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 - Why You Should Get Out of Debt Now

Why You Should Get Out of Debt Now

Jason Brizic

Jan. 14, 2011

Get out of consumer debt now while interest rates are at historic lows, so you can save more money when interest rates skyrocket in the new few years.  Have you ever looked at interest rate charts going back to 1979-1982?  Rates went above 20%!  People with little to no debt had savings on deposit earning huge yields..  High dividend stock yields will also be huge as the market tanks due to high interest rates.  Formulate a plan and get out of debt now while you still have a job!

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

Austrian Economics Aids the High Dividend Stock Investor Through the Market Minefield.

Investors accept the past record of companies as a basis for judging the future.  The stock analyst must be on the lookout for indicators to the contrary.  Most economists, stock analysts, mutual fund managers, hedge fund managers, and pension chief investment officers are schooled in Keynesian economics.  They can’t see the stock and bond market troubles ahead.  This is why they didn’t forecast the housing bubble and the subsequent stock market crash of late 2008.

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The ability to see what is coming is of inestimable value, but it cannot be expected to be part of the analyst’s innate abilities.  You should expect him to show a moderate degree of foresight which springs from logic and experience intelligently pondered.  Do not expect this from a Keynesian or Chicago school (supply-side) trained analyst.  Those economic theories are full of contradictions and will lead investors astray in the central bank induced boom-bust cycles.

Analysis of the future should be penetrating rather than prophetic.  Austrian economics is penetrating; Keynesian and Chicago school economics are prophetic.

There are many high dividend stocks that speculators overlook due to irregular or a downward earnings trend.  A penetrating analyst can pick out a company that will remain in business and can be counted on to earn about as much as before in good times (boom) and bad (bust).  A company in a prominent position in its industry with a strong balance sheet and selling at a deep discount can be bought with a very small chance of ultimate loss.  And it might very likely double during the next central bank engineered boom.

This type of reasoning does not lay emphasis on accurately predicting the industry’s future trends, but rather on reaching general conclusions that the company will continue to do business pretty much as before.

This is how private business purchases and investments are made.  This is also a conservative approach that allows for a liberal margin of safety in case of error or disappointment.  It runs considerably less risk of confusion between “confidence in the future” and mere speculative enthusiasm exhibited by most investors.

There were immense buying opportunities for high dividend stocks with earning power and strong balance sheets during late 2008 and the first quarter of 2009.  Don’t worry.  You haven’t missed your opportunity to scoop up great high dividend stocks at bargain prices.

There will be new buying opportunities in the next few years due to the insanity of nation, state, and local government deficit spending along with unprecedented counterfeiting by the central bankers worldwide.  All governments and central bankers are following the delusions of John Maynard Keynes.  Some are more delusional than others (e.g. the Federal Reserve and the US government).  Keynesian actions are characterized by massive money printing, to fund government deficit spending, on any so-called shovel ready projects, to build out the crumbling infrastructure, and to put people back to work digging holes while others fill them in, along with artificially lower interest rates that discourage savings.

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Top 10 Most Profitable Marine Transportation Stocks. Many Are High Dividend Stocks.

The marine transportation sector is filled with high dividend stocks yielding over 6%.  Today's article of the top 10 most profitable marine transportation stocks is from From China Analyst.com (www.cnanalyst.com).  Safe Bulkers is one of my favorites.  This is an awesome high dividend stock that should be bought when the market panics.
 
Safe Bulkers, Inc. (NYSE:SB) is the 1st most profitable stock in this segment of the market. Its net profit margin was 66.76% for the last 12 months. Its operating profit margin was 78.96% for the same period.

How Not to Analyze Earnings Deficits.

Analyzing earnings deficits is a tricky thing.  Many stocks earned deficits in 2009 including some high dividend stocks.  Should you only look at the deficits per share when comparing Company A to Company B, especially when both companies are selling for the same price in the market?  Of course not.

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I have been analyzing American Capital Agency Corp. (AGNC) for the last few months.  AGNC has not experienced a deficit in its short history.  The company went public in 2008 and income has been increasing every year (so far).  So the following does not apply to them.

Below is the appropriate excerpt from Benjamin Graham’s and David Dodd’s excellent book “Security Analysis”.  Apply their wisdom to your high dividend stocks that might have some earnings losses over the last five years.

* * * * * * * *

Deficits a Qualitative, Not a Quantitative Factor.  When a company reports a deficit for the year, it is customary to calculate the amount in dollars per share or in relation to interest requirements. The statistical manuals will state, for example, that in 1932 United States Steel Corporation earned its bond-interest “deficit 12.40 times” and that it showed a deficit of $11.08 per share on its common stock. It should be recognized that such figures, when taken by themselves, have no quantitative significance and that their value in forming an average may often be open to serious question.

Let us assume that Company A lost $5 per share of common in the last year and Company B lost $7 per share. Both issues sell at 25. Is this an indication of any sort that Company A stock is preferable to Company B stock? Obviously not; for assuming it were so, it would mean that the more shares there were outstanding the more valuable each share would be. If Company B issues 2 shares for 1, the loss would be reduced to $3.50 per share, and on the assumption just made, each new share would then be worth more than an old one. The same reasoning applies to bond interest. Suppose that Company A and Company B each lost $1,000,000 in 1932. Company A has $4,000,000 of 5% bonds and Company B has $10,000,000 of 5% bonds. Company A would then show interest earned “deficit 5 times” and Company B would earn its interest “deficit 2 times.”  These figures should not be construed as an indication of any kind that Company A’s bonds are less secure than Company B’s bonds. For, if so, it would mean that the smaller the bond issue the poorer its position—a manifest absurdity.

When an average is taken over a period that includes a number of deficits, some question must arise as to whether or not the resultant figure is really indicative of the earning power. For the wide variation in the individual figures must detract from the representative character of the average.  This point is of considerable importance in view of the prevalence of deficits during the depression of the 1930’s. In the case of most companies the average of the years since 1933 may now be thought more representative of indicated earning power than, say, a ten-year  average 1930–1939.

* * * * * * * *

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Volcker Leaves the Obama Team

Bill Bonner reports that former Federal Reserve chairman Paul Volcker has left the Obama economic advisory team (www.dailyreckoning.com). This means that there is no dissenting opinion to Ben Bernanke's money printing and historic low interest rate madness. Don't get me wrong. Massive double digit price increases are on there way in the next couple of years regardless of Volker's presence. Volker could have dampened the eagerness to print more fiat dollars once price inflation reaches double digits. Imagine the public outcry when gasoline reaches $6.00 per gallon. Perhaps we haven't seen the last of Mr. Volker.

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Prepare for massive price inflation that makes the late 1970's look like a great time. Ignore warnings of deflation until the Federal Reserve abandons quantitative easing and they refuse to buy Treasuries. High dividend stocks can help you stay ahead of the price increases. Subscribe to www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

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Last Article Ended Prematurely. Here Is The Rest.

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This article is part of our Rising Star Portfolios series. You can read about the Dada Portfoliohere.

Unemployment is obstinate, companies are operating below capacity, and inflation is low.

Are there any companies that can actually benefit from the slump?

Why, yes there are
The name that's caught my interest is Annaly Capital 

(NYSE: NLY)
, one of the largest publicly traded residential real estate investment trusts (REITs).

Annaly's business model seems complicated, but it's actually pretty straightforward: Imagine if you could borrow $10,000 at 2%, lend it at 4% to a guaranteed borrower, and keep the $200 difference.

That's Annaly's business in a nutshell. The company issues shares to raise capital, which it levers up with short-term financing. It uses this capital to buy longer-term mortgage-backed securities (MBS's), collects the interest on these securities or sells them, and then repays its lenders.

Virtually all the leftover profit is returned to shareholders via dividends. This currently works out to a 15% yield. (As a REIT, Annaly is required to distribute least 90% of its earnings as a dividend in exchange for not having to pay corporate income taxes. However, this dividend can be taxed differently than normal dividends.)

The diagram below shows how it all comes together, with arrows representing money flows:

anImage

Shareholders and lenders provide Annaly with capital which the company uses to buy mortgage-backed securities.

The bulk of Annaly's profit is the difference between the short term rates at which it borrows, and the long term rates at which it lends, multiplied by the amount of leverage it employs – currently 6.4 times.

This is similar to the profit model employed by many proprietary traders at banks likeGoldman Sachs (NYSE: GS)

JPMorganBank of America(NYSE: BAC), and Citigroup (NYSE: C). The difference is that Annaly's investments are probably safer (all of them are issued and guaranteed by U.S. government agencies), a greater portion of the rewards are distributed to shareholders rather than as bonuses to traders, and proprietary trading will theoretically become illegal for the aforementioned banks should regulators actually enforce financial reform legislation.

There are other companies similar to Annaly, such as American Capital Agency (Nasdaq: AGNC)Hatteras Financial (NYSE: HTS), and Annaly-managed Chimera (NYSE: CIM). But Annaly's bigger, has an ultra-safe portfolio, a long track record, and a strong management team headed up by Michael Farrell.

Here's where things get good
When inflation is too low and unemployment too high -- as is the case today -- the Federal Reserve lowers short term interest rates to stimulate the economy. The Fed is currently targeting 0%-0.25%, pretty much as low as you can go.

Since short-term rates are more responsive to the Fed's low interest rate targeting and Annaly borrows at short-term rates to purchase longer-term securities, its costs have fallen significantly faster than the interest it collects.

Check out how the declining Fed funds rate (green) drags down Annaly'sborrowing costs (red) much faster than its investments yield (blue). The area between red and blue is Annaly's interest spread (profit):

anImage


Source: Company filings and the Federal Reserve Bank of New York.

This is an awesome environment for Annaly. The current spread of 2.11% (the area between the blue and red lines and the key determinant of the company's profitability) -- is nearly double its historical average of approximately 1.20%.

And it's one that's likely to persist for some time. As it's exceedingly unlikely we're going to see any meaningful economic stimulus to address unemployment emerge from the soon-to-be Republican-controlled House of Representatives and dysfunctional Senate, we can expect the slump – and low interest rates – to continue for some time. Traditional monetary rules prescribe as many as four years (!) of near-zero percent interest rates to cope even with mainstream economic forecasts.

Scenarios galore
Here are a few possible scenarios and their outcomes for our investment in Annaly, ranked from most to least likely.

  • The slump goes on: We continue to collect dividends on a massive interest spread – approximately 10%-15% annually.
  • Fed gets more aggressive: Intensified policies like quantitative easing that seek to lower long-term interest rates could put the squeeze on Annaly's interest spread. Annaly sells its investments at a profit and pays a dividend.
  • Employment recovers or inflation rises: Fed raises interest rates, Annaly's profits decline and investments fall in value. While Annaly is partially hedged and I don't expect this to happen for at least a couple of years, this would be a bad situation for our investment in Annaly.
  • Radical GSE reform: Legislation pulls the rug out from under the mortgage market by removing federal guarantees for Fannie- and Freddie-issued securities. In this unlikely scenario, Annaly could have to switch business models, but our downside is protected somewhat by the stock's modest (1.2 times book value) valuation.

We're buying
We're buying $500 of Annaly shares. The most likely outcome is that the economy will remain sluggish, interest rates stay more-or-less favorable, and the Dada Portfolio collects a large yield for at least a year or two.

We're not expecting much share appreciation from Annaly, as the company, by law, retains very little of its earnings. Growth is often financed with share offerings, though the company has historically done of good job of selling when its valuation is high.

Instead, we're buying the stock for its tasty 15% yield that should remain high so long as the economy lumbers along and the Fed holds interest rates down.

The Dada Portfolio is a part of the Rising Star series of real money portfolios. It is co-managed by Sean Sun and Ilan Moscovitz

Should You Buy High Dividend REITs? The Motley Fool and I Disagree.

The market is already driving interest rates higher.  This is going to narrow profits at all of the REITs.  These high dividend stocks are for short term investors looking for a quick 3.5-5% quarterly dividend.  Remember that they are not qualified dividends that are taxed at 15%.  They are taxed as ordinary income (meaning 25% - 35%) for higher income investors.  Buy these at the bottom of the next crash if you really believe in the sustainability of there business models.

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The Federal Reserve is not currently in control of the Fed Funds rate (the rate that banks charge each other for overnight loans to meet their reserve requirements).  The large commercial banks are in control of this rate because they are flush with over a trillion dollars in excess reserves.  They aren't borrowing from each other overnight.  The short term rates can and will rise outside of the Federal Reserves control.

Recs

108

    Rising Star Buy: Annaly Capital


     | Comments (27)

    Don't let it get away!

    Keep track of the stocks that matter to you.

    Help yourself with the Fool's FREE and easy new watchlist service today.

    This article is part of our Rising Star Portfolios series. You can read about the Dada Portfolio here.

    Unemployment is obstinate, companies are operating below capacity, and inflation is low.

    Are there any companies that can actually benefit from the slump?

    Why, yes there are
    The name that's caught my interest is Annaly Capital(NYSE: NLY), one of the largest publicly traded residential real estate investment trusts (REITs).

    Annaly's business model seems complicated, but it's actually pretty straightforward: Imagine if you could borrow $10,000 at 2%, lend it at 4% to a guaranteed borrower, and keep the $200 difference.

    That's Annaly's business in a nutshell. The company issues shares to raise capital, which it levers up with short-term financing. It uses this capital to buy longer-term mortgage-backed securities (MBS's), collects the interest on these securities or sells them, and then repays its lenders.

    Virtually all the leftover profit is returned to shareholders via dividends. This currently works out to a 15% yield. (As a REIT, Annaly is required to distribute least 90% of its earnings as a dividend in exchange for not having to pay corporate income taxes. However, this dividend can be taxed differently than normal dividends.)

    The diagram below shows how it all comes together, with arrows representing money flows:

    anImage

    Shareholders and lenders provide Annaly with capital which the company uses to buy mortgage-backed securities.

    The bulk of Annaly's profit is the difference between the short term rates at which it borrows, and the long termrates at which it lends, multiplied by the amount ofleverage it employs – currently 6.4 times.

    This is similar to the profit model employed by many proprietary traders at banks likeGoldman Sachs (NYSE:GS)JPMorganBank of America (NYSE: BAC), andCitigroup (NYSE: C). The difference is that Annaly's investments are probably safer (all of them are issued and guaranteed by U.S. government agencies), a greater portion of the rewards are distributed to shareholders rather than as bonuses to traders, and proprietary trading will theoretically become illegal for the aforementioned banks should regulators actually enforce financial reform legislation.

    There are other companies similar to Annaly, such asAmerican Capital Agency (Nasdaq: AGNC)Hatteras Financial (NYSE: HTS), and Annaly-managed Chimera(NYSE: CIM). But Annaly's bigger, has an ultra-safe portfolio, a long track record, and a strong management team headed up by Michael Farrell.

    Here's where things get good
    When inflation is too low and unemployment too high -- as is the case today -- the Federal Reserve lowers short term interest rates to stimulate the economy. The Fed is currently targeting 0%-0.25%, pretty much as low as you can go.

    Since short-term rates are more responsive to the Fed's low interest rate targeting and Annaly borrows at short-term rates to purchase longer-term securities, its costs have fallen significantly faster than the interest it collects.

    Check out how the declining Fed funds rate (green) drags down Annaly's borrowing costs (red) much faster than its investments yield (blue). The area between red and blue is Annaly's interest spread (profit):

    anImage


    Source: Company filings and the Federal Reserve Bank of New York.

    This is an awesome environment for Annaly. The current spread of 2.11% (the area between the blue and red lines and the key determinant of the company's profitability) -- is nearly double its historical average of approximately 1.20%.

    And it's one that's likely to persist for some time. As it's exceedingly unlikely we're going to see any meaningful economic stimulus to address unemployment emerge from the soon-to-be Republican-controlled House of Representatives and dysfunctional Senate, we can expect the slump – and low interest rates – to continue for some time. Traditional monetary rules prescribe as many as four years (!) of near-zero percent interest rates to cope even with mainstream economic forecasts.

    Scenarios galore
    Here are a few possible scenarios and their outcomes for our investment in Annaly, ranked from most to least likely.

    What Does a Trillion Dollars Look Like?

    This is an amazing visual of what a trillion dollars looks like. Please click on the Google Ads if you like the content of this blog.

    http://www.pagetutor.com/trillion/index.html Be seeing you!

    TIP OF THE WEEK - REITs and other stocks don't qualify for lower dividend tax treatment

    REITs and other stocks don’t qualify for lower dividend tax treatment

    Jason Brizic

    Jan. 7, 2011

    On December 17th, 2010 president Obama signed the bill extending the Bush tax cuts for another two years.  Investors who receive qualified dividends will continue to enjoy the same 15% maximum tax rate as capital gains.

    REITs, master limited partnerships (MLPs), and some foreign stocks don’t qualify and are taxed as ordinary income.  Foreign stocks that are American Depository Receipts (ADRs) are qualified.  Annaly Capital (NYSE: NLY) and American Capital Agency Corp(Nasdaq: AGNC) are among the many high-yielding REITs whose dividends don't qualify for the 15% maximum rate.

    REITs, MLPs, and foreign dividends are taxed at the rate of your ordinary income.  For most investors that means 25%, 28%, 33%, or 35% dividend tax depending on your income.

    Tax bracket

    AGNC after tax dividend yield

    @ 19.5% market yield

    NLY after tax dividend yield

    @ 14.6% market yield

    10%

    17.55%

    13.14%

    15%

    16.56%

    12.41%

    25%

    14.63%

    10.95%

    28%

    14.04%

    10.51%

    33%

    13.07%

    9.78%

    35%

    12.68%

    9.49%

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    Are You Confused About the Prospects of Hyperinflation, Massive Inflation, and/or Deflation?

    Yesterday’s blog post “How the Stock Market and the Economy Really Work” http://bit.ly/edAgNT shined light on the little reported fact that the stock market indices and the economic GDP numbers go up with the increase in the money supply.  Today’s post covers what is going on right now with the US money supply.

    Please click on the Google Ads if you like the content of this blog and you want more of it.  I'm evaluating the profitability of this blog with the responses to those ads.  If you don't see the Google Ads, then please visit my main site at www.myhighdividendstocks.com and give them a click.  Thanks you for your support.

    The past and future actions of the Federal Reserve will affect every investor and saver.  Pay attention to the central bankers actions and plan your high dividend stock investments accordingly.

    Rockwell interviews Jorg Guido Hülsmann.

    Quantitative easing is designed to bail out the federal debt, but it may presage Weimar.Dr. Hulsmann discusses the evils of central banking and fractional reserves, the blessings of deflation, and how Austrian economists are making vast progress.

    Enjoy this excellent audio interview.  http://bit.ly/gcroyR

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