1%
ROTA: 1.11%
ROE: 7.64%
ROTE: 15.26%
NPL Ratio: .8%
NPA Ratio: .85%
Coverage Ratio: 134.88%
Charge Offs: .23%
Total Capital Ratio: 12.6%
Payout Ratio: 62%

Earnings Call Transcript - Seeking Alpha

After selling off my higher cost shares profitably, I was left with a 50 share lot using FIFO account bought at $7.8. Bought 50 FNB at $7.8 July 2010 I later added another 50 share lot in June 2013: Bought 50 FNB at $11.25

H. West Bancorp: For the 2014 first quarter, WTBA reported diluted E.P.S. of $.27 per share. The consensus estimate was for $.25. The Texas ratio was excellent at 6.99%. The tangible equity to tangible asset ratio was at 8.47%.

Net interest margin=3.64%
NPL Ratio: .26%
NPA Ratio: .65%
Total Capital Ratio=13.61% (consolidated)

WTBA-2014.03.31-10Q

WTBA increased its quarterly dividend to $.12 from $.11. West Bancorporation  Increases Quarterly Dividend 2nd Time In Past 12 Months

Bought 100 WTBA at $11.67 (6/29/13 Post)

I. Financial Institutions: FISI reported first quarter net income of $7.2M or $.5, up from $.42 in the 2013 1st quarter. Financial Institutions, Inc. Announces 19% Increase in First Quarter Earnings 

Net Interest Margin: 3.52%
Efficiency Ratio: 56.96%
NPL Ratio: .88%
NPA Ratio: .56%
Coverage Ratio: 167%
ROA: .99%
ROTE: 14.3%
Total Capital Ratio: 12.14%
Tangible common equity to tangible assets: 6.6%
Payout Ratio: 38%

Financial Institutions, Inc. (FISI) Dividend History

Bought 50 FISI at $15.55 (4/17/12 Post)

Added 50 FISI at $19.8 (8/30/13 Post)-Item # 5 Sold 50 of 150+ FISI at $21.26 (10/13/13 Post)

Added 50 FISI at $18.8 (9/30/13 Post) 
Posted by at No comments:
Labels:

Saturday, April 26, 2014

ZURVY, BHB, OHI, ADX, AAPL, MET/Borden Chemical Bond Redemption/Sold 50 WARFY at $14.51/Added 50 NMFC at $14.2 and 50 ARMF at $21.8 and Sold 50 AMJ at $47.49-Roth IRA/Sold 163+ YMLP at $18.01/Paired Trade Roth IRA to Increase Cash Flow: Sold 50 MSPRA at $20.22 and Bought 50 FPF at $22.07/Paired Trade: Sold 100 MSPRA at $20.21 and Bought 100 FPF at $22.12


Stocks:
Stable Vix Pattern: Bullish
Vix Asset Allocation Model Explained Simply
Use of the VIX as a Timing Model
Short Term: Expecting a Correction
Intermediate Term: Slightly Bullish
Long Term: Bullish

There appears to be considerable upside resistance in the S & P 500 between 1880 to 1890. I have noticed on several occasions over the past several weeks that rally attempts into that range have been met with selling.

On bad market days, the excessively valued momentum names and the Russell 2000 are declining far more than the DJIA and the S & P 500. The momentum names are vulnerable to continued downside pressure. While some of the excesses have already been taken out of those stocks, they are still excessively valued in my opinion.

Last Friday's Closing Prices:
AMZN: $303.83 -33.32 (-9.88%)
TSLA: $199.85 -8.01 (-3.85%) : Tesla Motors
NFLX: $322.08 -21.99 (-6.39%) : Netflix
TRIP: $77.39 -6.09 (-7.30%) : TripAdvisor
FB: $57.71 -3.16 (-5.19%) : Facebook
ILMN: $139.71 -11.97 (-7.89%) : Illumina
PCLN: $1,157.24 -59.79 (-4.91%) : The Priceline Group
LNKD: $158.17 -13.42 (-7.82%) : LinkedIn Corporation Class A

Amazon reported GAAP earnings of $.23 per share for the 2014 first quarter: AMZN Someday, possibly in my lifetime, AMZN will stop spending so much money and actually report a quarterly profit that justifies the current price.

A long term secular bull market started on August 20, 1982 when the S & P 500 rose to 113.02 from 109.16. Volume accelerated during the liftoff. Historical Prices | S&P 500 By the end of 1982, the S & P had risen 28.84%. The closing high before the October 1987 crash, sort of a flash crash in retrospect, was at 334.57 on 8/27/1987. The rise from the 8/19/82 close was 206.49%.

Until I researched that period again, I did not recall that there was only one correction during this bull move prior to 10/19/87 crash. A correction is defined as a 10% to 20% decline.

Ed Yardini has a chart of this move, which shows a 14.4% correction lasting 284 days during 1983-1984, ending in mid-1984. The market would go another 3+ years before the cyclical bear market started in October 1987. (Figure 4 yardeni.com.pdf)

The current bull move started on 3/9/09 with a S & P close at the 676.53 to nearly 1880 now, or about a 178% increase. There have been two corrections in this period, including one that almost hit 20%, plus a "dip" of almost 10%. (Third Chart from the Top: S&P 500 Snapshot)The current rally has certainly been less smooth riding than that August 1982 to October 1987 move.

While no two bull markets will be in identical. the bull move starting in August 1982 has the most similarities to the current market move since Mach 2009. 

Bonds:
Short Term to Long Term: Slightly Bearish Based on Interest Rate Normalization
The Difficult Path to Interest Rate Normalization

The bond forecast assumes that inflation will average 2% to 2.25% over the next ten years, the current range bound forecast embodied in the 10 year TIP pricing. If that forecast proves prescient, then the low future low inflation numbers will be okay for bonds after rates normalize. 

*******************************

Recent Developments: 

The Census Bureau reported that property tax collections rose to $182.8B during the last three months of 2013, topping the peak four years earlier Bloomberg Nashville's property tax revenues rose 13%. I was driving in an area of town last week that I had not seen in about a year. The Bloomberg article has a picture of one of the new buildings under construction in that area, and there are many others just like it nearby.

The Census Bureau reported that sales of new single family home in March were at a seasonally adjusted annual rate of 384,000, or 14.5% below the February rate. census.gov.pdf The March number was the lowest level in 8 months and was well below the consensus estimate of an annualized rate of 450,000. New home sales remain at disappointing and anemic levels, hovering near the lowest points hit at the peak of prior recessions. 



New One Family Houses Sold: United States-St. Louis Fed

March durable goods increased 2.6%, above the consensus forecast of 2%. Excluding transportation, new orders increased by 2%. census.gov.pdf

Chart: Manufacturers' New Orders: Durable Goods- St. Louis Fed

It is becoming increasingly clear that Russian special forces are the ones who seized government buildings in eastern Ukraine.  Putin and his lap dog Sergey Lavrov deny any control over those Russian forces. NYT

Putin claims that the internet is a CIA project, CBS News. One of the last vestiges of a free press in Putin's Kleptocracy is the blogosphere, and Putin is in the process of silencing that outlet of criticism. (See Washington Post article titled "The end of the Putin mystique")

*******************************
Omega Healthcare (own):

Omega increased its quarterly dividend by 1 cent per share to $.5. This is the seventh consecutive quarterly common dividend increase.

Omega Healthcare Investors, Inc. (OHI) Dividend Date & History - NASDAQ.com

At a total cost of $29.85 per share, this recent increase brings the dividend yield up to 6.7%. Item # 2 Bought:  100 OHI at $29.85 (12/23/13 Post)

Last Friday's closing price:  OHI: $35.38 +0.07 (+0.20%)

********************
Zurich Financial (own)

I received the annual dividend for my 100 shares of ZURVY last week:


This is the third annual dividend received since I bought shares. The symbol has changed from ZFSVY to ZURVY since my original purchase: Item # 2 BOUGHT 100 ZFSVY at $24.72 (February 2012). Anyone clicking the symbol link in that old post will not find a quote.

All three dividends have been entirely classified as a return of capital. Zurich is earning the dividend, but is paying it out of capital surplus which causes the ROC classification and also avoids the Swiss withholding tax.

My adjusted cost basis is now down to $19.21 per share:


ZURVY Zurich Insurance Group-OTCMarkets.com

Last Friday's closing price: ZURVY: $28.59 UNC.

*****************
Bar Harbor Bankshares (BHB):

Bar Harbor Bankshares announced a 3 for 2 stock split and a 3.3% increase in its dividend. That is the seventh straight quarterly dividend increase. Bar Harbor Bankshares, Inc. (BHB) Dividend Date & History - NASDAQ.com The rate was at $.27 in the 2011 second quarter. The overall increase in three years would be about 23.89%. The post 3 for 2 stock split quarterly payment will be $.223.

Bought 50 BHB at $30 (February 2012)

This will give me 75 shares after the split.

Last Friday's Closing Price: BHB: $36.94 -0.80 (-2.12%)

*********************
Adams Express (ADX)(own 926+ shares)

ADX is one of my largest stock CEF positions. I first bought shares in 1983 and view it as sort of like my old catcher's mitt, something that I will keep. The ADX 10 year annualized total return through 3/31/14 is 7%, based on net asset value, compared to 7.25% for SPY. SPDR S&P 500 (SPY) Total Returns That period of course includes the catastrophic bear market period.

ADX was one of the few CEFs formed prior to the 1929 crash that survived that event, probably due to a lack of leverage. J.K. Galbraith summarized what happened to most of them, including the one sponsored by Goldman Sachs, in his readable 1954 book The Great Crash of 1929

For a long time, ADX was led by Douglas Ober who retired back in 2012. The new head honcho is more aggressive.

It would have been almost unthinkable for Ober to buy Facebook shares, but I noted that ADX bought 187,000 FB shares in the 2014 first quarter. ADX quarterly changes_03/31/14.pdf I am not sure that I understand the eliminations of the MET, CAT, and Ebay positions or the significant reduction in GE. The sheer volume of trading activity in the 2014 first quarter is highly unusual from a historical perspective.

In the first quarter, ADX realized $41,897,696 in capital gains or $.45 per share. ADX First _Quarter Report.pdf That is higher per share amount than the total LT capital gain distribution for 2009-2012 and equal to the amount paid in 2013. The annualized portfolio turnover jumped to 63.6% during the first quarter.

I am just monitoring the change in style for now. ADX sells a persistently high discount to net asset value. Two ways to narrow that discount would be to start beating the performance of the S & P 500 index and to become more aggressive in share buybacks at the current discount level.

***********************
Apple (own):

Apple announced a 7 for 1 stock split and a 8% increase in its quarterly dividend to $3.29 per share. SEC Filed Press Release Apple increased the stock buyback authorization by $30B through 2015.

For the fiscal second quarter, Apple reported revenue of $45.6B and a net profit of $10.2B or $11.62 per share. International revenues accounted for 66% of the total. The consensus was for an E.P.S. of $10.17 on revenues of $43.5B. Cash flow for the quarter was reported at $13.5B.

The market liked these developments:

Closing Price 4/24/14: AAPL: $567.77 +43.02 (+8.20%)

Last Friday's Closing Price: AAPL: $571.94 +4.17 (+0.73%)
*******************
MetLife (MET)(own):

MetLife Increases Second Quarter 2014 Common Stock Dividend by 27 Percent

MET is a recent addition that has not done much since my purchase. Bought 50 MET at $51.76 (3/24/14 Post) I noted that the company had been stingy with its dividends, and this increase makes up for some lost ground since 2000. MetLife, Inc. (MET) Dividend History

************************

1. Paired Trade to Increase Cash Flow: Sold 50 MSPRA at $20.22 and Bought 50 FPF at $22.07 in Roth IRA (see Disclaimer)

Snapshot of Trades:

Bought:

2014 Roth IRA Bought 50 FPF at $22.07
Sold

2014 Roth IRA Sold 50 MSPRA at $20.22
Snapshot of MSPRA Profit: The profit was negligible.

2014 ROTH IRA MSPRA 50 Shares +$34.48
Bought 50 MSPRA at $19.25-ROTH IRA (September 2013)

Prior Trades MSPRA: I still own shares in a taxable account. Those shares were bought in September 2011: Bought 50 MSPRA at $16.6 (September 2011). As noted below, I also sold 100 MSPRA shares held in a taxable account that were bought back in March 2012 as part of a paired trade with FPF also being the buy part of that paired trade: Added 100 MSPRA at $18.9 (March 2012)

The largest gain was on a 100 share lot purchased in 2009: Bought 100 MSPRA at $12.88 in May 2009-SOLD 100 MSPRA at 21.43 (January 2010)

Bought 50 MSPRA at $15.7 (May 2010)-Sold MSPRA at $18.50 (July 2010)

Bought 50 MSPRA at 19.71 (January 2011)-Pared 50 of 250 MSPRA at $20.8 (January 2013)

Added 50 MSPRA at 19.54 (January 2011)-Sold 50 of 200 MSPRA at $22.04 (March 2013)

Total Realized Gains MSPRA=$1,203.08 ($1,168.6 in prior trades, snapshots at Item # 5, Bought 50 MSPRA at $19.25-ROTH IRA)

Prior Trades FPF: None

Security Description for FPF: The First Trust Intermediate Duration Preferred & Income Fund (FPF ) is a leveraged CEF that invests in bonds and preferred stocks with the objective of generating current income and managing duration of between 3 to 8 years excluding the duration adjustment for leverage which increases duration.

As of 2/28/14, the fund claims to have a weighted average duration of 4.46 years.

The fund is currently paying a monthly distribution of $.1525 per share. Distributions At a total cost per share of $22.07, and assuming a continuation of that rate which is in no way assured, the yield would be about 8.29%. 

 First Trust Intermediate Duration Preferred & Income Fund Declares Its Monthly Common Share Distribution of $0.1525 Per Share for May

CEFConnect Page for FPF

Data on Date of Trade 4/8/14:
Net Asset Value Per Share: $24.13
Market Price Per Share: $22.11
Discount: -8.37%

The fund is about one year old and the average discount since inception was -9.88% as of 4/8/14.

Credit quality as of 2/28/14:



Fact Sheet

2013 Tax Information

2013 Annual Report (period ending 10/31/13) 

Fund Sponsor's Website: First Trust Intermediate Duration Preferred & Income Fund (FPF)(expense ratio excluding leverage costs is viewed as high at 1.24%; weighted average duration shown at 4.46 years as of 2/28/14)

Security Description for MSPRA: The Morgan Stanley Non-Cumulative Preferred Series A (MS.PA) is an equity preferred stock that pays non-cumulative and qualified dividends at the greater of 4% or .7% above the 3 month Libor rate on a $25 par value. Prospectus The current coupon is the minimum 4% rate which is likely to remain the applicable coupon for two or possibly more years.  At a $20.22 total cost per share, the yield would be about 4.95% currently.


Rationale: The current yield differential between MSPRA and FPF is high at about 3.34%, assuming the total cost per share numbers shown above.

I would view it as impossible to predict which security will outperform on price. A continued decline in interest rates would probably favor FPF.

Risks: FBF has the usual risks associated with leveraged bond CEFs that include interest rate, lost opportunity, credit and normal CEF risks. It is always frustrating when the discount to net asset value remains relatively stable and the market price sinks after purchase creating a wider discount, or the discount widens substantially more than the percentage decrease in net asset value. The potential benefit is that the discount may decrease after purchase as the net asset value per share goes up.
Last Friday's Closing Prices:
MS-PA: $20.40 +0.03 (+0.15%)
FPF: $22.48 +0.03 (+0.13%)

2. Paired Trade in Satellite Taxable Account: Sold 100 MSPRA and Bought 100 FPF at $22.12 (see Disclaimer):

This is an identical paired trade to the one described above, except this paired trade occurred in a satellite taxable and involved more shares.

Snapshot of Paired Trade:

Bought 100 FPF at $22.12 and Sold 100 MSPRA at $20.21
Snapshot of MSPRA Profit: 

2014 MSPRA 100 Shares +$116.98
Added 100 MSPRA at $18.9 (March 2012)

Snapshot of MSPRA History in this Satellite Taxable Account:

Qualified Dividend Payments Incorrectly Classified as Interest by Vanguard
The rationale is to increase income generation. In the event of a market correction, and assuming FBF goes up in value, this position could be a source of funds for the purchase of a common stock.

Total Realized Gains MSPRA: $1,320.06 ($116.98 this trade, see above)

3. Added 50 NMFC at $14.2-Roth IRA (see Disclaimer): This BDC declined in price below net asset value per share after announcing a share issuance. As of 12/31/13, net asset value per share was reported at $14.38, up from $14.06 as of 12/31/12. 10-k at page 68 That was a nice jump and is certainly far better than the static numbers being produced by Prospect Capital.

Snapshot of Trade:

2014 ROTH IRA Bought 50 NMFC at $14.2
Closing Price on Day of Trade: NMFC: $14.21 -0.36 (-2.47%)

Security Description: The New Mountain Finance Corp. (NMFC ) is a BDC that focuses on "acyclical defensive growth" companies. As of 12/31/13, this BDC had investments in 59 companies with a weighted average yield to maturity of approximately 10.6%.

A list of the portfolio investments can be found starting at page 106 of the 2013 Annual Report, 10-k.

On the day of my purchase, the company closed an underwritten offering of 3.5M shares at $14.57 per share exclusive of offering expenses. The underwriters have 30 days to buy up to an additional 525,000 shares. New Mountain Finance Corporation Announces Pricing of 3,500,000 Shares of Common Stock The price to the public was $14.3. Prospectus

Prior Trades: I currently own 50 shares in another Roth IRA account: Item # 4 Bought 50 NMFC at $15.03 in the Roth IRA (5/29/13).

I own 100 shares in a taxable account. Item # 5 Bought 100 NMFC at $14.28 (6/22/13 Post)

A one year chart reveals a lot of chop between a $14 to $15.5 channel: NMFC Interactive Chart The two year chart shows more of the same, except that the chop was between $13.5-$14 during April-July 2012.

Last Earnings Report: For the 2013 4th quarter, New Mountain reported a net asset value per share of $14.38. Debt/Equity was shown at .63x. "Pro-forma adjusted net investment income" was reported at $.34 for the quarter and $1.41 for the year. SEC Filed Press Release First lien debt is shown at 49.6% of the total with second lien debt at 42%.

While the term "lien" gives some comfort, second lien debt can be decimated in a BK, as the first lien debt owners struggle to recover some percentage of their principal far less than 100%. I mentioned one second lien debt issue that I bought once that probably attached to nothing more than air around the firm's HQ given the size of the first lien debt and the losses that ultimately led to a BK.

Rationale: As with all other BDCs, my goal is to harvest an annualized total return of 10%. I can accomplish that objective by collecting 4 dividend payments and harvesting a relatively small profit on the shares.

The current quarterly dividend is $.34 per share. New Mountain Finance Corporation (NMFC) Dividend Date & History - NASDAQ.com At that rate, the yield at a total cost of $14.2 per share is about 9.58%.

Risks: I disfavor BDCs for a variety of reasons, but will buy them in small amounts for their income generation. New Mountain discusses the many risks incident to its business starting at page 25 of its 2013 Annual Report: 10-k Anyone who owns a BDC needs to read the risk summary found in the Annual Reports filed with the SEC.

Future Buys and Sells: While I have no current target price, I would likely sell the 50 share lot bought at $15.03 last May whenever I have a profit. Alternatively, I may sell the 100 shares held in the taxable account, bought at $14.28 last June whenever the market price exceeds net asset asset value by 5%. Assuming a net asset value of $14.38, a 5% premium would equate to about $15.1. I might want a higher price, such as $15.2, to pay for the brokerage commission.

Last Friday's Closing Price: NMFC: $14.59 +0.03 (+0.21%)

4. Sold 50 AMJ at $47.49-Roth IRA (see Disclaimer): This one was held in another ROTH IRA account than the one referenced above in connection with the NMFC purchase. This is just another example of small ball play in the IRAs.

Snapshot of Trade:



Snapshot of Profit:
2014 AMJ Sold 50 Shares +$78.45
Snapshot of Roth IRA History:


Security Description: JPMorgan Alerian MLP ETN is, as indicated an Exchange Traded Note (ETN) that will attempt to track the Alerian MLP Index before fees and expenses.

Prior Trade: Item # 6 Sold 50 AMJ at $47.99-ROTH IRA (May 2013)(snapshot of profit=$490.94)-Item # 3 Bought Roth IRA: ETN AMJ at $37.89 (12/19/12 Post)

Total Realized Trading Gains=$569.39

Rationale: I am raising some cash by selling lower yielding securities. Hopefully, better opportunities will arise later in the year, including a possible repurchase of 50 AMJ shares at a lower price.

Future Buys: I am in a trading mode for this security. I will consider buying back 50 shares when and if the price falls below my last purchase price.

Last Friday's Closing Price: AMJ: $47.78 -0.37 (-0.77%)

5. Sold 110 of the Stock CEF STK at $15.65 (see Disclaimer): I sold these shares due to poor performance, to harvest a profit while one still existed and to raise cash in anticipation of redeployment later this year.

Snapshot of Trade:

2014 Sold 110 STK at $15.65

Snapshot of Profit:

2014 STK 110 Shares +139.81
I received $139.15 in dividends.

Prior Trades: I still own 106+ shares in the Roth IRA, where I have been reinvesting the dividend payments. Bought 100 STK at $16.12-ROTH IRA (September 2012). The current quarterly dividend is $.4625 per share. Columbia Seligman Premium Technology Growth Fund Announces First Quarter Distribution: 9.25% Annual Rate for IPO Investors That would equate to about $277.5 in distributions used to purchase more shares in that account.

Security Description: The Columbia Seligman Premium Technology Growth Fund is a CEF that invests in technology stocks. I have not been impressed with its performance.

Data on Day of Trade 4/11/14:
Closing Net Asset Value Per Share: $15.91
Closing Market Price:  $15.57
Discount: -2.14%
Discount at $15.65= -1.63%
Average 1 year Discount: -6.26%

CEFConnect Page for STK

STK Page at Morningstar (3 year average total return calculated at 3.07% as of 4/11/14)

Rationale: I decided to raise cash and to fire the managers of this fund, at least for the shares held in the taxable account.

This security had actually gone up some from a March 28, 2014 close at $15.61, when the closing net asset value was $16.45. The net asset value had shrunk to $16.14 per share on 4/10/14, the day before I sold this 110 share lot. The net asset value declined further on Friday 4/14, falling $.25 per share to $15.91, and the discount at my sale's price had narrowed to just -1.63%.

Last Friday's Closing Price: STK: $16.22 0.00 (0.00%)

6. Sold 50 Wharf Holdings at $14.51 (The $500 to $1,000 Flyers Basket Strategy)(see Disclaimer): This turned into a quick flip. I bought the shares on 3/21/14. The primary rationale was to raise cash in anticipation of a correction, which is admittedly slow to materialize, or to redeploy the proceeds into a higher yielding security which will increase my cash flow available for future investment.

A large number of trades over the past several weeks have focused on creating more cash flow without dipping into my existing cash allocation which has already been used as a source of funds for the sector rotation into REITs.

Snapshot of Trade:

2014 Sold 50 WARFY at $14.51


Snapshot of Position Before Trade:


Snapshot of Profit:

2014 WARFY 50 Shares $99.68
Bought 50 Wharf Holdings at $12.2 (4/1/14 Post)

Security Description: Wharf (Holdings) Ltd. (4:HKG) is a Hong Kong based conglomerate. I bought and sold the U.S. listed ADR traded on the pink sheet exchange: WARFY Wharf Holdings Ltd.

Last Friday's Closing Price: WARFY: $14.02 +0.15 (+1.08%)

7. Sold 163+ YMLP at $18.01 (see Disclaimer):

Snapshot of Trade:



Snapshot of Profit:
2014 YMLP 163+ Shares= $174.28
While YMLP paid a good dividend, the entire amount was treated as a ROC. So the amount shown above is in effect my total return of a $2,753.19 adjusted cost basis or just 6.33%.

Security Description: Yorkville High Income MLP (YML) is my last MLP ETF. I will not be buying another one.

The securities owned by the fund have done better even accounting for the expense ratio of the fund. What has caused under performance is the requirement that an ETF, having a weighting of 25%+ in MLPs, must pay and accrue taxes which has significantly hurt total returns. WSJ; Motley Fool; YMLP Tax Accrual - Yorkville ETF Advisors; Prospectus at pp. 5-6: Yorkville_Prospectus.pdf

This long article at ETF.Com may be one of the best discussing the various advantages and disadvantages of MLP ETFs and ETNs.

Rationale: I now regard MLP ETFs as an unsatisfactory vehicle for owning MLPs. That is just my opinion.

Future Buys: I will not be buying another MLP ETF due to the under performance issues caused by the aforementioned tax issue. I will own an ETF that avoids the tax issue by keeping the MLP ownership to less than 25% of assets.

Last Friday's Closing Price: YMLP: $18.09 -0.04 (-0.22%)

8. Bought 50 ARMF at $21.8-Roth IRA (see Disclaimer):

Snapshot of Trade:

2014 ROTH IRA Bought 50 ARMF at $21.8
Security Description: The Ares Multi-Strategy Credit Fund (ARMF) is a new leveraged closed end fund that seeks to provide an "attractive level of total return" by "dynamically" investing in a broad range of credit investments, including senior loans, junk bonds and structured credit.

SEC Form N-Q: Holdings as of 1/31/14

CEFConnect Page for ARMF

Last SEC Filed Shareholder Report (period ending 10/31/13)

The shares went ex dividend for the monthly distribution on 4/16, shortly after my purchase.

Data From Day of Trade 4/14/14:
Closing Net Asset Value Per Share: $24.15
Closing Market Price: $21.76
Discount: -9.9%

CEFConnect has the first trades occurring on 11/15/13. The initial public offering occurred on 10/31/13 at $25. The closing market NAV per share on 11/15/13 was $23.7, with a market price close at $22.3, creating a -5.91% discount. Since that time, the market price has declined, the net asset value per share has risen unadjusted for the dividend payments, and the discount to net asset value had increased by 67% from -5.91% to 9.9% on the date of purchase.

Historical discount information is irrelevant since this is a relatively new CEF.

Sponsor's Website: Ares Publicly Traded Credit Funds: Overview

March 2014 Fact Card: ares (effective duration 1.27 years; holdings 131; 43.9% fixed coupon and 53.3 Floating)

Prior Trades: None

Rationale: This will sound like a broken record, but I am simply trying to create additional tax free income generation in the ROTH IRA by selectively buying higher yielding securities and selling lower yielding ones at a profit.

Risks: The track record since launch is good but the fund has experienced an unfortunate CEF risk aptly demonstrated by a rise in net asset value per share and a significant decline in the share price. It is really impossible to say when that will stop and reverse course. Credit risk is also pronounced, but interest rate risk with the short duration is relatively tame. There are certainly risks involved in using leverage to buy junk credits.

Future Buys and Sells: I will not buy more shares in a retirement account due to the credit risk issue.  I may average down by buying a 50 share lot in a taxable account.

Last Friday's Closing Price: ARMF: $22.05 0.00 (0.00%)

9. Borden Chemical Bond Redemption: 

Snapshot:



I realized a small gain on this one. I am content in avoiding a loss and receiving that 8.375% coupon for about 3 years. For most of my ownership period, I had an unrealized loss in this bond. Bond Detail

Profit Snapshot:



Bought 1 Borden Chemical 8.375% Bond Maturing 4/15/2016 at 96.85
Posted by at No comments:
Labels: , , , ,
Subscribe to: Posts (Atom)