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.

TIP OF THE WEEK - Free Lists of High Dividend Stock, S&P 500, and Commodities ETFs.

Free Lists of High Dividend Stock, S&P 500, and Commodities ETFs.
Jason Brizic
Feb. 18, 2011

You need assets that non-correlate to the stock market. We don't know what events will occur in the future. We are going to experience either a massive price inflation followed by the Greater Depression at the hands of the Federal Reserve, or we are going to experience a hyperinflation at the hands of the fiscally irresponsible Congress once the Federal Reserve stops buying government treasuries.

Massive price inflation will inflate nominal stock prices. Precious metals and commodities will rise in price before the stock market. Currencies will lose during a time of massive price inflation.

Stock prices, commodities, and precious metals will lose nominal value during a period of depression. Currencies will gain real value during a deflationary depression as the money supply contracts like it did in 1930-1934.

There are many free listings of exchange traded funds (ETFs) and exchange traded notes (ETNs) that you can discover yourself through a quick Google search. But I have found a website that will save you hours by grouping them and providing useful links for further investment research.

High Dividend ETF list: http://etf.stock-encyclopedia.com/category/high-dividend-etfs.html S&P500 ETF list: http://etf.stock-encyclopedia.com/category/s&p-500.html Commodity ETF list: http://etf.stock-encyclopedia.com/category/commodity-etfs.html Oil ETF list: http://etf.stock-encyclopedia.com/category/oil-price-etfs.html Natural Gas: http://etf.stock-encyclopedia.com/category/natural-gas-etfs.html Sugar: http://etf.stock-encyclopedia.com/category/sugar-price-etfs.html Wheat: http://etf.stock-encyclopedia.com/category/wheat-etfs.html Currency ETF list: Asian Currency ETF list: http://etf.stock-encyclopedia.com/category/asian-pacific-currency-etfs.html Japanese Yen ETF list: http://etf.stock-encyclopedia.com/category/japanese-yen-etfs.html For more tips, go here:

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

Terra Nitrogen will become a high dividend stock during pullbacks. TNH Basic Financial Metrics.

Terra Nitrogen (TNH) Basic Financial Metrics.  Buy Terra Nitrogen on stock market corrections that make this stock yield more than 6% again.  This stock has strong basic financial metrics that will improve even more on pullbacks.

Disclosure: I do not own Terra Nitrogen stock.

Terra Nitrogen Company, L.P. (TNCLP) is a Master Limited Partnership consisting of one nitrogen manufacturing facility in Verdigris, Oklahoma, and terminal operations in Blair, Nebraska and Pekin, Illinois. TNCLP’s New York Stock Exchange ticker symbol is TNH.  TNCLP is the sole limited partner of Terra Nitrogen, Limited Partnership (TNLP), owner of the Verdigris, Oklahoma manufacturing facility and related assets. Terra Nitrogen GP Inc., an indirect, wholly-owned subsidiary of CF Industries Holdings, Inc., is the General Partner of TNCLP and exercises full control over all of TNCLP's business affairs.

TNCLP has the capacity to produce annually 1.9 million tons (32% nitrogen basis) of urea ammonium nitrate solutions (UAN) and 1.1 million tons of ammonia, the basic ingredient for most nitrogen fertilizer and many industrial products.

Sales per share. Terra Nitrogen’s sales for trailing 12 months ended December 31st, 2010 were $564,600,000.  At the end of 4Q 2010 there were 18,501,576 common units (shares) outstanding.  By dividing $564,600,000 by 18,501,576, we get sales per share of $30.52.

Earnings per share. Terra Nitrogen’s earnings per share of $10.90 for the trailing 12 months were calculated by dividing net income (income statement) by outstanding shares (balance sheet).  They earned $201,600,000 over the last 12 months.

Dividends per share. By dividing $148,200,000 in dividends paid in the last 12 months by 18,501,576 common units (shares) outstanding, we find that Terra Nitrogen had dividends per share for the last 12 months of $8.01.

Cash flow per share. The cash flow per share of $11.53 for the last 12 months was calculated by taking net income of $201,600,000 and adding back in the depreciation of $11,810,000 (estimated as 11.4% of long-term assets; same as 3Q2010 quarterly SEC filing) on their income statement, which has no impact on cash flow (income statement), and then dividing by the 18,501,576 shares outstanding (balance sheet).

Dividend yield. Terra Nitrogen’s stock had a dividend yield on December 31st, 2010, of 7.4 percent.  The dividend yield is calculated by dividing the dividend per share of $8.01 per share at the close of 2010 by the stock price of $108.11.  The stock is currently yielding 4.4% ($1.36 quarterly dividend / $122.51 stock price).

Now let’s begin our analysis of the ability of Terra Nitrogen to meet its maturing loan obligations and current cash flow needs by computing its liquidity and debt coverage ratios.

Quick ratio

The quick ratio is an important liquidity ratio that is computed by removing inventory from current assets and then dividing by the remainder by current liabilities.  This information can be found on Safe Bulkers’ balance sheet.  Since inventories are typically the least liquid of a company’s current assets and are likely to produce a loss if liquidated, it is prudent to look at the firm’s ability to cover short-term liabilities without relying on them.  The rule of thumb is that a company with a quick ratio over 1 or better indicates that it could cover all current liabilities with the liquid assets it has on hand, thereby reducing any need to cut its dividend.

Terra Nitrogen’s quick ratio for the last 12 months is 1.92, more than the standard rule of thumb that you would like to see.  The higher the ratio, the better we like the company.

Calculation: $193,100,000 current assets in 2010 minus $27,600,000 inventory divided by $86,300,000 in current liabilities in 2010.

Debt coverage ratio

The short-term debt coverage ratio allows you to quickly see if the company’s short-term debt obligations can easily be paid by using the cash that is being generated from company operations.  This ratio is calculated by dividing income from operations by current liabilities or short-term debt (balance sheet).  This ratio should equal at least 2.0.

Terra Nitrogen’s short-term debt coverage ratio equals 2.34 for the last 12 months.  This means that the company is generating more than twice the cash flow it needs from operations to pay off all of its short-term obligations.  Taken by itself, this ratio would indicate that the dividend is pretty secure and would also indicate that there is sufficient operating income to offset a slightly lower liquidity position if that were indicated by the company’s quick ratio.

Valuation ratios

There are two important ratios that can help you identify companies with good value characteristics.

Price-to-sales ratio. We rank companies with low price-to-sales ratios higher than those companies whose stock is pricey relative to the sales being generated.  You can calculate the ratio by dividing the stock price at the end of 4Q2010 ($108.11) by sales per share ($30.52).  Terra Nitrogen’s price-to-sales ratio for the last twelve months is 3.54, which is not better than our 2.00 rule of thumb ratio that we use to indicate good value.

Price-to-earnings ratio (P/E). Also known as the price-to-earnings multiple, this ratio tells you how expensive the stock is from a price standpoint given earnings that the stock is generating.  Historically, stocks are a good value when the ratio or multiple is below 10, but we consider stocks that have a P/E of less than 12 – the lower the ratio the better.  You can calculate the ratio by dividing the stock’s price by the earnings per share being generated.  Terra Nitrogen’s price-to-earnings ratio for the last 12 months was is 9.91 ($108.11 stock price divided by $10.90 per share).  It is slightly higher today at 11.23.

Dividend ratios

Dividend coverage ratio. This ratio shows how secure the dividend is based on the cash flow being generated by the company.  Instead of applying the cash flow to analyze whether the company can meet its debt obligations, we analyze this ratio to assess how easily the company can keep making its dividend payments.  To calculate this ratio, you divide cash flow per share ($11.53) by dividend per share ($8.01).  The higher the dividend coverage from cash flow, the better we like it.

Terra Nitrogen has a dividend coverage ratio of 144 percent.

Dividend payout ratio.
This ratio tells you how much profit the company is paying out to shareholders in dividends.  Once again, the higher the better, so long as the ratio does not exceed 100 percent.  Since a company can only pay dividends from current or retained earnings, it is a warning sign if a company is paying dividends that exceed current earnings.

Terra Nitrogen’s dividend payout ratio is 73.4 percent and is calculated by dividing its dividend per share ($8.01) by earnings per share ($10.90).  We tend to look for companies that have payout ratios of at least 50 percent, which to us indicates that company is committed to rewarding shareholders through dividend payouts.

Growth ratios

One-year revenue growth ratio.  This ratio measures the one-year percentage change in revenue growth.  It is calculated by subtracting last year’s revenue ($507.7 million) from the current year’s revenue ($564.6 million) to find the difference ($56.9 million), and then dividing that difference ($56.9 million) by last year’s revenue ($507.7 million) to find the percentage change.  Terra Nitrogen’s revenue growth rate for 2010 is 11.2 percent indicating that revenue has improved by slightly more than our 10 percent rule of thumb.

One-year earnings growth ratio.  This ratio measures the one-year percentage change in earnings growth.  It is calculated by subtracting last year’s earnings ($144.3 million) from the current year’s earnings ($201.6 million) to find the difference ($57.3 million), and then dividing that difference ($57.3 million) by last year’s earnings ($144.3 million) to find the percentage change.  Terra Nitrogen’s earnings growth rate was 39.7 percent in 2010, which is several times greater than our 10 percent rule of thumb for earnings growth rate.  With both revenue and profits rising, Terra Nitrogen’s stock price should reflect this positive trend and move higher.

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Should you add SeaDrill to your portfolio? Check out its basic financial metrics and 7% yield.

SeaDrill (SDRL) Basic Financial Metrics. 

This high dividend stock has some concerning short term debt loads; otherwise, all other basic financial metric look good.  The company operates dozens of oil rigs some of which specialize in deep water drilling.  It has a modern fleet and the company thinks that they will benefit from oil company’s need for safe, reliable drilling in the wake of the BP oil spill.  Keep in mind that all mentions of the trailing 12 months or last 12 months are 4Q2009 through 3Q2010.  SeaDrill reports 4Q2010 and full year results on February 28th, 2011.

Dividend history.  SeaDrill started paying dividends in 2008.  It has steadily increased its dividend for the last few quarters.

1Q2010 dividend =  $0.50 per share; 2Q2010 = $0.60; 3Q2010 = $0.61; and 4Q2010 = $0.65

Sales per share. SeaDrill’s sales for trailing 12 months ended 3Q2010 were $3,739,400,000.  At the end of 3Q 2010 there were 412,288,216 shares outstanding.  By dividing $3,739,400,000 by 412,288,216, we get sales per share of $9.07.

Earnings per share. SeaDrill’s earnings per share of $3.16 for the trailing 12 months were calculated by dividing net income (income statement) by outstanding shares (balance sheet).  They earned $1,304,600,000 over the last 12 months.

Dividends per share. By dividing $919,500,000 in dividends paid in the last 12 months by 412,288,216 shares outstanding, we find that Safe Bulkers had dividends per share for the last 12 months of $2.23 per share.

Cash flow per share. The cash flow per share of $4.25 for the last 12 months was calculated by taking net income of $1,304,600,000 and adding back in the depreciation of $445,900,000, which has no impact on cash flow (income statement), and then dividing by the 412,288,216 shares outstanding (balance sheet).

Dividend yield. SeaDrill’s stock had a dividend yield on December 31st, 2010, of 6.95 percent.  The dividend yield is calculated by dividing the annual dividend per share of $2.36 per share at the close of 2010 by the stock price of $33.92.

Now let’s begin our analysis of the ability of SeaDrill to meet its maturing loan obligations and current cash flow needs by computing its liquidity and debt coverage ratios.

Quick ratio

The quick ratio is an important liquidity ratio that is computed by removing inventory from current assets and then dividing by the remainder by current liabilities.  This information can be found on SeaDrill’s balance sheet.  Since inventories are typically the least liquid of a company’s current assets and are likely to produce a loss if liquidated, it is prudent to look at the firm’s ability to cover short-term liabilities without relying on them.  The rule of thumb is that a company with a quick ratio over 1 or better indicates that it could cover all current liabilities with the liquid assets it has on hand, thereby reducing any need to cut its dividend.

SeaDrill’s quick ratio for the last 12 months is 0.82, less than the standard rule of thumb that you would like to see.  The higher the ratio, the better we like the company.  It will be interesting to see if SeaDrill’s quick ratio climbs up to 1 when it reports 4Q2010 earnings and balance sheet on February 28th, 2011.

Calculation: $2,587,200,000 current assets in 3Q2010 and no inventory divided by $3,163,300,000 in current liabilities in 3Q2010.

Debt coverage ratio

The short-term debt coverage ratio allows you to quickly see if the company’s short-term debt obligations can easily be paid by using the cash that is being generated from company operations.  This ratio is calculated by dividing income from operations by current liabilities or short-term debt (balance sheet).  This ratio should equal at least 2.0.

SeaDrill’s short-term debt coverage ratio equals 0.48 for the last 12 months.  This means that the company is generating less than twice the cash flow it needs from operations to pay off all of its short-term obligations.  Taken by itself, this ratio would indicate that the dividend is pretty tenuous and would also indicate that there is insufficient operating income to offset a slightly lower liquidity position if that were indicated by the company’s quick ratio.

Valuation ratios

There are two important ratios that can help you identify companies with good value characteristics.

Price-to-sales ratio. We rank companies with low price-to-sales ratios higher than those companies whose stock is pricey relative to the sales being generated.  You can calculate the ratio by dividing the stock price at the end of 3Q2010 ($28.99) by sales per share ($9.07).  SeaDrill’s price-to-sales ratio for the last twelve months is 3.20, which is not better than our 2.00 rule of thumb ratio that we use to indicate good value.

Price-to-earnings ratio (P/E). Also known as the price-to-earnings multiple, this ratio tells you how expensive the stock is from a price standpoint given earnings that the stock is generating.  Historically, stocks are a good value when the ratio or multiple is below 10, but we consider stocks that have a P/E of less than 12 – the lower the ratio the better.  You can calculate the ratio by dividing the stock’s price by the earnings per share being generated.  SeaDrill’s price-to-earnings ratio for the last 12 months was is 9.17 ($28.99 stock price divided by $3.16 per share).  It is about the same today.

Dividend ratios

Dividend coverage ratio. This ratio shows how secure the dividend is based on the cash flow being generated by the company.  Instead of applying the cash flow to analyze whether the company can meet its debt obligations, we analyze this ratio to assess how easily the company can keep making its dividend payments.  To calculate this ratio, you divide cash flow per share by dividend per share.  The higher the dividend coverage from cash flow, the better we like it.

SeaDrill has a dividend coverage ratio of 191 percent.

Dividend payout ratio.
This ratio tells you how much profit the company is paying out to shareholders in dividends.  Once again, the higher the better, so long as the ratio does not exceed 100 percent.  Since a company can only pay dividends from current or retained earnings, it is a warning sign if a company is paying dividends that exceed current earnings.

SeaDrill’s dividend payout ratio is 70.6 percent and is calculated by dividing its dividend per share ($2.23) by earnings per share ($3.16).  We tend to look for companies that have payout ratios of at least 50 percent, which to us indicates that company is committed to rewarding shareholders through dividend payouts.  However, SeaDrill is a very new company (less than 5 years old), so that is a nice dividend payout for such a young company.

Growth ratios

I’m not going to calculate the growth ratios until SeaDrill releases 4Q2010 earnings on February 28th, 2011.

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Why is price inflation raging in China, but not in the US?

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Why is price inflation raging in China, but not in the US?  Both countries and their central banks showered banks with stimulus money.  The short answer to that question is because the Chinese state-owned banks kept lending to businesses and individuals while US commercial bankers have tightened lending.

The fractional-reserve lending process creates money.  Money creation adds to the money supply that comprises people’s checking accounts (M1).  People spend the money in their checking accounts to purchase goods.  More money chasing the same amount of goods leads to higher prices (all other things being equal).  To better understand how this process functions to create money click here: http://en.wikipedia.org/wiki/Fractional_reserve_banking .  Also, Murray Rothbard’s “The Mystery of Banking” is a bit longer, but it is so elegant an explanation of this process that affects us all.  http://mises.org/resources/614/Mystery-of-Banking-The

The US commercial bankers are not lending the over one trillion dollars in excess reserves that they received from the Federal Reserve.  Lending is the process in which the reserves are transformed into M1 money supply.  Individuals in the US are going to experience massive price inflation once the bankers expand lending.  These price increases will make the 1970’s seem like a sunny afternoon.

The Chinese government bankers do not face negative career sanctions if they drive their banks and country into the ground.  Only the biggest US banks are protected by the Federal Reserve.  All other bankers are tightening for their lives.  The biggest banks are not lending to shore up their pathetic balance sheets.

They Chinese government bankers are lending like crazy despite the obvious price increases in goods and real estate in China.  Their price increases are going to lead to strife in China.  There are millions of unmarried, unemployed Chinese males due to the government’s one child policy that are facing increased prices and poor employment prospects.  That spells revolution in most historical cases.

What is happening in China will happen to us.

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Chinese shoppers struggle with spiraling prices

Chinese shoppers struggle with spiraling prices as government tries to cool inflation

A woman selects vegetables on a store inside a market in Beijing, China Tuesday, Feb. 15, 2011. A jump in food prices pushed China's inflation higher in January, adding to pressure on Beijing to control surging living costs. (AP Photo/Andy Wong)

, On Tuesday February 15, 2011, 5:33 am EST

BEIJING (AP) -- Spiraling prices have made the grocery store a scary place for Chu Yun, a 27-year-old office clerk.

"Prices for everything are going up and it seems it will never stop," Chu said as she hunted bargains in a supermarket. "I have no confidence prices can be brought under control this year. I think they will keep going up."

China's public is struggling with a monthslong surge in food prices that has defied government efforts to combat inflation with interest rate hikes, price controls and a campaign to boost vegetable and grain output.

On Tuesday, the government reported inflation accelerated in January, rising to 4.9 percent from December's 4.6 percent. That was driven by a 10.3 percent jump in food costs amid tight supplies and strong demand.

Economists expect more sharp price rises in coming months because China faces a problem it cannot quickly fix: Demand is outstripping food supplies, while high global commodity prices mean it can't fill the gap cheaply with imports.

"Inflation is unlikely to come down substantially in the first half of the year," said Mark Williams of Capital Economics. Analysts expect more rate hikes, but Williams said that on their own, "they aren't going to bring more crops to the market."

Inflation is dangerous for China's leaders because it erodes economic gains that underpin the Communist Party's claim to power. And it hits the poor majority hardest in a society where millions of families spend up to half their incomes on food.

That is politically awkward as Beijing tries to enforce stability ahead of a once-a-generation handover of power next year to younger Communist Party leaders.

"The political backdrop of the transition is paramount in the policymakers' minds," said Dariusz Kowalczyk, senior economist at Credit Agricole CIB. "They realize the poorer people who still are the majority of China's population are hurt by inflation to a larger degree than they benefit from growth."

Beijing has tried to mollify the public by paying food subsidies to poor families, holding down prices in university cafeterias and ordering local leaders to see that vegetable markets have adequate supplies. It has tried to diffuse public frustration by claiming hoarding and price-fixing by speculators is partly to blame.

But analysts say Beijing also failed to act quickly enough to head off inflation after it deflected the 2008 crisis by flooding the economy with stimulus money and bank lending. The economic rebound gave consumers more money to spend and banks are pumping out loans despite orders to curb credit.

Beijing has raised interest rates three times since October, but economists say more rate hikes are needed and it will be months before the effect is seen.

"It seems Chinese policymakers are behind the curve in fighting inflation," Kowalczyk said. "They have been too cautious."

The headline inflation numbers hide even sharper increases in key items.

In January, the price of fresh fruit soared by more than a third from year earlier, while eggs rose by a fifth, the National Bureau of Statistics reported.

At the Xinya Shopping Center, a supermarket on Beijing's east side, the price of sugar is up 80 percent over a year earlier, while high-quality rice costs 65 percent more, according to manager Wang Yongyi.

"Since the second half of last year, we have been busily changing the price tags to mark the prices up," Wang said. "It seems that the more control we had from the government, the higher prices rise."

Inflation could also spill over into higher Chinese export prices. That might raise costs for Western consumers but also could help countries such as Vietnam and India compete with China as suppliers of clothing, furniture and other low-cost goods.

Global Sources, a company that connects Chinese suppliers with foreign customers, said this week that a survey of 232 Chinese companies found 74 percent of them raised prices last year -- some by up to 20 percent -- due to higher costs for materials and components.

"China is steadily moving away from being the world's low-cost source of various products," the company said in a report released this week.

A separate Global Sources survey of 385 foreign buyers last month found 31 percent were increasing purchases from Vietnam due to higher Chinese prices.

Higher inflation also might prompt Beijing to slow the rise of its currency, the yuan, against the U.S. dollar to help its exporters compete. That might add to strains with Washington and other governments that complain the yuan is kept undervalued, giving China's exporters an unfair advantage and adding to its huge trade surplus.

Adding to pressure on food supplies, China's northeast faces a crippling drought that threatens its winter wheat crop. Global wheat prices are high, limiting Beijing's ability to fill the gap by boosting imports at a reasonable price.

The government has launched a $1 billion campaign to save the harvest with emergency irrigation and cloud-seeding to make rain.

"I hope the government can rein in the food price rises this year, or else people's lives will be greatly hurt," said Wang, the supermarket manager. "No matter how high prices go, people need to eat anyway, right?"

AP researcher Yu Bing contributed.

China National Bureau of Statistics (in Chinese): http://www.stats.gov.cn

China's Economic "Hard Landing" Will Cause a Commodity Crash, Says Gary Shilling

by Peter Gorenstein

China, now the second largest economy in the world, is headed for (relatively) hard times, says economist Gary Shilling, president of A. Gary Shilling & Co. He expects the economy will experience a "hard landing within this calendar year or perhaps the first half of the next calendar year," he tells Aaron Task in this accompanying clip.

China's Hard Landing Is Another Country's Boom

Shilling says a hard landing will result in 6% growth, not the double-digit growth they've been used to over the past decade. The irony, of course, is that kind of growth in the U.S. and other developed countries would be considered an economic renaissance. But not in China.

It's the Inflation, Stupid

China is currently trying to battle inflation that rose 5 percent in January and included a 10 percent gain in food prices, putting new stresses on domestic consumers. Shilling says rising prices are an ill effect of China's $585 billion stimulus package implemented in 2009, in the wake of the global financial crisis. 

The stimulus package, which amounted to 12% of the Chinese economy -- twice as large a percentage as the U.S.'s stimulus -- has manifested itself in a commodity and speculative real estate bubble that Shilling thinks is set to pop.

So far, Beijing has unsuccessfully tried to cool the economy by raising interest rates three times since October.  It won't have the desired effect, Shilling argues.  "I think that they are probably going to overdue it."

Commodity Crash Coming

That hard landing is bad news for commodity prices.  He's betting against the entire commodity complex, saying once the industrial metals such as copper fall, it will cause a domino effect in agricultural products such as cotton, wheat and soy beans.

That commodity crash will also manifest itself in weaker "commodity" currencies such as the Australian dollar, the New Zealand dollar and, to a lesser degree, the Canadian dollar.

Link to original article: http://finance.yahoo.com/tech-ticker/chinas-economic-hard-landing-will-cause-a-commodity-crash-says-gary-shilling-yftt_535929.html

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Safe Bulkers Stock To Go Ex-dividend Tomorrow (SB)

Safe Bulkers Stock To Go Ex-dividend Tomorrow (SB)

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By TheStreet Wire 02/15/11 - 10:04 AM EST

NEW YORK (TheStreet) -- The ex-dividend date for Safe Bulkers (NYSE:SB) is tomorrow, February 16, 2011. Owners of shares as of market close today will be eligible for a dividend of 15 cents per share. At a price of $9.55 as of 9:35 a.m. ET, the dividend yield is 6.4%. The average volume for Safe Bulkers has been 141,000 shares per day over the past 30 days. Safe Bulkers has a market cap of $614 million and is part of the services sector and transportation industry. Shares are up 7.6% year to date as of the close of trading on Monday.

Safe Bulkers, Inc. provides marine drybulk transportation services worldwide. The company transports various bulk cargoes, such as coal, grain, and iron ore. The company has a P/E ratio of 5.3, below the average transportation industry P/E ratio of 5.4 and below the S&P 500 P/E ratio of 23.3.

Link to the original article: http://www.thestreet.com/story/11009028/1/safe-bulkers-stock-to-go-ex-dividend-tomorrow-sb.html

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AGNC Swaptions Explained. Beware of Counterparties.

This is the best explanation that I’ve read about American Capital Agency Corp’s (AGNC) swaptions.  They are important because AGNC made a chunk of their 4Q2010 earnings on swaptions.  The rest of the article lavished AGNC with praise.  I believe that AGNC will lose its ability to pay its hefty dividend when the next financial crisis hits.

Here is one definition of a swaption I found using the Google search term “define: swaption”

A swaption is an option granting its owner the right but not the obligation to enter into an underlying swap. Although options can be traded on a variety of swaps, the term "swaption" typically refers to options on interest rate swaps.
en.wikipedia.org/wiki/Swaption

“American Capital Agency’s fourth quarter results were positively affected by non-recurring net realized and unrealized gains on its derivative instruments, and net realized gains on available-for-sale securities. The derivative instruments, such as to-be-announced (TBA) mortgage short positions and payer swaptions, are primarily utilized by the company to hedge increases in interest rates.”

The Wikipedia entry explains that there is counterparty risk to each swaption.  Keep counterparty risk in mind when you read about how AGNC made money in 4Q2010.  AGNC doesn’t disclose which banks it enters into swaptions contracts with.  Imagine what would have happened if they entered into swaption with AIG.  That would simply be trading interest rate risk with counterparty risk.

From the Wikipedia entry: “The swaption market is over-the-counter (OTC), i.e., not traded on any exchange. Legally, a swaption is an agreement between the two counterparties to exchange the required payments. The counterparties are exposed to each others' failure to make scheduled payments on the underlying swap, although this exposure is typically mitigated through the use of "collateral agreements" whereby margin is posted to cover the anticipated future exposure.”

“A payer swaption is a tool to enter into an interest rate swap where the buyer pays fixed rate and receives floating, thereby benefiting from interest rate rises. The initial cost of the swaption comes in the form of a premium, and this is the maximum amount the buyer can lose.”

“The participants in the swaption market are primarily large corporations, banks, financial institutions and hedge funds, who typically utilize swaptions to manage interest rate risk arising from their financing arrangements.”

“Agency lenders such as American Capital, which holds a mortgage portfolio, purchases payer swaptions to protect against lower interest rates that might lead to early prepayment of the mortgages. This measure ultimately facilitates the company to continue making money by collecting premium.”

Here is the link to the original article: http://www.dailymarkets.com/stock/2011/02/14/american-capital-agency-4q-rocks/

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Safe Bulkers: Making a Move, Up 2.6%

I’ve been blogging about Safe Bulkers Inc. for a few weeks.  They are a good high dividend stock with earning power and a strong balance.  The markets appear to be validating this fact today.

I would look to buy Safe Bulkers if the price falls back under $7.75 per share.

http://bit.ly/SB3yrChart

Disclosure: I don’t own Safe Bulkers (SB) right now.

Safe Bulkers: Making a Move, Up 2.6% (SB)

(via COMTEX News Network)--

Safe Bulkers (NYSE: SB) is one of today's notable stocks on the rise, up 2.6% to $9.56. The S&P is currently trading fractionally higher to 1,331 and the Dow Jones Industrial Average is trading fractionally lower to 12,264.

Safe Bulkers is in SmarTrend's Shipping & Marine Services industry and this industry is currently in an Uptrend according to our research. We are monitoring many other stocks on the move within this industry.

In the last five trading sessions, the 50-day MA has climbed 1.29% while the 200-day MA has risen 0.3%.

In the past 52 weeks, shares of Safe Bulkers have traded between a low of $6.50 and a high of $9.39 and are now at $9.56, which is 47% above that low price.

SmarTrend currently has shares of Safe Bulkers in an Uptrend and issued the Uptrend alert on July 30, 2010 at $7.71. The stock has risen 20.9% since the Uptrend alert was issued.

Write to Chip Brian at cbrian@tradethetrend.com

Link to the original article: http://bit.ly/SBwayup

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Has the Baltic Dry Index hit bottom?

Bloomberg reported that the Baltic Dry Index may have seen its bottom and might be on the way back up.  This would be neutral news for Safe Bulkers Inc. (SB) because 79% of their ships are rented out already for 2011.  Their fleet, including newbuild vessels still under construction, are over 50% rented out for 2012 and 2013.
 
 
I don't think that the Baltic Dry Index has seen its bottom yet.  China's real estate/construction bubble has not burst yet.  When it does a lot of dry bulk ships are going to have to find new renters with new cargos.  Dry bulk shipping prices will drop.  That's when Safe Bulkers will shine because it has long term contracts with several customers.
 
Disclosure:  I don't own Safe Bulkers right now.
 
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TIP OF THE WEEK - Four Important Tickers to Monitor on a Weekly Basis. They Affect Your Wealth.

Four Important Tickers to Monitor on a Weekly Basis. They Affect Your Wealth.
Jason Brizic
Feb. 11, 2011

Last week's tip of the week focused on how I like to setup my chart views and indicators on www.stockcharts.com . Click on this link to read last week's tip of the week (http://bit.ly/LastTotW ). This week I would like to offer you my list of favorite tickers that I monitor using StockCharts.com and briefly why. This will save you time looking them up.

S&P 500 index - Use ticker $SPX. This ticker returns the S&P 500 large cap index. It is more representative of the US stock market than the Dow Jones Industrial Average of 30 stocks. The Dow is abnormally high because AIG was replaced by Kraft Foods. Big losers like AIG don't fall out of the S&P500 so easily. Consider the S&P 500 to be the market your trying to beat with your high dividend stock portfolio.
http://bit.ly/3yrSP500 Gold - Use ticker $GOLD. This ticker returns the price of gold at the end of the day. Physical gold coins belong in your investment plans as a crisis hedge and non-correlator. Unfortunately you can't see the intraday price of gold with this one. Use www.kitco.com or symbol GLD on Google Finance or stockcharts.com to see gold's intraday moves. Remember to multiply GLD's price times ten to get the price of gold. GLD does have one advantage over the kitco.com spot prices - GLD includes volume info.
http://bit.ly/3yrGold Oil - Use ticker $WTIC. WTIC stands for west Texas intermediate crude otherwise known as light crude oil. We can use oil as a non-correlator in our high dividend stock portfolios. So it is important to know the recent price of oil has been before you purchase any energy related ETFs, oil stocks, or energy related mutual funds. Also, many oil related stocks have high dividends above 6%. You can factor the oil price into your decision to buy high dividend oil stocks.
http://bit.ly/3yrOil Commodities - Use ticker $CCI. The Continuous Commodities Index (CCI) is an index of commodities which is not dominated by oil. It includes other commodities such as grains, meats, tropicals, and metals. For more info on this commodity index please go here: http://www.zealllc.com/2008/commcycl.htm. Commodities are good non-correlators for your portfolio and some of them like copper are leading economic indicators. Price inflation also hits commodities first. It is important to monitor them. The CCI lets you view them as a group.
http://bit.ly/3yrCommodities For more tips, go here:

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

How the Fed Fuels Unemployment.

Read this excellent, short article on how the Federal Reserve policies fuel unemployment past and present.  A basic understanding of Austrian economics can save you thousands of dollars by preventing you from being hoodwinked by the Fed and its shills in the financial press organizations (CNBC, Wall Street Journal, etc).

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How the Fed Fuels Unemployment

by Thomas J. DiLorenzo
by Thomas J. DiLorenzo
Recently by Thomas DiLorenzo: Another Court Historian’s False Tariff History

Testimony of Dr. Thomas DiLorenzo
Professor of Economics, Loyola University Maryland
Committee on Financial Services, Subcommittee on Domestic Monetary Policy and Technology
Wednesday, February 9, 2011
2128 Rayburn House Office Building

Mr. Chairman and members of the committee, I thank you for the opportunity to address the issue of today’s hearing: "Can Monetary Policy Really Create Jobs?" Since I am an academic economist, you will not be surprised to learn that I believe that the correct answer to this question is: "yes and no." Monetary policy under the direction of the Federal Reserve has a history of creating and destroying jobs. The reason for this is that the Fed, like all other central banks, has always been a generator of boom-and-bust cycles in the economy. Why this is so is explained in three classic treatises in economics: Theory of Money and Credit by Ludwig von Mises, and two treatises by Nobel laureate economist F.A. Hayek: Monetary Theory and the Trade Cycle and Prices and Production. Hayek was awarded the Nobel Prize in Economic Science in 1974 for this work. I will summarize the essence of this theory of the business cycle as plainly as I can.

When the Fed expands the money supply excessively it not only is prone to creating price inflation, but it also sows the seeds of recession or depression by artificially lowering interest rates, which can ignite a false or unsustainable "boom" period. Lower interest rates induce people to consume more and save less. But increased savings and the subsequent business investment that it finances is what fuels economic growth and job creation.

Lowered interest rates and wider availability of credit caused by the Fed’s expansionary monetary policy causes businesses to invest more in (mostly long-term) capital projects (primarily real estate in the latest boom-and-bust cycle), and there is an accompanying expansion of employment in those industries. But since the lower interest rates are caused by the Fed’s expansion of the money supply and not an increase in savings by the public (i.e., by the free market), businesses that have invested in long-term capital projects eventually discover that there is not enough consumer demand to justify their investments. (The reduced savings in the past means consumer demand is weaker in the future). This is when the "bust" occurs.

The economic damage done by the boom-and-bust policies of the Fed occur in the boom period when resources are misallocated in the ways described here. The "bust" period is actually a necessary cure for the economic miscalculations that have occurred, as businesses liquidate their unsound investments and begin to make decisions on realistic, market-based interest rates. Prices and wages must return to reality as well.

Government policies that bail out businesses that have made these bad investment decisions will only delay or prohibit economic recovery while encouraging more of such behavior in the future (the "moral hazard problem"). This is how short recessions can be turned into seemingly endless ones. Worse yet is for the Fed to create even more monetary inflation, rather than allowing the necessary economic adjustments to take place, which will eventually set off another boom-and-bust cycle.

As applied to today’s economic situation, it is obvious that the artificially low interest rates caused by the policies of the Greenspan Fed created an unsustainable boom in the housing market. Thousands of new jobs were in fact created – and then destroyed – giving an updated meaning to Joseph Schumpeter’s phrase "creative destruction." Many Americans who obtained jobs and pursued careers in housing construction and related industries realized that those jobs and careers were not sustainable after all; they were fooled by the Fed’s low interest rate policies. Thus, the Fed was not only responsible for causing the massive unemployment that we endure today, but also a great amount of what economists call "mismatch" unemployment. The skills that people in these industries developed were no longer in demand; they lost their jobs; and now they must retool and re-educate themselves.

The Fed has been generating boom-and-bust cycles from its inception in January of 1914. Total bank deposits more than doubled from 1914 to 1920 (partly because the Fed financed part of the American involvement in World War I) and created a false boom that turned to a bust with the Depression of 1920. GDP fell by 24% from 1920–1921, and the number of unemployed more than doubled, from 2.1 million to 4.9 million (See Richard Vedder and Lowell Galloway, Out of Work: Unemployment and Government in Twentieth-Century America). This was a more severe economic decline than was the first year of the Great Depression.

In America’s Great Depression economist Murray N. Rothbard demonstrated that, once again, it was the excessively expansionary monetary policy of the Fed – and of other central banks – that caused yet another boom-and-bust cycle that spawned the Great Depression. It was not the Fed’s subsequent restrictive monetary policy of 1929–1932 that was the problem, as Milton Friedman and others have argued, but its previous expansion. The Fed was therefore guilty of contributing greatly to the massive unemployment of the Great Depression.

In summary, the Fed’s monetary policies tend to create temporary and unsustainable increases in employment while being the very engine of recession and depression that creates a much greater degree of job destruction and unemployment.

February 10, 2011

Thomas J. DiLorenzo [send him mail] is professor of economics at Loyola College in Maryland and the author of The Real Lincoln; Lincoln Unmasked: What You’re Not Supposed To Know about Dishonest Abe and How Capitalism Saved America. His latest book is Hamilton’s Curse: How Jefferson’s Archenemy Betrayed the American Revolution – And What It Means for America Today.

Copyright © 2011 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

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Here is the link to the original article: http://www.lewrockwell.com/dilorenzo/dilorenzo200.html