Jack, I agree with your view, but the market does not. The 10 year seems to have bounced off of 2.5% and has recaptured the 50 dma. WMC has broken through its 50 dma and is drifting downward. Not sure it will get a bounce when they announce the divy. Might have to wait until the next employment report in early Dec to get a reversal, but that depends on the jobs report actually showing the weakness you speak of. In the meantime, there is plenty of risk if the 10 year continues up to the prior high at 3%.
stagg, to continue, I mention MLPs not because I blindly believe in them. I own many and some have done better than others. I liked the pipeline MLPs because they are like utilities in that oil and nat gas had to be shipped from where it was found to where it was used. However, now that there are more shale plays, there are more places and shorter distances to travel. Stocks like ETP went sideways for a while and had to change their focus instead of being reliant on intrastate shipment. I continue to like the midstream MLPs because they can build plants in all of these shale plays to refine the gas and strip out the liquids.
Stagg, you ask "what will work?" There is no one answer to that question. People can make money on all different stocks in all different times. Bob has shown that you can make money over a long period in "boring" things like Verizon and ConEd. When you buy is as important as what you buy. The most important thing that is never discussed is when to sell. The reason that is rarely discussed is because it is much easier to keep holding then to make 2 decisions. Just look at the refiners. Some made money and some are holding with losses. Same with mREITs. Even with equity REITS, timing is important. If you bought MPW at $17, you are losing, but if you waited until it bottomed at $11, you have a small gain. The great thing about this board is that posters bring many ideas and we have a forum to discuss the pros and cons.
stagg, I am 50 and have been investing since the 70's so I have seen many cycles. For those cycles that I have not experienced, I have read about from some of the hedge fund managers, like John Huntsman and Ray Dalio. You say that 2008 is a poor example because that was a bottom. My question is if your Total Return model doesn't work at a bottom, then why should it work at a potential market top? Fact is that until stocks turned down in 2008, that had high total returns and didn't bottom until March 2009. I think we can agree that a large part of investing success is not to make big mistakes.
As for the Fed, the fact is undoubted that their balance sheet is at the highest level ever. There is no model for how they unwind it. A history of the Fed (I recommend reading "The Creature of Jekyll Island") explains how they have acted throughout their 100 year history.
The market always has cycles and countercycles within those larger cycles and the top of the cycle reverses most of the gains.
Many of the total return gainers that make your list have businesses that are based on interest rate spreads. Many posters have argued that short term rates will stay at 0% and therefore these companies will continue to make money even if long rates increase. But we just saw book value declines during the taper talk when long rates rose and dividends got cut and nothing happened with short rates.
We don't know when the inflection point will occur, but we know it does happen in ever cycle. Call it the law of large numbers or return to the mean, but stocks don't go up forever, and when they turn, they usually give back the gains made late. Just look at many of the stocks we follow. The refiners had great returns and now have given all of them back plus more. Probably the same with mREITs.
To be continued.
dh, this seems like a roach-motel strategy. These royalty trusts ( the SD sponsored ones and CHKR are different from the older ones like HGT, BPT etc which were perpetual). Look at ECT. You can trade them if you can buy it right when it bottoms, but even that is fret with danger because of the risk of reports that lower their production estimates. Just look at the charts. They all fall after the ex-date by more than the distribution. Stops are hit as they fall, causing more selling.
CHK owns the subordinated units. I believe they sold some since the inception as the earnings release says they own some 11 million and their Form 4 original filing shows over 12 million. I did not see an SEC filing indicating that they own any common. The subs convert to common. Total CHK ownership is about 24%. Those units will eventually be sold putting downward pressure on the stock price.
The increase in leverage will ultimately be the BDCs undoing. Does this sound familiar to letting the investment banks increase leverage to 40 times? History doesn't repeat but it rhymes.
Keebon, as investors exit the mREITs and flock to the BDCs could that be a sign that we are in the 8th or 9th inning. I have not owned BDCs previously and did not own them during the last cycle to see when they reach their inflection point. For mREITs, it was somewhat easy to see spreads decline, but part of the problem in looking for the inflection point is that you can be early and miss out on profits or be late and catch the falling knife. They say when everyone is buying something there are no more buyers to push the stock price further.
stagg, I love debating you. You are right that past performance is no guarantee of future performance. I suspect that the Total Return indicator is just a momentum indicator. If you took a snapshot in 2008, most of these stocks probably showed negative return. I know NCT had crashed. On the other hand, the dry bulk shippers probably made the list and then went on to crash and burn. If you looked last year, Apple probably made the list having tripled, but buying it at $700 was probably the wrong tiime to buy (and they raised their divy during that time)
One of my theories is that good stocks can run for about 3 years until the law of large numbers takes over. A short term measurement of past performance is not a good measurement of a stock. There are plenty of really great companies over the long term, but even they go through periods where the stocks go flat. My mom owned JNJ from the 1990's when it doubled or tripled, but until very recently the stock had been flat for years. The same can be said about mutual fund managers. The hot guys who turn in a great one year return are usually taking on more risk and don't make the long-term list of top performance. The point is that the Total Return does not call the inflection point. It's like buying the stocks oI n the new highs list and selling the ones on the new low list. It works for a little while, but doesn't tell you when it stops.
Finally, this theory may be working during this time, but we have never had the Fed influencing the market to this degree. I am heavily invested in MLPs because I liked that many of them could increase their distributions and grow -- in fact the ones with the best total returns (EPD, KMP MMP) pay the lowest yields, so I am not against dividend investing, but just against yield chasing.
The math is in the release. $23mm in earnings divided by 46 million total units equals 50 cents. $23 million divided by just the common equals 667 cents. The sub threshold was a target set at inception. Missing it shows they are underperforming badly and the trend is getting worse. The stock bounced on Friday on this bad news, probably because investors are yield chasing or because the algorithms are pushing it up. Maybe some were short expecting worse performance. I added puts. On the ex-date, the stock will fall by 667 cents and probably continue to decline, at least that is what happened in the last several quarters. If you want to continue to hold, buy puts to protect your principal.
Goldman had a negative piece earlier which caused a decline from $15, so the bounce could be expected. I don't know when it will level off, but it will reverse on the ex-date. You can look it up.
helmut, I bought some PSEC a couple of weeks ago. I am notoriously late to the party so that should be a warning in and of itself. There may be a pattern developing here that as more high yield sectors break down (royalty trusts, mREITs, variable rate MLPs, others?) that investors are herding into the last remaining sectors that have not broken down yet. Nothing grows to the sky and just because something is high-yield doesn't mean the decline can erase all of the yield.
stagg, I post often about mistakes because I have made most of them and continue to make them. I think the mistake many made on the refiners is to try to re-visit an instrument (variable rate MLPs) because they had past success, and may now be tempted to bottom-fish under the theory that "this can't get any worse." The same can be said about the mREITs. I made some money on these early in the year and sold with a profit before the taper decline. I re-entered them thinking they would bounce when the taper was delayed, but they have not rebounded. I think the play is now over and will look to exit on an uptick. Same thing happened before with the royalty trusts. When these started to decline, I tried to catch a falling knife, but then didn't sell when I got a bounce because the bounce was not as big as I expected. All during this, the tendency is to hold on because we "are getting paid" with a high yield and a mistake becomes a long-term holding and the strategy becomes hope over analysis. I finally realized the "defect" in the royalty trusts and have exited them and bought puts. We'll see how this turns out.
The larger point seems to be, that counter to your suggestion that nothing has changed, is that something has changed at the edge, in that fewer and fewer names are participating and recovering their uptrends. Susan used to say "reversion to the mean" and I think that could be true. It's not what a stock has done in the past, but what it will do in the future that matters. I wonder how long it will be before the sectors that have not broken down, start to break down.
If you like it here, you will love it after the ex-date when the price falls by the divy amount and continues falling until it becomes oversold. Why is it a bargain if it always declines after the ex-date and you end up with a loss for a total return?
Sorry for the new post on ALDW. Interesting discussion on ALDW on investor village board. Liza Huang mentioned that there's risk that they could have zero distributions for at least another and maybe 2 quarters. If that happened, she thinks the stock would drop to $4.
Yes, you do, but be careful. If you go back and look, on the ex-date, the share price will drop by at least the amount of the distribution. The pattern has been that the stock drops further after that. It is a sucker's play.
Jay, don't be taken back by Skittle's comments (I think they were meant for me). Whenever someone pokes a hole in his nonsensical theories (on a different post he was arguing that paying the preferred was going to cause a loss and the common to decline, then he praises Dugan for talking about exploring investments in Europe -- we should start calling him Skitso), he goes off. You are exactly right in your thesis. The company will still have to execute
Skittle, is this you trying to play investment banker again instead of just being a dairy farmer? The preferred isn't convertible. Yes, an 8.125% rate is high. They bought some back when it traded under par, but now that they are coming current they would have to pay par. The only reason to buy it back is if they don't have other assets to buy at a higher return. You really get confused by simple accounting. In one post you complain that bringing the preferred current is going to cause $40 million to be "lost" and thus cause the common to decline, but now you are advocating that they buy the preferred in order to "release" 175 million in equity. Huh? If they buy the preferred, they either have to spend cash or borrow or issue common. How does that "release" equity? Since you claim to be the expert, why don't you walk us through this plan or can't you do the math?
The way you do this is the same for how the other REITs who also suspended pref divies did it: they sold assets, then bought back some preferred under par, then they got credit lines, bought attractive assets, brought the preferreds current, issued more equity, resumed a common dividend and eventually redeemed the preferred and/or replaced it with lower cost preferred after they showed the market that they could continue to pay divies. Several REITs have followed this same path but you know better because you once knew someone from NYC who worked in finance. What a blowhard. And you say that I'm the know-it-all.
10 year rate now up on the jobs number. Resumption of taper talk makes this tough to rally.
Haven't been following those, but there's been a Seeking Alpha article on WHX which I think is the one that terminates soon. The yield means nothing as it comes out of principal. Not sure I would characterize these as "top performers" unless their total return exceeded that on the other royalty trusts.
Skittle, before you comment about what the market will think, why don't we look at comparable companies who also withheld their preferred divs and the reaction after they trued them up. I have mentioned 2 (FR and NCT) and also worked for another publicly traded company that was in the same situation. You talk about perception but there's also the perception that if they are able to come current than things must be getting better and that overhanging issue goes away. It is a little bit of a rubics cube problem in that getting current with the preferred means they can now issue a common dividend which means that growth and income mutual funds can then buy the stock which means that their equity issuances should have better demand. There was a cost to this with the PIPE issuance, but they couldn't do through growth alone and a convertible or other preferred whould have been a hard sell since they weren't current.
If you think you know how the market reacts, why don't you provide examples of companies that paid their preferreds and had their stocks decline. Right now, you are all hot air.
I have given you 3 examples and you have nada. In another section, MHR, an oil and gas company, had to suspend payment on their preferreds because of a delay in filing their SEC reports and when they came current, the common stock rose.