Observations and Sample of Recent Trades: EAE, FDUS, GAINL, HTPRD, SDIV

Economy:

The first quarter is shaping up so far at close to zero real GDP growth. Atlanta Fed GDP tracker shows next to no growth for first quarter

The government's initial estimate of 4th quarter real GDP growth was released last week and showed a better than expected 2.6% annualized rate. Gross Domestic Product, Fourth Quarter and Annual 2018 (Initial Estimate) | U.S. Bureau of Economic Analysis (BEA) This estimate will be revised in the coming weeks.  

If that number holds through subsequent revisions, the real GDP growth rate for 2018 would be 2.9% .

GDP surprise chalked up to unexpected consumer spending during shutdown, R&D growth - MarketWatch

China’s factory activity drops to lowest level in 3 years - MarketWatch

U.S., China in final stages of trade talks, with formal deal possible by month’s end - MarketWatch

Homeownership rate reaches four-year high in the fourth quarter as millennial demand recovers - MarketWatch

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Markets and Market Commentary: 

The stock market is looking tired to me after its recent parabolic spike off the low hit last Christmas Eve.  

S&P 500 earnings outlook cut down again, toward first decline in 3 years - MarketWatch

Largest Cuts to S&P 500 EPS Estimates in Four Years for First Half of 2019

I have not looked for several weeks at the current SPX E.P.S. estimates for 2019. Those estimates still show decent growth that is primarily backloaded into the second half with the second quarter showing a big jump from the first quarter (data from S & P):

The estimated GAAP E.P.S. for the 2019 first and second quarters was 72.48 as of 2/28/19 compared to the actual 67.07 GAAP number for the first six month's last year. That is still decent growth of about 8%, but the 2019 estimated number is backloaded into the second quarter with the first quarter estimated at a 3.66% Y-O-Y increase.

If you actually compared next year the 2019 actual numbers with the estimated ones above, you will be doing something that the Stock Jocks never do as they cleanse their memory banks with stale information that is more than a few days old.

I do compare the forward 12 month E.P.S. forecasts (GAAP and Non-GAAP) with the actual numbers, and the result proves IMO that the forward 12 month estimates are unreliable and overly optimistic.

Take this past comparison as just one example:

Update For Portfolio Positioning And Management As Of 7/24/16 - South Gent | Seeking Alpha

Amazon will reportedly launch its own chain of supermarkets

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Trump: 

The investigative journalist Jane Mayer has published an article exposing Trump TV. Among the new revelations is that Fox knew about the Stormy Daniels matter before the election and spiked the story written by reporter Diane Falzone. The Making of the Fox News White House | The New Yorker  Donald ranks the Trump TV anchors by how loyal they are to him. 

Mayer also claims that Trump ordered the DOJ to stop the AT & T-Time Warner merger. Report: Trump asked Cohn to block AT&T/Time Warner merger - CNN 

There have been several media reports in the past that Trump wanted to condition U.S. approval on Time Warner jettisoning CNN, possibly to Rupert Murdoch who would then Foxify CNN as another Trump propaganda machine adhering to the Putin playbook. 

Trump TV is not a place where journalists can be found. 

Trump TV radicalizes the right, usually with false and misleading information and has become "the closest we’ve come to having state TV” as noted by Nicole Hammer, author of Messengers of the Right: Conservative Media and the Transformation of American Politics (Politics and Culture in Modern America). 

Donald has proved once again that lying works in American politics: President Trump has made 9,014 false or misleading claims over 773 days - The Washington Post  

Fordham confirms that Trump team threatened the school if his grades became public - MarketWatch 

Why would the Stable Genius object so strenuously to having his grades released unless they would show that the Stable Genius was more of a Doofus Don in high school and college rather than the smartest person in the history of the universe since the Big Bang. 

I would not object to having all of my grades published.  

Trump ordered that the professionals in charge of security clearances to reverse their refusal to grant one to Jared Kushner. 

The then Chief of Staff, General Kelly, wrote a protective memo stating that he was ordered by Trump to give Kushner a security clearance. Trump Ordered Officials to Give Jared Kushner a Security Clearance - The New York Times 

Trump also ordered a security for Ivanka. President pressured staff to grant security clearance to Ivanka Trump 

The question is not whether Trump has the power to grant a security clearance but his willingness to follow the processes designed to protect the national interest. He is not willing to do so. 

When engaged in widespread and persistent voter suppression efforts, republicans imagine the existence of voter fraud to justify what is really just pure realpolitik-keep those who vote the wrong way from voting or making it difficult and time consuming to exercise this constitutional right that they give up trying to vote.  

However, when confronted with an actual case of voter fraud, they remain strangely silent. North Carolina Republican operative charged in election fraud scheme | Reuters 

Federal Judge Halts ‘Ham-Handed’ Texas Voter Purge - The New York Times

Matthew Calamari went viral after the Cohen hearing. He’s real, and he loves Trump. (a former bodyguard and the kind of guy who was destined to go far in the Trump organization since the Duck only hires the best people or so the Trumpsters tell me)   

Andrew Wheeler, former coal lobbyist, confirmed to lead EPA - CNN Since climate change is a hoax perpetrated by China on the gullible U.S. Liptards, as Don the Demagogue claims, then there is nothing to worry about when a coal lobbyist replaces the climate denier Scott Pruitt as the Director of the Environmental Protection Agency. 

Donald is contemplating appointing a panel of climate change deniers to question the generally accepted science on man made global warming. Trump to set up science panel to counter his own government's climate change consensus, officials say - Chicago Tribune; Every Insane Thing Donald Trump Has Said About Global Warming 

The latest WSJ/NBC poll shows that Donald is supported by 88% of republicans. Trump maintains strong approval ratings with GOP ahead of 2020 Even now, only 27% of republicans believe that Obama was born in the U.S. No amount of proof can convince them to change their non-fact based opinions or to replace their reality creations with accurate information. It is not even worth the effort to try. 

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Portfolio Management: 

I am continuing to use the rally to sell my highest cost lots, focusing on higher risk yield investments which includes all BDC common stocks and equity preferred stocks.  

It is not relevant to me that the profits are small, since I am reducing risks in a manner consistent with my overriding capital preservation objective while increasing yields by lowering my average cost per share and freeing up capital for later redeployment in the same or similar securities.   

For the most part, I anticipate in the coming weeks and months redeploying proceeds from maturing short term bonds and CDs into purchases of treasury bills, mostly bought at the auctions. 

New purchases of treasury bills maturing in the 2019 4th quarter will be in the $50K to $60K range, consisting of 3 and 6 month treasury bills bought at auctions. The reallocation will start in April with a 6 month treasury bill purchase. 

I will also be buying three to five 1 year treasury bills at auction every month.  

Given the flat yield curve, I will not be buying treasuries maturing in 2021 or later. 

I am addressing a potential decline in interest rates primarily through my ownership of Tennessee municipal bonds which I will hold until maturity or early redemption by the issuer. My weighted average tax free yield in those bonds is 3%, with a weighted average total cost at below par value. 

Generally, I will pick up slightly more yield by buying short term treasuries at auction rather than in the secondary market. 

I am buying some treasuries in the secondary market as fillers in my short term bond ladder. 
  
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1. Pares and Eliminations:

A. Pared GAINL-Sold Highest Cost Lot at $25.64:

I sold my highest cost lot using FIFO accounting.

History:

Quote: Gladstone Investment Corp. Preferred Series E Stock (GAINL)-A BDC

Closing Price Yesterday: GAINL $25.35 -$0.09 -0.35% 

Profit Snapshot: $19.97

Item # 1 Bought 50 GAINL at $25.14-Used Schwab Commission  Free Trade (10/17/18 Post)

I kept the 50 share lot bought at $24.18: Item # 3 Bought 50 GAINL at $24.18 (1/23/19 Post)

Security Description:

Issuer: Gladstone Investment Corp. (GAIN)
Prospectus
Par Value: $25
Coupon: 6.375%
Dividends: Monthly at $.1328+, Cumulative & Non-Qualified
Last Ex Dividend Date: 2/19
Maturity Date: 8/31/25
Issuer Optional Call Date: On or after 8/31/20

I will consider repurchasing shares at less than $22.

I view equity preferred stocks issued by BDCs to be risky. 

I am uncomfortable owning a preferred stock issued by a BDC, particularly when the yield is lower than 8%. I do not believe the yield on GAINL is adequate compensation for the risk.

BDC loans are junky, and they pay out their net income to common shareholders as dividends. Consequently, there is no cash cushion for the preferred shareholders.

The main benefit of this preferred stock is that it has a maturity date which is highly unusual. 

Dividend Yield at new average cost of $24.18 = 6.61%

I include snapshots of all fixed coupon equity preferred stocks in this Gateway Post: Advantages and Disadvantages of Equity REIT Cumulative Equity Preferred Stocks (trading profits 2008 to date = +$11,910.58)

This entire niche category is viewed with disfavor which dictates small positions and frequent trading. It has been difficult for about 5 years to generate profits from this type of security given the prices and optional call features. 

Snapshots of equity preferred floating rate stocks are in a different Gateway Post: Advantages and Disadvantages of Equity Preferred Floating Rate Securities (start date 2008, trading profits = +$23,642.44)

Everything is structured and has categories, strategies and rules. 

Strategy: Small Ball (the next purchase has to be below the lowest price paid in the chain which is currently $24.18)

Almost all common stock purchases now are part of the small ball purchase restriction. 

B. Sold 50 of 100 HTPRD in Roth IRA Account at $22.39:

Quote: Hersha Hospitality Trust 6.5% Cumulative Preferred Series D Stock

Issuer Website: Hersha Hospitality Trust

Recent History this Roth IRA Account:

I kept the lot purchased at $20.11. Item # 1.A. (12/26/18 Post)

Yield at $20.11 = 8.08%

Profit Snapshot: +38.49

Item # 1.B. Bought 50 HTPRD at $21.34-In a Roth IRA Account (11/11/18 Post)

Security Description:

Strategy: Equity REIT Common and Preferred Stock Basket
Category:Equity REIT Cumulative Equity Preferred Stocks

Issuer: Hersha Hospitality Trust Cl A (HT)

Par Value: $25 Final Prospectus Supplement
Optional Call Date: On or after 5/31/21

Cumulative Dividends: Yes
Stopper Clause: Yes  

Dividends: Paid Quarterly

Last Ex Dividend Date: 12/28/18 
Maturity Date: Potentially perpetual subject to issuer's call right

Qualified Dividends: No, pass through entity

HTPRD Trading Profits to Date: $351.98 ($313.49 in prior trades)

Prior Sell Discussions: Item # 1.A. Sold Last 50 HTPRD Shares at $25.85 (10/9/17 Post); Item # 2 Sold 150 HTPRD at $25.8  (9/18/17 post)

Total Current Position All Accounts: 150 shares

Hotel REIT preferred stocks generally have higher yields compared to other REIT preferred stock sectors.

They are perceived to be riskier due to their lack of long term leases and greater sensitivity to economic cycles.

When investors become concerned about a recession on the near horizon, which was the case in the 2018 4th quarter and last January, the hotel REIT preferred stocks will generally go down more than other REIT sectors. 

Within the Hotel REIT sector, some of the preferred stocks will be riskier than others due to higher leverage. Two examples would be my recent buys of AHTPRI and BHRPRD. Item 1.C. Added 20 AHTPRI at $18.52-Used Commission Free Trade  (12/29/18 Post); Item 1.B. Bought 30 AHTPRI at $21.86-Used Commission Free Trade (12/26/18); Item # 1.A. ,Bought 50 BHRPRD at $20.02 (1/20/19 Post)

The yield differentials will frequently reflect the differences in perceived credit risks.

The BHRPRD yield at $20.02 is 10.3% for example, or around 4% higher than a BBB+ rated REIT preferred stock like those issued by Public Storage (PSA).

Close to the time that I bought those two hotel preferred stocks, I bought 50 shares of PSAPRE, rated at A3/BBB+. (12/29/18 Post). The yield at my $20.58 total cost was 5.95%.

C. Pared FDUS-Sold 52 Shares at $15.15:

Quote: Fidus Investment Corp.-A BDC
Website: Fidus
SEC Filings

Closing Price Yesterday: FDUS $15.55 -$0.10 -0.64% 

I sold the highest cost lot and 2 of the highest cost shares purchased with dividends.

I kept the lower cost shares including the purchases discussed in this post: Item # 4.A. Bought 50 FDUS at $13.87 and 30 at $12.63 (12/19/18 Post 

I discussed the third quarter earnings report in that post.

This transaction reduced my average cost per share to $13.46 from $13.83:

Profit Snapshot: +$32.88

Item # 1.C. Bought 50 Fidus at $14.43-Used Commission Free Trade (6/14/18 Post)

FDUS 1 Year Chart

Dividend: Regular quarterly dividend at $.39 per share

Fidus Investment Corporation (FDUS) Dividend Date & History - Nasdaq

Dividend Yield at Total Average Cost Per Share: 11.59% (excludes special dividend payments in the calculation)

In the 2018 4th quarter, the company paid a special dividend of 4 cents per share.

Next Ex Dividend Date: 3/7/19

Dividend Reinvestment: Yes, but may turn off when price exceeds $16

Current Position: 84+ shares

Maximum Position: 150 shares

Purchase Restriction: Small Ball Rule

Lowest Price in Current Chain: 30 shares at $12.63

Net Asset Value Per Share History:

12/30/18: $16.47
9/30/18:  $16.41
3/30/18   $16.28
12/31/17  $16.05
12/31/16  $15.76 
12/31/15  $15.17
12/31/14  $15.16
12/31/13  $15.35
12/21/12  $15.32
IPO at $15 June 2011

Given this net asset value per share history, I am willing to continue dividend reinvestment at a lower discount than I would for a BDC whose net asset value per share is in a persistent decline.  

Last Earnings Report: I would label this report as a good one for a BDC. 

This report was released after I sold the shares. Fidus Investment Corporation Announces Fourth Quarter and Full Year 2018 Financial Results 

2. Intermediate Term Bond/CD Ladder Basket Strategy: 

A. Bought 2 Brookfield Asset Management 4% SU Maturing on 1/15/25: 

FINRA Page: Bond Detail (prospectus not linked)

Prospectus 

Issuer: Brookfield Asset Management Inc. (BAM) 

Website: Brookfield Asset Management

Brookfield Asset Management Reports Record 2018 Net Income and FFO NYSE:BAM

Brookfield Asset Management Inc. (BAM) CEO Bruce Flatt on Q4 2018 Results -Earnings Call Transcript | Seeking Alpha

Credit Ratings: 

BAM's senior unsecured debt was rated A low by DBRS or an A- equivalent to S & P.  DBRS Confirms Ratings of Brookfield Asset Management Inc. at A (low), R-1 (low), Stable Trends -DBRS (6/25/18) 

Bought at a Total Cost of 99.238 (includes $2 commission)

YTM at TC Then at 4.146%

Current Yield at TC = 4.0307%

When moving into intermediate and longer term bonds, I much prefer to have the current yield close to the YTM so that I am capturing most of the YTM in semi-annual interest payments.

3. Short Term Bond/CD Ladder Basket Strategy:

A. Bought 2 HCP 2.625% SU Maturing on 2/1/20:

I now own 6 bonds and will not buy more.

Finra Page: Bond Detail (prospectus linked)

Issuer: HCP Inc.
2018 Annual Report (debt maturity at page 96)

HCP Reports Fourth Quarter and Year Ended 2018 Results

HCP, Inc. (HCP) CEO Tom Herzog on Q4 2018 Results - Earnings Call Transcript | Seeking Alpha

Credit Ratings:

Bought at a Total Cost of 99.833
YTM at TC Then at 2.804%
Current Yield at TC = 2.6294%

B. Bought 2 J.P. Morgan 2.55% SU Maturing on 10/29/20-A Roth IRA Account:

FINRA Page: Bond Detail (prospectus not linked)

This is another example of a bond roll. I have 2 JPM bonds maturing on 3/22/19. I am rolling the anticipated proceeds into the 10/29/20 maturity, keeping my exposure in this account to $4K as of 3/22/19:

Issuer: JPMorgan Chase & Co. (JPM)
JPM Analyst Estimates

Credit Ratings:

Currently, I am willing to take my JPM SU bond exposure up to $15K. I also own several JPM CDs.

Bought at a Total Cost of 99.499  (includes $4 Vanguard commission)
YTM at TC Then at 2.855%
Current Yield at TC = 2.5628%  

Paid 99.299 YTM at that Price then at 2.977%

C. Bought 1 WFC 2.6% SU Maturing on 7/22/20:

I now own 3 bonds.

FINRA Page: Bond Detail (prospectus linked)

Issuer: Wells Fargo & Co. (WFC)
WFC Analyst Estimates

Credit Ratings:

Bought at a Total Cost of 99.62
YTM at TC Then at 2.877%
Current Yield at TC = 2.61%

4. Swapped 50 Shares of SDIV for 50 Shares of EAE: 

The rationale for this swap was my opinion that the EAE price rise is close to its high point while SDIV may provide a total return in excess of its superior yield to EAE. 

A. Sold 50 EAE at $24.73: 

Quote: Entergy Arkansas Inc. First Mortgage Bonds 4.75% Series Due June 1, 2063 (EAE)

Closing Price Yesterday: EAE $25.00 

Profit Snapshot: $93.7

EAE is an exchange traded baby bond which trades flat on the stock exchange.

Prospectus

Credit Ratings: A2/A-

Security: First Lien on substantially all of issuer's assets

Par Value: $25

Coupon: 4.75% on a $25 par value

Yield at the new TC of $23.66 = 5.019%

Interest Payments: Quarterly

Last Ex-Interest Date: 2/27/19 (shortly before I sold the 50 share lot) 

The brokers refer to the payment as a dividend but it is interest. 

Optional Call Date: On or after 6/1/18

Maturity: 6/1/63, unless redeemed early at the issuer's option

Asymmetric Interest Rate Risk: As with other exchange traded bonds, interest rate risk is asymmetric in favor of the issuer. 

If interest rates decline so that it becomes advantageous for the issuer to redeem at par value, then the owner is left with the proceeds to reinvest at a lower coupon. 

If interest rates rise, the issuer would be just pleased to let the owners hold the bond that is going down in value. 

This bond, with its potentially long maturity date, has a ton of interest rate risk. 

I am not currently concerned by the credit risk.

I am in a hyper trading mode for potentially long duration exchange traded first mortgage bonds due to their interest rate risk. 

Purchase Discussions for 50 share EAE Lot: Bought 20 EAE at $21.6-Used Schwab Commission Free Trade (10/7/18 Post); Item # 3.A. Bought 30 EAE at $23.66-Used Schwab Commission Free Trade (9/16/18 Post)

If I had in abundance commission free trades at Schwab, and I currently have none left, I would have the highest lot bought at $23.66 and kept the lowest cost lot bought at $21.6. That kind of small ball is no longer economical when the commission rate is $4.95.

B. Bought 50 of the ETF SDIV at $18.51-Now Commission Free for Schwab Customers: 

Quote:  SDIV Fund - Global X SuperDividend ETF Overview
Sponsor's Page: SuperDividend® ETF
Expense Ratio: .58%
SDIV Morningstar Page: Currently Rated 2 stars

Closing Price Yesterday (ex dividend): SDIV $18.41 +$0.16 +0.85% 

Top 10 Holdings as of 2/28/19: 

Dividends: Monthly

Using the last monthly penny rate of $.1352, the yield is about 8.77% at a total cost of $18.51 per share. 

Last Ex Dividend Date: Yesterday, 3/5/19 (shortly after purchase)

Dividend Reinvestment: Yes  

Current Position This Account: 103+ shares 

Total and Maximum Position All Accounts: 150 Shares + Shares purchased with dividends

Last Discussed: Item # 2.C. Bought 10 SDIV at $17.8-Used Commission Free Trade at Fidelity (1/16/19 Post); Item # 2.B. Bought 10 SDIV at $18.89-Used Commission Free Trade (11/18/18 Post)

Since I can now buy this ETF commission free at both Schwab and Vanguard, I will not longer use one of my Fidelity commission free trades to buy.  

This fund has historically had subpar performance compared to the S & P 500 even with the reinvestment of SDIV's much higher dividends to buy additional shares.    

Prior Elimination: Item # 2  Sold 105+ SDIV at $22.54 (8/3/13 Post)

Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.