My High Dividend Stocks Blog

My High Dividend Stocks
This is my high dividend stocks site where I help site members find high dividend stocks with earning power and strong balance sheets.

Your Gold Coins.

Your Gold Coins

Gary North

Reality Check (April 12, 2011)

If you did what Bill Bonner and I have been recommending for a decade, you own gold. Bonner began promoting the purchase of gold in the year 2000. I strongly promoted this for my subscribers after September 11, 2001, when the Federal Reserve began pumping up the monetary base in earnest. Neither of us has ever stopped recommending holding money in gold.

I have stressed holding coins, especially tenth-ounce American gold eagles.

I am writing this for those readers who did what I recommended, have quadrupled their money (on paper and in digits), but who may be getting cold feet.

There are good reasons for buying gold. But you should have an exit strategy in mind. You need to consider this.

http://www.garynorth.com/public/7880.cfm

We are told by the mainstream financial media, which never told investors to buy gold over the last decade, that gold is in the final phase of a bubble market. But how can any market be a bubble market when the mainstream financial media are not running report after report on the bubble, telling readers and viewers about how much money people are making.

What mainstream financial outlet warned investors loud and clear, issue after issue, in 1999 that the dot.com market was a bubble? I told my subscribers in February and March of 2000 that it was, and that they should get out. But I published a newsletter. I was not mainstream.

What major outlet warned people in 2006-2007 that the real estate market was a bubble, that wise investors were getting out? I did in November 2005.

Bubbles always continue for months or even years after old timers say they will pop. Old timers have trouble estimating the fear of the buyers at being left out and the fear of lenders at being left out. The two sides -- debtors and lenders -- keep the dance of doom going much longer than old timers can imagine possible. But eventually the dance ends.

I spoke at Lew Rockwell's conference. One of the speakers is a banker. He lives in Las Vegas. He was taught by Austrian School economist Murray Rothbard. He earned a masters degree in economics. Then he went into banking.

As an Austrian School economist, he understands the business cycle. He understands that the Federal Reserve system has pumped money into the economy, creating a housing bubble since 1996. He knows this boom will bust.

He has no illusions about this housing market. Compared to him, I have been Pollyanna. He spoke of the mental outlook of the builders in Las Vegas. They all know it can't go on, but they are determined to party until it does. "Then they will declare bankruptcy and start over," he said. This is their exit strategy.

He was correct. It happened. He lost his job as a Las Vegas banker. He is now a senior staff member at the Mises Institute.

I went on to write the following:

I think a squeeze is coming that will affect the entire banking system. The madness of bankers has become unprecedented. They have forgotten about loan diversification. They have been caught up in Greenspan's counter-cyclical policy of lowering the federal funds rate. Now this policy is being reversed. Rates are climbing. This will contract the loan market. Banks will wind up sitting on top of bad loans of all kinds because the American economy is now housing-sale driven.

http://www.lewrockwell.com/north/north416.html

But I was on the fringes of the investment community. The bubble was about to burst, but the media attracted viewers and readers by staying on the bandwagon. To call attention to what should have been obvious would have reduced the audience. The editors knew better.

So, when I read articles about gold in a true bubble market, I know it isn't. The salaried reporters with no savings, underwater in their homes, and in a dying industry are merely writing what their editors think will sell.

What sells? Articles that confirm what conventional viewers and readers want to hear, namely, that they were not really losers by staying out of the gold market (they were), and that those who buy good now will lose everything (they won't), and that now is a good time to buy stocks and bonds (it hasn't been ever since March 2000).

Mark Faber, who recommends owning gold as a hedge against a declining dollar, recently wrote this: "In my opinion the Fed funds rate should be at 5% . . . That will provide real interest rates. I don't think the Fed will increase interest rates to a positive real rate. So, I'd say to an investor, he should have at least 20 to 30 percent of his money in precious metals."

When asked about his opinion about renewed fears of a bubble forming in the gold market, the student of the Austrian School of economics theory scoffed at the pundits who say the gold trade has become crowded. Faber said he routinely sees less than 5% of attendees at his speaking engagements raise their hands during his casual sentiment polls regarding the precious metals. Sometimes he sees no hands raised, he said.

http://bit.ly/FaberGold

There are many ways to own gold. The ones that most investors choose, and which most investors will rush into during the final phase of the bubble, is in fact not gold. It is a promise to invest in gold. It could be an ETF, which is a form of derivative. It may be a commodity futures contract -- another promise.

But what about gold, in contrast to a promise -- "cross my leveraged heart and hope to die" -- to invest in gold on your behalf?

Gold coins are gold.

WHY GOLD COINS?

The problem with today's economy is that it is built on promises and trust. It is therefore built on debt.

In the United States, the financial promises always come back to these:

1. The Federal Reserve System will remain the lender of last resort. 2. The Federal Deposit Insurance Corporation (FDIC) will pay off all bank accounts up to $250,000. 3. The U.S government stands behind the FDIC's promise with a $600 billion line of credit. 4. The government can get this money from the Federal Reserve System, if necessary.

The problem with these promises is this: the ultimate insurer -- the FED -- can fulfill its obligations in a deflationary crisis only by hyperinflation. That means that the only sure guarantee against the systemic failure of the American banking system is the destruction of the dollar.

If we get the latter, do you want promises to pay gold, which can be settled legally by the payment of digital dollars? Or do you want coins where you can get your hands on them?

On the other hand, if the FED ever refuses to create money, and if the banking system then begins to implode, do you want promises to pay that were issued by a limited liability corporation, such as a futures exchange?

In between hyperinflation and a deflationary banking collapse, people can buy and sell promises to pay gold. They can pay 28% on all profits (no capital gains protection). They can become self-conscious speculators. There is nothing wrong with this.

But what if you are speculating against long-term price deflation? Then you want paper money. But paper money leaves you at the mercy of the Federal Reserve System and the commercial banking system. Mass inflation could appear rapidly (up to 20% price increases), followed by hyperinflation (anything from 20% to infinity).

What if you want an asset that will do well in mass inflation or hyperinflation, but which will not do as badly as most other leveraged capital assets in a banking collapse?

I keep getting this answer: gold coins.

BUT WHICH GOLD COINS?

That depends on what you are trying to hedge against.

If you are a national living in a country whose mint produces gold coins, buy those gold coins. If you are ever in an emergency situation where you need gold fast, and you want to barter it for something you really need, the person on the other side of the transaction will recognize the mint's stamp. He will be more likely to barter.

Do you want a one-ounce coin? Not if you are bartering for small items. You want the smallest-weight coin that your national mint produces. On the other hand, if you want gold as an investment, for which you plan to exchange your coins for digits in a bank, you should buy the most common one-ounce coin with the lowest premium: the Krugerrand. This low premium is consistent. You buy low; you sell low.

If you want something in between, buy a one-ounce coin from your national mint.

The tenth-ounce American eagle commands a premium above the one-ounce eagle these days. This could go away in a selling panic. Be aware of this investment threat.

Americans do not have a true free market with coins produced by the U.S. Mint. Ron Paul held hearings on this issue recently. The Mint keeps getting back-logged with orders during panic-driven periods. It sells only to coin dealers. This creates a premium for coins when these logjams occur. You can read about the problems here:

http://bit.ly/TooFewCoins

PROCRASTINATORS PAY PREMIUMS

Most people listen to a story for years before taking action. This has surely been true of the story of gold. When Gordon Brown, as Chancellor of the Exchequer, sold off half of Britain's gold, 1999-2002, he depressed the world price. He sold it at an average price of $276 per ounce.

http://bit.ly/BrownGold

This was a massive transfer of wealth from the British government to other central banks, which bought most of the gold. This kept down the market price, as central banks shifted demand from the private markets to the Bank of England's bars of gold.

This was the last chance for gold speculators to get in on the deal cheap. Not many people did, of course, because not many people ever buy close to the bottom of any market.

So, gold has steadily moved higher over the last decade. Still, the procrastinators procrastinate.

I don't mean Joe Lunchbucket and Tom Temp. The vast majority of Americans have no liquid savings above a few thousand dollars in the bank. Fewer than 50% have pensions of any size, and the money in these tax-deferred accounts are not at their disposal. The funds they can invest in are not related to gold. They are categories that will keep the fund managers from a lawsuit when markets collapse: American stocks, American bonds, and Treasury debt.

Gold is an investment asset. It therefore will not become popular short of an economic collapse -- hyperinflation followed by a depression. The average person owns no gold coins, nor will he anytime soon.

Where would he buy them? How could 100 million households buy a single gold coin per household? This would be impossible. There are only a few small coin stores in any community. They are mostly mom-and-pop outfits. The U.S. Mint could not meet the demand.

When Wal-Mart has a gold coin section in the jewelry department, then we can start talking about a possible bubble in gold. Not until then.

As more people on the fringe of the Tea Party find out about American gold eagles, they will start buying. This will force up the coins' premiums.

As word gets out about the scarcity of small-weight gold coins, there will be more interest in owning them.

As word gets out that the Federal Reserve's exit plan is a myth, they will start looking for hedges. Gold is a hedge against serious price inflation.

The government is working hard for existing gold coin owners. The government clearly cannot bring the budget deficit under control. Congress has no intention of doing so. When the government can borrow $1.6 trillion a year at rates as low as four-one-hundredths of a percent (90-day) to under 3% (7 years), why should we expect Congress to cut spending?

CONCLUSION

If you have yet to buy a single gold coin, buy a tenth-ounce American eagle to get started. That will not bankrupt you. It will get you over the hump.

Most Americans will never take this initial step. Those who procrastinate will pay a high premium when they at last think: "Maybe I really do need some gold." If you don't know where to start looking, start here:

http://bit.ly/GoldEagles

The practical significance of book value. Plus 15 book values of stocks mention on this blog.

There is no hard fast rule for price to book value ratios, but lower is definitely better.  I like the ratio too be less than 2.0.  Here is a list of many of the high dividend stocks mentioned on this blog with their most recent price, book value (BV)/share, Price/BV ratio, and dividend yield.  The results might surprise you.  Most of the book values per share are as of December 21st, 2010 unless otherwise noted.

Ticker              Price                BV/share         P/BV   Div. yield

=================================================

AGNC            $28.58             $24.24             1.18     19.51%

SB                   $8.26               $3.86               2.14     6.79%

SDRL              $34.42             $9.78               3.52     5.6%

TNH                $108.96           $11.35             9.6       4.94%

EXC                $39.97             $20.45             1.95     5.13%

FE                   $37.90             $28.02             1.35     5.99%

FRO                $22.59             $9.57               2.36     1.62%

MCD               $76.66             $13.55             5.66     3.27%

NGG               $48.80             $12.87 (ttm)    3.79     4.28%

PM                  $65.90             $1.90               34.68   4.01%

PCL                 $42.13             $8.47               4.97     3.96%

TNK                $10.15             $10.46             0.97     9.02%

VOD               $28.85             $17.06 (ttm)    1.69     3.18%

WIN                $12.41             $1.77               7.01     7.73%

T                      $30.27             $18.80             1.61     6.11%

Excelon (EXC), First Energy (FE), Teekay Tankers (TNK), and AT&T (T) warrant further examination for their high dividend yields and low price/book value ratios.

Philip Morris (PM) has an extremely high price/book value ratio which needs to be examined to make sure it’s not some weird artifact of how Google Finance and Morningstar display financial information.

Here is quick excerpt for Chapter 42 of Security Analysis 2nd edition on the practical significance of book value.

* * * * * * *

Practical Significance of Book Value. The book value of a common stock was originally the most important element in its financial exhibit. It was supposed to show “the value” of the shares in the same way as a merchant’s balance sheet shows him the value of his business. This idea has almost completely disappeared from the financial horizon. The value of a company’s assets as carried in its balance sheet has lost practically all its significance. This change arose from the fact, first, that the value of the fixed assets, as stated, frequently bore no relationship to the actual cost and, secondly, that in an even larger proportion of cases these values bore no relationship to the figure at which they would be sold or the figure which would be justified by the earnings. The practice of inflating the book value of the fixed property is giving way to the opposite artifice of cutting it down to nothing in order to avoid depreciation charges, but both have the same consequence of depriving the book-value figures of any real significance. It is a bit strange, like a quaint survival from the past, that the leading statistical services still maintain the old procedure of calculating the book value per share of common stock from many, perhaps most, balance sheets that they publish.

* * * * * * *

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A tale of two book values (AGNC and SB).

I have been concentrating on analyzing dividend records and determining the earning power of various high dividend stocks since August 2010.  But there is another major component of high dividend stock analysis: balance sheet analysis.  Today I will start a series of blog posts covering balance sheet analysis.  I will focus my efforts mostly upon American Capital Agency Corp (AGNC) and Safe Bulkers (SB).

Today I will start examining the book values of AGNC and SB.  It takes some digging in the annual reports to get accurate numbers.

AGNC book value as of December 31st, 2010 is $24.24 per share:

            Tangible assets: $14,476 M (mostly agency securities)

            Intangible assets: none

            Preferred stock: none

            Bonds: none

Minus  Total liabilities: $12,904 M (mostly repurchase agreements)

Equals shareholder equity: $1,572 M

Book value = equity / number of shares = $1,572 M / 64.856 M = a book value of $24.24 per share.

The question for AGNC becomes – How were the prices of the agency securities determined?  Mortgage backed securities are not exactly known for their price transparency.  They are somewhat toxic.  That is why the big banks off loaded them to the Federal Reserve during the financial panic of 2008-2009 and received US treasury bonds in return.  The guarantees from Fannie and Freddie will be revoked in the future due to massive US budget deficits.  I don’t trust the stability of the agency securities prices for three reasons and I will use their own words from their risk factors against them:

1) a continued depression in the housing/mortgage market hurts the value of AGNC’s agency securities.

Continued adverse developments in the broader residential mortgage market may adversely affect the value of the agency securities in which we invest.

Since 2008, the residential mortgage market in the United States has experienced a variety of unprecedented difficulties and changed economic conditions, including defaults, credit losses and liquidity concerns. Many of these conditions are expected to continue in 2011 and beyond. Certain commercial banks, investment banks and insurance companies announced extensive losses from exposure to the residential mortgage market. These losses reduced financial industry capital, leading to reduced liquidity for some institutions. These factors have impacted investor perception of the risk associated with real estate related assets, including agency securities and other high-quality residential mortgage-backed securities (“RMBS”) assets. As a result, values for RMBS assets, including some agency securities and other AAA-rated RMBS assets, have experienced a certain amount of volatility. Further increased volatility and deterioration in the broader residential mortgage and RMBS markets may adversely affect the performance and market value of our agency securities.

We invest exclusively in agency securities (other than for hedging purposes) and rely on our agency securities as collateral for our financings. Any decline in their value, or perceived market uncertainty about their value, would likely make it difficult for us to obtain financing on favorable terms or at all, or maintain our compliance with terms of any financing arrangements already in place. Substantially all of the agency securities we invest in are classified for accounting purposes as available-for-sale. All assets classified as available-for-sale are reported at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity. Agency securities that we invest in that are classified as trading securities are reported at fair value, with unrealized gains and losses included in current income. As a result, a decline in fair values may reduce the book value of our assets. Moreover, if the decline in fair value of an available-for-sale security is other-than-temporarily impaired, such decline will reduce earnings. If market conditions result in a decline in the fair value of our agency securities, our financial position and results of operations could be adversely affected.

2) If the Federal Reserve sells enough agency securities, then that will hurt the value of AGNC’s securities (not likely anytime soon)

Federal Reserve programs to purchase securities could have an adverse impact on the agency securities in which we invest.

Beginning in November 2008, the Federal Reserve initiated a program to purchase direct obligations of Fannie Mae, Freddie Mac and the Federal Home Loan Bank and agency securities backed by Fannie Mae, Freddie Mac and Ginnie Mae. In total, this program resulted in the Federal Reserve purchasing $300 billion of direct obligations and $1.75 trillion of agency securities with the purchase program ending in the first quarter of 2010. One of the effects of this program has been to increase competition for available direct obligations and agency securities, with the result being an increase in pricing of such securities. The Federal Reserve may hold the direct obligations and agency mortgage securities to maturity or may sell them on the open market. Sales by the Federal Reserve of the direct obligations or agency mortgage securities that it currently holds may reduce the market price of such securities. Reductions in the market price of agency mortgage securities may negatively impact our book value.

In addition, the Federal Reserve initiated a program in November 2010 to purchase up to $600 billion of long-term U.S. Treasury securities by mid-2011 as part of its continuing effort to help stimulate the economy by reducing mortgage and interest rates. Such action could negatively affect our income or our net book value by impacting interest rate levels and the spread between mortgage rates and other interest rates. Thus, these actions could reduce the yields on assets that we are targeting for purchase, thereby reducing our net interest spreads. Alternatively, the Federal Reserve’s actions may not have the intended impact and could create inflation and higher interest rates. This could negatively impact our net book value or our funding cost.

3) Interest rates rise (this is likely as soon as the end of QE 2)

Because we invest in fixed-rate securities, an increase in interest rates on our borrowings may adversely affect our book value or our net interest income.

Increases in interest rates may negatively affect the market value of our agency securities. Any fixed-rate securities we invest in generally will be more negatively affected by these increases than adjustable-rate securities. In accordance with GAAP, we are required to reduce our stockholders’ equity, or book value, by the amount of any decrease in the fair value of our agency securities that are classified as available-for-sale.

Reductions in stockholders’ equity could decrease the amounts we may borrow to purchase additional agency securities, which may restrict our ability to increase our net income. Furthermore, if our funding costs are rising while our interest income is fixed, our net interest income will contract and could become negative.

Safe Bulkers (SB) book value as of December 31st, 2010 is $3.71 per share:

Tangible assets: $805.372 M (mostly 16 dry bulk ships)

Intangible assets: none

Preferred stock: none

Bonds: none

Minus  Total liabilities: $561.239 M (mostly loans for ship purchases)

Equals shareholder equity: $244.133 M

Book value = equity / number of shares = $244.133 M / 65.88 M = a book value of $3.71 per share.  I don’t see any risk factors in Safe Bulkers annual report that could affect their book value.  The prices of ships are easy to determine and their prices are very visible to those who interact with ship brokers.

* * * * * * *

Chapter 42

BALANCE-SHEET ANALYSIS.

SIGNIFICANCE OF BOOK VALUE

ON NUMEROUS OCCASIONS prior to this point we have expressed our conviction that the balance sheet deserves more attention than Wall Street has been willing to accord it for many years past. By way of introduction to this section of our work, let us list five types of information and guidance that the investor may derive from a study of the balance sheet:

1. It shows how much capital is invested in the business.

2. It reveals the ease or stringency of the company’s financial condition, i.e.,

the working-capital position.

3. It contains the details of the capitalization structure.

4. It provides an important check upon the validity of the reported earnings.

5. It supplies the basis for analyzing the sources of income.

In dealing with the first of these functions of the balance sheet, we shall begin by presenting certain definitions. The book value of a stock is the value of the assets applicable thereto as shown in the balance sheet.  It is customary to restrict this value to the tangible assets, i.e., to eliminate from the calculation such items as good-will, trade names, patents, franchises, leaseholds. The book value is also referred to as the “asset value,” and sometimes as the “tangible-asset value,” to make clear that intangibles are not included. In the case of common stocks, it is also frequently termed the “equity.”

Computation of Book Value. The book value per share of a common stock is found by adding up all the tangible assets, subtracting all liabilities and stock issues ahead of the common and then dividing by the number of shares.

In many cases the following formula will be found to furnish a short cut to the answer:

= (Common Stock + Surplus Items – Intangibles) / Number of shares outstanding

By Surplus Items are meant not only items clearly marked as surplus but also premiums on capital stock and such reserves as are really part of the surplus. This would include, for example, reserves for preferred-stock retirement, for plant improvement, and for contingencies (unless known to be actually needed). Reserves of this character may be termed “Voluntary Reserves.”

* * * * * * *

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Is AGNC really a low P/E stock?

The current price/earnings ratio of AGNC is highly deceptive:

Morningstar reports a forward P/E of 6.1.

Google Finance reports a P/E of 3.69.

Yahoo! Finance reports a P/E (ttm) of 3.53.

These are all low numbers.  Single digit P/E ratios usually indicate possible value investments.  But let’s take a closer look at AGNC’s earnings.  Let’s adjust them for the amazing increase in the number of shares issued and used to leverage up the purchase more agency securities in the government subsidized mortgage market.

American Capital Agency Corp. (AGNC)

Shares: 124.63 M (only 36 M at end of 2010)

Market price: $27.83

Dividend yield: 20.1%

Quarterly dividend: $1.40

(EPS adjusted for drastic changes in capitalization)

                        Net inc.

            EPS     Avail.              Adj. EPS

2006

2007

2008    $2.36   $35 M              $0.28

2009    $6.78   $119 M            $0.95

2010    $7.89   $228 M            $2.31

Three year average earnings equals $1.18 per share.  Value investments typically start below 12 times average earnings.  In AGNC’s case 12 times average earnings equals $14.16 per share.  20 time average earnings equals $23.60 per share.  AGNC is currently selling for 23.6 times average earnings.  This is above 20 which makes a purchase of AGNC above $23.60 a speculative purchase.

Suddenly those low current P/Es don’t seem to hold up anymore when you calculate AGNC’s average earning power over the past three years.

I have warning in other articles that AGNC is will not be able to pay its hefty $1.40 dividend with so many new shares being issued.   If it uses the proceeds of the public offering to pay the current quarter’s dividend, then it is just bidding time before it disappoints shareholders with a larger dividend cut in the future when net income decreases due to a narrowing of the interest rate spread.  That’s how they make their money.

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Is Safe Bulkers still a high dividend stock buy after the public offering of 5 million new shares?

Safe Bulkers (SB) announced yesterday that they are offering 5 million shares for sale to the public for ship purchases and repayment of debt.  The total offer could increase the number of total shares from 65.88 million to 71.63 million (5 m for the offer and 750k for the underwriters).  This is a 8.7% increase in the number of shares.

Prior to the public offering announcement Safe Bulkers was trading for around $9.26.  After the announcement the price dropped to $8.32 this morning (-10.15%).  The company is making the offering at a price of $8.40.  This will bring in an additional $42 million to the company’s coffers.

Is Safe Bulkers still an excellent high dividend stock to buy?  Yes, its high dividend is still safe, it has a 5 year average earning power of $1.50 per share, and its balance sheet is strong.

The company has been paying a quarterly dividend of $0.15 per share.  A $0.60 annual dividend is easily affordable.  SB’s current dividend yield is 7.2% ($0.60/$8.32).  The company’s 5 year average earnings were $1.50 (this excludes gains from ship sales and includes the new shares being offered).  Its dividend payout ratio is less than 50%.  No problem.

I’d like to examine Safe Bulkers earning power adjusted for these new shares and also excluding the gains from ship sales in 2006, 2007, and 2010.  These numbers can be found or calculated from the company’s latest annual report for 2010.

                        Net inc. avail

            EPS     (- ship sales)    Adj. EPS

2006    $1.78   $60.209 M       $0.84

2007    $3.84   $96.840 M       $1.35

2008    $2.19   $119.211 M     $1.66

2009    $3.03   $165.41 M       $2.31

2010    $1.73   $94.448 M       $1.32

Safe Bulkers has an adjusted 5 year average EPS of $1.50 (excluding gains from ship sales and including the new offering of shares).  I exclude ship sales because they are not a reoccurring source of revenue.

SB is trading at 5.5 times the 5 year average earnings.  That is still an extreme value.  I look to buy common stocks with high dividends and a market price well below 12 times average earnings.  If SB were valued like many other stocks at 12 times average earnings, then it would sell for $18.00.  It would sell for $30.00 if it were valued at 20 times average earnings, but that where the stock would become a speculative buy.

The public offering does not damage Safe Bulkers balance sheet which was strong before.

I have recommended in the past that Safe Bulkers was a buy below $8.00.  Any significant market correction would take it down below $8.00.  I believe that it is a buy all the way up to $10.00 at its current dividend rate.  The yield would be 6% at $10.00.  But I think you can get it for under $8.00 if you are patient.

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Here is the press release:

Image001

 

Apr 12, 2011 09:00 ET

Safe Bulkers, Inc. Announces Pricing of Its Public Offering of Common Stock

ATHENS, GREECE--(Marketwire - April 12, 2011) - Safe Bulkers, Inc. (the "Company") (NYSE: SB), an international provider of marine drybulk transportation services, announced today that its public offering of 5,000,000 shares of common stock (the "Public Offering") was priced at $8.40 per share. The gross proceeds from the Public Offering before the underwriting discount and other offering expenses are expected to be approximately $42 million.

The Company has also granted the underwriters a 30-day option to purchase up to an additional 750,000 shares of the common stock.

The Company plans to use the net proceeds of the Public Offering for vessel acquisitions, capital expenditures and for other general corporate purposes, including repayment of indebtedness.

Morgan Stanley and BofA Merrill Lynch are acting as joint book-running managers and Evercore Partners is acting as co-manager of the Public Offering, which is being made under an effective shelf registration statement.

The Public Offering is being made only by means of a prospectus supplement and accompanying base prospectus. A preliminary prospectus supplement and accompanying base prospectus relating to the Public Offering has been filed with the Securities and Exchange Commission ("SEC") and is available at the SEC's website at http://www.sec.gov. When available, the final prospectus supplement and accompanying base prospectus relating to the Public Offering may be obtained from Morgan Stanley, 180 Varick Street, 2nd Floor, New York, NY 10014, telephone: 1-866-718-1649, Attn: Prospectus Department, email: prospectus@morganstanley.com, or BofA Merrill Lynch, 4 World Financial Center, New York, NY 10080, Attn: Prospectus Department, email: dg.prospectus_requests@baml.com.

The offering is subject to customary closing conditions.

This release shall not constitute an offer to sell, or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

About Safe Bulkers, Inc.

The Company is an international provider of marine drybulk transportation services, transporting bulk cargoes, particularly coal, grain and iron ore, along worldwide shipping routes for some of the world's largest users of such services. The Company's common stock is listed on the NYSE, where it trades under the symbol "SB". The Company maintains its offices at 30-32 Avenue Karamanli, P.O. Box 70837, 16605 Voula, Athens, Greece.

Link to the press release: http://www.marketwire.com/press-release/Safe-Bulkers-Inc-Announces-Pricing-of-Its-Public-Offering-of-Common-Stock-NYSE-SB-1426274.htm

Safe Bulkers, Inc. Announces the Acquisition of Two Newbuild Panamax-Class Drybulk Vessels.

Safe Bulkers, Inc. (NYSE: SB), an international provider of marine drybulk transportation services, announced today that it has entered into shipbuilding contracts for the construction of two Japanese-built, drybulk Panamax-class vessels at attractive prices, with an expected delivery date in the first half of 2014.

Panamax-class drybulk vessels are sized to fit through the Panama Canal.  Safe Bulkers owns 4 Panamax-class vessels right now out of 16 ships total.  Those four ships average a daily charter rate of about $24,500.  According to their annual report these four ships are chartered through 2013 with some of the contract extending through 2015.  They were built between 2003 and 2005, so they are some of the oldest ships in Safe Bulkers fleet.

Safe Bulkers (SB) stock price has been on a steady rise since July 2010.  The stock has not seen a significant correction in 10 months.  Wait for the correction and a buying opportunity will present itself.

Buy Safe Bulkers below $8.00 per share.  It is trading for $9.37 as I write this.  See this 3 year stock chart to see what I’m talking about.

Image001

http://stockcharts.com/h-sc/ui?s=SB&p=W&b=5&g=0&id=p63466243318

Safe Bulkers, Inc. Announces the Acquisition of Two Newbuild Panamax-Class Drybulk Vessels

Safe Bulkers, Inc. (the "Company") (NYSE: SB), an international provider of marine drybulk transportation services, announced today that it has entered into shipbuilding contracts for the construction of two Japanese-built, drybulk Panamax-class vessels at attractive prices, with an expected delivery date in the first half of 2014.

Assuming the delivery of all of the Company's newbuilds on order, upon delivery of these two newbuild vessels in the first half of 2014, the Company's fleet will consist of 27 vessels with deadweight capacity of approximately 2.5 million tons.

Dr. Loukas Barmparis, President of the Company, said: "These new acquisitions are in line with our long term strategy to place orders at attractive prices in the right point of the cycle, seeking to renew and expand our fleet. We intend to offer our clients fuel efficient, shallow drafted, new generation designed vessels able to compete even in relatively weak markets. We believe that these acquisitions will be accretive to our earnings."

Here is the link to the original article: http://www.americanchronicle.com/articles/yb/157706195 .

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Out-greeking the Greeks. PMCO now betting against U.S. government debt.

The US government shutdown debate is a distraction.  Bill Gross, co-chief investment officer of the world’s largest bond fund, nailed the problem succinctly.  "We are smelling $1 trillion deficits as far as the nose can sniff," if the government fails to address the biggest entitlement programs: Medicare, Medicaid and Social Security, Gross said in his outlook.  These three programs alone will destroy the U.S. government.  They are immoral, unconstitutional, massive Ponzi schemes that will bankrupt the U.S. government.  And grandma is dependent on them!!

Mr. Gross knows that granny votes and that congressmen fear granny’s wrath at the polls.  Granny will get her Medicare, Medicaid, and Social Security until the younger voters outnumber granny.  It will take many years for the younger vote to outnumber granny.  Therefore, he is betting against the U.S. government debt.  Interest rates for U.S. government bonds will rise once the Federal Reserve ends its QE2 program.

U.S. government bonds are not safe.  They are one of the next bubbles to pop.  You should purchase high dividend stocks with earning power and strong balance sheets instead of bonds.  Many stocks yielding 3-4% right now will become high dividend stocks when the stock market crashes again.

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PIMCO now betting against U.S. government debt

On Monday April 11, 2011, 11:36 am

NEW YORK (Reuters) - The world's largest bond fund began betting against U.S. government debt last month on the expectation that shaky finances will jolt interest rates higher.

PIMCO, through its outspoken co-chief investment officer, Bill Gross, has been raising alarms about a lack of buyers for Treasuries once the Federal Reserve ends its own bond purchase program, also known as QE2, in June.

In February Gross revealed his ultra-bearish view on the United States by dumping all of his fund's U.S. government-related debt holdings.

The portion of PIMCO's $236 billion Total Return Fund held in long-term U.S. government debt, including U.S. Treasuries, declined to "minus 3" percent in March from zero in February and 12 percent in January.

In a short position, an investor sells a borrowed security on a bet it can buy the bond back later at a lower price.

Cash equivalents, including Treasury bills and other debt with maturities of less than a year, rose to 31 percent of the fund's assets from 23 percent in February.

PIMCO also expects the lingering U.S. budget deficit and the Fed's easy monetary policy will fuel faster inflation and hurt the dollar.

PIMCO's vote on the state of U.S. finances comes just as Washington narrowly averted a government shutdown on Saturday after Democrats and Republicans agreed on cutting $38 billion in spending for the fiscal year.

The 11th hour compromise probably had little impact on the investment strategies of Gross, who said in an April newsletter that the U.S. government was "out-Greeking the Greeks," a reference to the out-sized government debt in Greece that forced the country to ask for a bailout.

"We are smelling $1 trillion deficits as far as the nose can sniff," if the government fails to address the biggest entitlement programs: Medicare, Medicaid and Social Security, Gross said in his outlook.

PIMCO's move mirrors a broader dislike of U.S. Treasuries. Some exchange-traded funds that bet against the Treasury market have seen a jump in volume lately. Volume in the ProShares Short 20+ year Treasury (Pacific:TBF - News), which shorts the Barclays Capital U.S. 20+ Year Treasury Bond Index, on Thursday of last week had its most active session since February 24.

And speculators went net short on Treasuries for the first time in six weeks as of April 5, according to the latest data from the Commodity Futures Trading Commission.

U.S. Treasury yields have moved higher since the Fed began purchases of the securities in its second quantitative easing program in November. Yields on 10-year Treasury notes have risen 80 basis points since then to 3.59 percent.

(Reporting by Al Yoon and Richard Leong in New York, and Kevin Plumberg in Singapore; Editing by Padraic Cassidy)

Link to original article: http://yhoo.it/h7VFpE

A Good High Dividend Stock in a Bad Neighborhood.

It's nice to see that I've found a great high dividend stock before Jim Cramer.  A caller asked him about Safe Bulkers the other day and Cramer responded that his didn't know the stock.  Here is what Cramer had to say after he learned more about Safe Bulkers (SB).
 
 Safe Bulkers (SB) has 16 dry bulk vessels and offers a 6.3% dividend. Cramer thinks the dividend is safe, since earnings are high enough to cover the dividend, the yield won't be raised again until 2012. SB is a good house in not such a good neighborhood, since the surplus of ships is an issue for the industry. With a 14% climb in just two weeks, Cramer might consider the stock an interesting buy on a pullback, but not at its current level.

 

 
I agree with Cramer that you should consider buying Safe Bulkers when it is in the low $8.00 to $7.00 range.  Any sizable market pullback should knock it down to that price range.  Here is the link to all the articles I've written on Safe Bulkers: http://www.myhighdividendstocks.com/category/high-dividend-stocks/sb.  I go into the issues in more detail than Cramer had time to expound upon on his show.
 
Disclosure: I don't own Safe Bulkers (SB) right now.  I'm waiting for a pullback.
 
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TIP OF THE WEEK - Find Corporate Bond Info On Your Stocks Easier Than You Ever Imagined

Find Corporate Bond Info on Your Stocks Easier Than You Ever Imagined

Jason Brizic

Apr. 8, 2011

The high dividend stock investor must be aware of a company’s corporate bond exposure to understand its potential threat to earning power.  A surge in bond interest due can threaten the earnings available for dividends.

You can avoid a tragic investment mistake by examining a company’s bond exposure before you make a common stock purchase.  Two stocks with the same earning power can have different bond exposures.  It is not enough to know the overall long-term debt total.  You must go slightly deeper to gain an edge over the market’s other investors.

Morningstar has an excellent corporate bond analysis feature within its stock pages to help you quickly, graphically, and easily understand the magnitude and maturity of a company’s corporate bond issuances.  Many high dividend stocks are large well established companies like AT&T (T) and Verizon (VZ) have many outstanding bonds.

Click on the link below to go directly to Morningstar’s bond tab for AT&T to see what I’m talking about:

http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=T&Country=USA

Here is the link to Verizon’s (VZ) bond tab:

http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=VZ&Country=USA

These two telecom companies are similar in many respects.  They should be compared.  Their bonds might be the deciding factor when deciding on which common stock to add to your high dividend stock portfolio.  Note: I haven’t scrutinized their bonds yet.  I’m just providing and examples with lots of bond info.

For more tips, go here:

http://www.myhighdividendstocks.com/category/tip-of-the-week

Two high dividend stocks facing dividend cuts. Put them on the watchlist.

Two high dividend stocks facing dividend cuts.  I took notice of Windstream (WIN) and First Energy (FE) the other day when I noticed their dividend yields in the 6-7% range.  These two companies are priced less than 20 times their 5 yr. average earnings which makes them possible investments.  However, both are paying out more in dividends than they are earning.  That is troubling because they won’t be high dividend stocks for long.  Their share prices will likely decline once the managements cut their dividends.  Both might prove to be high dividend stocks in future if their market prices drop more into the value territory of below 12 times average earnings and they keep a sustainable dividend.  Check them out in detail below.

Windstream (WIN)  POSSIBLE INVESTMENT, but wait until after the dividend cut

Market price: $12.58

Shares: 509.98 M

Dividend yield: 7.7% with a quarterly dividend of $0.25

ADJ EPS adjusts for changes in capitalization (share issuance or buybacks)

            EPS     Net inc.           ADJ EPS

2006    $1.25   $545.3 M         $1.07

2007    $1.94   $917.1 M         $1.80

2008    $0.93   $412.7 M         $0.81

2009    $0.76   $334.5 M         $0.66

2010    $0.66   $310.7 M         $0.61

5 yr. average earnings equals $0.99 per share.  12 times the 5 yr. average earnings equals $11.88.  20 times the 5 yr. average earnings equals $19.80.  Windstream is trading at 12.7 times the 5 yr. average earnings.  That makes it eligible for investment, but it is going to have to cut its dividend or issue more shares.  The company is paying over $1.00 per share in annual dividends, but it is only earning $0.61 per share.  I wouldn’t buy WIN at $12.58.  I would wait for the dividend cut and the market price to drop below $11.88 before reconsidering a purchase of WIN.

I have not closely examined Windstream’s dividend record, earnings power, or its balance sheet.  I will if the market price drops significantly below $11.88.

First Energy (FE)  POSSIBLE INVESTMENT, but wait until after the dividend cut

Market price: $37.00

Shares: 418.22 M

Dividend yield: 6.0% with a quarterly dividend of $0.52

ADJ EPS adjusts for changes in capitalization (share issuance or buybacks)

            EPS     Net inc.           ADJ EPS

2006    $3.81   $1,254 M         $3.00

2007    $4.22   $1,309 M         $3.13

2008    $4.38   $1,342 M         $3.21

2009    $3.29   $1,006 M         $2.41

2010    $2.57   $784 M            $1.87

5 yr. average earnings equals $2.72 per share.  12 times the 5 yr. average earnings equals $32.64.  20 times the 5 yr. average earnings equals $54.40.  First Energy is trading at 13.6 times the 5 yr. average earnings.  That makes it eligible for investment, but it is going to have to cut its dividend or issue more shares.  The company is paying a $2.08 per share in annual dividend, but it is only earning $1.87 per share.  I wouldn’t buy FE at $37.00.  I would wait for the dividend cut and the market price to drop below $32.64 before reconsidering a purchase of FE.

I have not closely examined First Energy’s dividend record, earnings power, or its balance sheet.  I will if the market price drops significantly below $32.64.

DISCLOSURE: I don’t own either of these common stocks.

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