Stocks, Options, Taxes: Part VI - Options And Tax Straddles, Covered Calls [View article]
Hi, firetiger77,
See the reference: Tax Consequences Associated With Option Strategies, a series of articles provided by BBD, LLP, a Certified Public Accounting firm located in Philadelphia, PA, Part IV, Example 1). Even though the long-term status would not be affected, the holding period suspension could cause the holding period requirement for a dividend to qualify for the 15% tax rate to be failed. This may be moot for tax year 2013 and beyond, since the holding period requirement for qualified dividends (which was that the stock must have been held, unhedged, for at least 61 days (for quarterly dividends) during the 121 day period beginning 60 days prior to the ex-dividend date and ending 121 days later) has apparently been eliminated. I will await the new rules for 2013 to be sure this is a fact.
Yield, Value, Safety With Consumer Staples - Redux [View article]
Hi, All ,
I believe in taking profits, i.e. capital gains, when the price has advanced substantially, especially if the fundamentals are deteriorating, and if there has been a parabolic advance that is likely to retrace. One rule of thumb I have is, if I can get a capital gain equal to 3 or 4 year's worth of dividends, consider taking it. The point I was making in the article is I have taken some gains a little too early in a couple of cases, so don't be too quick on the trigger. Another factor to consider is, what is available as a replacement? There is a lot to consider, but I'm not married to any stock -- there is a price I would be a seller of any stock I own.
Yield, Value, Safety With Consumer Staples - Redux [View article]
I agree, Josh's Dividend Investor newsletter is the best one out there that I have found for dividend investors. I also recommend his book in my recommended reading list on my website (Optimum Stock Investing), and I referenced Josh's approach to evaluating REITs, outlined in the book, in my two-part article "Yield, Value, Safety with REITs". Josh focuses on the dividend income, and does not recommend trading in and out, although he is open to letting go of a fully-valued stock that he feels may have stalled out, as far as dividend inceases are concerned, if he can find an attractive alternative that will not result in a reduction in dividend income.
Yield, Value, Safety With Consumer Staples - Redux [View article]
Hi, hat_trick3 and mostserene1,
I'm kind of in the middle with the sentiments expressed. I usually consider selling some or all of an over-valued name, or at least selling a call option, to take advantage of a run up in price. With luck, by paying attention to the ex-dividend dates, I have been able to exit and get back in at a lower price without even missing a dividend many times over the past few years. But lately, with such a long stretch without a pull-back, and the extreme price advances continuing unabated in these highly sought after names, I have had a couple of disappointments with this strategy, which has been successful in the past. That is why, in the article, I have cautioned against selling just because the price has advanced. The question is, has it advanced so much that you just have to take some money off the table, or does it have more room to run? Recently, I felt like PG had run up too far, and sold a call. GIS I just sold outright, and so far, it looks like I maybe should have given it more room. JNJ (not in the article, but similar to the stocks covered), is an example where I decided to hold off on selling. The ratings firms' target prices factor into my thinking whether to cash out or hold, which is why I presented some of that data in the article. I'm just looking for some help to decide whether the price is high enough that I should just take the money and run. One way I appoach it is to ask, what is the worst outcome if I go a certain way vs another, and how will I feel about it. I will admit to more of a trading mentality than is probably advisable, but that is how I like to operate.
Yield, Value, Safety With Utilities - Redux [View article]
Hi, airlarr & chowder,
My approach is based upon dividends as a foundation. I would not invest in a growth stock for many reasons, let me count the ways -- it is hard to pick winners, growth may or may not occur, I need income now, dividend stocks are back in favor and demographics ensures that the trend will continue, it may be a long wait for "normal" interest rates, and so on. The safety of a given dividend is certainly not assured, but it can be predicted much more confidently that a given growth rate and corresponding share price increase for a company.
Yield, Value, Safety With Utilities - Redux [View article]
Hi, Yowwwwie,
As I confessed to Travel4yields, above, my review was at a high level, and a screen based purely on numbers can miss a good stock. I subjected PPL to my more intense "5 minute" review (more intense than my 30 second review, I suppose), and I see no reason to bail on PPL at this point. The stock, like many in recent days, is bouncing around its 52 week highs, but even at that, it yields an attractive 4.6%, with Payout Ratio a manageable 55%. As I noted, debt is a bit on the high side, with Leverage Ratio 4.2, D/E 1.9, Interest Coverage 3.3, and Total Liabilities at 76% of Total Capitalization. S&P Bond Rating is BBB, just one notch above the lowest investment grade rating, but comparable to other high quality utilities. The stock is rated Neutral by Credit Suisse, 4 Star (Buy) by S&P, with Medium Risk, Earnings Quality B+, and 3 Star (Hold) by Morningstar. It is a recommended holding in Weiss' Income Superstars portfolio. Digesting all of that, PPL is a reasonable utility holding, with debt a little on the high side, even for a utility, but manageable. The keys going forward are regulator relationships and management's business strategy. The numbers are no cause to sell out. If you are comfortable with the management strategy and the intangibles, I would say to hold it & collect the very attractive dividend. I would hold off to add to the position, however, for a more attractive entry level.
Thanks for commenting. I learn something every time I receive a comment such as yours, suggesting I take another look at a given stock.
Yield, Value, Safety With Utilities - Redux [View article]
Hi, Travel4,
Point well taken. My review was at a pretty high level. Instead of recommending my finalists, I should probably say "worthy of further study". There is always much more to the story than a quick review of numbers can reveal. Thanks for your insights and informative comment.
Yield, Value, Safety With Utilities - Redux [View article]
Thanks, Bob,
I took a break from writing while I was relocating from Oklahoma to Austin, TX. My fellow Okies have accused me of going over to the "dark side" (of the Red River, I suppose).
Another factor slowing down my writing is the overbought market and the dearth of attractive buy opportunities on quality stocks. My last article in January, where I cautiously recommended Diebold just as a management shake-up and earnings warning hit was a great lesson in what can happen when you go down the quality scale in an effort to get a reasonable price.
Yield, Value, Safety With Utilities - Redux [View article]
Hi, Scooter,
The list I have from March 2011 shows CenterPoint as a Challenger, 5 to 9 years of dividend increases. The next level is Contenders, 10 to 24 years, then Champions, 25 or more years. So, CNP is at best only a Contender by now.
Yield, Value, Safety With Utilities - Redux [View article]
Hi, VTND50,
No, I only looked at some basic numbers available from a financial website to trim down a list of 36 firms. I did find an article on this move, which said CNP would own 59% of the new MLP. It looks like it might be a positive for CNP shareholders - maybe they will be awarded units in the partnership. CNP has a leverage ratio of 5.3, one of the highest of any of the utilities I looked at, a payout ratio of 83%, and a total liabilities of 81% of total capital, according to the MSN Money website. These are not good numbers, which is why I passed on CNP.
Yield, Value, Safety With Utilities - Redux [View article]
Hi, Bingo 2,
I concur that PNW is improving. Still, with the recent dividend bump being the first since 2006, I would be cautious -- will dividends be increasing annually or nearly so going forward, or will shareholders have to wait another 6 years for the next increase? That is the question I would ask. Prior to the drought, PNW increased the dividend regularly, so that is a good sign.
NVE looks pretty good, based on a quick scan of some numbers. I had not heard of NVE before your comment.
Yield, Value, Safety With Utilities - Redux [View article]
Hi, 11worth,
I believe WEC did not make my initial screen a year ago, which had a yield cutoff of 4%. WEC had a closing price of $34.53 on 3/16/2012, and a quarterly dividend of $.30, which would have resulted in a yield of 3.5%. The few I did look at that yielded less were utilities I knew about that I added to the utilities my screen found. The Redux article, in turn, only looked at the utilities I had looked at a year ago. WEC certainly has gained in price in the past year, and the dividend had a sizable bump to $.34 in February, so WEC would have been a good choice. That is the risk of any screen, you may set the parameters too tight and miss good candidates.
Yield, Value, Safety With Utilities - Redux [View article]
Hi, Smurf,
NextEra (NEE) was one of the 13 recommended utilities, although it is very pricey just now. It is in the group of 5 I still recommend, even though the yield is a bit under the 4% level. NEE is a top performing utility, I agree.
Stocks, Options, Taxes: Part II - Dividends [View article]
Thanks. In preparing the series, I have been surprised at how little interest the topic generated. Taxes are surely the "elephant in the room" that everyone wants to ignore, which can affect investment returns in a big way. The website reference noted in my comment above simply state that "the qualified distinction goes away". I'm not too sure about that. The rules for qualified dividends have been that any US exchange-traded C-corp with earnings are "usually" qualified. REITs and BDCs have not usually been qualified. MLP distributions are not dividends, and the "qualified" distinction is not applicable. The brokerage reporting has been reliable as to qualification, not considering the holding period requirement, which I think goes away. One way to determine up front before buying would be to inquire from the Investor Relations dept for the company being considered.
I plan to pursue taxes further, and obtain certification as a RTRP (Registered Tax Return Preparer) later on this year. If I learn more that might be of value to SA readers, I will write another article.
Digital Realty: This 'Big Dog' Barks The Loudest [View article]
Hi, Brad,
DLR is certainly not a stock for the faint-hearted. I wrote (favorably) about the stock last October, stating that the swoon in the shares was a buy opportunity. As noted in later comments, I bought in at $65 and $60, and was ready for more, when the stock reversed and rose steadily from early November through January. I felt vindicated in my recommendation, but now I'm not so sure, as the stock has dropped precipitiously since Jan 28, from nearly $73, back down to $65, a 10% drop in ten trading days. Any thoughts on why this "Big Dog" may actually be a "Big Kangaroo"?
As for debt and other fundamentals, per Ckent323's concerns noted above, I'm not worried about that -- per the specifics of my article, DLR has excellent fundamentals. It is just that one has to be ready for an exciting ride up and down if owning the stock.
Stocks, Options, Taxes: Part VI - Options And Tax Straddles, Covered Calls [View article]
See the reference: Tax Consequences Associated With Option Strategies, a series of articles provided by BBD, LLP, a Certified Public Accounting firm located in Philadelphia, PA, Part IV, Example 1). Even though the long-term status would not be affected, the holding period suspension could cause the holding period requirement for a dividend to qualify for the 15% tax rate to be failed. This may be moot for tax year 2013 and beyond, since the holding period requirement for qualified dividends (which was that the stock must have been held, unhedged, for at least 61 days (for quarterly dividends) during the 121 day period beginning 60 days prior to the ex-dividend date and ending 121 days later) has apparently been eliminated. I will await the new rules for 2013 to be sure this is a fact.
John D. Thomason
Yield, Value, Safety With Consumer Staples - Redux [View article]
I believe in taking profits, i.e. capital gains, when the price has advanced substantially, especially if the fundamentals are deteriorating, and if there has been a parabolic advance that is likely to retrace. One rule of thumb I have is, if I can get a capital gain equal to 3 or 4 year's worth of dividends, consider taking it. The point I was making in the article is I have taken some gains a little too early in a couple of cases, so don't be too quick on the trigger. Another factor to consider is, what is available as a replacement? There is a lot to consider, but I'm not married to any stock -- there is a price I would be a seller of any stock I own.
John D. Thomason
Yield, Value, Safety With Consumer Staples - Redux [View article]
John D. Thomason
Yield, Value, Safety With Consumer Staples - Redux [View article]
I'm kind of in the middle with the sentiments expressed. I usually consider selling some or all of an over-valued name, or at least selling a call option, to take advantage of a run up in price. With luck, by paying attention to the ex-dividend dates, I have been able to exit and get back in at a lower price without even missing a dividend many times over the past few years. But lately, with such a long stretch without a pull-back, and the extreme price advances continuing unabated in these highly sought after names, I have had a couple of disappointments with this strategy, which has been successful in the past. That is why, in the article, I have cautioned against selling just because the price has advanced. The question is, has it advanced so much that you just have to take some money off the table, or does it have more room to run? Recently, I felt like PG had run up too far, and sold a call. GIS I just sold outright, and so far, it looks like I maybe should have given it more room. JNJ (not in the article, but similar to the stocks covered), is an example where I decided to hold off on selling. The ratings firms' target prices factor into my thinking whether to cash out or hold, which is why I presented some of that data in the article. I'm just looking for some help to decide whether the price is high enough that I should just take the money and run. One way I appoach it is to ask, what is the worst outcome if I go a certain way vs another, and how will I feel about it. I will admit to more of a trading mentality than is probably advisable, but that is how I like to operate.
Thanks both of you for commenting.
John D. Thomason
Yield, Value, Safety With Utilities - Redux [View article]
My approach is based upon dividends as a foundation. I would not invest in a growth stock for many reasons, let me count the ways -- it is hard to pick winners, growth may or may not occur, I need income now, dividend stocks are back in favor and demographics ensures that the trend will continue, it may be a long wait for "normal" interest rates, and so on. The safety of a given dividend is certainly not assured, but it can be predicted much more confidently that a given growth rate and corresponding share price increase for a company.
John D. Thomason
Yield, Value, Safety With Utilities - Redux [View article]
As I confessed to Travel4yields, above, my review was at a high level, and a screen based purely on numbers can miss a good stock. I subjected PPL to my more intense "5 minute" review (more intense than my 30 second review, I suppose), and I see no reason to bail on PPL at this point. The stock, like many in recent days, is bouncing around its 52 week highs, but even at that, it yields an attractive 4.6%, with Payout Ratio a manageable 55%. As I noted, debt is a bit on the high side, with Leverage Ratio 4.2, D/E 1.9, Interest Coverage 3.3, and Total Liabilities at 76% of Total Capitalization. S&P Bond Rating is BBB, just one notch above the lowest investment grade rating, but comparable to other high quality utilities. The stock is rated Neutral by Credit Suisse, 4 Star (Buy) by S&P, with Medium Risk, Earnings Quality B+, and 3 Star (Hold) by Morningstar. It is a recommended holding in Weiss' Income Superstars portfolio. Digesting all of that, PPL is a reasonable utility holding, with debt a little on the high side, even for a utility, but manageable. The keys going forward are regulator relationships and management's business strategy. The numbers are no cause to sell out. If you are comfortable with the management strategy and the intangibles, I would say to hold it & collect the very attractive dividend. I would hold off to add to the position, however, for a more attractive entry level.
Thanks for commenting. I learn something every time I receive a comment such as yours, suggesting I take another look at a given stock.
John D. Thomason
Yield, Value, Safety With Utilities - Redux [View article]
Point well taken. My review was at a pretty high level. Instead of recommending my finalists, I should probably say "worthy of further study". There is always much more to the story than a quick review of numbers can reveal. Thanks for your insights and informative comment.
John D. Thomason
Yield, Value, Safety With Utilities - Redux [View article]
I took a break from writing while I was relocating from Oklahoma to Austin, TX. My fellow Okies have accused me of going over to the "dark side" (of the Red River, I suppose).
Another factor slowing down my writing is the overbought market and the dearth of attractive buy opportunities on quality stocks. My last article in January, where I cautiously recommended Diebold just as a management shake-up and earnings warning hit was a great lesson in what can happen when you go down the quality scale in an effort to get a reasonable price.
Thanks again for commenting.
John D. Thomason
Yield, Value, Safety With Utilities - Redux [View article]
The list I have from March 2011 shows CenterPoint as a Challenger, 5 to 9 years of dividend increases. The next level is Contenders, 10 to 24 years, then Champions, 25 or more years. So, CNP is at best only a Contender by now.
John D. Thomason
Yield, Value, Safety With Utilities - Redux [View article]
No, I only looked at some basic numbers available from a financial website to trim down a list of 36 firms. I did find an article on this move, which said CNP would own 59% of the new MLP. It looks like it might be a positive for CNP shareholders - maybe they will be awarded units in the partnership. CNP has a leverage ratio of 5.3, one of the highest of any of the utilities I looked at, a payout ratio of 83%, and a total liabilities of 81% of total capital, according to the MSN Money website. These are not good numbers, which is why I passed on CNP.
John D. Thomason
Yield, Value, Safety With Utilities - Redux [View article]
I concur that PNW is improving. Still, with the recent dividend bump being the first since 2006, I would be cautious -- will dividends be increasing annually or nearly so going forward, or will shareholders have to wait another 6 years for the next increase? That is the question I would ask. Prior to the drought, PNW increased the dividend regularly, so that is a good sign.
NVE looks pretty good, based on a quick scan of some numbers.
I had not heard of NVE before your comment.
Thanks for the update.
John D. Thomason
Yield, Value, Safety With Utilities - Redux [View article]
I believe WEC did not make my initial screen a year ago, which had a yield cutoff of 4%. WEC had a closing price of $34.53 on 3/16/2012, and a quarterly dividend of $.30, which would have resulted in a yield of 3.5%. The few I did look at that yielded less were utilities I knew about that I added to the utilities my screen found. The Redux article, in turn, only looked at the utilities I had looked at a year ago. WEC certainly has gained in price in the past year, and the dividend had a sizable bump to $.34 in February, so WEC would have been a good choice. That is the risk of any screen, you may set the parameters too tight and miss good candidates.
John D. Thomason
Yield, Value, Safety With Utilities - Redux [View article]
NextEra (NEE) was one of the 13 recommended utilities, although it is very pricey just now. It is in the group of 5 I still recommend, even though the yield is a bit under the 4% level. NEE is a top performing utility, I agree.
John D. Thomason
Stocks, Options, Taxes: Part II - Dividends [View article]
I plan to pursue taxes further, and obtain certification as a RTRP (Registered Tax Return Preparer) later on this year. If I learn more that might be of value to SA readers, I will write another article.
Thanks for commenting.
John D. thomason
Digital Realty: This 'Big Dog' Barks The Loudest [View article]
DLR is certainly not a stock for the faint-hearted. I wrote (favorably) about the stock last October, stating that the swoon in the shares was a buy opportunity. As noted in later comments, I bought in at $65 and $60, and was ready for more, when the stock reversed and rose steadily from early November through January. I felt vindicated in my recommendation, but now I'm not so sure, as the stock has dropped precipitiously since Jan 28, from nearly $73, back down to $65, a 10% drop in ten trading days. Any thoughts on why this "Big Dog" may actually be a "Big Kangaroo"?
As for debt and other fundamentals, per Ckent323's concerns noted above, I'm not worried about that -- per the specifics of my article, DLR has excellent fundamentals. It is just that one has to be ready for an exciting ride up and down if owning the stock.
Any thoughts on the volatility issue?
John D. Thomason