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American Capital, Ltd. Message Board

  • theglassbreakers theglassbreakers Mar 22, 2006 7:56 PM Flag

    9% YIELD - 7.6% DILUTION = 1.5% RETURN

    ACAS has 118.3 million shares outstanding. ACAS is issuing 9 million shares in its most recent announced secondary offering. That is 7.6% dilution.

    ACAS has announced it will pay a dividend yield of about $3.20 per share in '06 (.80 per quarter). At a $35 price, that's a yield of about 9.1%.

    Do the math and you'll see you get a generous 1.5% return. I can do better with a money market fund. And those dividends do not qualify for preferred tax treatment.

    I used to be bullish on this stock when they were a private equity firm focused on the middle market that used their BDC public status to have a lower cost of capital than competitors. They execute well on the private equity side and have an 8 to 9% cost of capital. I'm fine with that business model.

    But I have just read their February shareholder presentation and I'm not sure what their strategy is. Their new strategy seems to be that they think they are good at everything. They have branched into European middle market private equity - OK fine - same business. But now they want to start venture funds, real estate funds, healthcare funds, CDO mortgage funds.

    Do they really know what they are doing???? How can they possibly have expertise in all of these areas??? Good companies do what they do best. ACAS seems to have decided to "get big".

    The new strategy seems to be that ACAS will use its lower cost of capital to raise lots of money off on the backs of its public shareholders to start funds that invest in areas where it has no prior expertise. It's competitive advantage? A lower cost of capital thanks to dumbass shareholders like you and me .

    Money whores. . . .

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    • I have to agree with you skyrocket, It's best to listen to both sides of any stock you own or want to own.

    • Dude. Did you Al Gore have the same math teacher. That's as fuzzy as math can get.

      Show us you know better than that, please. Or just get the fugg on down the road cause it will be very obvious you haven't a clue about this company and probably don't deserve your High School Equivelancy Diploma.

    • Your math is irrelevant. There is no decrease in the dividend unless they decrease the dividend. If the money that is brought in from the sale of shares leads to good investments and increased revenue one could even experience a greater dividend. IN fact that is exactly how they have been doing it for a number of years.

      As for them expanding into different fields--that all depends on who they hire and how expert they are.

    • There is dilution but the math is way off. The rest of the post has merit. These people are not expert in every facet of the economy. They are sure to stump their toe and there will be fall out ie the stock price and maybe the dividend.

    • "ACAS has 118.3 million shares outstanding. ACAS is issuing 9 million shares in its most recent announced secondary offering. That is 7.6% dilution. "
      I admit to not being the smartest dodo around, but I have a question. AS I understand it, NAV is based on equitey holdings and cash holdings, and that NAV is stated in dollars per share. When the secondary is launched, the new shares are "SOLD" at the market (or thereabouts)price, which in this case, is higher than the NAV/per share. Now, forgetting the cost of issue for now, if the company takes in those dollars as a result of the secondary, and adds them to the cash already being held, it appears to me, that instead of "dilution", or a lowering of the NAV pr share, the NAV per share should actually go up. IF the NAV were higher than the issuer price, or, if the company gave the shares away for free (as in the case with some stock "bonus" plans for exectutives)then why do all of you keep insisting that the secondary is not just "DILUTIVE", but dilutive to the full extent of the issue. In other words, it appears you think the company is getting no additions at all to the treasury. I don't get it, someone make me understand all this terrible dilution that is going on.

    • glass, perhaps if you would come forward with facts leading to a logical conclusion, your post would have more credibility. Do you think anyone cares whether or not you understand the strategy of ACAS? What are your credentials or accomplishments? Maybe stick with the mm fund.

    • Why are you taking a figure like 7.6% dilution, and then subtracting it from a totally unrelated number like 9.1% yield to get 1.5% return?

      Did you fall asleep in math class or something?

      Regardless of dilution, you are getting a 9.1% dividend yield on your shares valued at $35.

      • 3 Replies to MRothaus
      • I believe that ACAS has anounced that they will pay $.81 in Q2. I have cofidence that they will meet that promise. If they are smart, and I think they are, they will come in better than that and we will see a nice bump in the price. Kind of like beating earnings estimates but they set the estimate themselves. Hopefully they set the bar low.

      • I think you need to take a math class. YOU explain why the stock has been FLAT for the past year. The market does not trust ACAS' new "money whore" strategy.

        But for the dilution, the stock would be 7.6% higher than $35. That's $2.66, or $37.66.

        ACAS was trading at $37.60 on Feb 22. You can't sell a MEGA share issuance like this in a vacuum. Investment bankers, lawyers, accountants and other professionals are involved. Word gets out. Information gets priced into the stock.

        The market priced in the information about the 9 million share issuance and the price dropped to $34.88 on March 7. That's an 8% decline. Hmm?

        Bottom line is that you already paid for the 7.6% dilution. It's priced into the stock at $35. But for the dilution, you would own a $37.60 stock with the anticipation of collecting a $3.20 yield. Now you own a $35 stock with the expecation of a $3.20 yield.

        You do the math, dumbass. Your net appreciation on the stock taking into account the yield and dilution (excluding earnings from capital appreciation) for the year is going to be the $3.20 dividend less the $2.60 dilution you just suffered when the market priced in the dilution. That's a net return of 60 cents. Dividing 60 cents by $35 gives you an effective yield of 1.7% after dilution.

        If you are holding this stock because of the "great yield", you can do better in a money market fund at the corner bank.

        I think it's truly sad that ACAS thinks they can raise capital on the backs of their shareholders (i.e, significant and frequent dilution) and put that money to work in markets where they have no prior investing experience.

 
ACAS
14.34+0.02(+0.14%)Oct 24 4:00 PMEDT

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