How do others interpret the price collapse of Yellow today? I interpret this move as meaning that there is at least some rumor out that the Trader transaction is in trouble. Good for the company that they jumped on that with the press release, but the real question now is how much truth was there to the rumor. Is the Trader transaction in trouble? What are the points of disagreement between the parties?
Yes $3 is a random choice, but funny enough it's also the price at which even I would be interested in owning a piece.
Who knows, we may never get to $3. I was surprised it even made it below $4.
If you like this company's long term prospects, then good luck to you should you choose to buy. I will comment that they are smart enough to keep the payout ratio at a sane level, instead of pushing 90%+.
Leo, generally I would agree with your sentiment. Cash flow generating ability is a lot more important than dividend. A company with high return on equity shouldn't even have a dividend, since it can compound retained earnings tax free for the investor at a higher rate than most alternatives.
Grant, I am not investing *for* the dividend. I am investing because I see a turnaround within two years that I think the market does not see.
The question therefore becomes at what price - and by what valuation formula - do you make an entry into the investment. As I have said in other threads here: valuing this company is tricky, since no one seems to believe that their historical returns are an accurate guide for their future returns.
Any entry point you choose will be arbitrary, and any entry point you choose will be subject to further losses if they decline further. My chosen entry point under $3 is probably as random as any other. I think my reward outweighs my risk at that price, but it's a speculative play not a value play, until their business model turns around and shows stability and then growth.
Grant, I agree with you for the first time EVER :P
No One should invest anything just for the sake of "dividend".
Dividend or not has NO EFFECT to investor because in the end it's how much cash this company generated that matters (stays or gives out -> all belong to shareholder)
At that price I have a 20% dividend that probably gets paid one year and even if it gets cut in half is still a decent return for a company with a junkier credit situation than Yellow's."
That's exactly the kind of thinking that lured suckers into investing in YLO at $15, $10, $6, etc.. all the way down to $3.85. So far, no long-term investor in YLO has actually recovered his investment... their share price deteriorates as quickly as dividends are paid out!
Some people imagine there must be a floor on the share price of a trust that is making good money. If you want to see that theory disproven, just look at QSR.UN ... investor's comments invariably went like:
a) "This has a great yield! even if they cut it in half I'm happy to hold on and collect my dividends!"
b) "Oh wow, this stock has dropped so much since I bought it, i may as well hold on, and hope i get lucky with a turnaround"
QSR-UN is now in bankruptcy, and their listing is suspended. Bagholders had MONTHS of warning to get out with at least a FEW pennies in their pocket, but now the chance of them getting is small & remote. All this despite the fact that it still makes millions of dollars in profit every quarter.
Now I see people saying the same kings of things on YLO boards as they watch their "great yield" of $0.06/mo overwhelmed by $0.20/mo in capital depreciation.
If someone believes YLO is a well run company with greater profits in its future, then definitely they should be buying at these prices.
But if someone is buying a company simply because they demand at least 1/2 the yield that YLO offers... why not buy a company that already has 1/2 the yield but better long term prospects? At the very least you won't be stuck with a share price haircut from falling dividends.
People focus on story rather than number.
1. What's the "probability" to go like 580, 500, 420, 360, 320, 210, 150, .....for longer than a decade? or the other way around till infinity?
2. Even this comes true (low probability)..add up all numbers..500 + 420 + 360 +....
and compare with current market cap..that's investing.
Yellow has peers in the US, and all of them are in long term declines. Actually, most of them are bankrupt or serial bankruptcies. Yellow alone has managed to put off this decline, but - right or wrong - many investors assume they are late to follow this trend, not exceptions to the trend. The corporate investors selling off now assume the decline to $580M for 2010 is just the tip of the iceberg and further declines are ahead.
I am more inclined to believe your side of the story: something is different about Yellow's management, and they are better managers of capital and are investing in many experimental digital businesses looking for the ones that can scale and grow them out of the declining print business. I admire their efforts. I pity that they do this in a marketplace that demands instant results, when a turnaround of this type should take two to three years.
If we dip below $3 I will probably put the bet on. At that price I have a 20% dividend that probably gets paid one year and even if it gets cut in half is still a decent return for a company with a junkier credit situation than Yellow's.
Today was a collapse with high volumes. It's not everyday trading. The only reason we didn't see sub $3 pricing today was the company's early morning press release, which short term did an effective rescue on the share collapse.
Personally I like the company, and I prefer the common to the preferred. I have been waiting for a capitulation, but I don't think today was the bottom.