Like most financial companies, iStar Financial Inc. (SFI) has experienced a difficult time over the last several quarters. It has seen it share price collapse from a 52 week high of $40.55 to under $10.
SFI's quarterly dividend is $0.87/share. Unfortunately, SFI has not earned its dividend the last four quarters, and it doesn't appear it will in Q2. In a July 18, 2008 earnings revision, SFI said it expects a second quarter non-GAAP loss of $1.55 to $1.45 per share with loan loss provisions of $275.0 million.
Ironically, SFI's cash has been growing over the last four quarters - from $88 million at Q2/2007 to $119 million at Q1/2008. Looking at the cash flow statement, this increase in cash has been funded via a net issuance of long-term debt. SFI's net issuance in 2007 was about $4.5 billion and in the first quarter this year it issued (net) a little over $100 million.
From an allocation standpoint, I was scheduled to purchase SFI in August. When I saw the 40+% dividend yield, a red flag went up and I began looking deeper into the company's financials. I have a small portion of my portfolio set aside for speculative stocks and SFI is by far my riskiest stock in that category.
As mentioned in my "On The Shelf" post, if a security is not performing at the desired level for additional purchases, but also is not performing badly enough to warrant a sale, then I will put it "on the shelf". By that I mean it will be set aside within my income portfolio with no additional purchases made until its outlook improves or deteriorates to the point it should be sold. SFI currently fits that description. As such I have put SFI on the shelf, until its financial condition changes for the good or bad.
Disclosure: Long SFI