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BruceCM

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  • Vornado Realty's New Preferred Stock: Par Comes At A Cost [View article]
    "(VNO) tapped the preferred market today, issuing 12MM perpetual preferred shares at 5.70%. "

    Who is trying to kid whom?

    I suspect W.C. Fields has risin from the grave and gone to work for the preferred stock issuance industry.....

    BruceM
    Jul 12 02:55 PM | Likes Like |Link to Comment
  • What To Do When A Stock Fails To Raise Its Dividend [View article]
    D4L
    Good approach and well throught through. It is good to read someone who really understands income investing.

    I've gone through your exercise more than a few times...what to do with those long flat dividends or even a cut, as happened to me with GTY. We all hate it when that happens...but then, what to do next. Although you don't say so explicitly, you seem to imply what I have found.....the market is a pretty efficient place when it comes to reliable income...or...its tough to arbitrage yield.

    Although history does not determine the future, it is one of the best measures of management's intent and ability. Dividend distribution history as well as the trend in free cash flow payout ratios and even the trend in tax character of past years distributions for REITs....all come together to give you a pretty good idea of what the company will do in the future.

    BruceM
    Jul 10 11:27 AM | 2 Likes Like |Link to Comment
  • 2 REITs To Buy Now For Income And Capital Appreciation [View article]
    I've overweighted my investment income from HC REITs over the past 12 years, holding 7 of the 12 exchange traded HC REITs. HR is not one I hold and not one I'd recommend.

    HR cut its dividend by 42% in 2007 and another 22% in 2010. It was one of only 2 of the 12 HC REITs (MPW was the other) to cut its dividend during the past market downturn. The dividend has remained unchanged at $.30/qtr since Feb 2010. I do not consider this a 'healthy' dividend. Whatever management is saying these days, these past actions speak louder, and do not meet my basic dividend screen for holding the common stock.

    But for those who will look beyond this front-end screen, a review of HR's income statement should provide the most concern. HR has increased net RE holdings by about 40% since 2008, with CAPEX of $67, $288 and $125MM over the past 3 years. HR carries a current debt/quity of 144% and debt/assets of 57%. Current FFO payout ratio is 113%. For 2010 and 2011, Return of Capital was 46% and 66% of the annual distribution.

    Without substantial revenue increases, this is not sustainable, and another dividend cut is a real risk. At a REIT taxable income of about $9MM, the dividend cut could go close to zero.

    BruceM
    Jul 10 02:48 AM | Likes Like |Link to Comment
  • 2 REITs To Buy Now For Income And Capital Appreciation [View article]
    I've overweighted my investment income from HC REITs over the past 12 years, holding 7 of the 12 listed. HR is not one I hold and not one I'd recommend.

    HR cut its dividend by 42% in 2007 and another 22% in 2010. It was one of only 2 of the 12 HC REITs (MPW was the other) to cut its dividend during the past market downturn. The dividend has remained unchanged at $.30/qtr since Feb 2010. I do not consider this a 'healthy' dividend. Whatever management is saying these days, these past actions speak louder, and do not meet my basic dividend screen.

    But for those who will look beyond this front-end screen, a review of HR's income statement should provide the most concern. HR has spent massively on HC properties over the past 3 years, with CAPEX of $67, $288 and $125MM over the past 3 years, with a current debt/quity of 144% and debt/assets of 57%. Current FFO payout ratio is 113%. For 2010 and 2011, Return of Capital was 46% and 66% of the annual distribution.

    Without substantial revenue increases, this is not sustainable, and another dividend cut is a real risk. At a REIT taxable income of about $9MM, the dividend cut could go close to zero.

    BruceM
    Jul 10 02:39 AM | Likes Like |Link to Comment
  • The New Truck Portfolio: A Practical Guide To Income Investing [View article]
    Wall
    I'm confused by your logic.
    An IRA may not be owned by a business...only by a human who must have earned income to contribute to it (or is married to someone who does). This is totally separate from owning a business, other than the net income from the business may be used to contribute to the IRA.

    Your election to withdraw from the IRA to buy business equipment is doable, but expensive. Whether the withdrawal is from the original tax deductable contributions or earnings of whatever tax character, it all comes out as ordinary income plus a 10% penalty if not yet age 59.5 or one of a few other exceptions, none of which are the purchase of business property. Why would you want to do this?

    That the investments in the IRA produce ongoing income is interesting, but I don't see the relevance. The investment objective of most IRA holdings are total returns to provide needed capital for producing needed retirement income later in life. Unless, I suppose, you're talking about some of the "self-directed IRA" schemes out there having to do with LLC owned IRAs. But for a traditional IRA, the investment goals should be kept separate from your business goals.

    And owning MLPs in tax deferred accounts can create tax problems. Yes, you don't have the K-1 entry, but net income to the IRA from multiple K-1 earnings exceeding $1,000/yr will require filing the 990T and the IRA paying tax at trust rates. And at sale, unrecaptured Sec. 1245, I've been told, must also be reported as ordinary income subject to Unrelated Business Tax.

    Why not simply invest in these income securities in a taxable account? If tax is an issue, invest primarily in REIT commons, REIT preferreds and MLPs, where most of the distributions will be return of capital and not taxable that year (although ROC will adjust basis downward and so taxable at sale)?

    I've been an income investor for the past 12 years. It can be a good strategy for reliable income, if done correctly, and can be a great way to generate enough income to make those monthly F-150 lease payments :-)

    BruceM
    Jul 7 12:22 PM | 1 Like Like |Link to Comment
  • REITs With Modest Leverage: Separating The Best From The Rest [View article]
    Charliezap
    I'm not Brad, but at the expense of hijacking your question to him....

    ...yes, there is a bubble, but not for the reasons you've given. In fact, if there were excess building and very high debt, prices would not be where they are and yields would be much higher.

    Most REITs are well managed and so are providing reliable income. This is the principal reason prices are where they are. Hundreds of billions if not Trillions of dollars that would normally be housed in CDs, Treasuries, Investment grade bond (funds) and Money Market Funds, have ventured out into the waters of higher yields, and commercial RE owned by REITs is certainly one place to find that.

    But as you suggest, this party cannot last and the price premium we're seeing today....unless Commercial RE does something to dramatically increase earnings power....will have to be given back, which will most likely happen when interest rates start inching back up and cash-investments start to look a little more 'normal'. And I have no idea if and when this will occur.

    BruceM
    Jul 3 11:40 AM | 1 Like Like |Link to Comment
  • REITs With Modest Leverage: Separating The Best From The Rest [View article]
    Brad
    Good topic.
    Interestingly, of those equity REITs you have listed, only two cut their dividends during the last 2007-2009 market down-cycle: SPG and KIM. SPG has since increased their dividend above the pre-decline level (unusual), while KIM is still quite a ways from getting back to their pre-decline dividend.

    Now, was this dividend sustainability due only to, or perhaps, primarily to, low levels of debt? Well, there are other examples of REITs that carry higher leverage that did not cut dividends, such as HCN, WRE and VTR. I suspect leverage is a considerable risk to dividend sustainability, but should be combined with other risk factors, such as the ability to rent space during econmic recession.

    Thanks for going over this important topic.

    BruceM
    Jul 2 01:11 PM | Likes Like |Link to Comment
  • Dividend Growth Investors Should Avoid Altria [View article]
    Williams:
    "Of course, the capital appreciation component of dividend growth investing is just as important"

    It may not be. In fact, capital appreciation may not be a factor at all. For example, an income investor who holds only preferred stock for the long term high income they provide, will experience virtually no capital appreciation, although their income will be high. If this meets the investment goals of the retiree, who does not need the residual value of his investments in his estate when he dies, capital preservation may be a low priority. And for those who generate their retirement income through a single premium immediate annuity, captial appreciation is, by definition, a non-priority.

    So for most income investors, the primary concern with MO, or other high dividend stocks, is sustainability. That is, can MO sustain its distribution? The answer to this is not in the trading multiples or other price-based metrics...its in the free cash flow.

    From Morningstar, since 2007, MO has the following Free Cash Flow payout ratios:
    2007: 75%
    2008: 30%
    2009: 85%
    2010: 106%
    2011: 92%
    2012: 100%

    Clearly, this trend should raise concerns to income investors. The downward pressure on revenue is real and will stay real. But tobacco is addictive and the demand will always be there. I think the real predictive metric with the future of MO (and other tobacco companies for whom most sales originate in the US) will be tobacco taxes and internal operating expenses. I don't think social pressure can do much more to reduce consumption. I mean, how much more graphic can the prnouncements on the side of cigarette packs get? Older smokers are hooked and with younger smokers, the anti-social message may be having the opposite effect: it may be making cigarettes the 'forbidden fruit' the anti-establishment youth may seek out. After all, nicotine, like caffine, but unlike amphetamine and Methylenedioxymethamph... (Ecstacy) (all psychostimulants), are legal drugs.

    My sense is that MO will sustain its dividend, but I think the days of double digit, or even high single digit, dividend growth rates may be at an end.

    BruceM
    Jul 2 12:23 PM | 4 Likes Like |Link to Comment
  • Preferred Stock Investors About To Be Cash-Rich Thanks To New Fed Action [View article]
    Doug
    Thanks for using the correct term (redemption vs. 'call'). It sounds so much better when the right term is used :-)

    Yes, I agree....this new sudden inflow of cash is driving up traditional and REIT preferred prices. For example, KIM-I pays a $1.50 dividend and is now trading in the mid 25.20's, yielding about 5.9%! I cannot imagine putting investment dollars into such levels of interest rate and inflation risk.

    And can you imagine whats going to happen to the yields of the preferred ETFs, as they replace their higher yielding TruPs with overbought traditional and REIT preferreds? As a suggestion, this might be a good next-article for you :-)

    BruceM
    Jul 2 11:34 AM | Likes Like |Link to Comment
  • 2 REIT Dividend Machines Hit New 52-Week Highs This Week [View article]
    Health Services REITs, in general, are seeing yields creep lower than they have ever been. Here are some examples:

    HCN: 5.2%
    VTR: 4.1%
    NHI: 5.2%
    HCP: 4.7%
    LTC: 5%

    I believe these are all record lows.
    Historically, HC REITs have had higher yields than most equity REITs due to their nature of slow growth...likely due to thier being in such a regulated industry...not unlike regulated utilities. Over the past 15 years, 7 to 8% yields on the common HC REIT stocks has been the norm. Is this yield decline due to consumers continually reaching for yield and bidding up prices.....or is this a result of higher expectations for future earnings due largely to growing access to health services as all become insured?

    BruceM
    Jun 29 10:46 PM | Likes Like |Link to Comment
  • Sysco Corporation Dividend Stock Analysis [View article]
    SYY is one of those reliable income, slow growth stocks, that is perfect for those individuals whose primary goal is realible income, but for their own personal reasons, do not have a goal of capital appreciation of their underlying portfolio securities. Remember, those who 'invest' their savings in single premium immediate annuities have a 100% goal of income reliability and a 0% goal of portfolio appreciation.

    BruceM
    Jun 29 10:33 PM | Likes Like |Link to Comment
  • Retirement Strategy: Taking Action On Healthcare Stocks Now (Part 27) [View article]
    "So you don't like the individual mandate in the health care law.
    Fine.
    What would you replace it with?"

    You are touching the core issue of how future health services will be paid for. At the two polar ends of this continuum are:

    1. Paid for through taxes collected and redistributed by Govt agencies (or their contractors), or

    2. Through premiums all pay

    I don't think there are too many who know anything about anything who would want option #1. Inefficiencies and abuse/fraud by those who redirect most of the creative talent and industry from business to milking the government....creates a situation I find too depressing to even contemplate.

    But for #2 to have any chance of working, like all forms of insurance, ALL....and I mean ALL....must pay into the pool, and the pool must be transparent. This means young and healthy individuals, who've never consumed a health dollar in their young adult lives, must also participate. If the insurance companies paying the bills are transparent, and the rules governing what they must pay for are clear and unambiguous (much as Medigap is structured), this is the system that has the greatest chance for working. It won't be perfect, but it will certainly be a better option than anything else I can think of.

    BruceM
    Jun 25 02:37 PM | 1 Like Like |Link to Comment
  • Dividend Investors - Do Not Forget About Total Returns [View article]
    "As a 'little player', you will get crushed by the 'big guyz', as their trading desks will get them out before your order even hits"

    You got that right! Of course, if your #1 objective is reliable income, and the rapid decline in a very thinly traded preferred stock is due to suddently rising interest rates, you may not care that your preferred price is dropping. OTOH, if the preferred issuer is getting into trouble, that is more in keeping with your concern. But I list liquidity as a goal, not so much for the ability to rapidly run-away, but in the event the retiree has some future need for the cash. A good example of many might be long term care.

    And with the goals I've listed (there may be others I haven't thought of), I envision the new retiree sitting down with spouse, closing all eyes, and thinking carefully through what they want their invested dollars to do for them and possibly others, over their rmaining years. Once envisioned, then rank each goal, 1 through 5, where each goal gets a ranking and each ranking number is used only once. By thinking it through this way, the individual/couple will be able to pick the most suitable income securities.

    BruceM
    Jun 25 12:53 PM | Likes Like |Link to Comment
  • Dividend Investors - Do Not Forget About Total Returns [View article]
    tennkid
    Good and valid questions.
    The listing at TMF REIT Board is in total nominal dollars. I use this (rather than time value of money...a subject I understand pretty well), as retirees investing for income do not reinvest dividends...they live on them...they consume them. So whether each dollar of dividend comes from a C-Corp with growing dividends or from a bond/preferred stock/pension/SPIA, with fixed distributions....both are equally subject to purchasing power risk along the way. So if the future point at which one equals the other (break-even) is way beyond your life expectancy, then the higher fixed income will actually be providing more income per dollar of household income required...hence will be a better inflation hedge. This assumes, of course, that both sources of income carry the same (or approximately the same) income risk. Now, in a world of galloping inflation...where C-Corp stocks are raising dividends much faster (assuming this dynamic would actually occur), then the break-even points I've shown will shorten.

    But as I've said so often....the 600 lb gorilla here for a fixed income preferred stock holder is INFLATION. For example, if a household requires $2,000/mo from an investible base of $300,000, this will require an 8% yield...and the only place today where this is available with any acceptable (by my measure) income risk is through preferred stock. If the investor goes this route, his worst nightmare, other than defaults, is errosion of purchasing power (inflation) risk.

    And Capital Appreciation is only important to the extent it is a goal of the investor. For example, if my primary objective is reliable distributions and my second objective is rising distributions, but I (say I'm single) do not have any other need for the investment assets at any point over my retirement years or in my estate, then I might be looking for higher yielding stocks with long dependable dividend growth histories, but little growth. JNJ and KMB might fit well here.

    BruceM
    Jun 25 12:34 PM | 1 Like Like |Link to Comment
  • Dividend Investors - Do Not Forget About Total Returns [View article]
    DGI
    I've been living off dividends as a pure income investor for a bit over 12 years. Allow me to offer the following based only on my experience.

    The decumulating retiree looking for reliable income must first, before choosing any income vehicle (bond, income ETF, stock, REIT, MLP, preferred stock, etc), determine their income goals. I use 5 of them:

    1. Dividend reliability
    2. Dividend growth potential
    3. Stability of asset base
    4. Growth of asset base
    5. Liquidity

    Some retirees must have ready access to invested dollars to be able to quickly convert to cash. Some have little or no need for the underlying assets, only the reliability of the income that can be produced from it (those purchasing Single life immediate annuities might be an example).

    The need for growing dividends (this term includes all manner of distributions) is really not so much a goal (although I have it listed as such) as it is a calculated need. Certainly private pensions, SPIAs, bonds held to maturity and preferred stock do not grow dividends. But if their distributions are sufficiently reliable and sufficiently large relative to income need, the excess collected can be 'held' and partially withdrawn over future years as an inflation offset. Preferred stock are the best vehicles for this.

    I recently ran this calculation on a posting at TMF REIT Investing forum. The question I undertook is whether it would be better to buy higher yielding but fixed dividend preferred stock or lower yielding but dividend-growing stocks. Here is what I came up with:

    http://bit.ly/LMHMNM

    "It is evident, that utility dividends are highly cyclical. In essence, the best time to purchase utility stocks might be right after a dividend cut"

    Sorry, but I completely disagree with this. Going back to 1974 and counting 9 utilities out of 308 regulated and power producing utilities over such a long period certainly shows that dividend cuts are possible, but one cannot generalize that their dividends are highly cyclical. I haven't checked, but I don't believe any utilities cut their dividends over the 2008/2009 market downturn. All of the major utility ETFs, XLU, VPU or IDU, increased dividends over this period. Now, if you were to make your statement but refer to banks, investment banks, BDCs and mREITs, you'd be correct. These pure financial plays have paid dividends that are about as reliable as Oregon sunshine.

    And I make it a policy to not invest in dividend cutters, at least not for reliable income. Case in point: PFE. The decision makers who elected to cut their dividend by 50% have demonstrated by their action that they are not committed to a reliable dividend. PFE is off my list until new management takes control AND they commit to a reliable and growing dividend.

    You are spot on that 'chasing yield' or 'reaching' for the highest yields is universally a bad idea. And you are right that inflation is potentially the income investor's worst enemy, particularly when there are decades of retirement years before us. Dividend growth is one way to try to keep up with purchasing power.

    BruceM
    Jun 22 01:54 PM | 4 Likes Like |Link to Comment
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