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# Novation Companies, Inc. Message Board

• Rowbeartoe Rowbeartoe Oct 8, 2004 7:56 PM Flag

## Q1/Q2'05 \$1.40 possible

If management wants to hold on to as much capital as possible, I can see the mathematical possibility of Q3/4 2004 staying at 1.35 and Q1/2 next year being 1.40.

Here's the math:
Very conservative \$8 TE this year times 90% payout required by law by Sept '05 = \$7.20
This year 4 times \$1.35 = 5.40 but \$1 was carryover from 2003, so NFI will have paid \$4.40 of 2004's earnings by the end of the year.

\$7.20 - \$4.40 = \$2.80 must be paid to shareholders by Sept '05. Typically NFI pays 2 divys by Sept, so \$2.80 divided by 2 = \$1.40 for Q1 and Q2 divys. This does not figure in divys on preferreds, nor does it honor NFI's goal to payout 100% of TE instead of 90%. It would push forward an enormous amount of TE to be paid later, but as near as I can tell, it would be legal to keep Q3/4 2004 divys at \$1.35 and Q1/2 05 at \$1.40.

This approach would greatly limit the need to go to the capital makets, but would also necessitate a huge divy increase in Q3 '05, which is not exactly a "smooth" approach.

This is intended to be a counterpoint for those that are talking numbers like \$2.50 in Q1/2.

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• The danger with a lack of diversification is that a single unforseen shock might affect your chosen stock much more than the market as a whole. Since the shock is completely unforseen, there is really no way to prepare for it despite how much due diligence you perform.

For example in 2000, you may have come to the conclusion that hotel REITS with their double digit yields and growing dividends was the place to be. That strategy worked well for a while until the September 11th tragedy. Most of the hotel REITS (e.g. FCH) have never recovered from that shock while the rest of the REITS have had spectacular gains.

In other words, there is no "sure thing" in this world. Most likely NFI will be back up in the 70s sometime within the next year. But it is not written in stone and I wouldn't want to be 100% invested in NFI in case something awful happened to it. There is always this chance with any company regardless of how small that probabillity seems. Although NFI is my second largest holding, it is a small percentage of my portfolio.

• The more I learned about NFI over the last 2 years, the more I bought when prices got stomped, and after a while I found myself with "too much". Somewhere along the line I read that diversification is what you do when you don't know what you're doing, which made me feel better. The only time I have been in a panic was last April when I had sold puts and bought calls and faced and met a huge margin call in one account and have rolled forward. We are about 70% NFI, 20%(12 stocks)in gas and oil - largely canroys, and 10% other stuff. I check the G&O, but FOLLOW this one.

• I use to think being diversified was the way to go. I thought having about 10 stocks was a good number. What I found out was that I didn't have the time to follow any of them well enough to understand why the stock was at the price it was at.

Now I think that my diversification should be limited only to the number of stocks I can follow and know well. Right now that is one stock.

<wow!

I've been thinking about a post on diversification--I'm almost 20% NFI in a basket of 25 or so stocks, and am finding it tough to do maintenance DD on all. Residual techies will be sold at some point while most mreits and canroys have done well. [BTW, Happy T'giving to our Canadian friends.]

I HAD thought I was one of the NFI faithful, but you redefine that idea with your 120%.

I would be curious how otheers think about the issue of diversification, especially on the issues of
* Energy CANROY vs MREIT
* NFI [and IMH] vs conformists such as TMA

Bov, you've got a pair of cujones tejano & regardless of where this thread goes, thank you for all of your posts, insights etc.>

• wow!

I've been thinking about a post on diversification--I'm almost 20% NFI in a basket of 25 or so stocks, and am finding it tough to do maintenance DD on all. Residual techies will be sold at some point while most mreits and canroys have done well. [BTW, Happy T'giving to our Canadian friends.]

I HAD thought I was one of the NFI faithful, but you redefine that idea with your 120%.

I would be curious how otheers think about the issue of diversification, especially on the issues of
* Energy CANROY vs MREIT
* NFI [and IMH] vs conformists such as TMA

Bov, you've got a pair of cujones tejano & regardless of where this thread goes, thank you for all of your posts, insights etc.

• http://www.sec.gov/Archives/edgar/data/1025953/000119312504134390/d10q.htm

Page 38

!!!++++!!!!!Alternatively, in order to avoid paying an income tax at the REIT level, we must distribute ๏ฟฝ๏ฟฝ๏ฟฝ๏ฟฝ๏ฟฝ๏ฟฝ๏ฟฝ๏ฟฝ๏ฟฝall of our taxable income"""""""" before the timely filing of our tax return.!!!+++++++!!! This second distribution requirement may be met by designating certain dividends paid in the following year as applying to the current year (๏ฟฝspillover dividends๏ฟฝ). This spillover dividend rule allows a REIT to pay dividends at regular intervals and amounts and avoid volatility in its dividend policy.

The dividend policy adopted by our Board applies the spillover dividend rules for purposes of managing the REIT distribution requirement and in computing REIT taxable income.

• No one seems to be arguing about the \$7.20 dividend payout that dirty projects over the next year.

If the company said 100% then I plan on going with that.

How about it shorts, do you believe the \$7.20 is not going to happen? If so why?

There has been, and continues to be absolute silence on earnings projections, dividend payouts and how well this company is run from the shorts.

Are you all waiting for some cogent statistical analysis from Herb? The man who a while back inferred that all their loans could go sour and the company will be on the hook?

If I were short, I would be worried, the interest cost is mounting the dividend yield looking forward is over 15%, interest rates are not rising rapidly because economic growth is moderate.

it may only cost you \$7.20 in dividends . . . but if you are wrong about the housing bubble this stock will be 60 some time by late q1 which will correlate to a 12% yield.

only \$210000 from appreciation plus 91000 from dividends. I could have jet skis aligned across the back of my property.

• because they find it to be a cheaper way of raising capital than doing more secondaries or issuing more preffered shares. even paying the tax, it is a better deal, according to mgmt>>

• jcr thanks got back on thru a diff route

thanks

• boards down again today????
---------------------------------
must be you. i'm seeing lots of traffic.

• You forgot to figure in the 4% excise tax that comes off the top. The excise tax would amount to just about the same per share cost as the preferred (\$0.05/share). Also, you are probably low on the TE for 2004. It will be more like \$8.50 to \$9.00. Net net? Your scenario increases the spillover by about 9%/year, accumulative.

So yes; it would work. But, for a 9% increase in the annual spillover, is a tax loss of 5 cents per share worth it?

bov

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