IS THERE ANYTHING ENCOURAGING
again that I agree that FAX has disappointed me
to and I bought it at 5 7/16, watched it go to 6 7/8
and back down again. But it is my understanding that
FAX has not paid their dividend from operational
earnings since the last rights offering was completed; In
fact they stated as much that the .72 through March
was based partly on capital gains. Well, with rising
interest rates, FAX has seen the underlying market value
of their bonds decrease and have had no opportunity
to generate additional capital gains through
portfolio turnover. Thus, income from investments remains
static and their capital gains are about spent; And
guess what, we can probably expect a dividend
cut.
There is chance that the dividend cut could be
temporary if interest rates fall which could put FAX in a
position to once again start generating capital gains
through portfolio turnover; but I wouldn't hold my
breath. It's more likely that FAX will have another
rights offering to generate more cash to invest which
would dilute our share NAV just like before. Just
another cycle like we have just experienced. If interest
rates would have fallen even more, which some were
predicting, the capital gains flow would have continued and
the dividend would have been safe. I can remember
predictions that the long bond would go to 3.5% about the
same time that FAX was completing the rights offering.
We all know now that didn't happen. However, there
are those that predict that long bond rates will be
under 6% by year end.
Also, don't forget there
is one other wild card, and that is the Aust.$.