...whatever anyone will pay for it. That's the way the world works. Come to our free Yahoo stock trading club with BBS, chat room every night at 9 PM ET where traders will answer your questions. Don't trade alone. We'll leave the site on for you at http://surfstock.com
In this case, where ownership produces a revenue stream, the value of the stock is independent of its sale price. Surely you would not argue that, even if NO buyers existed, recieving a guaranteed .06/share/month had no economic value.
No, the point here is NOT what people will pay for FAX, but what WE should require before selling it. Let those who don't own any go get their own guaranteed income if they won't meet our price.
You are right on the mark in comparsion "shopping". It fun to try and guess a FMV(Fair Market Value). And as you say it has to start somewhere and a 3 month T-bill is always the start for any U.S. work.
A few thoughts to add:
Appx. 15% of the funds dividend is "return of capital" or captial gains paid out. Thus that does not reflect a "real" source of reoccurring income so I'd cut that part out in a T-bill comparison. Or $.10
The credit quality of the income is good, but since it's a fund with no maturity a risk premium has to be included for volitility. Ususally some kind of variance from the mean kind number or standard deviation. At this point the stock is right in the middle of it's high and low for 52 weeks, about 18% either way variance. Last year I think was an unusual year with lots of price movement so it's probably some where in the 10% up or down area for varience. I want at least half of 10% up or down varience for principle protection each year. Or 5%($.50/year)
So if you add the riskless rate(4.5%) and the principle risk premium (5%)your looking at 9-10% for this fund. Take away the return of capital($.10)and you have a FMV of $6.50($.62/.095).
But I do feel the fundamentals can get stronger to move the fund higher in the long term. We've certainly discussed this at lenght in the past. And of course risk is a perceived thing and will vary depending on the last bad occurrance I guess. Lastly the fund is at a discount so the payout of NAV doesn't become a real problem till the fund is at a preium I'd think. So in reality there is probably not any reason to cut out he capital gains distributions till the fund is at a preium. I personally like to see a little discount. Any thoughts there?
I don't know if this makes sense or not, the more Wall Street comes up with tools to figure things out the worse the outcome it seems.