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PowerShares Financial Preferred ETF Message Board

  • tomgerstner tomgerstner Feb 18, 2009 10:09 AM Flag

    What is the dividend yield...

    now with the price collapse? Time to jump in???

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    • Just bought 1000 at 7.59. Hope I jumped into right boat.

    • What do you assume for share price? What do you assume for dividend payout? Past divs were--
      10/31 0.10795
      11/28 0.127
      12/31 0.15365
      1/30 0.11615

      What will they be in the future? Will any principal be wiped out?

      • 1 Reply to budwashougal
      • Could you please clarify your question about "principal being wiped out." These are preferred securities with perpetual dividends (subject to callability, etc.) -- there is no principal.

        And my calculations show that current price levels factor in a good deal more than 50% of the dividends being cut (i.e. 60%-70% as I've shown in previous posts). Can the person who suggested the 50% figure please respond with some more numberical analysis? Thanks.

        On a separate note, this preferred sell-off feels a lot like "madness of the crowds." I know it's hard to step up to the plate here, but I'm convinced this is an amazing opportunity. All government officials involved (Obama, Geithner, Summers, Bernanke) have now publicly stated that they want to keep these banks in private hands. Permanently cutting dividends (even under the "nationalization" scenarios) would be devastating to this objective.

        A more likely scenario is suspending dividends for a year or two, which still gives PGF a value greater than $20. It's understood that common would get wiped out in a nationalization and common investors know this going in. Total loss of value, however, is not a given with preferreds. For the government to come in an permanently cut the preferred dividends therefore makes it a very expensive financing vehicle (closer to common and further from sub debt), which would likely never be used again, and the government knows this. Preferred shareholders only expect to get wiped out if the bank fails.

        Therefore the burden on the government would be to prove the counterfactual: namely, the government will have to demonstrate that the bank would have failed and there would have been no residual payout to the preferred holders (including the government itself!!) had the government not saved/nationalized the bank, and only then can the government justify killing the preferred.

    • My back of the envelope, based on the last three months and a discount on the previous nine, is $1.42. At $7.74, that's 18.36%.

      Time to jump in? Depends. Are a lot of banks going to be nationalized, with the impact being wiping out preferred shares? If yes, then this is a deathtrap. If no, then this is a goldmine. Right now, the market's saying that about half of these dividends are going to zero, with some of them never coming back.

      Disclosure - long.

    • .11817 per share , just bought more at 7.85, been adding the past week to average down

 
PGF
18.12-0.02(-0.11%)Jul 24 4:00 PMEDT

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