Friday's closing Prices:
S & P 500 D 1,878.48 +2.85 (+0.15%)
VIX: 12.92 -0.51 (-3.80%) : VOLATILITY S&P 500
TLT: $111.24 -0.36 (-0.32%) : iShares 20+ Year Treasury Bond ETF
GLD: $124.10 -0.07 (-0.06%) : SPDR Gold Trust
VNQ: $74.22 +0.05 (+0.07%) : Vanguard REIT ETF
KRE: $38.22 +0.33 (+0.87%) : SPDR S&P Regional Banking ETF
Last Friday, both my REIT and Regional Bank Baskets outperformed their benchmarks. The REIT basket was up .53% vs. VNQ's .07%. The regional bank basket had an unusually good day, compared to recent history, rising 1.47% vs. KRE at .87%.
Big Picture Synopsis:
S & P 500 D 1,878.48 +2.85 (+0.15%)
VIX: 12.92 -0.51 (-3.80%) : VOLATILITY S&P 500
TLT: $111.24 -0.36 (-0.32%) : iShares 20+ Year Treasury Bond ETF
GLD: $124.10 -0.07 (-0.06%) : SPDR Gold Trust
VNQ: $74.22 +0.05 (+0.07%) : Vanguard REIT ETF
KRE: $38.22 +0.33 (+0.87%) : SPDR S&P Regional Banking ETF
Last Friday, both my REIT and Regional Bank Baskets outperformed their benchmarks. The REIT basket was up .53% vs. VNQ's .07%. The regional bank basket had an unusually good day, compared to recent history, rising 1.47% vs. KRE at .87%.
Big Picture Synopsis:
Stocks:
Stable Vix Pattern (bullish)
Vix Asset Allocation Model Explained Simply
Use of the VIX as a Timing Model
Vix Asset Allocation Model Explained Simply
Use of the VIX as a Timing Model
Short Term: Market Needs a 15% Correction
Intermediate Term: Slightly Bullish
Long Term: Bullish
For those who are cautious now, the market cap to GDP number is at elevated levels, and that indicator is Buffett's favorite. Seeking Alpha; VectorGrader
For those who are cautious now, the market cap to GDP number is at elevated levels, and that indicator is Buffett's favorite. Seeking Alpha; VectorGrader
Bonds:
Short to Long Term: Slightly Bearish Based on Interest Rate Normalization
The bond forecast assumes that the market is correctly predicting now an average CPI of just 2.2% over the next 10 years.
Break-even Spread 10 Year TIP as of 5/9/14: 2.18% Breakeven Inflation
Subtract .44%
Daily Treasury Real Yield Curve Rates
From 2.62%
Daily Treasury Yield Curve Rates
Chart: 10-Year Breakeven Inflation Rate- St. Louis Fed
The Cleveland FED has a model to predict the annual average inflation rate over the next ten years. The current estimate as of 4/15/14, the last BLS release date for CPI, is for an average rate of 1.87%: Cleveland Fed Estimates of Inflation Expectations :: Federal Reserve Bank of Cleveland I will stick with the break-even spread but will follow that model's calculation.
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Recent Developments:
The ISM service's PMI rose to 55.2% in April from 53.1 in March. The new orders component rose 4.87 points to 58.2. The business activity index increased to 60.9 from 53.4. New export orders surged to 57 from 49.5.
The final HSBC China manufacturing PMI for April was reported at 48.1, down slightly from 48.3 in March. Any number below 50 indicates contraction. markiteconomics.com; Bloomberg (risk of steeper downturn discussed)
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Enbridge Income Fund Holdings (ENF:TOR)(own)
The market responded favorably to Enbridge Income's first quarter report. Enbridge Income Fund Holdings Inc. Reports 2013 Results; Declares Monthly Dividend
The Fund's cash available for distribution increased by 35% in 2013 based primarily on a full year's contribution from the Hardesty Crude Oil Storage and renewable power generation assets acquired in December 2012.
Closing Price 5/5/14: ENF.TO: C$27.24 +0.46 (+1.72%)
Bought: 100 ENF:CA at C$23 (November 2013 Post)
Closing Price Last Friday: ENF.TO: C$27.03 -0.30 (-1.10%)
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Pepsico (own):
PepsiCo declared its 42 annual dividend increase. The annual dividend rate will be increased from $2.27 per share to $2.62 per year. The new quarterly rate will be $.655.
Last February, I used a downdraft in the stock to buy 50 shares. Item # 5 Bought 50 PEP at $78.25 (2/25/14 Post)
Closing Price Last Friday: PEP: $87.17 +0.51 (+0.59%)
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Orkla ASA ADS (ORKLY)
I bought a 100 shares of this Norwegian company in my Flyer's Basket Strategy. Bought 100 ORKLY at $7.61
This company pays an annual dividend which I received last week after a 15% withholding tax:
The fee is paid to the ADR custodian. ADR Pass-through Fees: What They Mean for You
I try to keep track of the withholding rules for various foreign countries.
Closing Price Last Friday: ORKLY: $8.60 +0.21 (+2.50%)
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Enbridge Income Fund Holdings (ENF:TOR)(own)
The market responded favorably to Enbridge Income's first quarter report. Enbridge Income Fund Holdings Inc. Reports 2013 Results; Declares Monthly Dividend
The Fund's cash available for distribution increased by 35% in 2013 based primarily on a full year's contribution from the Hardesty Crude Oil Storage and renewable power generation assets acquired in December 2012.
Closing Price 5/5/14: ENF.TO: C$27.24 +0.46 (+1.72%)
Bought: 100 ENF:CA at C$23 (November 2013 Post)
Closing Price Last Friday: ENF.TO: C$27.03 -0.30 (-1.10%)
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Pepsico (own):
PepsiCo declared its 42 annual dividend increase. The annual dividend rate will be increased from $2.27 per share to $2.62 per year. The new quarterly rate will be $.655.
Last February, I used a downdraft in the stock to buy 50 shares. Item # 5 Bought 50 PEP at $78.25 (2/25/14 Post)
Closing Price Last Friday: PEP: $87.17 +0.51 (+0.59%)
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Orkla ASA ADS (ORKLY)
I bought a 100 shares of this Norwegian company in my Flyer's Basket Strategy. Bought 100 ORKLY at $7.61
This company pays an annual dividend which I received last week after a 15% withholding tax:
The fee is paid to the ADR custodian. ADR Pass-through Fees: What They Mean for You
I try to keep track of the withholding rules for various foreign countries.
Closing Price Last Friday: ORKLY: $8.60 +0.21 (+2.50%)
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1. Bought 50 BPFHP at $23.35-Roth IRA and Bought 50 BPFH at $12.35 in the Regional Bank Basket Strategy (see Disclaimer):
Snapshot of BPFHP Roth IRA Trade:
Snapshot of BPFH Trade Taxable Account:
Closing Price on Day of Trade 5/5/14: BPFH: $12.42 -0.23 (-1.82%)
I am discussing this trade out of order. Given the time lag now in discussing my trades, this purchase would normally be discussed in about two weeks. It just makes more sense to add it to the preferred stock purchase discussion now.
Security Description: The Boston Private Financial Holdings Inc. Non-Cumulative Perpetual Preferred Series D (BPFHP) is an equity preferred stock issued by Boston Private Financial Holdings (BPFH). This security pays qualified (p. S-34) and non-cumulative (p. S-21) dividends at a fixed coupon rate of 6.95% on a $25 par value: Prospectus The prospectus contains a typical Dividend Stopper clause which can be found at page S-21.
I bought 50 shares of the common pursuant to the REGIONAL BANK BASKET STRATEGY.
Boston Private Financial is both a "private" bank and a money manager for the wealthy with offices in Boston, NY, Los Angeles and San Francisco. The bank manages over $24 billion in assets and has over $5B in loans outstanding.
"Fee and other income" is more important to this bank than others that I own. In 2013, BPFH received $174+M in interest income and $136+M in "fees and other income, though $10.5+M of fees was a non-recurring gain associated with the sale of its Pacific Northwest offices. Investment management fees totaled $43.+M in 2013, up from $39+M in 2012, Page 31 2013 Q4 10-K BPFH. Net income for 2013 was reported at $64.6+M, up from $51.2+M in 2012, but $10M of that increase was due to a credit for loan losses. The bank took hits during the Near Depression period and its aftermath, suffering a $10+M loss in 2010.
There was a huge loss of $388M, or $4.85 per share, reported in 2008, page 26 of 2012 Annual Report, which explains the small 50 share purchase. I view that kind of event with disfavor. Of that amount, $286.8M was a goodwill impairment charge, page 34 of the 2009 Form 10-K.
The damage was reflected in the stock price. The stock peaked at close to $34 in 2006, which is fairly typical for regional banks, but was staying above $25 in 2007 before the bottom fell out. BPFH Interactive Chart By March 2009, the stock had cratered to $3.5+. Since that time, the price has been in a steady and slow uptrend and was trading above its 200 day SMA when I bought this 50 share lot.
The quarterly dividend was reduced from $.10 to $.01 in 2008 first quarter. Boston Private Financial Holdings, Inc. (BPFH) Dividend History And, that is of course a major negative. On the positive side, the bank has done a good job bringing the dividend back, with the current rate being $.08 per share.
The common stock went ex dividend on 5/7/14, shortly after my purchase.
The preferred stock goes ex dividend on 5/13/14.
I bought 50 shares of the common pursuant to the REGIONAL BANK BASKET STRATEGY.
Boston Private Financial is both a "private" bank and a money manager for the wealthy with offices in Boston, NY, Los Angeles and San Francisco. The bank manages over $24 billion in assets and has over $5B in loans outstanding.
"Fee and other income" is more important to this bank than others that I own. In 2013, BPFH received $174+M in interest income and $136+M in "fees and other income, though $10.5+M of fees was a non-recurring gain associated with the sale of its Pacific Northwest offices. Investment management fees totaled $43.+M in 2013, up from $39+M in 2012, Page 31 2013 Q4 10-K BPFH. Net income for 2013 was reported at $64.6+M, up from $51.2+M in 2012, but $10M of that increase was due to a credit for loan losses. The bank took hits during the Near Depression period and its aftermath, suffering a $10+M loss in 2010.
There was a huge loss of $388M, or $4.85 per share, reported in 2008, page 26 of 2012 Annual Report, which explains the small 50 share purchase. I view that kind of event with disfavor. Of that amount, $286.8M was a goodwill impairment charge, page 34 of the 2009 Form 10-K.
The damage was reflected in the stock price. The stock peaked at close to $34 in 2006, which is fairly typical for regional banks, but was staying above $25 in 2007 before the bottom fell out. BPFH Interactive Chart By March 2009, the stock had cratered to $3.5+. Since that time, the price has been in a steady and slow uptrend and was trading above its 200 day SMA when I bought this 50 share lot.
The quarterly dividend was reduced from $.10 to $.01 in 2008 first quarter. Boston Private Financial Holdings, Inc. (BPFH) Dividend History And, that is of course a major negative. On the positive side, the bank has done a good job bringing the dividend back, with the current rate being $.08 per share.
The common stock went ex dividend on 5/7/14, shortly after my purchase.
The preferred stock goes ex dividend on 5/13/14.
Prior Trade: Item # 2 Bought: 50 BPFHP at $22 (12/10/13 Post)
I have not previously bought the common shares.
I have not previously bought the common shares.
Recent Earnings Report: For the 2014 first quarter, Boston Private Financial Holdings reported net income of $17M or $.2 per share, up from $.15 in the 2013 first quarter. The net interest margin increased 6 basis points to 3.04%.
Rationale: I am in a hyper trading mode for equity preferred stocks. This security gives me a tax free yield, when held in the Roth IRA, of about 7.44% at a total cost of $23.25 per share.
The common shares were at the high end of a fair value range based on anticipated earnings in 2014. The 2014 consensus estimate was $.83 when I purchased the common shares or 14.88 times estimated earnings at the $14.35 price. BPFH Analyst Estimates The consensus estimate for 2015 was $.92, a 10.84 estimate growth rate from the 2014 estimate and around a 13.42 P/E, sort of a mid-point in the fair value range for this bank.
While this is just a guess, I suspect that this bank has some long term recovery potential given its focus on wealthy citizens in four metropolitan areas.
There is also some minor dividend support based on the current quarterly common dividend of $.08 per share. At a total cost of $12.35, the dividend yield would be about 2.59%. That yield is low for any initial purchase in the regional bank basket, just another explanation for the 50 share purchase.
Risks: Interest rate risk is significant in any potentially perpetual preferred stock. Credit risk is material even when a rational investor would conclude that the issuer will continue preferred dividend payments, as shown by the trading history of this type of security during the recent Near Depression and its aftermath. It only requires a fear of dividend elimination or a bankruptcy to send the price spiraling downward. As the owners of preferred stocks issued by bank holdings companies discovered in 2008, there is a lot of room to fall when the security is bought near its par value.
Risks are highlighted by what happened in 2008-2010. Banks have an unfortunate tendency to annihilate the shareholder value created during the good times based on poor management and lending decisions, along with a heavy dose of group think about the good times continuing forever.
Future Buys/Sells: I am not likely to buy more of the preferred stock which is subject to the current trading rules for fixed coupon equity preferred stocks. If the yield at the current market price falls below 7%, I will consider selling any preferred stock, and will simply wait for a better opportunity to reinitiate a position.
For the common stock, I may average down only when and if the dividend yield exceeds 3%. I view the stock to be a long term hold.
Closing Prices last Friday:
BPFHP: $24.54 +0.14 (+0.57%)
BPFH: $12.26 +0.13 (+1.07%)
2. Sold 50 RZA at $26.89-Roth IRA (see Disclaimer): The current trading rule for a long term bond requires me to consider selling the position when the market price creates a less than 6% yield.
Snapshot of Trade:
Snapshot of Roth IRA History:
Snapshot of Profit:
Bought 50 RZA at $24.47-ROTH IRA
Total Return= $146.49 or 11.91% on a total cost of $1,230.45 in about 7 months.
Security Description: The Reinsurance Group of America Inc. 6.20% Fixed-to-Floating Rate Subordinated Debt Due 2042 (RZA) is a junior subordinated bond. Prospectus This security pays a 6.2% fixed coupon on a $25 par value until 9/15/22. The issuer has an optional redemption right on or after that date. If not redeemed the note will mature in 2042 and start to pay a floating rate at a 4.37% spread to the 3 month Libor rate starting 9/15/22. If that rate is too high for the issuer, it will just redeem the bond.
Prior Trades: Item # 5 Sold 50 RZA at $26.07 (snapshot of profit=$73.08)-Item # 3 Bought: 50 RZA at $24.29 (10/24/13 Post)
Rationale: The current yield at the sales price of $26.89 is about 5.76%. I decided to harvest my profit after receiving two interest payments, and wait for an opportunity to secure a better yield.
The trading strategy for long term bonds and fixed coupon equity preferred stocks represents an effort to balance the interest rate risk with current income generation. At the moment, it is my judgment that the income generation is not worth the risk at particular levels.
Future Buys: I will consider repurchasing this junior bond at below $24.
Closing Price Last Friday: RZA: $26.99 +0.02 (+0.07%)
3. Sold 100 GYB at $19.75-Roth IRA (see Disclaimer):
Snapshot of Trade:
Snapshot of Recent Roth IRA History:
Snapshot of Profit:
Security Description: The CABCO Series 2004-101 Trust Goldman Sachs Capital I Floating Rate (GYB:NYSE) is a Synthetic Floater in the Trust Certificate form of ownership.
I have previously explained this security in detail. For as long as the swap agreement remains in effect, GYB will pay the greater of 3.25% or .85% above the 3 month Libor rate, up to a maximum coupon of 8.25%, on a $25 par value. Prospectus
Prior Trades: I have bought and sold this security many times which may be an understatement:
Bought 100 GYB at 10.95 /Will Hold Synthetic Floaters In Retirement Account (April 2009); Sold 100 GYB at 18.09 (May 2010); Bought 70 GYB at 18.49 in Regular IRA (March 2010); Added 30 GYB in IRA at $17.97 (July 2010); Sold 100 GYB @ $19.4 (October 2010); Bought 50 GYB @ $19.07 (October 2010); Bought 50 GYB at 18.63 in the Roth IRA (January 2011); Sold 100 GYB at $19.7 in Roth IRA (May 2011); Bought 50 GYB at $16.95 in Roth IRA August 2011; Added 50 of the Synthetic Floater GYB at $15.56-ROTH IRA (December 2011); Sold 100 GYB at $17.09 January 2012-Roth IRA; Bought Back 100 of GYB at 17.2-Roth IRA March 2012; Sold 100 of 150 GYB at $18.03 December 2012-Roth IRA; Added 50 of the Synthetic Floater GYB at $19.6-Roth IRA (August 2013)
Total Realized Gains: $1,382.72 (prior profits=$1,233.71, snapshots at Item # 3 Stocks, Bonds & Politics which discusses the risks associated with this security)
Rationale: Based on my current interest rate forecast, this security is likely to pay its low minimum coupon for at least two more years.
At a total cost of $19.75 per share, and assuming a continuation of the minimum 3.25% coupon, the current yield would be about 4.11%.
Future Buys: I will simply look for another entry point at a lower level. I would view a price lower than $17.5 as a favorable level for a new 50 share Roth IRA purchase.
Closing Price Last Friday: GYB: $19.90 +0.14 (+0.71%)
4. Bought 100 AINV at $7.95-Satellite Taxable Account (see Disclaimer):
Snapshot of Trade:
Security Description: Apollo Investment (AINV) is one of the largest and oldest BDCs.
Sponsor's website: Apollo Investment Corporation
Apollo Investment Corporation Portfolio
This BDC was discussed in a Seeking Alpha published last April. I do not share that author's positive views of this BDC.
Back in February, AINV sold 12M shares, plus an over allotment option, to underwriters at $8.69 per share. Prospectus
AINV used to be a component of the S & P 400 but was kicked out of the index. That was part of an ongoing effort to remove BDCs from indexes since their ridiculous management fees have to be included in an ETF index fund's expense ratio. Barrons.com; Seeking Alpha The Russell indexes will most likely remove all BDCs unless the SEC changes its rules on acquired fund fees before May 15th.
Prior Trades: Item # 5 Bought Roth IRA: 100 AINV at $8.68
Recent Earnings Report: I discussed in the last earnings report, available at the time of this purchase, in the previously linked post.
Rationale: I am merely attempting to generate income, hopefully without incurring a loss on the shares which is easy to do in my opinion when investing in a BDC too long. The reason that it is easy to suffer a capital loss is due to the destruction of net asset value per share caused by the highly compensated managers of these firms. The market price of externally managed BDCs will hug net asset value per share. As that number declines, so will the market price.
Risks: I summarized the risks in prior posts. Let me emphasize the potential loss by summarizing some historical net asset value per share data.
3/31/2013: $8.27
3/31/2011: $10.03
3/31/2007: $17.87
I would emphasize that these Masters of the Universe are being paid 2% of total assets plus an incentive fee for this performance. BDC Fees: Seeking Alpha
Prior to the Near Depression, AINV's market price went over $23 in 2007 and then made a swan dive into the low single digits. AINV Interactive Chart
AINV was paying a quarterly dividend of $.52 per share in 2008 which was slashed by 50% in the 2009 first quarter. The dividend was thereafter reduced from $.26 to $.20 in the 2012 first quarter and has remained at that level since that time. Apollo Investment Corporation (AINV) Dividend History
Another risk is that BDC's may soon be kicked out of the Russell indexes. Fitch Ratings
And, the market has soured on BDCs judging from their recent market declines even as rates have fallen and other bond substitutes have risen significantly in price.
Future Buys/Sells: I am not pleased that BDCs are one of the few securities presenting me with a yield opportunity. I hold them in extreme disfavor notwithstanding that high dividend payments. Hopefully, I will not buy another AINV share until I profitably exit the highest cost position.
Closing Price Last Friday: AINV: $7.91 0.00 (0.00%)
5. Sold 100 DLRPRG at $21.55 (see Disclaimer):
Snapshot of Trade:
Snapshot of History:
Snapshot of Profit:
Item # 6 Bought: 100 DLRPRG at $19.95 (3/17/14 Post)
Security Description: The Digital Realty Trust Inc. 5.875% Cumulative Preferred Series G (DLR.PG) is a fixed coupon equity preferred stock that pays non-qualified and cumulative dividends.
Rationale: This security is subject to the trading rules for potentially perpetual fixed coupon equity preferred stocks. At a total cost of $21.55 per share, the current yield would be about 6.82%.
Future Buys: The price would have to fall below $19 for me to consider a repurchase. Even at a total cost of $19 per share, the dividend yield would only be 7.73%. I would not be overjoyed to received that yield for this security.
Closing Price Last Friday: DLR-PG: $22.00 0.00 (0.00%)
6. Bought Back 50 TRMK at $22.73 (see Disclaimer): This is my third purchase of a 50 TRMK share lot. The prior two lots were sold.
Snapshot of Trade:
Company Description: Trustmark (TRMK) is a bank holding company that operates through its wholly owned subsidiary Trustmark National Bank 209 bank branches in Mississippi, Florida, Tennessee, Alabama and Texas. TRMK is headquartered in Jackson, MS.
TRMK has used the Near Depression period and its aftermath to expand its geographic footprint. Those acquisition included at least one FDIC assisted purchase. Those acquisitions between 2011-2013 are summarized starting at page 91 of the 2013 Annual Report. One FDIC assisted acquisition involved the Heritage Banking Group: Trustmark Corporation Announces Acquisition of Heritage Banking Group, Carthage, Mississippi
Trustmark SEC Filings
The stock price peaked near $33 during December 2006 after rising from $5+ in 2002. TRMK Interactive Chart Since June 2008, the price has moved mostly between $18 to $25 with a brief spurt over $25 in 2013 that caused me to sell my shares.
While TRMK did not cut its quarterly dividend during the recent Near Depression and its aftermath, the quarterly rate has remained stuck at $.23 since it was raised from $.22 in the 2007 third quarter. Trustmark Corporation (TRMK) Dividend History (data is not adjusted for stock two stock splits pre-2000) TRMK did double the dividend rate between 1999-2007.
Prior Trades: Item # 3 Bought 50 TRMK at 19.57 August 2010-Item # 3 Sold 50 TRMK at 24.7 January 2012; Bought 50 TRMK at $21.54 November 2012-Item # 1 Sold 50 Trustmark at $26.52 July 2013 (snapshots total realized share gains=$473.64)
Recent Earnings Report: In the 2014 first quarter, Trustmark reported net income of $29M or $.43 per share, up 13.2% compared to the 2013 first quarter. SEC Filed Press Release
Net Interest Margin: 3.92%
Efficiency Ratio: 68.32% (prefer less than 60%)
NPL Ratio: 1.06%
Coverage Ratio: 101.86%
ROA: .99%
Return on Tangible Equity (ROTE): 12.93%
The capital ratios are good:
Rationale: TRMK appears to be a well managed regional bank with mostly good metrics. The lack of dividend growth since 2007 is a negative. Still, at a total cost of $22.73, and assuming a continuation of the quarterly dividend of $.23 per share, the dividend yield is good in the current low rate environment at about
Risks: The company summarizes risks incident to its business starting at page 16 of its 2013 Annual Report:10-k
Although the bank remained profitable in 2008 and 2009, both the stock price and earnings were hit. Bank stocks do not perform well during a recessions. Many will fail and be seized by the FDIC. Even those that are prudently managed will suffer an increase in non-performing loans, a possible cut in the dividend, and a decrease in net income.
TRMK E.P.S.
2009: $1.26
2008: $1.59
2007: $1.88
2006: $2.11
The earnings of many banks peaked in 2006 rather than 2007, as did their stock prices.
With rates remaining abnormally low, all banks will be subject to net interest margin compression problems that will restrain earnings growth.
Future Buys/Sells: In my regional bank basket, I will generally limit my exposure to this regional bank to just 50 shares. I will sell shares when and if the current market price is not justified by the TTM P/E and the estimated forward year E.P.S. estimate, given the relatively subdued growth prospects for regional banks in the current low interest rate environment.
Closing Prices Last Friday: TRMK: $23.28 +0.42 (+1.84%)
7. Paired Trade: Sold 100 ARCPP at $23.43 and Bought 300 ARCP at $12.69 (see Disclaimer): In this paired trade, I am increasing income by selling the ARCP preferred stock and by buying the common shares.
Snapshot of ARCPP Trade:
The American Realty Capital Properties Inc. 6.7% Cumulative Preferred Series F Stock (ARCPP) is an equity preferred stock issued by ARCP which pays monthly dividends. This stock was ex dividend on 4/29/14, the date that I sold this 100 share lot, so I will receive that dividend.
Snapshot of ARCPP Profit:
Item # 2 Paired Trade: Bought 100 ARCPP at $22.76-Sold 50 BMLPRJ at $21.05 (4/15/14 Post)
I still own 50 ARCPP shares in an IRA. Bought ROTH IRA 50 ARCPP at $21.33 (2/13/14 Post)
Snapshot of ARCP Purchase:
The shares reacted negatively to reports that American Realty was in talks to acquire Northstar Realty Finance for $20 per share. WSJ.com Northstar is not even an equity REIT. ARCP has become a serial acquirer and the market sent a clear signal that a Northstar acquisition would not be welcomed by investors. I doubt that the ARCP management and Board are listening however.
Closing Price on Day of Trade 4/28/14: ARCP: $12.62 -0.39 (-3.00%)
Volume: 25.62+M shares
Average Volume: 9.7M shares
On the next day, American Realty acknowledged that there had been some discussions, but denied that there were any "current" negotiations. American Realty Capital Properties Issues the Following Statement Regarding Recent Market Rumors
The stock recovered most, but not all of the loss from the previous day. The market is skeptical of ARCP's intentions.
Closing Price Day After Trade 4/29/14:
ARCP: 12.93 +0.31 (+2.46%)
Company Description: American Realty Capital Properties (ARCP) is a rapidly growing equity REIT. The primary engine for that growth involves a series of acquisitions that are summarized starting at page 64 of the recent Annual Report, ARCP 12.31.2013 10-K Given effect to the properties acquired through mergers, ARCP owned 3,710 properties in 48 states, D.C. and P.R as of 12/31/13.
The company continued to expand in the 2014 first quarter:
ARCP Exhibit 99.1 - Press Release - 3.31.2014
This is a link to the ARCP SEC Filings.
To focus on single tenant triple net lease properties, ARCP announced back in March its intention to spin off it multi-tenant shopping center business into a new REIT with the symbol ARCM. The owner of ARCP's common shares will receive 1 ARCM share for each 10 ARCP shares. American Realty Capital Properties Announces Plan To Spin Off ARCM
This makes a 100 share lot held in the Roth IRA to be unappealing since the price of ARCP will be adjusted down by the value of this spin-off and it is not cost effective to sell a 10 share lot.
ARCP went ex dividend for its monthly distribution on 5/6, shortly after my 300 share purchase.
Company Website: American Realty Capital Properties
Link to Map showing properties: American Realty Capital Trust
Dividends are paid monthly. The current rate is $.0833 per share. Dividends | American Realty Capital Properties
Assuming a continuation of that current monthly rate, the dividend yield at a total cost of $12.69 is about 7.88%.
Subsequent to my purchase, Brad Thomas wrote an article about ARCP that was published at Seeking Alpha.
Prior ARCP Trade: Item # 4 Bought 100 ARCP at $12.74-Roth IRA (12/31/13 Post).
Recent Earnings Report/Rationale/Risks: These topics are discussed in several recent posts discussing the purchase of ARCP and ARCPP, linked above.
The common shares have a good yield, as noted above, and provide some reasonable possibility of capital appreciation from the $12.69 purchase price.
ITEM # 4 Bought 100 ARCP at $12.74-Roth IRA
After I purchased this 300 share ARCP lot, American Realty Capital reported 2014 1st quarter earnings. AFFO per share was in line with company expectations at $.26 per share. The company reaffirmed 2014 AFFO guidance of $1.13 to $1.19. During the first quarter, ARCP lowered its borrowing cost to a weighted average rate of 3.7& and extended the weighted average maturity to 5.7 years.
ARCP 3.31.2014 10-Q
Brad Thomas discusses this report in a Seeking Alpha report published yesterday.
ARCP reiterated that the spin off of ARCenters (ARCM-future symbol) is expected to occur in June.
Future Buys/Sells: I would want a price drop below $22.5 before buying 50 shares of the 100 ARCPP sold. Given my risk assessment, I will need to sell 100 ARCP before buying more ARCPP shares. My total exposure limit for ARCP securities is currently at $5,000. I can exceed a risk limit temporarily.
I will dispose of the 100 shares of ARCP held in an IRA due to an upcoming distribution of 10 ARCM shares for every 100 in a ARCP spin-off. While I am willing to acquire 30 shares in that spin-off, I do not view it as cost effective to receive just 10 shares given my brokerage commission rate of $7.95 to sell that small lot.
Closing Prices Last Friday:
ARCP: $13.12 +0.26 (+2.02%)
ARCPP: $23.63 0.00 (+0.02%)
8. Sold 50 DREPRL at $24.93-Roth IRA (see Disclaimer): I am playing fixed coupon equity preferred stocks with tight trading rules. Once the yield dips below 7% based on the current market price, I will consider selling a position and then hopefully buy it back at a higher yield when rates start to move up.
The Duke Realty Corp. Dep. Preferred 6.6% Cumulative Series L (DRE.PL) is an equity preferred stock.
Snapshot of Trade:
Snapshot of History:
Snapshot of Profit:
Bought 50 DREPRL at $23.78 (February 2014 Post)
Rationale: Again, I am selling fixed coupon equity preferred stocks into the current rally based on my trading rules for them.
Future Buys: I will consider repurchasing a 50 share lot when the price results in a 7.5%+ yield.
Closing Price Last Friday: DRE-PL: 25.15 +0.09 (+0.36%)
Preferred stocks have been strong so far this year.
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| Financial Ratios as of 3/31/14 |
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| Capital Ratios |
The common shares were at the high end of a fair value range based on anticipated earnings in 2014. The 2014 consensus estimate was $.83 when I purchased the common shares or 14.88 times estimated earnings at the $14.35 price. BPFH Analyst Estimates The consensus estimate for 2015 was $.92, a 10.84 estimate growth rate from the 2014 estimate and around a 13.42 P/E, sort of a mid-point in the fair value range for this bank.
While this is just a guess, I suspect that this bank has some long term recovery potential given its focus on wealthy citizens in four metropolitan areas.
There is also some minor dividend support based on the current quarterly common dividend of $.08 per share. At a total cost of $12.35, the dividend yield would be about 2.59%. That yield is low for any initial purchase in the regional bank basket, just another explanation for the 50 share purchase.
Risks: Interest rate risk is significant in any potentially perpetual preferred stock. Credit risk is material even when a rational investor would conclude that the issuer will continue preferred dividend payments, as shown by the trading history of this type of security during the recent Near Depression and its aftermath. It only requires a fear of dividend elimination or a bankruptcy to send the price spiraling downward. As the owners of preferred stocks issued by bank holdings companies discovered in 2008, there is a lot of room to fall when the security is bought near its par value.
Risks are highlighted by what happened in 2008-2010. Banks have an unfortunate tendency to annihilate the shareholder value created during the good times based on poor management and lending decisions, along with a heavy dose of group think about the good times continuing forever.
Future Buys/Sells: I am not likely to buy more of the preferred stock which is subject to the current trading rules for fixed coupon equity preferred stocks. If the yield at the current market price falls below 7%, I will consider selling any preferred stock, and will simply wait for a better opportunity to reinitiate a position.
For the common stock, I may average down only when and if the dividend yield exceeds 3%. I view the stock to be a long term hold.
Closing Prices last Friday:
BPFHP: $24.54 +0.14 (+0.57%)
BPFH: $12.26 +0.13 (+1.07%)
2. Sold 50 RZA at $26.89-Roth IRA (see Disclaimer): The current trading rule for a long term bond requires me to consider selling the position when the market price creates a less than 6% yield.
Snapshot of Trade:
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| 2014 Roth IRA Sold 50 RZA at $26.89 |
Snapshot of Roth IRA History:
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| RZA Roth IRA History Before Trade |
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| 2014 Roth IRA RZA 50 Shares +$107.03 |
Total Return= $146.49 or 11.91% on a total cost of $1,230.45 in about 7 months.
Security Description: The Reinsurance Group of America Inc. 6.20% Fixed-to-Floating Rate Subordinated Debt Due 2042 (RZA) is a junior subordinated bond. Prospectus This security pays a 6.2% fixed coupon on a $25 par value until 9/15/22. The issuer has an optional redemption right on or after that date. If not redeemed the note will mature in 2042 and start to pay a floating rate at a 4.37% spread to the 3 month Libor rate starting 9/15/22. If that rate is too high for the issuer, it will just redeem the bond.
Prior Trades: Item # 5 Sold 50 RZA at $26.07 (snapshot of profit=$73.08)-Item # 3 Bought: 50 RZA at $24.29 (10/24/13 Post)
Rationale: The current yield at the sales price of $26.89 is about 5.76%. I decided to harvest my profit after receiving two interest payments, and wait for an opportunity to secure a better yield.
The trading strategy for long term bonds and fixed coupon equity preferred stocks represents an effort to balance the interest rate risk with current income generation. At the moment, it is my judgment that the income generation is not worth the risk at particular levels.
Future Buys: I will consider repurchasing this junior bond at below $24.
Closing Price Last Friday: RZA: $26.99 +0.02 (+0.07%)
3. Sold 100 GYB at $19.75-Roth IRA (see Disclaimer):
Snapshot of Trade:
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| 2014 Roth IRA Sold 100 GYB at $19.75 |
Snapshot of Recent Roth IRA History:
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| Recent ROTH IRA History Since 1/20/11 to date |
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| 2014 Roth IRA 100 GYB +$149.01 |
I have previously explained this security in detail. For as long as the swap agreement remains in effect, GYB will pay the greater of 3.25% or .85% above the 3 month Libor rate, up to a maximum coupon of 8.25%, on a $25 par value. Prospectus
Prior Trades: I have bought and sold this security many times which may be an understatement:
Bought 100 GYB at 10.95 /Will Hold Synthetic Floaters In Retirement Account (April 2009); Sold 100 GYB at 18.09 (May 2010); Bought 70 GYB at 18.49 in Regular IRA (March 2010); Added 30 GYB in IRA at $17.97 (July 2010); Sold 100 GYB @ $19.4 (October 2010); Bought 50 GYB @ $19.07 (October 2010); Bought 50 GYB at 18.63 in the Roth IRA (January 2011); Sold 100 GYB at $19.7 in Roth IRA (May 2011); Bought 50 GYB at $16.95 in Roth IRA August 2011; Added 50 of the Synthetic Floater GYB at $15.56-ROTH IRA (December 2011); Sold 100 GYB at $17.09 January 2012-Roth IRA; Bought Back 100 of GYB at 17.2-Roth IRA March 2012; Sold 100 of 150 GYB at $18.03 December 2012-Roth IRA; Added 50 of the Synthetic Floater GYB at $19.6-Roth IRA (August 2013)
Total Realized Gains: $1,382.72 (prior profits=$1,233.71, snapshots at Item # 3 Stocks, Bonds & Politics which discusses the risks associated with this security)
Rationale: Based on my current interest rate forecast, this security is likely to pay its low minimum coupon for at least two more years.
At a total cost of $19.75 per share, and assuming a continuation of the minimum 3.25% coupon, the current yield would be about 4.11%.
Future Buys: I will simply look for another entry point at a lower level. I would view a price lower than $17.5 as a favorable level for a new 50 share Roth IRA purchase.
Closing Price Last Friday: GYB: $19.90 +0.14 (+0.71%)
4. Bought 100 AINV at $7.95-Satellite Taxable Account (see Disclaimer):
Snapshot of Trade:
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| 2014 Bought 100 AINV at $7.95 |
Security Description: Apollo Investment (AINV) is one of the largest and oldest BDCs.
Sponsor's website: Apollo Investment Corporation
Apollo Investment Corporation Portfolio
This BDC was discussed in a Seeking Alpha published last April. I do not share that author's positive views of this BDC.
Back in February, AINV sold 12M shares, plus an over allotment option, to underwriters at $8.69 per share. Prospectus
AINV used to be a component of the S & P 400 but was kicked out of the index. That was part of an ongoing effort to remove BDCs from indexes since their ridiculous management fees have to be included in an ETF index fund's expense ratio. Barrons.com; Seeking Alpha The Russell indexes will most likely remove all BDCs unless the SEC changes its rules on acquired fund fees before May 15th.
Prior Trades: Item # 5 Bought Roth IRA: 100 AINV at $8.68
Recent Earnings Report: I discussed in the last earnings report, available at the time of this purchase, in the previously linked post.
Rationale: I am merely attempting to generate income, hopefully without incurring a loss on the shares which is easy to do in my opinion when investing in a BDC too long. The reason that it is easy to suffer a capital loss is due to the destruction of net asset value per share caused by the highly compensated managers of these firms. The market price of externally managed BDCs will hug net asset value per share. As that number declines, so will the market price.
Risks: I summarized the risks in prior posts. Let me emphasize the potential loss by summarizing some historical net asset value per share data.
3/31/2013: $8.27
3/31/2011: $10.03
3/31/2007: $17.87
I would emphasize that these Masters of the Universe are being paid 2% of total assets plus an incentive fee for this performance. BDC Fees: Seeking Alpha
Prior to the Near Depression, AINV's market price went over $23 in 2007 and then made a swan dive into the low single digits. AINV Interactive Chart
AINV was paying a quarterly dividend of $.52 per share in 2008 which was slashed by 50% in the 2009 first quarter. The dividend was thereafter reduced from $.26 to $.20 in the 2012 first quarter and has remained at that level since that time. Apollo Investment Corporation (AINV) Dividend History
Another risk is that BDC's may soon be kicked out of the Russell indexes. Fitch Ratings
And, the market has soured on BDCs judging from their recent market declines even as rates have fallen and other bond substitutes have risen significantly in price.
Future Buys/Sells: I am not pleased that BDCs are one of the few securities presenting me with a yield opportunity. I hold them in extreme disfavor notwithstanding that high dividend payments. Hopefully, I will not buy another AINV share until I profitably exit the highest cost position.
Closing Price Last Friday: AINV: $7.91 0.00 (0.00%)
5. Sold 100 DLRPRG at $21.55 (see Disclaimer):
Snapshot of Trade:
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| 2014 Sold 100 DLRPRG at $21.55 |
Snapshot of Profit:
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| 2014 DLRPRG 100 Shares +$145.96 |
Security Description: The Digital Realty Trust Inc. 5.875% Cumulative Preferred Series G (DLR.PG) is a fixed coupon equity preferred stock that pays non-qualified and cumulative dividends.
Rationale: This security is subject to the trading rules for potentially perpetual fixed coupon equity preferred stocks. At a total cost of $21.55 per share, the current yield would be about 6.82%.
Future Buys: The price would have to fall below $19 for me to consider a repurchase. Even at a total cost of $19 per share, the dividend yield would only be 7.73%. I would not be overjoyed to received that yield for this security.
Closing Price Last Friday: DLR-PG: $22.00 0.00 (0.00%)
6. Bought Back 50 TRMK at $22.73 (see Disclaimer): This is my third purchase of a 50 TRMK share lot. The prior two lots were sold.
Snapshot of Trade:
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| Email Confirmation-Satellite Taxable Account |
Company Description: Trustmark (TRMK) is a bank holding company that operates through its wholly owned subsidiary Trustmark National Bank 209 bank branches in Mississippi, Florida, Tennessee, Alabama and Texas. TRMK is headquartered in Jackson, MS.
TRMK has used the Near Depression period and its aftermath to expand its geographic footprint. Those acquisition included at least one FDIC assisted purchase. Those acquisitions between 2011-2013 are summarized starting at page 91 of the 2013 Annual Report. One FDIC assisted acquisition involved the Heritage Banking Group: Trustmark Corporation Announces Acquisition of Heritage Banking Group, Carthage, Mississippi
Trustmark SEC Filings
The stock price peaked near $33 during December 2006 after rising from $5+ in 2002. TRMK Interactive Chart Since June 2008, the price has moved mostly between $18 to $25 with a brief spurt over $25 in 2013 that caused me to sell my shares.
While TRMK did not cut its quarterly dividend during the recent Near Depression and its aftermath, the quarterly rate has remained stuck at $.23 since it was raised from $.22 in the 2007 third quarter. Trustmark Corporation (TRMK) Dividend History (data is not adjusted for stock two stock splits pre-2000) TRMK did double the dividend rate between 1999-2007.
Prior Trades: Item # 3 Bought 50 TRMK at 19.57 August 2010-Item # 3 Sold 50 TRMK at 24.7 January 2012; Bought 50 TRMK at $21.54 November 2012-Item # 1 Sold 50 Trustmark at $26.52 July 2013 (snapshots total realized share gains=$473.64)
Recent Earnings Report: In the 2014 first quarter, Trustmark reported net income of $29M or $.43 per share, up 13.2% compared to the 2013 first quarter. SEC Filed Press Release
Net Interest Margin: 3.92%
Efficiency Ratio: 68.32% (prefer less than 60%)
NPL Ratio: 1.06%
Coverage Ratio: 101.86%
ROA: .99%
Return on Tangible Equity (ROTE): 12.93%
The capital ratios are good:
Rationale: TRMK appears to be a well managed regional bank with mostly good metrics. The lack of dividend growth since 2007 is a negative. Still, at a total cost of $22.73, and assuming a continuation of the quarterly dividend of $.23 per share, the dividend yield is good in the current low rate environment at about
Risks: The company summarizes risks incident to its business starting at page 16 of its 2013 Annual Report:10-k
Although the bank remained profitable in 2008 and 2009, both the stock price and earnings were hit. Bank stocks do not perform well during a recessions. Many will fail and be seized by the FDIC. Even those that are prudently managed will suffer an increase in non-performing loans, a possible cut in the dividend, and a decrease in net income.
TRMK E.P.S.
2009: $1.26
2008: $1.59
2007: $1.88
2006: $2.11
The earnings of many banks peaked in 2006 rather than 2007, as did their stock prices.
With rates remaining abnormally low, all banks will be subject to net interest margin compression problems that will restrain earnings growth.
Future Buys/Sells: In my regional bank basket, I will generally limit my exposure to this regional bank to just 50 shares. I will sell shares when and if the current market price is not justified by the TTM P/E and the estimated forward year E.P.S. estimate, given the relatively subdued growth prospects for regional banks in the current low interest rate environment.
Closing Prices Last Friday: TRMK: $23.28 +0.42 (+1.84%)
7. Paired Trade: Sold 100 ARCPP at $23.43 and Bought 300 ARCP at $12.69 (see Disclaimer): In this paired trade, I am increasing income by selling the ARCP preferred stock and by buying the common shares.
Snapshot of ARCPP Trade:
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| 2014 Sold 100 ARCPP at $23.42 |
Snapshot of ARCPP Profit:
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| 2014 ARCPP 100 Shares +$51.04 |
I still own 50 ARCPP shares in an IRA. Bought ROTH IRA 50 ARCPP at $21.33 (2/13/14 Post)
Snapshot of ARCP Purchase:
The shares reacted negatively to reports that American Realty was in talks to acquire Northstar Realty Finance for $20 per share. WSJ.com Northstar is not even an equity REIT. ARCP has become a serial acquirer and the market sent a clear signal that a Northstar acquisition would not be welcomed by investors. I doubt that the ARCP management and Board are listening however.
Closing Price on Day of Trade 4/28/14: ARCP: $12.62 -0.39 (-3.00%)
Volume: 25.62+M shares
Average Volume: 9.7M shares
On the next day, American Realty acknowledged that there had been some discussions, but denied that there were any "current" negotiations. American Realty Capital Properties Issues the Following Statement Regarding Recent Market Rumors
The stock recovered most, but not all of the loss from the previous day. The market is skeptical of ARCP's intentions.
Closing Price Day After Trade 4/29/14:
ARCP: 12.93 +0.31 (+2.46%)
Company Description: American Realty Capital Properties (ARCP) is a rapidly growing equity REIT. The primary engine for that growth involves a series of acquisitions that are summarized starting at page 64 of the recent Annual Report, ARCP 12.31.2013 10-K Given effect to the properties acquired through mergers, ARCP owned 3,710 properties in 48 states, D.C. and P.R as of 12/31/13.
The company continued to expand in the 2014 first quarter:
ARCP Exhibit 99.1 - Press Release - 3.31.2014
This is a link to the ARCP SEC Filings.
To focus on single tenant triple net lease properties, ARCP announced back in March its intention to spin off it multi-tenant shopping center business into a new REIT with the symbol ARCM. The owner of ARCP's common shares will receive 1 ARCM share for each 10 ARCP shares. American Realty Capital Properties Announces Plan To Spin Off ARCM
This makes a 100 share lot held in the Roth IRA to be unappealing since the price of ARCP will be adjusted down by the value of this spin-off and it is not cost effective to sell a 10 share lot.
ARCP went ex dividend for its monthly distribution on 5/6, shortly after my 300 share purchase.
Company Website: American Realty Capital Properties
Link to Map showing properties: American Realty Capital Trust
Dividends are paid monthly. The current rate is $.0833 per share. Dividends | American Realty Capital Properties
Assuming a continuation of that current monthly rate, the dividend yield at a total cost of $12.69 is about 7.88%.
Subsequent to my purchase, Brad Thomas wrote an article about ARCP that was published at Seeking Alpha.
Prior ARCP Trade: Item # 4 Bought 100 ARCP at $12.74-Roth IRA (12/31/13 Post).
Recent Earnings Report/Rationale/Risks: These topics are discussed in several recent posts discussing the purchase of ARCP and ARCPP, linked above.
The common shares have a good yield, as noted above, and provide some reasonable possibility of capital appreciation from the $12.69 purchase price.
ITEM # 4 Bought 100 ARCP at $12.74-Roth IRA
After I purchased this 300 share ARCP lot, American Realty Capital reported 2014 1st quarter earnings. AFFO per share was in line with company expectations at $.26 per share. The company reaffirmed 2014 AFFO guidance of $1.13 to $1.19. During the first quarter, ARCP lowered its borrowing cost to a weighted average rate of 3.7& and extended the weighted average maturity to 5.7 years.
ARCP 3.31.2014 10-Q
Brad Thomas discusses this report in a Seeking Alpha report published yesterday.
ARCP reiterated that the spin off of ARCenters (ARCM-future symbol) is expected to occur in June.
Future Buys/Sells: I would want a price drop below $22.5 before buying 50 shares of the 100 ARCPP sold. Given my risk assessment, I will need to sell 100 ARCP before buying more ARCPP shares. My total exposure limit for ARCP securities is currently at $5,000. I can exceed a risk limit temporarily.
I will dispose of the 100 shares of ARCP held in an IRA due to an upcoming distribution of 10 ARCM shares for every 100 in a ARCP spin-off. While I am willing to acquire 30 shares in that spin-off, I do not view it as cost effective to receive just 10 shares given my brokerage commission rate of $7.95 to sell that small lot.
Closing Prices Last Friday:
ARCP: $13.12 +0.26 (+2.02%)
ARCPP: $23.63 0.00 (+0.02%)
8. Sold 50 DREPRL at $24.93-Roth IRA (see Disclaimer): I am playing fixed coupon equity preferred stocks with tight trading rules. Once the yield dips below 7% based on the current market price, I will consider selling a position and then hopefully buy it back at a higher yield when rates start to move up.
The Duke Realty Corp. Dep. Preferred 6.6% Cumulative Series L (DRE.PL) is an equity preferred stock.
Snapshot of Trade:
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| 2014 Roth IRA Sold 50 DREPRL at $24.93 |
Snapshot of History:
Snapshot of Profit:
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| 2014 DREPRL 50 Shares +$43.47 |
Rationale: Again, I am selling fixed coupon equity preferred stocks into the current rally based on my trading rules for them.
Future Buys: I will consider repurchasing a 50 share lot when the price results in a 7.5%+ yield.
Closing Price Last Friday: DRE-PL: 25.15 +0.09 (+0.36%)
Preferred stocks have been strong so far this year.
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