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BruceCM

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  • A Closer Look At Buckeye Partners' 2011 Distributable Cash Flow [View article]
    Ron
    A very thorough analysis of BLP's ability (or perhaps lack of) to meet future distributions. In particular...

    "Unless results from operations improve fairly quickly, BPL may have to issue additional partnership units to finance cap ex as the partnership is fairly highly levered (long term debt is 6.9x EBITDA and 4.9x Adjusted EBITDA)"

    This would not be good.

    And you mention "non-sustainable income on risk management activities". Would an example of this be BPL going short on commodities futures? If so, this could be an expense if the market moved against their postion...yes? And why would they do this...or any other hedging strategy. For pipeline companies, isn't it all about the volume transported through the pipeline and not the unit price of what they 'piping'?

    And you mention other MLPs whose SDCF better covers their distribution...which MLPs...and have you done this kind of analysis on them?

    But thanks much for your review. I find these very helpful!
    And frankly, I don't care if you have double words in the body of your article...as long as the content is there.

    BruceM.
    Apr 11 07:20 PM | 1 Like Like |Link to Comment
  • Dividend Return Vs. Total Return For Developed Market Country Indexes [View article]
    Richard
    Your findings are interesting, but I think irrelevant to income investing.

    That a country's companies annual dividend yields are higher than others, suggests what??

    That prices of stocks of that contry are not growing?
    That dividends of the companies of the countries you mention are growing faster than stock prices?
    And why stocks of a particular country? Shouldn't dividend growth be more a function of what the company produces and how well the company is managed?

    And portfolio total return really doesn't matter for an income investor.

    BruceM
    Apr 8 10:43 PM | Likes Like |Link to Comment
  • Why Taking Profits Is Never Overrated [View article]
    SeCo
    True 'Income Investing' is simple in concept, difficult in practice.
    An income investor buys stock/REIT shares/MLP units/preferred stock/bonds, or their ETFs, for the reliable income they generate, quarter after quarter, year after year, decade after decade. Over this period, the movement, up or down or sideways, of the stock's price doesn't matter...only the continuity and growth of the dividend matters (for most all except bonds and preferred stock whose interest/dividends generally do not grow).

    The discussion I've been having with Richjoy above has to do with what happens if the income stock you're holding has run up in price....do you sell, take 'profits' and reinvest? Or do you simply ignore the gain and continue holding and collecting dividends. My view of this is that whether a stock has run up in price, gone down in price or remain unchanged in price is immaterial...it simply doesn't matter. What matters is if the stock is demonstrating that it can continue its dividend. The point I think that RichJoy is making is that it is possible for a stock to run up in price ahead of other income stocks of similar income risk, providing a 'yield arbitrage' opportunity. That is, by selling the overbought income stock, paying capital gains tax (if in a taxable account) and transaction fees, and then immediately investing in the stock OF EQUIVATLENT INCOME RISK, that household income can be improved. This is entirely possible.

    But IMHO, no one can succeed at income investing if they are selling gains just because they are gains. Generally, when the tide comes in on income stocks, all boats (income stocks) rise. It is the exception to this that the income investor might be looking for.

    As I say, this concept is easy to understand, but hard to do. The tidal wave mentality out there is that gains must be taken, profits harvested and cash taken off the table. This kind of back ground noise MUST be ignored. If you don't and you follow the herd and you don't carefully think through your income portfolio sells and buys, from the standpoint of household income and income portfolio risk, your household income will gradually errode.

    BruceM
    Apr 6 02:01 PM | 1 Like Like |Link to Comment
  • Why Taking Profits Is Never Overrated [View article]
    Rich
    I think we've come to an agreement point...sort of. But I would ammend ...

    "I will trim my stock positions when overvalued, and reinvest the proceeds in other income-producing stocks"

    ....to say

    "I will trim my stock positions when overvalued, and reinvest the proceeds in other income-producing stocks WITH THE SAME INCOME RISK". IOW, if I sell shares of XOM, putting the proceeds into NLY would increase my income, but it will also increase my income risk.

    The only place I've seen this work with any regularity is preferred stock, due largely to the trading inefficiencies (I think) of such thinly traded stock.

    But if you can do this with other income stocks, such as XOM or MCD, then it would definitely be a good strategy.

    thanks for your thoughts :-)

    BruceM
    Apr 3 12:01 PM | Likes Like |Link to Comment
  • Why Taking Profits Is Never Overrated [View article]
    richjoy
    "Bruce -- I believe this article certainly does belong in the Dividends & Income Section...investing for income does not, and should not, mean it is universally "exactly wrong" for the income investor take profits"

    No, it is EXACTLY wrong.

    My assessment is based on continuity of income. Selling only to 'take profits' will virtually always result in reduced houehold income when income risk is held constant. Now, it is possible that the sale due to stock appreciation may involve a temporatry income stock 'bubble' for which there are equivalent income securities available for replacement that will improve income, a phenomena I refer to as 'yield arbitrage'. This is possible and I'm sure does occur. But this is highly unlikely when one is selling only due to gains, as a rise in the price of one income security is usually always due to a rise in all equivalent income securities. And even if a temporary income stock inefficiency in pricing occurs, capturing this using the OP's rationale will be completely by chance. The OP said nothing about this or any form of income replacement...only about 'taking profits' and getting 'nice chunks of change'.

    And although my discussion was limited to taxable accounts, tax deferred accounts are certainly a better place to practice yield arbitrage, if that is what you wish to do.

    But this has NOTHING to do with with the OP's message, which for an income investor (and this forum), is completely wrong and will virtually always result in a reduction in houehold income.

    BruceM
    Apr 2 10:49 PM | Likes Like |Link to Comment
  • New REIT Preferred Stock Prospectus Language Protects Preferred Stock Investors [View article]
    John
    "Small" is a relative term....but in this context, I would include any exchange traded REIT that trades on average fewer than 50k shares per day or has a market cap under $500K. Examples might be MPG, FUR or OLP.

    BruceM
    Apr 2 08:17 PM | Likes Like |Link to Comment
  • Clearing Up 3 Dividend ETF Misconceptions [View article]
    curreyr
    Yes, and my fault, as I didn't clarify what I mean by 'diversification'. To an income investor, 'diversification' has to do with diversifying one's sources of dividends (which I will use to cover all manner of regular distributions from companies), so that not too much of one's investment income comes from one kind of stock or from one industry, that could all simultaneously be effected by some change in a market condition. For example, holding too many health care REITs may mean I have too much exposure to possible changes in Medicare reimbursement rates to health facilities operators. So to 'diversify', I might want to limit my income to no more than 10% from any single industry or subindustry, like health care REITs.

    ETFs may be a good way to diversify income from a single industry, like utilities or banks. For the price of, usually, 5 to 10% of one's income from the ETF, the investor will save a lot of time in having to research and monitor the income of the stocks that are otherwise held in the ETF.

    BruceM
    Apr 2 01:53 PM | Likes Like |Link to Comment
  • 'Black Swan' Income Investing [View article]
    I would suggest updating " Income Investing is made of 3 parts - mitigating significant loss, extracting income, and identifying means for capital growth" to:
    1. mitigating loss of portfolio income (even minor)
    2. monitoring securities for the reliability of their distributions
    3. identifying means for dividend (or distribution) growth

    For most retirees, stock price appreciation is not a factor, although it could be if one wishes to leave a sizable inheritance or perhaps wishes to use thier investibles to pay for something like long term care at end of life, for example. But for most income investors, price appreciation is a non-factor. Were this not the case, no income investor would buy preferred stock.

    But to the concept of poison pills (black swan events)....yes, this represents the 'qualitative' part of income security analysis. To add to nsollo's list of 'possibles', I don't invest in pure financial companies for reliable income....their numbers are not backed by anything but their ability to generate numbers from other numbers. Cash flow for them is truly ehpemeral.

    Product/service diversification and containing large fixed costs (like interest on debt) is the primary hedge to a 'black swan' event. How many income stocks/REITs/MLPs actually raised their distributions from 2008-2009? Ans: those who were 1)diversified 2) low interest expense (relative to cash flow) and 3) deals in products/services we need irrespective of the economy. For them, the Black Swan event of a depressed economy was not much of a factor.

    But the idea of including in one's screening process for an income security they are thinking of investing in for the reliabile income it can generate, a 'black swan' analysis, by actually writing down what events could cause this company/partnership to be unable to sustain its distribution....is a necessary part of the anlaysis.

    Kudos to nstollo for the discussion.

    BruceM
    Apr 2 01:07 PM | 1 Like Like |Link to Comment
  • New REIT Preferred Stock Prospectus Language Protects Preferred Stock Investors [View article]
    Historically, I strongly recommended that one shopping for a preferred stock for income, AVOID the small preferreds or preferreds of company's whose interest payments represent more than about 30-40% of their operational free cash flow. This, I reasoned, is about the only defense one has against the 'dark arts' of a hostile takeover.

    This new language in the perspectus will hopefully dissuade the raiders. Time will tell, but it certainly is a step in the right direction.

    Doug: thanks for sharing. Great article!!!

    BruceM
    Apr 2 12:27 PM | Likes Like |Link to Comment
  • Why Taking Profits Is Never Overrated [View article]
    Reminder: this is the "income and dividend" board.

    "Taking Profits" is exactly the wrong thing to do for an income investor. If XYZ stock was paying you $2,000/yr in dividends and has moved up in price, "Harvesting Gains" would have the investor sell the stock and take the "profit". But then what. Just like its part of a paycheck, the income investor requires that $2,000/yr of income. Yes, he/she could simply consume the gain, but then his/her basis would be erroded and overall portfolio income would drop. Instead, he/she now must go out and find another income stock to replace the income he/she lost...and if this is a taxable account, taxes on the gain would have to be subtracted out first. So after paying taxes and some transaction costs, the investor now has less to replace the income with. And because the markets are pretty efficient when it comes to yield, the investor must either take more investment risk (risk here being defined as the probability the dividend paying stock will not be able to sustain its dividend) or take a cut in household income.

    I'm sitting on large unrealized capital gains in income stocks such as KMP, HCN, NHI, PM, XOM and LTC, to name a few. My focus is on these companies ability to sustain and grow their distribution, which they have over the years I've held them. I live on what they produce, not on how their price changes. For a true income investor, "taking profits" is exactly the wrong thing to do.

    BruceM
    Apr 2 11:55 AM | 6 Likes Like |Link to Comment
  • Asset Allocation For A Dividend Growth Investor [View article]
    Cardiac
    That's sound reasoning and tough to argue with!

    Along this line of this reasoning....I spoke with a mid-40-something self investor earlier this year who said that once the Fed announced (I think In November) their intent to hold short interest rates at current levels for the next X years, he promptly sold his bond ETFs and put most of it into VIG. His reasoning: why hold bond funds that have little capital appreciation potential and declining interest as bonds mature and are replaced by lower yielding ones, when he can get about the same yield that is steadily growing and although long term prices are not as secure as a bond, the prices of the strongest dividend paying stocks are amply secure for him.

    Again, tough logic to argue with.

    BruceM
    Apr 1 07:57 PM | 1 Like Like |Link to Comment
  • How A Big Loss Made Me A Dividend Growth Investor [View article]
    Larry
    I appreciate your testimonial. Many of us remember what it felt like to watch the share price of LU and AOL and SUN etc etc, head towards the basement in 2000. Bad, Bad juju.

    Investing in long-standing companies that provide what we all use and consistently share those profits with us is certainly a better option to the 'hot stocks'. But this logic is retrospective and really, IMHO, should not be the point. The real question is what are you trying to accomplish? What is your investment objective?? the answer to this should drive your investments.

    This might sound a bit heretical in today's market and to many of the respondents here...for many of whom I have great respect.....but I sense that dividend paying stocks are today headed towards what the hot technology stocks were of the 90s. It is a point to which investors are running to and I fear, many don't know why except that it seems the right thing to do today. This is errily like the 90's scramble to get in on the ground floor of the new technology revolution. Certainly, KO, XOM and KMB are not going to suffer the fate of the likes of LU or drkoop.com, but at the time, the "new generation" of technology stocks sure seemed to make sense....much as a steady dividend makes sense today.

    But my protestation here is not on whether dividend paying stocks are the right thing or the wrong thing to do. Investing in the marketplace is really all about meeting personal financial goals....and investments must be aligned to do exactly that.

    You don't give your age or investment objective....but if you are still accumulating and you are saving for reirement in, say, 10 years, you need to build a diversified portfolio, not a concentrated one. For example, what will you do if overseas markets and US small caps return double digits and US treasuries rally, while high dividend fortune 100 companies stagnate or even recede as they did in the 90s? Yes, you will most likely get the dividends, but will this return by itself be sufficient to meet your return objectives?

    From my own perspective, I'm a pure dividend investor. I invest for reliable income...this is my investment objective. I care not about price movement and the myriad of metrics tied to it, only about the reliability of the distributions from the stocks/MLPs/REITs I hold. But this is MY OBJECTIVE, and in my most humble opinion, the best way to approach the reliable investment income need in retirement. And yes, the broader market could take off and leave me in the investment-total return-dust, but this is a risk I understand and a risk I accept. Were I 40, working, and building retirement savings, I would not use this approach.

    Thank you for your thoughts.

    BruceM
    Mar 30 02:11 PM | 4 Likes Like |Link to Comment
  • Asset Allocation For A Dividend Growth Investor [View article]
    Cardiac
    I am a true income investor, but I'm not sure this is what you should be. Others may have differing views, but I'm concerned that the young folks out there (like you) are jumping on the dividend growth bandwagon for the wrong reason. Income investing is not necessarily a bad thing for the yound working class, but it may not be a good thing either. True, if the market tanks, your dividend portfolio will tank less...and this is good. But if the pro-growth economists are anywhere near right....Congress takes aggressive action to curb the deficit, the dollar strengthens, consumer confidence builds, overseas labor costs continue to climb and American industry takes off....young dividend investors could be left way behind. Retirees are the perfect candidates for a pure income approach, as they don't have years and years to wait until a depressed marketplace rebounds...they need reliable income now...and the retired income investor accepts the risk that their portfolio's will be left in the dust of a rapidly expanding economy, as their income stream will only strengthen.

    I would be interested in hearing other seasoned income investor views on this.

    BruceM
    Mar 29 09:20 PM | Likes Like |Link to Comment
  • Clearing Up 3 Dividend ETF Misconceptions [View article]
    curreyr
    Beta, alpha, standard deviation, correlation coefficient, P/E, P/B...and every other metric relating to an income stock's price, is irrelevant to an income investor. Reliability and growth of the distribution is what counts. The distributions I receive are what I use to pay my bills, to buy groceries, to pay the gas station for the gas I put in my tank and to pay for my homeowner's insurance. Changes in Beta do not pay the bills :-)

    BruceM
    Mar 29 09:09 PM | Likes Like |Link to Comment
  • Clearing Up 3 Dividend ETF Misconceptions [View article]
    jb
    look at http://www.dividend.com
    This will give you declaration, ex-dividend, record and pay dates of dividend paying stocks and ETFs

    BruceM
    Mar 29 09:02 PM | Likes Like |Link to Comment
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