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  • American Capital Agency: Negative Catalysts Portend A Dividend Cut [View article]
    I have no problem with an overconcentration in a sector or in a particular stock. But to ignore the POTENTIAL for a disaster is reckless, IMO.

    What happens if someone at AGNC does something stupid or illegal and AGNC is on the hook for a $10 billion REPO obligation and can't fund it ? What happens if there's a systemic risk affecting all MREITs ? Political legislation, passed or discussed ?

    There is alot that happen to a leveraged financial stock, that's all I am saying. If a big decline -- or disaster strikes -- and you can handle that and it won't change your lifestyle, then I guess you are not being reckless. But as much as I like the stocks, I always believe in diversification.

    After all, if I'm in them for the dividends, what's wrong with 10-12% from 4-5 stocks instead of buying only 1, maybe getting the highest yield, and then watching it make a stumble ?

    I had a position in IVR in 2011 and they vaporized 20% of shareholder value with mistimed hedges. Nobody else had the problems they had. At the time I thought they were the best-managed of the Hybrids and yet someone there screwed up and we never found out who or what.

    Thankfully, they were only 1 of 4 or 5 Hybrids and I lost maybe 50-75 bp. of value instead of 5%...or 10%....or 20%.

    You obviously know what you are doing and if you are going to put big $$$ into any 1 MREIT then AGNC/Gary Kain would be the one. But I heard the same things about stocks like Novastar (NFI) in 2005 and 2006: "housing never goes down....they pay a huge dividend....I've made alot of money....I'll bail at the first sign of trouble" and still alot of people got caught. And hurt severely.

    But I still think it's speculating, not investing.
    Mar 16 11:55 AM | 4 Likes Like |Link to Comment
  • Just How Risky Are REITs? [View article]
    Both MREITs and Operating REITS are pro-cyclical: they have plenty of capital when they don't need it and are denied access to capital when expansion/opportunity rewards are greatest.

    MREITs have certain advantages, however, compared to OR's and banks/financials:

    (1) MREITs leverage is 6-9x. For banks, it is often 12-18x.

    (2) MREITs normally trade around book value.

    (3) MREITs can liquidate to book value within a few weeks given they hold mostly Level 1 assets. A bank or OR trying to liquidate would need at least many months and probably a few years.

    (4) MREIT asset pricing is liquid and sub-hourly. They hold assets that largely trade in the 2nd most liquid bond market in the world, MBS (U.S. Treasuries are 1st).
    Mar 13 10:21 PM | 4 Likes Like |Link to Comment
  • Why REIT Dividends Are Not A Mirage [View article]
    Herb, are you CERTAIN he had an air of uncertainty ?

    I'm not certain.
    Mar 6 09:40 PM | 4 Likes Like |Link to Comment
  • 5 Bullet-Proof Dividend Growers Yielding 5% [View article]
    How much longer ?

    RDS: forever

    BCE: 20-30 years

    PM: 15-20 years

    LMT: 10-12 years

    PAA: 10-12 years

    How's that for being specific ? LOL

    Seriously, I think they all have many years of mid-to-upper single digit growth....PM has grown her dividend double-digit since the spin-out from Altria Group but I am being conservative.

    The point of the article was to give people -- like myself -- some other names besides the CTLs, ATs, CLFs, MREITs, BDCs, etc, that are paying out very high levels of earnings/FCF as dividends.

    All of these companies have buffers (a bit less for PAA) which means I wouldn't expect any dividend cuts anytime soon from any of them.

    Now watch...I jinxed one of them. LOL
    Mar 6 11:22 AM | 4 Likes Like |Link to Comment
  • Philip Morris: Sell Due To High Valuations And Reduced Cash Flow [View article]
    This is a good article -- though one I disagree with -- but contains some major flaws/oversights:

    (1) FCF is growing at PM. I don't know why the focus on 9 months, but Philip Morris has many year-end shipment and other company items that bulk up operating cash flows at year-end.

    (2) Operating cash flow was $7.9 BB the first two years after the spin-out. It was $10.5 BB in 2011 and should be over $11 BB in 2012.

    (3) Free cash flow AFTER dividends has been steady at over $4.5 BB the last few years and while it may dip going forward, it's still well-above the rate of 2005-08.

    PM has bought back 22% of the company's shares since it was spun out of Altria Group in 2008. To be able to buy back that amount of shares, reduce the float, and pay a rising dividend every year does not speak to a free cash flow problem.
    Jan 21 09:19 PM | 4 Likes Like |Link to Comment
  • Analyzing Royal Dutch Shell's Debt And Risk [View article]
    Royal Dutch could withstand 5 years of $50 oil and debt/capital would still only be at 30%.

    Last dividend cut was 71 years ago !!
    Jan 4 01:57 AM | 4 Likes Like |Link to Comment
  • 5 Reasons To Stick With Mortgage REITs [View article]
    Alpha, you raise a number of points, I'll try and respond directly:

    (1) Yes, the Fed is trying to encourage refis, but that is precisely what is bad for Agency MREITs. They can withstand a modest amount of refinancing but you don't want a surge from current levels.

    (2) Agency MREITs aren't going the way of the dodo, Alpha. In fact, with the winding down of the GSEs -- esp. Fannie and Freddie -- they and the Hybrids will have more of an opportunity to provide the financing supports that the GSE's traditionally provided. The GSE portfolios are scheduled to shrink 10% a year the rest of the decade. The banks won't be bulking up their balance sheets to take on that paper; it'll be the MREITs. The market capitalization of the sector is already up 10-fold in the last decade. Once interest rates, MBS pricing/yields, and QE3 all return to normal, the stocks will once again trade at premiums to book, do secondary offerings, and grow their balance sheets.

    (3) Insurance premiums -- the fees the GSEs charge to service and guarantee the debt -- has little impact on Agency MREITs. They are investing in the AAA-rated MBS after the fact. In fact, the yields are higher to them to invest, the GSEs are just more appropriately pricing risk.

    Hybrid MREITs will benefit as they grab some of that business directly as they securitize and provide and intermediary role for financing. Jumbos are a good place to look for growth (the U.S. govt killed the private sector Jumbo specialists after Lehman Brothers went under by raising the limit that the govt would allow the GSEs to hold).

    (4) I agree that when QE3 ends, if prices fall hits to book value could be something to watch. But the stocks went DOWN when QE3 commenced, if anything, the normalization of the price-yield relationship to the market should offset any temporary drop in price. Only unhedged Agency MREITs and those who have increased leverage to 'double-down' during QE3 (I know of none doing this) would have something to worry about.

    (5) NLY isn't 'curtailing' their agency business: they decided to merge with an in-house affiliate. NLY's generic business model is most susceptible to prepayments and yield compression, like we are seeing now. But CXS isn't big enough to move the needle, if NLY really wants to adopt the Hybrid model, let's see if they start investing directly in non-agency or maybe bring CIM in-house.

    There are definite pitfalls ahead for the Agency MREITs, but again, that's true for all equities. I just think there's a place for the sector that has already gotten hit and yields 10-12%, instead of the others that are down less than 5% from their highs and yield 2-4%, tops.
    Dec 6 08:39 PM | 4 Likes Like |Link to Comment
  • Is CenturyLink About To Pull The Plug On Dividends? [View article]
    CTL has the best dividend coverage of the major telecom stocks.

    Guidance was recently raised for 2012 and 2013. Free cash flow covers the dividend and CAPX.

    It has access to the bond market at record-low interest rates. In fact, CTL's bonds yield LESS than her common stock. That is not the sign of a stressed company.
    Dec 5 09:10 AM | 4 Likes Like |Link to Comment
  • American Capital Agency's Decreased Leverage, Prepayments And $500 Million Repurchase Plan [View article]
    That's because they changed accounting for hedges recently and while hedge LOSSES are included under GAAP definitions portfolio GAINS are not.

    Hence, the ridiculously low $0.25 headline number. They have NOT 'lost money' the last 2 quarters, unless you add in portfolio losses and not gains. It's like saying a fund manager's performance will be determined by the 3 stocks that lost money in the quarter and not the 22 that gained.

    You have to read between the lines and know what numbers to focus on.
    Oct 30 10:02 PM | 4 Likes Like |Link to Comment
  • A Game Of Find The Ponzi - Tilson's Next Short [View article]
    I doubt WT is shorting MREITs.
    Oct 5 08:12 AM | 4 Likes Like |Link to Comment
  • How My Family And I Overcame Obstacles To Be Better Off Than 4 Years Ago [View article]
    MIke, the Fed was already easing and all Obama had to do was not screw up the recovery whose seeds were already planted. Then we got 2,000 pages of Dodd-Frank and ObamaCare when no law should need more than 20 pages. This is why job creation is nil in this country.

    The guy surrounds himself not with businessmen or wealth creators but folks who think that France and European welfare states are a good model to follow. This is like a modern day tech executive saying his business model is Wang Labs.

    Everybody forgets that the market fell 10% in the 2 days following Obama's election for a reason. That was the worst post-Election market reaction in history -- and for good reason.

    Rant off....LOL
    Oct 2 10:26 AM | 4 Likes Like |Link to Comment
  • The Choice Is Clear, Despite What Bill Gross Saya [View article]
    There are 4 components of stock market returns: (1) dividend yield (2) growth in P/E valuation (3) growth of dividends (4) inflation

    Gross is right that stocks will not return a 6.6% real rate of return anytime soon over any sustained period of time.

    Gross is wrong in that stocks will still generate a positive real rate of return that dwarfs that of bonds, especially if one focuses on dividend-paying equities.
    Aug 3 05:14 PM | 4 Likes Like |Link to Comment
  • The Less Obvious Risk mREITs Face [View article]
    That's not true Paulo:

    (1) The yield used to be alot higher, so there has been yield compression. Even I don't necessarily believe that the 'risk' of MREITs today is LESS than 1-3 years ago. I think there was LESS risk when yields were higher and MBS prices LOWER and spreads HIGHER.

    (2) You aren't going to get a much lower yield when investors or the market realize they aren't that 'risky.' This isn't a telecom stock yielding 3x that of VZ or AT&T which comes in after a period of time and trades at a narrower historical dividend spread. These are leveraged investments: it's simple math running leverage of 6-9:1 and multiplying that past a spread of MBS assets, less SG&A, hedging/swap costs, LIBOR/REPO costs, etc.

    All MREIT investors are doing is letting the Fed's 0.25% Funds rate work FOR them instead of AGAINST them like all the folks in money markets, CD's, and T-Bills.
    Jul 14 01:36 AM | 4 Likes Like |Link to Comment
  • The Less Obvious Risk mREITs Face [View article]
    OK, I will grant you that -- but with yields collapsing for years and the Fed at 0.25% most likely through 2014, a RISE in either short or long yields is a 'risk' I think most of us will take, given moderate leverage.

    Carlyle Capital (32:1) and Thornburgh Mortgage (18:1) went under from too much leverage. The Agency MREIT sector was levered about 10:1 in the mid-2000's but is closer to 7:1 today.

    Buy a basket of the MREITS (more Agency than Hybrids), adhere to prudent asset allocation and risk diversification procedures, and you'll be fine.
    Jul 13 04:14 PM | 4 Likes Like |Link to Comment
  • Altria Is Now Grossly Overvalued [View article]
    First, I don't see a 20x trailing P/E -- I see 17x. 20x would be another $6 higher -- $40 -- and then 'grossly overvalued' might apply.

    Second, EPS has gone UP for 5 straight years.

    Third, yes Debt/Equity is over 300% but only because of accounting under GAAP. Net Debt/EBITDA is expected to be about 1.6x at year-end, which is fantastic. Interest coverage of 6x is pretty good for a BBB-rated company which has stable cash flows and near-40% EBITDA margins. Poor coverage would be 1.5x or 2-3x.

    Fourth, I am seeing the 2039 debt yielding under 6%. Other 20-year debt out to 2032 yields 6.75% on average for other companies so I don't see how MO's debt is saying anything other than it is in demand with tight spreads.

    Fifth, the payout ratio is elevated but under 80%. Cost savings, deferral of stock buybacks, and non-cash charges on the SILO/Leaseback settlement provide additional sources of cash.

    Sixth, litigation expenses (notably the Engle FL cases) have been detailed in the 10-K and 10-Q. The cost for litigation and settlement has been rising but is manageable. The total cost is under $500 MM for ALL the tobacco companies since 2009 when the trials started. That's about $150 MM per year for the industry or $60 MM pro-rata for MO's share. A rounding error for a company with $5 BB in operating cash flows.

    MO is not without risk but litigation is the best it's been since the late-1980's, debt is under control, market share has stabilized, and non-Marlboro products are primed to increase and improve performance. The stock is fully-valued here -- but not 'grossly overvalued' and the ticking-time bomb the article implies.
    Jul 2 11:27 PM | 4 Likes Like |Link to Comment