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American Capital (ACAS +1.9%) gets a little love from Wells Fargo after yesterday's...

American Capital (ACAS +1.9%) gets a little love from Wells Fargo after yesterday's post-earnings swoon. The stock trades at a massive discount to its BDC brethren - 0.74x NAV compared to 1.08x for the group - likely because of its policy of buying back shares instead of paying a dividend. Did ACAS have credit issues during the financial crisis? Yes, but no more so than MCGC which trades at book. "Market irrationality," say the analysts.
Comments (6)
  • WmHilger1
    , contributor
    Comments (1214) | Send Message
     
    I dumped ACAS as soon as they stopped paying a dividend. I bought it for the dividend, not for "possible" stock buybacks. I want the dividend cash in my hands quarterly, not some possible price increase due to a buyback!

     

    I would, and will, do the same for any dividend stock that takes such a path!
    2 May 2013, 01:43 PM Reply Like
  • dedugan
    , contributor
    Comments (131) | Send Message
     
    Seems like buybacks versus dividends are a good idea when the price is so far below book.
    2 May 2013, 02:30 PM Reply Like
  • CincinnatiRick
    , contributor
    Comments (455) | Send Message
     
    Agreed. Providing the buybacks are done at optimum discount to book value, you are getting a premium to whatever growth in book they are achieving. And ACAS has been rather outstanding in that achievement. To some extent this process is enabled by the lack of the conventional BDC dividend payout (dividends tending to put a floor under a stock price) and the "lumpy" earnings (as deals close and profits are realized sporadically), These factors exacerbate price fluctuation and help provide occasional bargain prices.

     

    Of course, this stock is not for those dependent on a steady stream of portfolio income as a means of support. And also possibly not for the faint-hearted who hang on each quarterly earnings report.

     

    Disclosure: Happy camper, long ACAS pre-recession and position significantly added to on dips since.
    2 May 2013, 02:53 PM Reply Like
  • tasker
    , contributor
    Comments (13) | Send Message
     
    ACAS has been one of my best performers, nearly tripling over the last three years. And all of that gain will be at capital-gain rates when I choose to sell. I will take stock buy-backs that raise NAV anytime over cash (ordinary income) dividends. This is a buying opportunity caused by a lack of understanding of ACAS's strategy. The current 25% discount from NAV is totally unwarranted.
    2 May 2013, 04:45 PM Reply Like
  • LAGLWS
    , contributor
    Comments (4) | Send Message
     
    I've been with ACAS for a long time. These guys know what they're doing. The purchase of additional shares at below book value will pay off. Investors need to be patient.
    2 May 2013, 05:02 PM Reply Like
  • moosesdc
    , contributor
    Comments (6) | Send Message
     
    show me the dividend!!!!
    3 May 2013, 03:15 AM Reply Like
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