America First Multifamily Investors - Tax-Free Income Has Pulled Me Out Of My Comfort Zone

| About: America First (ATAX)
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ATAX, a hidden jewel contributed by a loyal and very smart follower.

It offers a tremendous yield, and better yet, it's tax-free.

My problem is that I don't know if all that glitters is necessarily gold.

Consequently, I need my followers help to help me decide if this is fool's gold or the real thing.

I'm forced to admit that one of my followers, Azure Blue, turned me on to this little ditty, and I'm glad I took a look before I pooh-poohed it. What attracted me most was its enormous yield, magnified by it tax free status - two things that, in combination, made it difficult for me to pass the stock up. Therefore, I began my research in the usual way and went straight to QuantumOnline and America First Multifamily Investors (NASDAQ:ATAX).

ATAX is a limited partnership that acquires, holds, and sells federally tax-exempt leveraged mortgage revenue bonds issued to provide funding for multifamily residential apartments.

From there I jumped ahead of my usual research process straight to a MarketWatch view of its past performance, because, for whatever reason, Yahoo Finance failed to go back beyond the beginning of the year:

However, I was a bit disappointed by the above detail, so I decided to enhance it by utilizing my very own IB platform:

Although its had it ups and downs these past five years, trading at $5.15 on 1/13/12, it now trades at $5.45, a $0.30 gain during the period. Better yet, and what sold me on this puppy, was the fact that each year it paid out a steady tax-free $0.50 dividend. KaChing.

So far I like this company, and trust my source implicitly, but I decided to dig a little deeper into its numbers, or as deep as I felt comfortable in doing. Therefore, I turned to ATAX's financial highlights according to Finviz

The company's current market value is $334.39 million. It earned $20.40 million on sales of $78.00 million. And last year it was up an impressive 23.69%. Its short- and long-term debt/equity is a moderate 1.44.

Although I'm far from an expert at this, I did find something troubling when I reviewed the SA transcript of the third-quarter conference call in November and discovered - as a part of the following exchange during the question and answer period - that ATAX might have had insufficient CAD to fund its yearly $0.50 distribution, and that part of it was paid for with ROC, return of capital, which is troubling if I read it correctly. Consequently, I urge that you take some time to take a closer look before considering an investment in this company. Now for that exchange:

Investor's name deleted by me:

Hello, fellows. Good job. I am calling from home, I hope you can hear me, we have a lot of value [indiscernible] for the shareholders in the ATAX listing. I have a question regarding CAD, cash available for distribution. The plus 17.6% or $0.34 applies to the first record of this year compared to the first records of last year, am I right on that?

Craig Allen (NASDAQ:CFO)

Yes. That's correct.

Name deleted by me:

Okay. If I just took last year's fourth quarter, the lack of a better number used, I don't have that handy, you know what the fourth quarter CAD was?

Craig Allen

It would have been about, let's say 36 - it's been about $0.15 to $0.16. We ended slightly over $0.50 on a…

Name deleted by me:

Yes, And if you went over $0.50, so you went above $0.15 to $0.16?

Craig Allen

Yes. Again, we did have - I am sorry, go ahead.

Name deleted by me:

Just a question, I think I know the answer, but a lot of folks don't. If there is a shortfall of CAD is that the number that's made up on your K-1, on the return of capital side?

Craig Allen

Yes. If there happens to be a shortfall then it would be considered on the K-1 to be a return of capital.

As many of you know, I'm no financial whiz, therefore, before plunking down your money I urge that you do some further DD and air any misgivings or questions you might have in the comment section following this article. As you must know, I'm a bit out of my element here because this is not my usual preferred investment; however, it might be a great investment considering its high yield and tax-free status.

So what I'm requesting is a communal think-tank to collectively decide whether or not this common stock is a hidden gem or simply a piece of brightly colored glass.

One last admission: On Blue's recommendation, I stepped out of my comfort zone and purchased shares of ATAX. I further confess that the high yield and tax-free status further pushed me toward that decision - plus the fact I could afford the risk and easily afford any loss I might suffer. I'm leaving it to my followers to determine if my rash investment has been a wise or foolish move.

Disclosure: I am/we are long ATAX.

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.