This page is set up for those that want to chat about various common stocks.
There are no rules–other than the usual–no politics.
Knowledge is Power
This page is set up for those that want to chat about various common stocks.
There are no rules–other than the usual–no politics.
571 thoughts on “Common Stock Chat”
I thought auto parts was a “can’t lose” business. New cars are way too expensive, so keep and repair the old jalopy. Then I saw the Hindenburg short report on Icahn where there was a mention of Icahn’s failing auto parts business. The Icahn parts business soon filed for bankruptcy. That was a early canary in the coal mine.
News today is Advance Auto Parts is dropping ~30% on a dividend cut and a guidance cuts, dragging down related stocks.
So much for safe stocks…Disclosure: missed the falling life here.
Bear, the character Mike Campbell in Ernest Hemingway’s 1926 novel The Sun Also Rises was asked about his money troubles and responded with a vivid description embracing self-contradiction: “‘How did you go bankrupt?’ Bill asked. ‘Two ways,’ Mike said. ‘Gradually and then suddenly.’” 🙃
We are witnessing more “suddenly” today due to mismanagement, toxic debt, hubris and overspending. I would also contend that Congress has a severe SPENDING problem and not a revenue problem http://www.usdebtclock.org
Auto parts stores are WAY overbuilt in our locale, some competitors here only a few blocks apart. I have no idea what managements are thinking.
Grateful. Just arrived in Hungary. Saw the news on NVIDIA. Thankfully, I never took my profits. My original basis is around $50. I will continue adding small amounts every month. I believe this will be my next Microsoft. We are blessed to live in a country where we can invest in these life changing companies.
TNT, let me know how it is and if you come across any must visit places around Bucharest. Me and the wife are going in The fall
It’s Budapest, Bucharest is Romania.
NEWT – For what it’s worth NewtekOne will be going into both the Russell 3000 and Russell Micropap Indices – https://seekingalpha.com/news/3974779-newtekone-alpine-income-to-be-added-to-russell-3000-rocket-companies-to-be-deleted
Most of the supermarket business stories I see are about Kroger. Here is a Barrron’s story on the little-known parent of some familiar regional grocery chains, like Stop and Shop, Hannaford and Food Lion. The company is Ahold and it also operates in Europe. Its ADR ticker is ADRNY. (Ahold’s full name is a mouthful, Koninklijke Ahold Delhaize N.V.) Year to date, up 14.4%.
FreshDirect Is Getting a Hand From Lower Inflation. Play Its Dutch Parent’s Stock.
The grocery industry is intensely competitive, with Amazon, Walmart and Target also in the business. DYODD. Long.
Sending this as a reply because I don’t know how to start a new thread. While JXNprA is interesting, I thought the common was more appealing and started a small (so far) 1% position with the common. Using their latest reduced earnings, there still seems to be adequate coverage of the 8+% yield. Thoughts?
I did likewise for LNC. Last earnings call she said they had the cash for dividends so I had bought at above 8% yield. The stock is fairly stable and I don’t expect any capital appreciation for a year. I also bought the D preferred. Interesting article in Bloomberg on Apollo and Athene. Being Athene drives profits for Apollo. Article spoke of softness in insurance but mentioned unlike banks, customers don’t rush to withdraw or move their policies.
If QQQ wasn’t on a tear I would put more into insureds. It is all I can do to resist adding more to my NVIDIA, MICRO but I am not taking gains off the table to redeploy. No need to pay taxes.
These are a fair ways out from hitting new lows as we are not in a full blown recession yet and investors haven’t completely given up hope. Watching WHR and WY for later this year.
I started a position in Alexandria Real Estate this morning. It is a REIT that specializes in providing research facility spaces for high tech in places like Boston, San Diego, Silicon Valley et cetera. It has been hit hard- apparently on fears that some of their renters may have banking issues. With the Feds assuring depositors that they will be covered for any deposit in excess of 250k, I thought it worth a flyer.
Nice thought on ARE and it’s selling at ~it’s one year low price and stripped yield of ~4%.
VZ new lows here @ 7% yield. Wondering if street is pricing in a divi cut this year or merely QT effect.
for anyone interested in diversified energy (ng/LNG/oil etc) I have been building a position in WDS Woodside, the big AUS o/ng firm that took over BHP’s o/ng interests; big presence in US (Gulf) and of course AUS with development. Anyway it goes XD tomorrow 3/8 $1.44 US so whether or not you want the div (have to buy today of course before the close) that is important short term. They have a long runway to Asian energy needs. There is no tax to US investors, the div is ‘fully franked’ meaning the co has paid the tax. Of course not a recommendation, DYODD, I have been nibbling in energy for the first time since 2015 in WDS, CPG and Cortera (CTRA) ..all w good return to shareholder strategies. fyi, lots of info on SA on these names…sorry to post so late, busy day (for the folks who want that div. )Bea
Thank you for the post. WDS has been on my watch for a while now. Like you said, plenty of catalysts.
Any thoughts on VZ? The stock has been in a nasty downtrend, so I am not a buyer but just looking for others opinions.
WSJ article on PE firms and annuity companies. Mention of Blackstone, Carlyle, Centerbridge, KKR, Apollo / Athene. Annuity companies have had difficulties matching investment returns to policy obligations.
“Insurers have piles of cash from annuity payments and insurance premiums but many have been struggling for years to get good investment returns in bond portfolios they manage themselves.” — (“Private Equity Taps Insurers’ Cash to Speed Up Growth. “Blackstone, Carlyle, other fund managers reach deals with insurance firms hunting for better yields.” https://www.wsj.com/articles/private-equity-taps-insurers-cash-to-speed-up-growth-11675128742)
Some PE firms are buying or establishing annuity companies. Others are repackaging lower-rated debt into complex higher-rated debt and selling it to insurers. (“Insurers are happy to buy.”) A sequel to a movie we have seen before? One reader noted that there was only one mention of “risk” in the whole story.
Just my opinion.
Anyone here looking at KNTK ? probably good play for a flip for the next dividend. Maybe a long term hold since its not a K-1
Not sure I would past May but who knows. The private Equity groups who put this company together are taking their dividends in stock so the share count is increasing. They committed to a lock up period to not sell stock until May. Current public float is only 10% of the share count.
Company has stated they are doing a 5% min. increase in dividend for 2023 didn’t say when. Probably timed to coincide with some of the private shares being sold.
Short term debt in notes due in 2024 and 2025
Charles, Thanks for the post. I purchased a small speculative amount for the dividend. After reviewing the IR site and reading the 2021 and 2022 presentations, I looked at the stock price after dividends were DRIP. It is difficult to tell if it impacted the price greatly. The energy market has volatility. My concern is after dividend is DRIP the stock becomes “diluted” which of course lowers the stock price. Is your experience the stock price continues to trade at a decent value to realize a gain with the divided?
Found a six pack of eggs at the grocery, mispriced at $3.49. That was correct. Eggs are up about 3x Y2Y, though down a bit Y2D. Bird flu is the issue.
CalMaine is an egg producer. CALM hasn’t had any problems. A tribute to good hygiene and clean boots. The hype: record dividends, incredible windfall, fast rising prices.
I am long Ag and usually looking to add. But not CALM right now. Not willing to gamble against a little wild birdie stopping by for a rest at the farm pond. Or a duck hunter having a good day, then goin’ into the barn. May be good for someone looking to catch a divvy or two, though. xD at $1.35 on January 24. CALM is up 35% this year. Forward PE is 3.75.
Just my opinion. DYODD.
Revisited the ‘Dogs of the Dow’ theory this weekend and decided to put some money to work with Verizon (VZ). 6.6% forward dividend, goes ex-dividend on Jan 9th. Currently priced in the mid 39s with some significant technical resistance at around 45. The optimistic expectation from here is a 10+% capital gain and a couple of dividends…we’ll see.
Not a Divi Payer as most prefer …. COST …. great retailer that is down big since mid Nov. Pays a $3.60 divi annually.
From the $540 area … to current $460’s
Recent low this week @ $453.
Just a thought, every time in their store, it’s packed.
Agree with it being a great retailer. It had been likely bid up hoping for a special dividend but none this year. Also in an CEO was quite cautionary in an interview a few days ago … Likely cheaper, to say low $400s if we do get a stock market selloff that many think may come in 1Q 2023
My wife worked there 32yrs. Its a play on growth period. I sold all her 632 shares 2-1/2 months ago. Stock price down about 25% for the year. At that time the yield equaled 1/2% can’t live on that income.
Currently $234,000.00 invested for $2,400 a month income balance still in mm and treasuries. IRA up appox. $8,000 last 3 months.
Still married, but my wife wants me to buy it back some day.
It would take a return of 12.3% to generate $2400 per month on $234,000.00. I doubt you’re generating that from Treasuries and MM investments, or am I misreading your comment?
Citadel, I’m am only buying preferred, Baby bonds and trust preferred and 3 bonds so far. Only a couple common, FLNG and EPD I think
Mostly sticking to preferred paying 5%, 6% and 7% at par but with the market I am buying good discounted yields.
I have slowed down a lot, too big a risk stepping on something that can blow up in this minefield.
This website has been a great help, but lately I am reading almost daily comments about stocks getting de-listed, or companies going BK or unexpected losses like what happened to Lincoln.
Today I joined the III investors club. I had bids hit on
EP-PC @ 44.45
ALL-PB @ 24.80
My picks , I added another tranche to existing holdings today
HTLFP @ 24.95
EQC-PD @ 24.95
Yesterday I added
EPD @ 23.55
Yeah, it was a crazy day. I sold my RY-T for the redemption price plus all of the dividends it will pay between now and the call date when it starts to float. Someone is placing a big bet that it won’t be called.
While on the other end I had low buy bids for WFC-Q and one or two others hit.
This isn’t an annual income. This is the monthly average for the next 90 days per T Rowe. Very possibly 6 months from now it will be a lot less.
I am trying to build this up to an annual income between 50 to 60 thousand that my wife wants to withdraw 2,200.00 a month from with the rest staying in the IRA to maintain and grow the account and if needed for emergencies.
I know some people are trying to ladder their investment to get a consistent monthly income. But for me at this point I am not wanting to deal with the added work of picking stocks looking at ex-dividend dates , payment dates etc.
I already know I will be dealing with stocks being called, maturity dates and having to find replacements for them. Once I have the IRA to this point then I can take the time to focus on fine tuning it if needed.
Charles, sounds like you already crunched the #’s to get what you need. I came up with the below for some quick math. You will need a minimum starting balance of the below to cover the $2,400 monthly withdrawal:
$440,000 and a rate of return of 6%.
$576,000 and a rate of return of 5%
You would need a more principle/contributions/higher rate of return to go from $28,800 to build and grow to $60,000. Example with a 6% return, you would get $60,000 annually with a $1,000,000 starting balance.
I guess I could be conservative and do bonds and CD’s and be asleep at this time of night instead on the computer.
But been sick lately and with all the coughing I’m lucky to get 6 hrs sleep.
The SCE-PL is a trust paying 5% at par but currently at 17.55 is giving me 7%
Quantum on line is giving it an S & P rating of BB+
KIM-PM is a 5.25% at par but at 21.12 is giving me about 6-1/8% rated BBB-
HPP-PC is a 4-3/4% at par but at about 12.00 is giving you almost 7.25% and also rated BBB-
Both have the same rating, but I have no desire to own one of the two.
S & P says their ratings are an informed opinion.
Jim, Great retailer, though trading at stratospheric 34x.
JMO would start to see value around 24x.
24x till too much for a retailer.. Whole market needs a reset (maybe we will see it next year). Need bagholders to buy the dip on the short recession calls and not see the bigger multiple derating picture…
Equity risk premium still too small after this drawdown – why take the risk when you can get 6% (shooting fish in a barrel) on fixed. Funds flows will reflect that and lead the multiple derating IMO.
Hi Joshua, Yes you might be right! COST though is not our average retailer, in which I’d generally have zero interest. COST does have it’s challenges like any company, though there are some stand-out items.
1) The growth component. They are still growing, building stores and growing their extremely loyal base.
2) The imbedded annual membership fee. IIRC it has a renewal rate of 92%. It’s a phenomenal line item on the company’s income statement. Millions pay annual dues just to be allowed through the checkout line.
3) Observe any checkout, with overflowing carts, full of items members didn’t know they needed or wanted until seeing them in the store. Some are many hundreds of dollars. As my wife used to say in the early years, “I can’t afford to save that much!”.
They’re also building their consumer credit side. For many, the answer to the question, “What’s in your wallet?”, is – “a Costco CC”.
In the last 20 years or so the average multiple for COST is ~ 26.50, as low as 14.3 in 2009 and near a whopping 49 in 2022. I think it’s Charles M here who can add some color to that from his own experience.
If COST can continue growing at around 9%, that 0.80% divvy won’t seem so paltry. But that’s a big if, so the target 24x, which is below the 20-year average multiple, to me evidences a reversion to mean – or slightly below it. That gets my attention. Would not be all-in if that door opened, but seems a reasonable entry point. That translation to $315/share would shock and appall current holders at $450. Of course they’re already shocked and appalled because it was $600 just a few months ago.
Jim – The PE on a stock like COST, doesnt worry you? Give me a 30% haircut to current prices and I will be a buyer. The PE should be 20
Lincoln Financial Group will pause stock buybacks through 2023 as a plan to deal with financial challenges in the wake of a disastrous $2.6 billion third quarter loss, CEO Ellen Cooper said Wednesday at the Goldman Sachs U.S. Financial Services Conference.
During a half-hour presentation, Cooper reiterated that 2022, and especially the third quarter, has been difficult for the Radnor-based life insurer and retirement investment company. In the third quarter, Lincoln (NYSE: LNC) flipped to what amounted to a $15.17 per share loss from a $318 million, or $1.68 per share, profit in the same period of 2021. Revenue declined from $5.2 billion to $4.8 billion in that same span and the company lost a third of its stock value in one day.
In response, Cooper said Lincoln is focused on targeted actions to repair the company’s balance sheet and admitted “it’s going to take some time.”
As mentioned during the third quarter earnings report, those strategic actions include improving capital generation and distributable earnings, reducing the company’s volatility to capital markets and further optimizing its business mix.
Cooper said the company raised $1 billion in preferred equity in recent weeks and put a partial tactical hedge on its existing variable universal life insurance to mitigate potential additional negative impact on its risk-based capital ratio from future equity market declines. She said the company still has more work to do, specifically as it relates to the existing life insurance business.
“I think that the preferred equity issuance really goes to the fact that we have a strong business model, we have strong distribution,” said Cooper, who started as CEO in May. “We’re known for our overall strong product manufacturing. We’ve got a really high quality investment portfolio. We have ways to organically generate capital and do it effectively, and we’re going to continue to do all those things as we focus on the overall repair of balance sheet.”
As for the $1 billion equity raise completed in November, Cooper said she was pleased with overall demand. She said $200 million will be packaged with $300 million already put aside to cover debt maturity coming in the third quarter of 2023.
The remaining $800 million will be pushed into the operating life insurance company, in the process adding 30 points to its risk-based capital ratio.
Cooper said the company raised the equity to be able to provide an additional cushion amid “uncertain macro headwinds” and the potential for even more. She added the company will also be focusing on improving its overall risk based capital and financial leverage ratio.
Proper execution of those initiatives should help Lincoln ultimately restart stock buybacks for shareholders, she said.
In terms of capital generation, Cooper said Lincoln had been generating $2.4 billion in capital annually before 2022. Of that, $1.5 billion had been allocated to new business and the rest for interest payments, common dividends, and buybacks. But in 2022, Cooper said the company is expected to have a negative generation of $1.6 billion, which caused the risk-based capital ratio to decline by 67 points.
Drivers of pressure in 2022 included a $550 million statutory charge to the company’s reserves connected to the updated universal life with secondary guarantees lapse assumption. There is also the continuation of Covid-19 claims and a negative distributable earnings profile in the life insurance business.
Cooper, though, noted the company had strong sales across business lines and has allocated $1.4 billion to new business — similar to what it has done in the past.
In 2023, Cooper expects capital generation to improve but still be under a “fair amount of pressure” relative to the pre-2022 number of $2.4 billion. She said that Lincoln believes it can free up between $200 million and $300 million of capital while maintaining strong sales. Higher interest rates could help offset a chunk of the aforementioned $550 million charge. She also said an expense reduction initiative called Spark that began 18 months ago could result in $60 million to $80 million in earnings next year and between $120 million and $150 million by 2024.
After reporting the third quarter loss, Lincoln Financial’s stock price declined from $52.10 on the previous day’s close to $34.83 — a 33% drop. After Cooper’s presentation Wednesday, the stock was trading down by over 4% at $35.71 from Tuesday’s closing price of $37.35.
It has been a tough year for Lincoln Financial, which saw its stock trading as high as $72 in February and over $56 when Cooper took the helm in May.
The company continues to report strong life insurance and annuity sales growth. Lincoln Financial reported annuity income from operations of $449 million in third quarter, up 33% compared to the same period of 2021. Total annuity deposits of $3.3 billion were up 21%.
Saw this earlier. Thought the preferred might drop below my purchase price. They have not. Would look to add if these do go lower.
LUMN started the year at 13 and is now below 6 (5.47 today). The dividend have been eliminated on the common making it easier to pay the preferred. I own some of the preferred CTDD (QWEST 6.75%) at current price of 20.15 that’s about 8.3%
The common market cap is 5.66B. P/E is 2.76. They claim they will buy back 1.5B over two years. That’s a 26% buyback. At 5.47 for LUMN it was worth a small purchase for me.
Loaded with debt, cut the dividend, but are doing buybacks instead. Would have preferred debt reduction. (I am not a fan of buybacks.) Reports are that they are disposing of operations, so I wonder where QWest and its bonds end up. (Long Qwest.) Level 3 is supposedly a crown jewel, but reports are they are disposing of some L3 assets.
Have looked at the LUMN common, but can’t get too excited. In general, I find that Telcos are capital intensive, have boatloads of debt, often have wasting legacy assets, and have mediocre managements that are prone to doing odd things like buying entertainment companies then suffering buyers remorse (T, VZ) while more agile competitors are buying up 5G. At best, the commons in the industry are a hold for me, though I do look at preferreds if the price is right. Just my opinion.
I’m an active twitter user as I follow beat writers for sports and business news. Elon Musk has purchased the site and is torching it’s value. Musk’s collateral for the purchase is his holdings in Tesla (TSLA) and the shares are dropping in value. The vast majority of the folks I follow are migrating to a service called Post which is a product of Google (GOOGL).
I am making money on my bearish bet on Tesla (via vertical call option) and I’m thinking of legging into a small position in Google as the twitter users migrating to Post will help their on-line advertising revenue.
Elon overpaid seems more of a personal mission than a wise investment. He believes in the changes but not acting with fiduciary responsibility. Losing value because of liberals leaving in a huff. Similar to Disney losing value because of conservatives getting insulted. When you have a large diverse customer base it’s not a good idea to antagonize half of them with controversy.
Tesla is mostly unrelated but may suffer if Elon is over-extended.
Elon overpaid for Twitter, he knew that. But he believes strongly in the mission of free speech and he has FU money to back it up.
That said, he is not destroying it’s value. All the important metrics are up. Twitter has never been better in terms of the number of users, mDAU, engagement, and most importantly, free speech. Follow Elon on Twitter and you will learn more. It’s just that the media hates him because they lose power when they can’t control the narrative and they strongly supported censorship of one point of view under the old Twitter regime so they try to gin up negative stories. And have scared some advertisers off temporarily. But if the man can be so successful with electric vehicles and sending rockets into space, I have no doubt he knows what he is doing with a website and will eventually monetize it.
I would not view / worry about Tesla at all in relation to Twitter. You need to value that on its own. They are not financially interconnected. That said, Tesla had been overvalued for a while so it was due to fall back to earth. But any price action there is independent of the transformation taking place at Twitter
Musk sold Tesla shares ( $22B in 2021, $20B so far in 2022) to fund his purchase of Twitter. While he still owns 25% of Tesla, Musk got tremendous value from those timed sales. One could even argue that Musk selling signaled the beginning of the distribution phase of the stock.
Musk also brought along several big equity stake investors when he bought Twitter, including founder Jack Dorsey, the Saudis, Binance, BAMCO and others. While the true value of the now privately held Twitter is unknown, Musk has much less risk exposure than most people think.
I would think the revenue increase if any at Post would be negligible for the parent company.
Schwab’s money market fund SWVXX now has a 7-day yield of 3.7099%, which exceeds the 10-year treasury rate of 3.67%.
Here’s another mouth-watering trade I made today:
Bought 100 shares of ALLY at $25.85 (52% off 52-wk high)
ALLY is a ‘dividend challenger.’
Sold 1/19/24 $25 covered call for $550.
ALLY pays $120/yr in divies (4.67%).
So . . . by 1/19/24 ALLY will have paid out 4 divies (pays 30th; 1,4,7,11).
$120 (divies) plus $550 (premium) = $670
$670/$2585(cost basis) = 25.92% over next 15 mos or 20.74% annualized.
If shares are exercised on 1/19/24 = $670 minus $85 (to 25 strike)/$2585 (cost basis) = 22.63% or 18.10% annualized.
Even if ALLY never paid another dividend: $550(premium)/$2585(cost basis) = 21.28% by 1/19/24, or 17.02% annualized.
FJ, You might be onto something here as Buffett added to Berkshire’s Ally position a few months ago at $33.51. Good luck with the trade.
alpha – thanks.
As an aside, ALLY is up 17% today as I write.
From the BDCREporter – This is a free but interesting article from https://bdcreporter.com/2022/11/bdc-common-stocks-market-update-week-ended-november-4-2022/
BDC Common Stocks Market Update: Week Ended November 4, 2022
BDC COMMON STOCKS
For the broader indices, the week ended November 4, 2022 was not one to remember. The S&P 500 – for example – slipped (3.35%) – its worst performance in 6 weeks.
The BDC sector – as measured by the price change of BDCZ, the UBS sponsored Exchange Traded Note which owns most BDC stocks – performed much better. BDCZ was up 1.65% and the S&P BDC index “total return” increased by 2.2%.
Second Time This Year
In fact, the BDC sector has been in what we call “re-rally mode” since September 29, 2022 using – in this case – the S&P BDC index on a price return basis. As of last Friday, that index is up 14.4%. By comparison, the S&P 500 is up only 5.4% in the same stretch of time.
Undoubtedly, the catalyst are BDC earnings – now in week two of the IIIQ 2022 results. More on those results – half of which have already been announced – in a minute.
Right now, let’s look at some of the week’s regular metrics: 29 BDCs were up in price and 14 were down. (The fact that there was not an almost universal increase of individual BDC prices is a little surprising, but may mean nothing). Of the 29 BDCs in the black, 10 were up 3% or more. That’s far less than the 36 the week before, but still impressive.
Seeking Alpha: 8 Top % Price Gainers Week Ended November 4, 2022 [chart not copied] Of those 3.0% plus price gainers, the top 8 – as the chart above shows – were all BDCs that reported results this past week. It seems that many investors were in a “show me” mindset, waiting for confirmation that all was well at these BDCs before diving in. In fact, all 8 raised their payouts – even OFS Capital (OFS) which registered the biggest percentage decline in NAV Per Share of any BDC that has reported s far : (6.8%).
Likewise, investors were ready to punish BDCs that did not perform to expectations. Trinity Capital (TRIN) – which made the mistake of investing in no less than 3 crypto “miners” and saw it’s own NAV Per Share drop (6.0%) – the second worst performer by this metric- fell (8.6%). The newly public venture BDC has seen its stock price drop (20%) since October 26, 202 and has lost nearly half of its market value since the end of March 2022. At this point, TRIN trades at 5.6x its projected 2023 earnings and 20% below net book value per share. In fact, TRIN was the only BDC this week to reach a new 52 week low – most BDCs were headed the other way – of $10.42.
Also punished by the markets was Great Elm Capital (GECC) – down (6.6%). The BDC kept its dividend unchanged for the IQ 2023 at $0.45 but NAV Per Share dropped (2.2%). The pint sized BDC continues to add new finance companies to its roster – which involves up front costs – but cannot yet show any bottom line benefit from the new strategy. Net Investment Income Per Share – already low in the IIQ 2022 at $0.23 – fell even further in the IIIQ 2022 to $0.14. The analyst consensus for 2023 EPS is $1.40, which makes one wonder how long the BDC can maintain a $1.80 per annum dividend payout pace. GECC trades at 6.7x its 2023 consensus earnings and a (23%) discount to that just reduced net book value per share.
Overall, outside of TRIN, there are 10 BDCs trading within 10% of their 52 week lows. Coincidentally or otherwise (we lean to the latter) all 10 have not yet reported IIIQ 2022 results. Again investors may be waiting for confirmation that all is well before buying. Looking down the list of these BDCs (which include BXSL, CGBD, CCAP, PPNt and PFLT) we’d guess that investors may be pleased with what they are shortly to hear.
The fact of the matter is that the BDC sector is enjoying its greatest quarter over quarter earnings and dividend boom in its history. We track every regular dividend announcement and found that of the 41 players actually paying a distribution (LRFC and PFX do not), 21 have recorded an increase in their payout over the prior period and 20 were unchanged.
More To Come
Nor is this earnings/dividend boon a flash in the pan. At the very least, we might see BDC profits and payouts increase well into 2023 – and possibly beyond. For what it’s worth, the BDC Reporter has projected likely 2023 total distributions (regular + specials) for 20 BDCs so far and compared the payout to the 2022 level. We project 16 – or 80% of the group – will be paying out more to shareholders in 2023 than they have this year. 3 are unchanged and in only 1 case do we foresee a drop. (Yes, we are concerned about GECC).
Out Of Sync
This sort of growth in BDC profitability and distributions is unprecedented and all the more intriguing at a time when analysts are saying S&P 500 earnings are likely to grow not all in 2023 over 2022 levels.
Moreover – and bad news for Chairman Powell and the fight against inflation – there are no obvious signs in the many BDC IIIQ 2022 filings we’ve seen of slowing economic conditions or financial stress. There are idiosyncratic credit troubles here and there as is always the case, but there is no syrge in underperforming or non performing assets; no swelling up in the number of borrowers seeking covenant dispensation and – apparently – not even any drop in underlying portfolio company EBITDA levels – calculated on average.
With this sort of fact set, BDC prices should be at all-time highs. One example will suffice: Ares Capital (ARCC) has historically traded as high as 14.0x its earnings. With 2023 EPS estimated to be $2.21 (and probably a low ball given the analysts proven conservatism), this means ARCC could be trading as high as $30.94. Instead, the market leader and well regarded BDC, closed Friday at $19.39. There’s a 56% price upside if PE multiples still apply.
Asked And Answered
Why are BDC investors holding back – the 14% increase since September 29 notwithstanding ? Clearly, there’s a concern that a recession will come along in 2023 of unknown size and duration and wreak havoc with BDCs book values, earnings and distributions. Very reasonably, given this is one of those phenomena which is unknowable in advance, many BDC investors (but not all) are holding back as a result.
In the weeks ahead – and especially when BDC earnings season ends in the next 10 days or so – we’ll see if investor enthusiasm for BDC stocks will be tempered by the fear of recession, or not. As we’ve seen, this week BDC investors forged on as the major indices held back. Historically this has rarely continued for long.
Exception To Rule ?
On the other hand – as has been said – this prospective recession is like no other one we’ve ever seen before. The Fed is using lenders as a cudgel to weaken the financial strength of borrowers, causing higher debt service; lower business spending: increasing unemployment, etc. At the moment BDCs are willing accomplices in squeezing more and more debt service dollars out of their borrowers.
Beware What You Wish For
At some point, though, the Fed and the lenders recruited into this unique experiment will find out if they have been the willing agents of their own destruction as debt service costs become untenable at the same time as revenues and EBITDA start to turn negative. Will that bring inflation down and allow the Fed to begin cutting rates and permit a “soft landing” for the BDCs involved ? Or will the Fed lose control of the economy and drag us all into a recession or depression and – ironically – not even succeed in bringing inflation under control ?
We don’t know the answer – and more importantly – nor does the investment community. There may be different answers at different times in the months ahead, but we’re coming upon a critical period when these questions will be answered. In terms of a timeline we doubt that the process of bringing inflation back to the Fed’s 2% target will be accomplished before 2024 at the earliest.
The principal battlefield, though, lies in 2023. Judging by the resilience of the thousands of BDC borrowers we’ve heard from through earnings season, we doubt that any credit strains will show up in 2022 (7 weeks till Christmas !). In fact, the rubber may not hit the road from a credit strain standpoint till the second half of 2023. That’s a long time away and leaves many opportunities for BDC investors to go through many different phases.
At the moment, we’d characterize the period since September 29 – and especially since ARCC kicked off earnings season – as “muted optimism. Money is flowing into the better BDCs, but remains skeptical about marginal or troubled players. Maybe in the weeks ahead we’ll see a continuing and broader based rally. After all we’re expecting even the smaller and weaker players to see EPS and distributions boosted by higher rates and are still not expecting any rash of credit problems.
Keep The Faith
After a few weeks, though, and once BDC earnings season is in the rear view mirror – will investors be able to maintain their enthusiasm if and when the general economic picture darkens; bankruptcies pick up and headlines become ever grimmer ? We’ll say we don’t expect that will be the case. It seems very unlikely that if there is a recession (and the chance of that occurring is generally regarded as very likely) that BDC investors could hold their nerve because of the current high earnings through thick and through thin.
[Insert Santayana Quote Here]
It’s never happened before. Back in March 2020, when all of us expected a global, pandemic caused, recession was coming BDCZ fell to a price of $9.26. As of Friday, BDCZ was trading at roughly twice that level : $17.23.
In any case, that’s the question facing BDC investors at a time of record earnings and distributions: is this the beginning of a long Golden Age of BDC profitability or just a brief period before Hurricane Recession undoes all the benefits and more through credit losses and a sharp drop back in the reference rate ? Markets are always looking forward, but sometimes the distance into the future is longer than others and the uncertainties – both positive and negative – are greater. This is one of those times, and neither the IIIQ 2022 BDC results nor even the next couple of quarters will provide clear guidance.
Investors are going to have to do a lot of guessing for a very long time.
CUBI – Could this explain what seemed to be today’s inexplicable decline on CUBI (-4.75%)? “Customers Bancorp agrees to pay Kabbage $58M to settle PPP fee dispute” https://finance.yahoo.com/m/677ceb81-216b-33a2-8e44-013b40bc9cf9/customers-bancorp-agrees-to.html This article came out shortly before yesterday’s close…….. One thing about CUBI common – it remains an unloved, cheap bank when compared to its peers and frequently subject to this kind of downside beat down even though they’ve now exceeded their yearend earnings projections with the last quarter still to be had..
LUMN just killed their dividend.
“Lumen drops 10% amid Q3 miss, moving dividend payouts into buybacks instead” – headline from The Other Website.
This is a proof-of- concept field test for those who believe “returning money to our shareholders” means that buybacks are valued as much by investors as are cash dividends. In early polling tonight, cash dividends are winning the debate with a ~15% after hours drop in LUMN.
Just my opinion.
Here’s juicy one that I just bought:
100 JEPI at $53.88; sold the Apr_23 $54 CC for $180. Given that April is only five months out, we can expect another $180 worth in sequential calls within the next 12 mos (varying on IV, share price, etc).
So . . . JEPI kicks out $600/yr in divies; plus ($180 [prem] x 2) = $960/$5388 cost basis = 17.82%/yr.
Divies are monthly and $180 premium is already credited. I’ll just keep rolling the premium. After the first year I can then reinvest that $960 payout at 10%, and bump the return to 19.60%/yr after the first year.
Secure Long Term Common Stock Play?:
Any way you look at it ENB still below $40 with a 6.7% yield. Don’t forget that ENB has 3.5 MM utility connections too.
Want a better possible entry point on ENB and decent income? on that cash?
Close-in, mid-Dec /$35/ puts at $.50 = 12%+ annualized return on secured cash in six weeks OR an exercise in ENB at 34.50.
May be a better play to watch and possibly sell put AFTER the Nov div when the stock may drop from the div chasers, making the premium a bit richer, esp if market softens along with it?
I’m “piped-out”, and slowly moving div accums and sales into a semblance of high rated bonds now that I am retired and Medicare bound in 2023. I’ll be selling calls on my ENB hoard, to lighten up after the Nov div into next tax year. What could go wrong!? (Humility Prayer and Arrogance Risk disclosure)
Joel, Got a chuckle on that one. Options is something I never learned and I think too late now. If I made a mistake, no time to make it up.
Bonds yes, I am making a effort to learn more about them. Lot of good people and good advice here in regards to them.
Finding out on the $1000 issues it pays to deal with a good broker.
Not going to say it reminds me dealing with a car salesman but it sure seems like it.
My experiences so far with Pershing remind me of haggling with a car dealership. As far as I can tell, I have to call in and talk to a salesperson.
Testing the system,
1st call, the salesman was adamant price he was quoting on ask was firm. Even though I had my TDA account open and it was showing a lower ask by a dollar.
2nd call a week later sales lady admitted there were multiple asks showing and she read them off.
I know from discussions on this board several people have moved IRA accounts to other brokers like TDA as an example that lets clients see and enter their own orders.
Be great, but this is my wife’s account I am managing. Anyone have experience with moving an account? You don’t have to sell positions to move the account do you?
Charles, it is a simple process. You set up similar accounts at new brokerage and then go to that broker’s account and initiate the transfer. Check with your current broker on their rules for fees that may be assessed and see if you can minimize them. If you have fractional shares, some brokerages will liquidate the fraction before the transfer. They did not sell any shares at the old brokerage for fees. If you don’t have sufficient money market funds at the old brokerage to cover the transfer fee, the old broker will collect the transfer fees from your new brokers account. Your share cost basis will also be transferred to the new account.
They will not liquidate shares if you transfer the shares “in kind”.
Charles..No, you do not have to sell the positions. After selecting the broker and having her sign the necessary papers, since it is her account, the broker you are moving to will move everything for her. My only experience with moving one was to Schwab, and I went to a physical branch office to do the paperwork. I use other brokerages as well, But I just set up the accounts, as opposed to moving them. I like to buy bonds on Fidelity or IBKR because for less than 10 bonds at a time, the commission is less than Schwab, I use both for search, however, because the results are not exact duplicates.
Steve you mention fees and said talk to the broker. I suppose for the paperwork involved they have to charge something or their pint of blood.
But any idea what they might be like?
You can find the transfer fee (ACAT out fee) on the various brokerage sites. I’ve done all of my transfers on line. TDA charges $75 for full account transfer and $0 for a partial. Vanguard and Fidelity charge $0. At TDA you can transfer all of the stock as a partial and then withdraw the money market settlement fund after partial is completed so cost is $0.
One other item, the names, titles and type of account on to/from accounts have to be the same.
The receiving broker will usually reimburse any ACAT fees on request.