For years I have known about preferred stocks, but the complexity and mysteries have kept me away. Recently I read an article in which the long-term strategies involved growth companies such as Amazon (AMZN), Apple (AAPL), but also included income stocks like BP (BP). Clustered in the income stocks was a suggestion to buy Ford (F) but not the common shares. Rather the idea was to pickup preferred shares.
I looked into these Ford preferred shares to see what the attraction was. I found that Ford has a couple different choices in the preferred area (F-S & F-A). Upon closer looks I decided that F-A was the correct pick for me. F-A has a coupon rate of 7.50%, however the preferred is selling below the $25 coupon price. When valued based on the market price the yield is actually 8.69%.
The risk is that Ford could buy this back from the market (since it is past its call date), but in that case I would get $25 a share (which is quite a bit more than I paid). On the plus side the maturity date is 2043, so I could in theory keep collecting the yield until that point.
Preferreds seem to be a good way to secure a yield in a slightly easier way than going to the bond market. That said the bond market is quite a bit safer, but in looking at total returns, you get more return for the added risk in preferreds. I would not likely build an entire portfolio of preferreds, but it does seem to be a good way to diversify my high yield stocks. There is certainly no car maker paying a dividend of any sizable amount, but now I am able to get my high yield while broadening my exposure.
Tuesday, December 15, 2009
Tuesday, December 1, 2009
RBA Raises Rates Again
For the third time in three months, the Reserve Bank of Australia raising its key interest rate (this time to 3.75%).
On 6-October I explained why this was a good opertunity to get into FXA...
From October 6th till today FXA is up over 5.5%
That 5.5% is just the FXA value, and does not include the two distributions/dividends that have also been paid out in that time.
On 6-October I explained why this was a good opertunity to get into FXA...
From October 6th till today FXA is up over 5.5%
That 5.5% is just the FXA value, and does not include the two distributions/dividends that have also been paid out in that time.
Tuesday, November 10, 2009
Is Europe a better bet than the blue-chips?
There has been no shortage of articles bashing the US dollar and the US economy lately. And if your willing to dig a little bit deeper you may find more positive references to the EU than ever before. While the political differences have made for the common remarks about Euro-Zone weakness because of infighting, the simple fact is that the numbers don't back up weakness. In fact quite the opposite…
Lets compare VFINX (the most widely held mutual fund in the world) to represent the broader S&P500 and VEURX (Vanguard European Stock Index) to represent the MSCI Europe Index.
In 2008 the world markets were brought to their knees. It seemed that the worlds stock markets were going to crash and burn. VFINX was down 41.22% for the year 2008. Europe seemed to be hit even harder, as VEURX was down a whopping 50.54%. Had you have bought VEURX on the first trading day of the year in 2008 you would have been left with less than half of your original investment.
Lots of articles and commentators have said the Euro-Zone is to fractured to compete, there are to many political ideologies, to much internal fighting, to many weak countries, etc… But other than the disaster of 2008, does that really hold true?
Look at some VEURX charts against VFINX charts:
1yr:
+25.14% VEURX
+17.44% VFINX
5yr:
+10.97% VEURX
-6.44% VFINX
10yr:
-2.25% VEURX
-23.98% VFINX
This week, Newsweek sited a study that shows the 2010 GDP of the EU should "nearly match that of the U.S. and China combined". Based on that, you could say that valuations of EU companies should be higher than those of US companies. Of course it's not quite that simple in a global economy, but one might expect the EU market to outperform the US market… again (as year to date VEURX is up 34.35% vs. 21.51% for VFINX).
Lets compare VFINX (the most widely held mutual fund in the world) to represent the broader S&P500 and VEURX (Vanguard European Stock Index) to represent the MSCI Europe Index.
In 2008 the world markets were brought to their knees. It seemed that the worlds stock markets were going to crash and burn. VFINX was down 41.22% for the year 2008. Europe seemed to be hit even harder, as VEURX was down a whopping 50.54%. Had you have bought VEURX on the first trading day of the year in 2008 you would have been left with less than half of your original investment.
Lots of articles and commentators have said the Euro-Zone is to fractured to compete, there are to many political ideologies, to much internal fighting, to many weak countries, etc… But other than the disaster of 2008, does that really hold true?
Look at some VEURX charts against VFINX charts:
1yr:
+25.14% VEURX
+17.44% VFINX
5yr:
+10.97% VEURX
-6.44% VFINX
10yr:
-2.25% VEURX
-23.98% VFINX
This week, Newsweek sited a study that shows the 2010 GDP of the EU should "nearly match that of the U.S. and China combined". Based on that, you could say that valuations of EU companies should be higher than those of US companies. Of course it's not quite that simple in a global economy, but one might expect the EU market to outperform the US market… again (as year to date VEURX is up 34.35% vs. 21.51% for VFINX).
Thursday, November 5, 2009
Templeton Global Bond Fund Advisor Class (TGBAX)
I recently added TGBAX to my 401k. I have not been very big on bond funds because of their normal lack of return. What I like about this bond funs should be clear, look at the yields on some of this funds top holdings. Add to that the fact that lots of bonds have had to up their yields in these economic times, and you can guess what the more risky ones would look like.
This fund is 5-star rated by Morningstar and gets a 94 rating from maxfunds. The dividend yield is at 7.5%. Its worst 1-yr return was -4.7% in 1997. I call that a winner.
+16.46% YTD
+22.78% 1yr
+12.39% Annualized 3yr
+10.12% Annualized 5yr
19% Cash
79% Bonds
Bond Holdings:
7.32% Korea(Republic Of) 4.75%
4.50% Russian Fedn 2.25%
3.37% Sweden (Kingdom Of) 5.25%
3.31% France(Govt Of) 4%
2.59% MEXICO(UTD MEX ST)
2.36% Mexico(Utd Mex St) 10%
2.07% KINGDOM OF THE NETHERLANDS
1.87% Republic Of Poland
1.74% Korea(Republic Of) 5.5%
1.70% New Sth Wales Tsy 5.5%
This fund is 5-star rated by Morningstar and gets a 94 rating from maxfunds. The dividend yield is at 7.5%. Its worst 1-yr return was -4.7% in 1997. I call that a winner.
+16.46% YTD
+22.78% 1yr
+12.39% Annualized 3yr
+10.12% Annualized 5yr
19% Cash
79% Bonds
Bond Holdings:
7.32% Korea(Republic Of) 4.75%
4.50% Russian Fedn 2.25%
3.37% Sweden (Kingdom Of) 5.25%
3.31% France(Govt Of) 4%
2.59% MEXICO(UTD MEX ST)
2.36% Mexico(Utd Mex St) 10%
2.07% KINGDOM OF THE NETHERLANDS
1.87% Republic Of Poland
1.74% Korea(Republic Of) 5.5%
1.70% New Sth Wales Tsy 5.5%
Friday, October 30, 2009
Home Buyer Tax Credit
The first time home buyers tax credit has been extended, and some changes have been made. Whilst the tax rebate still targets mainly first time home buyers, the added provisions for those looking to move to a new home are nice. They also bumped the income requirements.
Both of those changes are smart, in my opinion. I never fully understood why the credit excluded higher income ranges. When wealthy people buy houses does it not help the economy? Also why not help people who already own a home? Times are tough right now. In a bad housing market some current home owners deiced now was not the time to buy a new home. Now that current home owners (more than 5yrs in your current home) are included, they may feel now IS the time to buy a new home.
Here is a good article with the basic details and changes to the tax credit:
http://news.yahoo.com/s/usnews/firsttimehomebuyertaxcreditgetsobamanod
Both of those changes are smart, in my opinion. I never fully understood why the credit excluded higher income ranges. When wealthy people buy houses does it not help the economy? Also why not help people who already own a home? Times are tough right now. In a bad housing market some current home owners deiced now was not the time to buy a new home. Now that current home owners (more than 5yrs in your current home) are included, they may feel now IS the time to buy a new home.
Here is a good article with the basic details and changes to the tax credit:
http://news.yahoo.com/s/usnews/firsttimehomebuyertaxcreditgetsobamanod
Tuesday, October 27, 2009
BP Beats Earnings
BP climbed 4.8 percent, the highest close since June 2008. Earnings excluding one-time items and inventory changes fell 47 percent to $4.67 billion from a year earlier. That exceeded the $3.25 billion median estimate of 11 analysts compiled by Bloomberg.
BP’s results “obliterated market forecasts, as evidenced by the spike in the share price,” said Richard Hunter, London- based head of U.K. equities at Hargreaves Lansdown Stockbrokers. “BP’s contribution to what is becoming a strong third-quarter earnings season is likely to meet with broker upgrades.”
BP’s results “obliterated market forecasts, as evidenced by the spike in the share price,” said Richard Hunter, London- based head of U.K. equities at Hargreaves Lansdown Stockbrokers. “BP’s contribution to what is becoming a strong third-quarter earnings season is likely to meet with broker upgrades.”
Thursday, October 15, 2009
Dividends and Distributions
Dividends and Distributions
Here is a list of some of my favorite stocks that have high dividend yields. (ones I hold in bold)
Div Yeild
7.60% MO
6.50% VZ
6.50% BP
6.40% T
6.10% DUK
6.00% CNP
5.90% RDS.A
5.80% LLY
5.50% BMY
3.90% MCD
I have not included Canadian Royal Trusts like HTE & PGH. Reason being that the dividends on those trusts, while extremely high, are far more risky than those of the above listing companies.
Two Closed-End fund suggestions:
MIN - MFS Intermediate Income Trust
Distribution Yield (Market): 8.56%
Holdings:
41.10% Corporate Notes/Bonds
22.50% Foreign Long-Term Debt
14.33% Foreign US$ Denominated Notes/Bonds
8.45% FNMA-Mortgage Backed
4.33% Other Govt Bond
2.36% Other Mortgage
2.32% Portfolio Other
1.97% Federal Home Loan Mortgage Corp-Mortgage Backed
1.82% GNMA-Mortgage Backed
Rating:
29.12% AAA
22.50% Foreign Currencies
19.76% A
16.68% BBB
9.54% AA
2.32% Other
0.86% BB
HYB - New America High Income Fund
Distribution Yield (Market): 9.58%
Holdings:
94.07% Corporate Notes/Bonds
2.49% Convertible Bonds
Ratings:
1.85% Short-Term
38.68% B
28.21% BB
Here is a list of some of my favorite stocks that have high dividend yields. (ones I hold in bold)
Div Yeild
7.60% MO
6.50% VZ
6.50% BP
6.40% T
6.10% DUK
6.00% CNP
5.90% RDS.A
5.80% LLY
5.50% BMY
3.90% MCD
I have not included Canadian Royal Trusts like HTE & PGH. Reason being that the dividends on those trusts, while extremely high, are far more risky than those of the above listing companies.
Two Closed-End fund suggestions:
MIN - MFS Intermediate Income Trust
Distribution Yield (Market): 8.56%
Holdings:
41.10% Corporate Notes/Bonds
22.50% Foreign Long-Term Debt
14.33% Foreign US$ Denominated Notes/Bonds
8.45% FNMA-Mortgage Backed
4.33% Other Govt Bond
2.36% Other Mortgage
2.32% Portfolio Other
1.97% Federal Home Loan Mortgage Corp-Mortgage Backed
1.82% GNMA-Mortgage Backed
Rating:
29.12% AAA
22.50% Foreign Currencies
19.76% A
16.68% BBB
9.54% AA
2.32% Other
0.86% BB
HYB - New America High Income Fund
Distribution Yield (Market): 9.58%
Holdings:
94.07% Corporate Notes/Bonds
2.49% Convertible Bonds
Ratings:
1.85% Short-Term
38.68% B
28.21% BB
Tuesday, October 6, 2009
RBA Raises Rates
Today in Australia the RBA (Reserve Bank of Australia) made a fairly large statement, it became the first G20 to raise rates. This short article gives a pretty good explanation of why the RBA felt the need to raise the rates.
http://www.cnbc.com/id/33191494
I have been a big investor in the Australian dollar (via FXA), and of course am very happy to see this. Not only does it bump up the distribution of FXA (which has taken a beating as their rates dropped), but it also creates more money-flow to Australia. The 'carry trade' has long been a favorite of the Japanese, mainly because of their near zero interest rate. In this case I think the Australian dollar could stand to be the new beneficiary of a new 'carry trade' that once was a standard Yen to USD.
A few more rate hikes in Australia will bode well for the distributions of FXA, and will likely boost the value of the Australian dollar at the same time. This will be due not only to the rate increases, but a steady flow of currency investors and people seeking high rate CD's. You only have to go back 2-3 years to find a time when Australian banks catered CD's for foreign investors. Their high interest rates attracted funds from all over the globe.
I think this is a very good sign for the Australian market as a whole (EWA), partially because some of the new inflow of money will end up there. I currently hold shares of the Australian mining company Fortescue Metals Group (FMG/FSUMF). The stock has been hit hard by the pull back in commodities prices and lower demand, however I think its positioned to do quite well when the Asian economy fully recovers.
http://www.cnbc.com/id/33191494
I have been a big investor in the Australian dollar (via FXA), and of course am very happy to see this. Not only does it bump up the distribution of FXA (which has taken a beating as their rates dropped), but it also creates more money-flow to Australia. The 'carry trade' has long been a favorite of the Japanese, mainly because of their near zero interest rate. In this case I think the Australian dollar could stand to be the new beneficiary of a new 'carry trade' that once was a standard Yen to USD.
A few more rate hikes in Australia will bode well for the distributions of FXA, and will likely boost the value of the Australian dollar at the same time. This will be due not only to the rate increases, but a steady flow of currency investors and people seeking high rate CD's. You only have to go back 2-3 years to find a time when Australian banks catered CD's for foreign investors. Their high interest rates attracted funds from all over the globe.
I think this is a very good sign for the Australian market as a whole (EWA), partially because some of the new inflow of money will end up there. I currently hold shares of the Australian mining company Fortescue Metals Group (FMG/FSUMF). The stock has been hit hard by the pull back in commodities prices and lower demand, however I think its positioned to do quite well when the Asian economy fully recovers.
Wednesday, September 30, 2009
Money on the sidelines (ETF version)
A co-worker of mine was telling me that he still has his 401k contributions (new money) going into cash. The comment was that he did not know when to jump back in. He also felt like he missed out big time on the run up, and was there going to be a correction...
Obviously it would be nice to have a crystal ball to be able to answer those questions.
When your dealing with a retirement account (IRA, 401k, etc...) the most important thing to focus on is the duration you will be holding for. In my case that is quite a while longer. So do I care if the fund went down 5% from my buy price (yes, but fundamentally no). If I bought in at a price that was a historically good price then I'll deal with the short term 5% decline. If the market as a whole goes even lower, then I'll be tempted to buy more. If nothing has changed in the fund, and its a total market/economy issue, then why get out if your in for the long haul?
Some examples / picks in the ETF area:
As recently as yesterday I have been buying ETF's... The market is up, and many of my picks as you'll see below have had great runs. From a historical perspective, I think they are still cheap even after their runs.
IXC - Global Energy Sector
I firmly believe that the energy sector will roar back to where it was before the recession. I do not think that was a bubble. I'm not saying oil prices will go back to $120, or even $100 for that matter. But the need for energy was not a bubble. IXC's top holdings are ExxonMobile, BP, Chevron, Total, Shell, Schlumberger, and ConocoPhillips. BP, Shell, and Total (all European oil companies) pay very high dividend yeilds. I already own BP & Shell stock. Schlumberger is the undisputed leader in oil field services. ConocoPhillips was one of the first integrated oil co's to make huge plays on Nat-Gas. All this adds up to a very solid blend of Energy companies that are poised to profit from a global recovery, and the continued growth in global demand for energy. IXC is +16% YTD, -9% 1yr, and off its peak in mid-2008 by nearly 50%. To some degree the price of oil factors in to all the stocks that make up this fund. While I'm not thinking oil prices will climb that quickly, Nat-Gas is oversold. Also drilling continues for all these companies, most of whom operate on a $40-$50 per barrel break even (Oil has stayed above $70 for the most part).
VNQ - Vanguard REIT
I'll be the first to admit, this is a bit of a long-shot. I would keep this play at no more than 10% of total portfolio. If you look at a chart dating back to Oct2004, almost 5yrs ago when this ETF started, you'll find a -19% return (excluding distributions). This makes its 13% YTD run-up look less impressive. Also keep in mind the S&P has done better YTD (+17%). Look back at 2007/2008 and you'll see a healthy distribution (north of 3%) and a fund that traded as high as $85.50 in the bubble years. Lets ignore the bubble years and look at the $50-$60 growth '04-'05, then the bubble sets in and you go from $60-$85 in a matter of 6-months. My hope is that this fund gets back to the $50 range and caries out its +3% distribution. I will allow 2yrs for this to happen.
MOO - Agribusiness
Sticking with my "not a bubble" theme used in IXC... I do not think the global rise in food prices was a bubble. The recession has obviously helped ease some of that demand, but I believe its still there in the long run. MOO has had a 38% run YTD. I do expect there could be a pullback, and if there is I will add to my position to lower my cost basis. Even on a 1yr chart you see 4% growth. If you pull back to mid-2008 you can see it was sitting at ~$62. This makes today's $39 look pretty good. Top holdings include Monsanto & Potash, the two main players in the fertilizer market. Also Equipment makers Deere & Komatsu, who should see a boost early in the recovery as farms look to expand and add capacity.
GDX - Gold Miners
If your looking for a dollar hedge "Why not GLD?" you might ask. Ignoring the fundamental flaw with GLD (how could they possibly store that much gold if they really had it), I think its smarter to own the companies who pull the gold out of the ground. As the price of Gold goes up, so do their profits. This ETF is up +30% YTD (well ahead of the market), so why on earth would I buy this now? Well if you go back to the beginning of 2008 when gold was booming, you'll find that its 17% lower today. If you believe that gold will set new highs, then you should be able to get all 17% of that and then some. Gold is a classic hedge, and I would not consider more than 5% - 10% of a portfolio to be in gold.
Obviously it would be nice to have a crystal ball to be able to answer those questions.
When your dealing with a retirement account (IRA, 401k, etc...) the most important thing to focus on is the duration you will be holding for. In my case that is quite a while longer. So do I care if the fund went down 5% from my buy price (yes, but fundamentally no). If I bought in at a price that was a historically good price then I'll deal with the short term 5% decline. If the market as a whole goes even lower, then I'll be tempted to buy more. If nothing has changed in the fund, and its a total market/economy issue, then why get out if your in for the long haul?
Some examples / picks in the ETF area:
As recently as yesterday I have been buying ETF's... The market is up, and many of my picks as you'll see below have had great runs. From a historical perspective, I think they are still cheap even after their runs.
IXC - Global Energy Sector
I firmly believe that the energy sector will roar back to where it was before the recession. I do not think that was a bubble. I'm not saying oil prices will go back to $120, or even $100 for that matter. But the need for energy was not a bubble. IXC's top holdings are ExxonMobile, BP, Chevron, Total, Shell, Schlumberger, and ConocoPhillips. BP, Shell, and Total (all European oil companies) pay very high dividend yeilds. I already own BP & Shell stock. Schlumberger is the undisputed leader in oil field services. ConocoPhillips was one of the first integrated oil co's to make huge plays on Nat-Gas. All this adds up to a very solid blend of Energy companies that are poised to profit from a global recovery, and the continued growth in global demand for energy. IXC is +16% YTD, -9% 1yr, and off its peak in mid-2008 by nearly 50%. To some degree the price of oil factors in to all the stocks that make up this fund. While I'm not thinking oil prices will climb that quickly, Nat-Gas is oversold. Also drilling continues for all these companies, most of whom operate on a $40-$50 per barrel break even (Oil has stayed above $70 for the most part).
VNQ - Vanguard REIT
I'll be the first to admit, this is a bit of a long-shot. I would keep this play at no more than 10% of total portfolio. If you look at a chart dating back to Oct2004, almost 5yrs ago when this ETF started, you'll find a -19% return (excluding distributions). This makes its 13% YTD run-up look less impressive. Also keep in mind the S&P has done better YTD (+17%). Look back at 2007/2008 and you'll see a healthy distribution (north of 3%) and a fund that traded as high as $85.50 in the bubble years. Lets ignore the bubble years and look at the $50-$60 growth '04-'05, then the bubble sets in and you go from $60-$85 in a matter of 6-months. My hope is that this fund gets back to the $50 range and caries out its +3% distribution. I will allow 2yrs for this to happen.
MOO - Agribusiness
Sticking with my "not a bubble" theme used in IXC... I do not think the global rise in food prices was a bubble. The recession has obviously helped ease some of that demand, but I believe its still there in the long run. MOO has had a 38% run YTD. I do expect there could be a pullback, and if there is I will add to my position to lower my cost basis. Even on a 1yr chart you see 4% growth. If you pull back to mid-2008 you can see it was sitting at ~$62. This makes today's $39 look pretty good. Top holdings include Monsanto & Potash, the two main players in the fertilizer market. Also Equipment makers Deere & Komatsu, who should see a boost early in the recovery as farms look to expand and add capacity.
GDX - Gold Miners
If your looking for a dollar hedge "Why not GLD?" you might ask. Ignoring the fundamental flaw with GLD (how could they possibly store that much gold if they really had it), I think its smarter to own the companies who pull the gold out of the ground. As the price of Gold goes up, so do their profits. This ETF is up +30% YTD (well ahead of the market), so why on earth would I buy this now? Well if you go back to the beginning of 2008 when gold was booming, you'll find that its 17% lower today. If you believe that gold will set new highs, then you should be able to get all 17% of that and then some. Gold is a classic hedge, and I would not consider more than 5% - 10% of a portfolio to be in gold.
Tuesday, September 29, 2009
Dynegy (DYN)
So why would I really want a blog...
Some of my good friends have seen my feeble attempts at trying to have message boards, and web-forums to get investing ideas out. This was great in theory, because we could all share research... What it ended up being was me posting my research... If that's what happens, I may as well blog.
First Stock Market Blog:
Last week on Friday we noticed an unusually large premium on Jan calls for DYN. I noticed this because I already own shares of Dynegy, and I have already sold (covered) calls for Jan.
When I sold my Jan@2.5 DYN calls they were going for .20/.25 (which is about a 10% premium. Thus my attraction to the stock, very nice premium. On Friday, it was noteworthy that at some point in the day (without any real movement in the stock price) those very same options jumped to .50/.55 (a +20% premium).
Given that only the options had this huge jump, and the stock stayed flat, one can only assume buyout rumors... People were not willing to gamble large amounts of money to buy the stock, but were more than willing to buy a few options (the right to buy 100 shares per option). Taking a bet that the $2.50 strike price would be far exceeded buy the buyout offer.
Naturally I bought more (since the stock price was basically unchanged) and cashed in on the new +20% premium.
Some of my good friends have seen my feeble attempts at trying to have message boards, and web-forums to get investing ideas out. This was great in theory, because we could all share research... What it ended up being was me posting my research... If that's what happens, I may as well blog.
First Stock Market Blog:
Last week on Friday we noticed an unusually large premium on Jan calls for DYN. I noticed this because I already own shares of Dynegy, and I have already sold (covered) calls for Jan.
When I sold my Jan@2.5 DYN calls they were going for .20/.25 (which is about a 10% premium. Thus my attraction to the stock, very nice premium. On Friday, it was noteworthy that at some point in the day (without any real movement in the stock price) those very same options jumped to .50/.55 (a +20% premium).
Given that only the options had this huge jump, and the stock stayed flat, one can only assume buyout rumors... People were not willing to gamble large amounts of money to buy the stock, but were more than willing to buy a few options (the right to buy 100 shares per option). Taking a bet that the $2.50 strike price would be far exceeded buy the buyout offer.
Naturally I bought more (since the stock price was basically unchanged) and cashed in on the new +20% premium.
First Blog
I have never blogged before, but recently several events have peaked my interest in blogging.
1) I notice that a lot more relevant information is showing up in blogs.
2) The speed by which a blog can get information out is outstandingly fast.
3) I like the idea of being able to "brain dump" my thoughts out to all my friends.
We'll see how well this one goes... Initially I was fairly active on MySpace when it was new, but over the past 2 years, not so much.... I have tired to keep up with facebook, and think its a decent tool. Twitter makes no sense to me... Thus we are left with blogs....
1) I notice that a lot more relevant information is showing up in blogs.
2) The speed by which a blog can get information out is outstandingly fast.
3) I like the idea of being able to "brain dump" my thoughts out to all my friends.
We'll see how well this one goes... Initially I was fairly active on MySpace when it was new, but over the past 2 years, not so much.... I have tired to keep up with facebook, and think its a decent tool. Twitter makes no sense to me... Thus we are left with blogs....
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