Seeking Alpha

Steven Towns'  Instablog

Steven Towns
Send Message
In January 2015, Steven launched the Uguisu Value letter. Published quarterly, each issue features one thoroughly researched Japanese smaller-cap equity write-up that has baseline 2x upside. With returns of 30%-plus (40%+ yen-denominated) in 2013 and 2014, Steven remains focused on smaller caps... More
My company:
Uguisu Research, LLC
My blog:
Active Investing
My book:
Investing in Japan
View Steven Towns' Instablogs on:
  • GE’s share repurchases: buy high, sell low

    A shareholder submitting a proposal for shareholder vote at an annual shareholder meeting (or via proxy) faces a litany of requirements. Very kind of corporations and the SEC to allow shareholders to submit proposals, but how convenient that boards of directors and executives are insulated from most proposals in more ways than one. Continue reading to see my “proposal” to GE.

    For starters, companies file no-action requests (with the SEC) stemming from any deviation with the proposal submission rules. Later, should a proposal be included for shareholder vote, the company’s board has a largely unchecked right, which it always actions, to counter the proposal in the proxy statement. Finally, since even in the best case if a proposal is included and voted for in the majority, it is most likely non-binding, meaning the board of directors will do what many of them do best: ignore the vote and thus fail to represent the best interests of shareholders.

    Which leads me to the sad history of GE’s share buybacks over the past 15 years. Post-financial crisis, I anticipated the return of the big GE buyback announcements, sooner rather than later (of course some repurchasing is necessary in order to camouflage stock option exercising). Unfortunately, shareholder proposals cannot mention any specifics about dividends or any formula related to dividends or buybacks. Nevertheless, and in spite of a market-beating 21% return by GE in 2010, which should suggest caution in terms of buyback timing and valuation, I share with you my “proposal.” While not valid in its current form, it can be rewritten and submitted for the annual meeting in 2012. But instead of waiting I will send a copy with reader comments as correspondence to GE. So pull up a GE stock chart while you read the following and note the performance of GE during the past five and ten year periods — also notice the recovery from the trough at the $6/share level in early 2009 and consider the missed opportunities to repurchase at prices in between.

    WHEREAS between 2005 and 2007, General Electric (NYSE:GE) repurchased approximately $25.7B of its shares, a period in which its stock traded between a low of $32/share in July 2006 and a high of $42/share in November 2007. During said period, GE’s stock returned 2.3% versus +24% by the Dow Jones Industrial Average, of which it is a constituent (dividend returns not factored in either). Buybacks totaling $1.25B continued into 2008, but GE’s buyback program was suspended in September, near the outset of the Great Financial Crisis, and its dividend was slashed by 68% in February of 2009.  Thus, not only did these share repurchases fail to manufacture competitive stock price returns, following a $12B common stock issuance in 2008 (as well as a nearly $3B preferred stock issuance) and another $620M-plus issuance in 2009, shares outstanding are now approaching 10.7 billion, meaning tens of billions of dollars spent on repurchases dating back to the 1990s have not been able to keep a lid on GE’s share count. The low of the past 15 years was just under 9.8 billion shares outstanding in 1997; there have not been below 10 billion shares out since 1999/2000, and as recently as 2005 the count was over 10.6 billion.

    Therefore, based on the above depressing reality along with a most recent GE stock price of around $16/share, and word that buybacks will be resumed – as much as $11.6B, through 2013 – it is unequivocally evident that GE’s Board of Directors needs to eschew financial engineering (i.e. buybacks) and instead more prudently espouse a doctrine focused on tangibly rewarding shareholders: with dividends. Although there may be apathetic shareholders of GE (especially among institutions, including sponsors of index funds) that for what ever motivation overlook the importance of the distribution of profits to shareholders primarily via dividends while enabling largely self-serving and ostensibly wasteful stock buybacks, let it be understood that a not insignificant number of shareholders strongly prefer additional dividends over buybacks. And even more would, referring primarily to individuals who own shares through an investment fund, if they were cognizant of the aforementioned circumstances. A press release about share repurchases represents not even a promise, and when repurchases have been executed at GE, they have historically been untimely and thus unrewarding for shareholders.

    RESOLVED: Following the 68% cut to GE’s dividend through the period ending October 2010, an accumulated $1.24/share gap exists in terms of what would have been paid out at the prior $0.31/share quarterly dividend. Thus, in light of the $11.6B authorized for buybacks through 2013, equivalent to approximately $1.08/share, shareholders ask the Board to authorize a special dividend payment of or near stated amount principally in lieu of GE repurchasing its stock. Furthermore, shareholders ask the Board to continue to increase GE’s dividend commensurate with increases in earnings, favoring dividends over stock repurchases – using a majority of the cash that previously would have been earmarked for share repurchases instead for special dividends.

    [November 2010]

    Disclosure: The author owns shares of GE.

    Tags: GE
    Jan 03 1:59 PM | Link | 2 Comments
  • Unlocking Value in Japanese Real Esate
    This was originally published on my website on Aug. 4. For the benefit of my readers on Seeking Alpha and others who may be interested by way of SA:

    Christopher Dillon, a Hong Kong-based entrepreneur, writer, and real estate investor, is the author of two books about real estate (his first covered property transactions in Hong Kong, and his latest published this May, covers Japan). Landed: The guide to buying property in Japan, is a must-read, not just for those considering buying a property in Japan, but also for individuals who are already homeowners, those who may be interested in refinancing, and there’s even something to be learned by long-term residents who are renting. In the very least, Landed is a ready-reference for the aforementioned individuals, and for investors who stand to gain from a better understanding of how real estate works in Japan.

    As a previous longtime resident of The Land of the Rising Sun, I was impressed by the breadth of knowledge that Dillon packed into Landed, all in a very readable manner, and with citations for future reference.  The book begins with an introduction to the Japanese people, that is the worrisome demographics of Japan (which could represent opportunity to the discerning buyer), and shifts quickly to discussing essentially the A-Z of how to buy your new home. Being bilingual and an all-cash buyer will certainly make life easier when transacting in Japan, but possibly the next best thing is to have a spouse, friend, or agent that can assist with the language, some cash reserves, and of course be armed with Landed. Know that Dillon doesn’t take any shortcuts. Readers will want to pay attention to his chapter covering “risk factors,” which is an Antiquities-to-Zoning overview of what one might encounter and thus, should be on the lookout for.

    As I said above, the book is very readable. What I liked especially and think is particularly helpful, are the shaded information boxes, some of which discuss a particular matter such as how to measure a Japanese dwelling, and several of which feature anecdotal recaps about individuals looking for and buying real estate in Japan. In addition, readers should find helpful Dillon’s use of checklist-like explanations of the various aspects of the buying process down to the minutiae. Also likely to be of assistance is his inclusion of relevant Japanese terms in their respective original form. Finally, for those sourcing for non-owner occupied properties and/or investment ideas including passive equity deployment, be sure to review Landed’s mini-section entitled “Other Opportunities.”

    While Japan’s demographics and its prolonged economic funk are concerning, there is a lot of value in real estate that remains locked — similar to its equity markets. That’s not to say it won’t be a challenge to unlock value, nor is it the case that one can blindly throw around money and expect to come out ahead. However, with the proper due diligence (including consulting Landed) and time horizon, Japan represents a great opportunity. Cash is king in Japanese real estate, but applying leverage with a fairly solid loan-to-value ratio along with rock-bottom interest rates, makes for highly rewarding possibilities.

    Aug 06 1:21 PM | Link | Comment!
Full index of posts »
Latest Followers


More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.