For those of you unfamiliar with my preferred investment philosophy, my article "The Basics Underlying Investments Viewed Through the Eyes Of A Preferred Investor" will explain how and why I became a preferred investor. More importantly, it will provide you the information necessary to fully appreciate and understand the process I utilize to research and determine whether or not I will invest in a particular company's preferred equities. What follows is that process.
When considering the acquisition of Global Indemnity (NASDAQ:GBLI) Notes, it's necessary that we view that company through a different set of eyes than we would were we interested in acquiring its common shares.
Consequently, unlike its common cousins, it's necessary that we first study the offering prospectus of the Note we are interested in acquiring. To accomplish this, let's visit my favorite preferred search site, Quantum Online. Below is a snapshot of a slice of the GBLI page:
A quick review informs us that GBLI is a holding company, formed under the laws of Ireland (potential tax ramifications), that provides specialty property and casualty insurance. It changed its name and symbol from INDM on 7/6/10 at which time it had a market value of $369 million, making it a small-cap company.
Let's click on Find Related Securities to examine any Notes this company has to offer:
Here we learn that GBLI offers one Note, GBLIZ, initially offered at the yield of 7.75% and due on 8/15/45.
Now let's click on GBLIZ. Because this page contains more information than can be covered in a snapshot view, I suggest you open the page and view it as I discuss the information that most interests me:
- I like that the interest on this Note will have to be paid in a timely fashion. If not, the threat of bankruptcy is in the company's future.
- These shares are callable on 8/15/20 at $25.00 plus any accrued interest owed.
- Unlike the perpetual preferreds, this Note matures on 8/15/45.
- It pays a dividend of $1.9375 per share per year, or 0.484375 per quarter, to be paid 2/15, 5/15, 8/15, & 11/15 of each year.
- At the time of its IPO, 8/5/15, these shares were unrated by Moody's and S&P, which really doesn't concern me but might concern a more conservative investor.
- Interest is not eligible for the preferential income tax rate of 15% or 20%. You should be aware of how these tax ramifications will affect your investment's bottom line.
- As usual, upon liquidation, this Note ranks senior to the commons and preferreds.
However, simply knowing and understanding the Notes of a company in no way allows one to gauge a company's long-term health or to fully comprehend its business model. To better accomplish this, a knowledgeable investor should be able to dig down into the numbers and at least marginally understand a company's financial statements and conference calls.
Sounds reasonable, but extremely difficult for most investors, including myself. I often rely on interpretations by SA contributors who have proven more knowledgeable than myself. Unfortunately, the vast majority of their articles are written with the common shareholders' interests in mind, rather than those of the preferred or bond holder - which, on occasion, might not be in alignment. Also, as I mentioned above, other SA members might view their conclusions in a different light. When this occurs, I simply try to figure out which argument sounds the most logical. Sorry, that's the best I have to offer.
Consequently, rather than attempting to digest and understand complicated financial statements, which I realize I won't be able to realistically accomplish with any degree of accuracy, I usually visit two websites to get an abbreviated, yet broad-based, view of the particular company I'm considering making an investment in. These are Yahoo Finance and FinViz. I have cued each to open to the financials of GBLI.
Above is a screenshot of GBLI's Five-year chart. It's very good as far as I'm concerned. It traded at $20.05 on 1/9/12 and is currently priced at $38.21. That's a profit of $18.16 during this time.
The following is a screenshot taken from a Finviz view of GBLI's present financial highlights.
The company's current market value is $666.29 million. It earned $38.80 million on sales of $526.00 million. Year to date, it's up a resounding 31.67%. Its current and LT debt/equity is a paltry 0.22. As for a safe investment, I qualify this company as a no-brainer.
Now let's see how its note performed, as illustrated by the following MarketWatch chart.
This is a relatively new note with a current price of 24.80, and pays a yearly dividend of 1.9375, it offers a yield of:
- 1.9375/24.80 = 7.81%
A slam dunk as far as I'm concerned. A nice yield on a Note from what I consider a safe company to invest in. Therefore, it's time for my numbers-heavy, smarty-pants followers to add meat to the table I've just set. Talk me down if I'm wrong or missed something, but as far as I'm concerned this note can be a very nice addition to our fixed-income portfolios.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.