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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.

American Capital Agency Corp. (AGNC) goes ex-dividend tomorrow.

American Capital Agency Corp (NASDAQ: AGNC) is going ex-dividend tomorrow. To receive the dividend, the stock must be owned the day prior to the ex-dividend date. The current yield is 18.6%, which is equivalent to $5.6 for the year.  Watch the price drop following the ex-dividend date.  It usually drops the equivalent of the dividend which is $1.40 per share.
 
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American Capital Agency Corp. (AGNC) Risk Factors. Have you read and understand them?

AGNC published its 2010 annual report a month or so ago.  There are 18 pages of risks.  I have summarized them for you here.  Many of them will occur in the future due to the fragile nature of the fractional reserve banking system and the national socialist government interference into the mortgage markets.  I urge you to read and understand these risks before you invest your hard earned capital into American Capital Agency Corp.

I have said many times in the past that AGNC will continue to be a ultra high dividend stocks for the near term, but they will be decimated in the long term.  Plan and invest accordingly.  I believe that there are much better high dividend stocks out there in the stock market attractively priced with a safe dividend and a strong balance sheet.  I like the dry bulk shipper Safe Bulkers (SB) the best.  See my articles on this company for an example of a quality high dividend stock.

For a better understanding of the fraud that is fractional reserve banking read Murray Rothbard’s “The Mystery of Banking”.  This is the book that the FED would most want burned.  http://mises.org/resources/614/Mystery-of-Banking-The

For a brief introduction and warning on GSE’s (Fannie Mae and Freddie Mac) written back in the early 2000’s: http://mises.org/freemarket_detail.aspx?control=391

Item 1A. Risk Factors

You should carefully consider the risks described below and all other information contained in this Annual Report on Form 10-K, including our annual consolidated financial statements and the related notes thereto before making a decision to purchase our securities. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance.

If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. If that happens, the trading price of our securities could decline, and you may lose all or part of your investment.

Risks Related to Our Investing, Active Portfolio Management and Financing Strategy

1.     We may experience significant short-term gains or losses and, consequently, greater earnings volatility as a result of our active portfolio management strategy.

2.     The potential of the U.S. Government to limit or wind down the role Fannie Mae and Freddie Mac play in the mortgage-backed securities market may adversely affect our business, operations and financial condition.

3.     To the extent that we invest in agency securities that are guaranteed by Fannie Mae and Freddie Mac, we are subject to the risk that these U.S. Government-sponsored entities may not be able to fully satisfy their guarantee obligations or that these guarantee obligations may be repudiated, which may adversely affect the value of our investment portfolio and our ability to sell or finance these securities.

4.     New laws may be passed affecting the relationship between Fannie Mae or Freddie Mac, on the one hand, and the U.S. Government, on the other, which could adversely affect the availability and pricing of  agency securities and the ability to obtain financing against agency securities.

5.     Market conditions have disrupted the historical relationship between interest rate changes and prepayment trends, which make it more difficult for our Manager to analyze our investment portfolio.

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

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

8.    Changes in the underwriting standards by Freddie Mac or Fannie Mae could have an adverse impact on the agency securities in which we invest.

9.    Failure to procure adequate repurchase agreement financing, or to renew (roll) or replace existing repurchase agreement financing as it matures, would adversely affect our results of operations and may, in turn, negatively affect the market value of our common stock and our ability to make distributions to our stockholders.

10.  Pursuant to the terms of borrowings under our master repurchase agreements, we are subject to margin calls that could result in defaults or force us to sell assets under adverse market conditions or through foreclosure.

11.  If our lenders pursuant to our repurchase transactions default on their obligations to resell the underlying agency security back to us at the end of the transaction term, or if the value of the underlying agency security has declined by the end of the term or if we default on our obligations under the transaction, we will lose money on these transactions.

12.  Differences in timing of interest rate adjustments on adjustable-rate agency securities we may acquire and our borrowings may adversely affect our profitability and our ability to make distributions to our stockholders.

13.  Interest rate caps on mortgages backing our adjustable rate agency securities may adversely affect our profitability.

14.  An increase in interest rates may cause a decrease in the volume of newly issued, or investor demand for, agency securities, which could adversely affect our ability to acquire assets that satisfy our investment objectives and to generate income and pay dividends, while a decrease in interest rates may cause an increase in the volume of newly issued, or investor demand for, agency securities, which could negatively affect the valuations for our agency securities and may adversely affect our liquidity profile.

15.  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.

16.  Changes in prepayment rates may adversely affect our profitability.

17.  Changes in accounting rules may adversely affect our profitability.

18.  Our hedging strategies may not be successful in mitigating the risks associated with interest rates.

19.  Our use of certain hedging techniques may expose us to counterparty risks.

20.  Pursuant to the terms of our master swap agreements, we are subject to margin calls that could result in defaults or force us to sell assets under adverse market conditions or through foreclosure.

21.  We may fail to qualify for hedge accounting treatment.

22.  Our strategy involves significant leverage, which may cause substantial losses.

23.  Our rights under our repurchase agreements will be subject to the effects of the bankruptcy laws in the event of the bankruptcy or insolvency of us or our lenders under the repurchase agreements.

24.  Future offerings of debt securities, which would rank senior to our common stock upon our liquidation, and future offerings of equity securities, which could dilute our existing stockholders and may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock.

25.  We have not established a minimum dividend payment level and we cannot assure you of our ability to pay dividends in the future.

26.  The stock ownership limit imposed by the Internal Revenue Code for REITs and our amended and restated certificate of incorporation may restrict our business combination opportunities.

27.  The stock ownership limitation contained in our amended and restated certificate of incorporation generally does not permit ownership in excess of 9.8% of our common or capital stock, and attempts to acquire our common or capital stock in excess of these limits will be ineffective unless an exemption is granted by our Board of Directors.

28.  Anti-takeover provisions in our amended and restated certificate of incorporation and bylaws could discourage a change of control that our stockholders may favor, which could also adversely affect the market price of our common stock.

Risks Related to Conflicts of Interest in Our Relationship with Our Manager and American Capital

1.     The management agreement was not negotiated on an arm’s-length basis and the terms, including fees payable, may not be as favorable to us as if it were negotiated with an unaffiliated third party.

2.     We have no employees and our Manager is responsible for making all of our investment decisions. Certain of our Manager’s officers are employees of American Capital and are not required to devote any specific amount of time to our business and each of them may provide their services to American Capital, its affiliates and sponsored investment vehicles, which could result in conflicts of interest.

3.     We are completely dependent upon our Manager and certain key personnel of American Capital who provide services to us through the management agreement and the administrative services agreement and we may not find suitable replacements for our Manager and these personnel if the management agreement and the administrative services agreement are terminated or such key personnel are no longer available to us.

4.     We have no recourse to American Capital if it does not fulfill its obligations under the administrative services agreement.

5.     If we elect to not renew the management agreement without cause, we would be required to pay our Manager a substantial termination fee. These and other provisions in our management agreement make non-renewal of our management agreement difficult and costly.

6.     Our Manager’s management fee is based on the amount of our Equity and is payable regardless of our performance.

Risks Related to Our Business Structure

1.     Loss of our exemption from regulation pursuant to the Investment Company Act would adversely affect us.

2.    We are exposed to potential risks from legislation requiring companies to evaluate their internal control over financial reporting.

3.    We are highly dependent on information and communications systems. Any systems failures could significantly disrupt our business, which may, in turn, negatively affect our operations and the market price of our common stock and our ability to pay dividends to our stockholders.

Risks Related to Our Taxation as a REIT

1.    If we do not qualify as a REIT or fail to remain qualified as a REIT, we will be subject to tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our stockholders.

2.    Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

3.    REIT distribution requirements could adversely affect our ability to execute our business plan.

4.    Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.

5.    Complying with REIT requirements may cause us to forgo otherwise attractive opportunities.

6.    Complying with REIT requirements may force us to liquidate otherwise attractive investments.

7.    The failure of agency securities subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to qualify as a REIT.

8.    Liquidation of assets may jeopardize our REIT qualification.

9.    Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.

10.  Qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code.

11.  As a REIT, if we derive net income from prohibited transactions (as defined in the Internal Revenue Code provisions) it is subject to a 100% tax.

Risks Related to Our Common Stock

1.    Changes in laws or regulations governing our operations or our failure to comply with those laws or regulations may adversely affect our business.

2.    The market price of our common stock may fluctuate significantly.

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Don't buy Southern Copper (SCCO) now despite predictions of higher copper prices.

Southern Copper is a massive copper producer and it is a high dividend stock.  But you shouldn’t buy it now at such a high price and will a likely fall in the price of copper.  Motley Fool writer Ilan Moscovitz gave Southern Copper a clean bill of dividend health, but he did not explain how he came up with his dividend payout ratio numbers or mention the price of the shares.  Are they value priced or speculative?

I came up with a completely different and higher dividend payout ratio than Mr. Moscovitz’s 93%.  SCCO has 850 million shares outstanding.  The company is paying a quarterly dividend of $0.56 per share which equates to an annual dividend of $2.24 per share.  It earned $1.83 per share in 2010.  This equates to a 122% dividend payout ratio when using the current dividend divided by last year’s EPS.  I’m going to perform a second calculation using the five year average earnings per share (adjusted for changes in capitalization) of $1.92.  The dividend payout ratio would be 116% ($2.24 dividend/$1.92 avg EPS).  Where does he get 93%?  I checked the 1Q2011 financial statements and the company earned $0.56/share and it will pay a dividend of $0.56/share, so the dividend payout ratio is at least 100% if you consider the first quarter of 2011 indicative of its 2011 overall performance.  Sheeesh!  I’m beginning to think Mr. Moscovitz doesn’t know what he’s writing about.  The bottom line is that Southern Copper’s dividend is not safe at $0.56/quarter.

I think that SCCO is too expensive right now.  The stock is trading at roughly 18 times its five year average earnings of $1.92.  Wait until the global double dip takes it down below $24.00 before you risk your capital on this copper miner.

Southern Copper (SCCO) lives or dies on the price of copper in the global marketplace.  Copper has been priced in the $3.00 to $4.00 per pound for four of the past five years.  The 2009 price dropped to a low of around $1.50 per pound.  It finished the day at $4.11 per pound yesterday.  SCCO made a profit in 2009 of $929 million (down from $2.216 billion net income in 2007 at the height of the global infrastructure boom).  What direction will the price of copper go throughout the rest of 2011?  You must at least acknowledge this question before any serious investment in SCCO. 

I’m going to take you through an analysis of a Kitco.com article on copper price expectations.  My comments are in bold and bracketed.

Copper Expected To Languish Over Summer But Pick Up Into Year-End

15 June 2011, 2:16 p.m.
By Allen Sykora
Of Kitco News
http://www.kitco.com/

 

 

[Why should the price of copper languish over the summer?  Who are these faceless, unnamed analysts?]

(Kitco News) - Copper should languish over the summer after the early 2011 bullish enthusiasm, but analysts expect renewed demand later this year that could push prices again to near or above $10,000 a metric ton.

[The supply of copper in the London Metal Exchanges warehouses have been building since the end of late 2010.  LME stocks decrease when supply is constrained.  There is a report out by Bloomberg that domestic copper supplies in China are dwindling.  The Chinese government has created a real estate bubble that is going to pop.  That bubble consumes a lot of copper to build the equivalent all the real estate of Houston, Texas each month.  It will pop and the copper demand that these Keynesian economists are forecasting will evaporate.  The price of copper will fall.  The price of Southern Copper stock will fall.

]

Some already point to signs of some improvement, such as rising premiums for physical copper in key consuming regions. Any meaningful pick-up in demand should be supportive since supply remains constrained due to factors such as labor disruptions, declining grades and limited new major discoveries.

Three-months copper closed at $9,154 a metric Wednesday on the London Metal Exchange, down 10.2% from a record of $10,190 in mid-February.

[Why is the LME copper stock increasing if the supply side is restrained?  The demand side at $4.11/lb is definitely weakening due to the Chinese governments efforts to stop the price inflation and real estate bubble that they created with their Keynesian mercantilist policies]

“The supply side is pretty restrained on copper,” said Edward Meir, analyst with MF Global. “Not too many people are capable of cranking out extra output. But the demand side is weakening.”

Much of the U.S. economic data over the last month has been softer than expected, raising concerns about future consumption of industrial commodities such as copper.

[So why will there be a pickup in copper prices at the end of the year?  All this supporting evidence points to lower copper prices.]

Further, there are worries that Chinese authorities have been successful in slowing their economy to avoid an overheating. A massive spring earthquake in Japan also dented demand for some industrial metals. Meanwhile, inventories of copper in LME warehouses have risen to 475,750 from 377,550 at the end of 2010.

Several analysts said copper could fall some more in the next couple of months due to this uncertain backdrop, and also because of slower seasonal demand  during the vacation season and maintenance shutdowns in the Northern Hemisphere.

“There is so much that could go wrong,” said Leon Westgate, base-metals analyst with Standard Bank. “There is the potential for a Greek default. There is potential for China tightening even more aggressively and probably overdoing things.”

Chinese buyers have been largely sidelined. “The physical demand from China has picked up from the lows seen in March, but it’s still far from spectacular,” Westgate said.

Catherine Virga, director of research with CPM Group, suggested copper is “vulnerable in the near term” and could fall back to the $8,500 region. Meir figures copper could drop to $7,800 to $8,000 over the summer.

“We might not see a sharp turnaround until market conditions get a little bit tighter,” Virga said.

Weakness Seen By Many As Buying Opportunity

Some analysts, however, believe any copper weakness may well end up being a buying opportunity.

[There will be a double dip recession.  Keynesian deficit spending all over the world is destroying capital that will not be invested by entrepreneurs.]

“Fundamentally, I continue to like it,” said Bart Melek, head of commodity strategy, rates and foreign-exchange research with TD Securities. “But investors, traders and the community broadly will have to be convinced that the current soft patch in global economic growth…is temporary and will not morph into some sort of more insidious decline, with potential for a double-dip recession.”

[Mr. Melek expressed optimism that U.S. economic data will improve in the second half of the year.  What does he base his optimism on?  Keynesian economic theory that deficit spending by governments is beneficial to increase the standard of living for all.  The Austrian school refutes this.  Experience refutes this.  Read any of Gary North’s free articles for a good explanation of why Mr. Melek is clueless: http://www.lewrockwell.com/north/north-arch.html]

The market has not yet gotten sufficient data to confirm the recent economic slow patch is only temporary, which could mean more pressure on commodities generally. Copper could fall another 5%, Melek said. Nevertheless, he expressed optimism that U.S. economic data will improve in the second half of the year.

[The global economy is going to fall apart before it gets better.  The malinvestments of the boom haven’t been liquidated.  Banks are holding hundreds of billions in bad loans.  Central banks are printing money like never before.  All hope is placed on Chinese bureaucrats who are trying to quell possible rebellion due to high unemployment and high price increases.  The Eurozone is falling apart and the US federal, state, and local governments are broke.  Governments are trying to increase taxes.  This take money away from individuals.  It crowds out capital investment by individuals seeking profits and put their money in the hands of bureaucrats buying votes on money losing projects.]

“I would be buying these dips or corrections,” Melek said. “The fundamentals are strong. We here at TDS are quite convinced that the global economy isn’t going to fall apart. It’s going to grow at just under 4% or so.”

To be convinced of stronger fundamentals, the market may want to see more bullish monthly Chinese import figures and drawdowns in LME warehouse inventories of copper. Melek looks for LME warehouse stocks to decline later this year and points out that Shanghai Futures Exchange inventories are already down.

Already, there are some early signs of improvement in copper demand, Virga said. The premium in Shanghai rose to $112 a metric ton as last week wound down, well up from $20 in mid-May. European premiums rose to $92.50 from $57 in mid-May. 

Further, the premium between London and Shanghai exchange prices has narrowed from May, creating an incentive for China to start picking up more copper on the international market, Virga said.

Yet another potential supportive influence is pending exchange-traded funds that would be backed by copper holdings, should these be approved in the coming months by the U.S. Securities and Exchange Commission, Virga said. This would add to investment demand.

Demand Grows Less Quickly Than Expected, But 2011 Deficit Still Expected

[The expectations are all based on Chinese demand growth.  China is a bubble.  Watch the video in the top 10 search results for google search ‘China bubble Jim Chanos’ if you don’t believe me.  Chanos is not the only one calling a China bubble, but he is one of the most credible due to his shorting of Enron before it fell.]

Overall copper demand has not grown as robustly as some were forecasting last year, Virga said. “But it is still positive and is going to outpace supply, particularly because of so many disruptions.”

One such disruption getting attention lately is a strike at the world’s No. 5 copper mine, El Teniente in Chile.

Meir and Westgate both look for “modest” 2011 supply/demand deficits. Meir anticipates 150,000 to 200,000 tons. Westgate expects some 200,000 tons.

Others anticipate  larger deficits. CPM Group projects 390,000 tons,   Melek looks for 400,000, and Harbor Intelligence thinks there will be  a deficit between 500,000 and 600,000 tons.

Melek anticipates LME copper will get back near $10,000 in the second half of the year. CPM Group projects copper averaging $9,800 a metric ton in the third quarter and $10,250 in the fourth, Virga said.

Jesus Villegas, analyst with Harbor, looks for copper to hit all-time highs again either in the fourth quarter or else in early 2012, perhaps hitting $5 a pound and $11,000 a ton. By then, he said, copper will be past its seasonally slow period and fund and other speculative money should be flowing back into the market.

Meir, however, figures copper has already put in its high for the year. After a fall to $7,800-$8,000 in the next two to three few months, he anticipates a range of $8,000 to $9,500 for the remainder of the year.

Westgate looks for a 2011 average cash price of $9,525, with $9,750 in the fourth quarter. He anticipates the copper market will be tighter in 2012 than this year, with prices also rising next year.

By Allen Sykora of Kitco News; asykora@kitco.com

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Southern Copper: Dividend Dynamo or Blowup?

http://www.fool.com/investing/general/2011/06/15/southern-copper-dividend-dyn...

Ilan Moscovitz
June 15, 2011

Dividend investing is a tried-and-true strategy for generating strong, steady returns in economies both good and bad. But as corporate America's slew of dividend cuts and suspensions over the past few years has demonstrated, it's not enough simply to buy a high yield. You also need to make sure those payouts are sustainable.

Let's examine how Southern Copper (NYSE: SCCO  ) stacks up in four critical areas to determine whether it's a dividend dynamo or a disaster in the making.

1. Yield
First and foremost, dividend investors like a large yield. But if a yield gets too high, it may reflect investors' doubts about the payout's sustainability. If investors had confidence in the stock, they'd be buying it, driving up the share price and shrinking the yield.

Southern Copper yields 7.3% -- rather high and worthy of closer examination.

2. Payout ratio
The payout ratio might be the most important metric for judging dividend sustainability. It compares the amount of money a company pays out in dividends to the amount it generates. A ratio that's too high -- say, greater than 80% of earnings -- indicates that the company may be stretching to make payouts it can't afford.

Southern Copper's payout ratio is an aggressive 93%, though its free cash flow payout ratio is a more reasonable 61%.

3. Balance sheet
The best dividend payers have the financial fortitude to fund growth and respond to whatever the economy and competitors throw at them. The interest coverage ratio indicates whether a company is having trouble meeting its interest payments -- any ratio less than five is a warning sign. Meanwhile, the debt-to-equity ratio is a good measure of a company's total debt burden.

Let's examine how Southern Copper stacks up next to its peers:

Company

Debt-to-Equity Ratio

Interest Coverage Ratio

Southern Copper

70%

       15

Freeport-McMoRan (NYSE: FCX  )

30%

       24

Newmont Mining (NYSE: NEM  )

27%

       16

Teck Resources (NYSE: TCK  )

29%

        7

Source: Capital IQ, a division of Standard & Poor's.

Southern Copper's debt burden appears higher than its peers, though the absolute level is moderate.

4. Growth
A large dividend is nice; a large growing dividend is even better. To support a growing dividend, we also want to see earnings growth.

Over the past five years, Southern Copper's earnings per share have grown 3% annually, while its dividend has grown at 7%.

The Foolish bottom line
Southern Copper exhibits a fairly clean dividend bill of health. Its payout ratio appears somewhat aggressive, however, so maintaining or growing those payouts will depend on the company's ability to expand production and the prices of its commodities can fetch.

Are you missing out on a 8.47 dividend yielder near it 52 week low?

Safe Bulkers (SB) is on sale.  Did you miss buying Safe Bulkers (SB) just 8.4 percent above its 52 week low?  Safe Bulkers closed at $7.22 per share today (+$0.14 from yesterday).  This high dividend stocks yield is currently 8.47 percent.  The $0.15 quarterly dividend is safe, it has average five year earning power of $1.90, and it balance sheet is good.
 
The present $0.15 quarterly dividend is safe even if you disregard the small amount Safe Bulkers revenue generated from several ships not on long term contracts.  Those ships are operating in the depressed spot market, but they are not idle.  Here is a summary of the company's contracted vessels over the next three years.  This information comes from Safe Bulkers latest quarterly earnings press release
     2011: 75% of Safe Bulkers 16 ship fleet is contracted.  25% of the fleet is operating in the spot market.
     2012: the contracted fleet ownership days drops to 59%.  39% would have to operate in the spot market unless SB finds some long-term contracts to enter into.
     2013: the contracted ownership days drops to a little more to 52%.  48% of the fleet is not under contract yet.
 
These number do not include the new-build addition of 14 new ships to the fleet between today and 2014.
 
How can I calculate estimated revenues for SB over the next few years?  Here is my formula.  I will multiple the number of ships in the fleet (16) times the number of days the fleet is contracted (365 x the contacted percentage) times the time charter equivalent from 2010 ($29,300).  Safe Bulkers time-charter equivalent was $29,300 per day per ship in 2010.  Think of this number as the average revenue number per ship per day.  Some ships are on contract for higher and some are on contract for lower, but $29,300 turns out to be the average for the company fleet overall.  This will give me the estimate revenue for each year for the ships already under contract.
 
     2011: $128.3 million revenue from contracted shipping
     2012: $100.9 million revenue from contracted shipping
     2013: $88.97 million revenue from contracted shipping
 
It costs $53.264 million dollars to operate and maintain the fleet of 16 ships per year using the cost rates from Safe Bulkers most recent quarterly income statement.  I'm including the ships operating on the spot market for costs, but I'm excluding them from the revenues to help prove how strong and safe SB's dividend is.
 
Estimated net income from contracted shipping
     2011: $75.036 million ($128.3 M - $53.264 M = $75.036)
     2012: $47.636 million
     2013: $35.706 million
 
Could Safe Bulkers pay its current dividend of $0.15 per quarter per share with just its contracted shipping over the next few years?  Yes, it could mostly pay the dividend over the next few years just with its currently contracted fleet.  Safe Bulkers had 71,633,284 shares outstanding as of May 2nd, 2011 (including the underwriters option to purchase 750,000 shares on top of the 70,883,284 outstanding).  It would cost SB $42.997 million dollars per year to pay its current dividend out to all those shares.  You can plainly see that most of the dividends can be easily covered with just the contracted ships in the fleet.  Keep in mind that annual interest expenses only amount to $6.8 million per year.
 
Take the numbers above and then factor in the fact that the ships in the spot market will be contributing to the revenue stream along with the new build ships.  You can see why Safe Bulkers dividend is safe.  Don't forget that the CEO's family owns 60% of the stock in the company.  They have a huge incentive to provide a sustainable dividend.
 
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What is causing Southern Copper's 8.6% drop today and should you buy?

Southern Copper (SCCO) is down almost 9% as I write this. Why is this high dividend stock getting hammered by stock market participants? I'll tell you why.

Ollanta Humala, national socialist, just won the Peruvian presidency by a slim margin. "He campaigned as a center-left leader with the desire to create a more equitable framework for distributing the wealth from the country's key natural resources, with the goal of maintaining foreign investment and economic growth in the country while working to improve the conditions of an impoverished majority" according to the wikipedia article on Ollanta Humala. This means that the cost of doing business in Peru is going up for Southern Copper. His national socialist policies will fail just like every other attempt at national socialism. His government will blame capitalism for its failed policies. He will campaign for reelection threatening nationalization of the mining industries. This is the pattern in socialist countries like Venezuela, Bolivia, and many other in Latin America. Never forget that many mining companies have exposure to political risk.

So how much of Southern Copper's business is at risk in Peru? Answer: about 61% of it's 2007 copper production according to the wikipedia entry on Southern Copper. The company owns two major copper mines in southern Peru (Hamala's strongest political support is in southern Peru). The Cuajone mine produced 182 tons of copper in 2007. The Toquepala mine produced 177 tons of copper in 2007. They produced 359 tons combined. The company's northern Mexican mines produced 223 tons combined. The Peruvian mines produced 61% of SCCO's copper in 2007. I doubt these percentages have changed much in four years time.

Conclusion: Investors are fleeing Southern Copper due to the threat of higher taxation or nationalization at the barrels of Peruvian guns. SCCO needs to trade below 12 times five year average earnings on $1.92 to get me to consider buying. Wait until the stock falls below $23.04 before buying. Political uncertainty, a shaky dividend, and a worldwide double dip recession will definitely bring this high dividend stock down into an open pit mine.

Link to article: http://bloom.bg/l4AzJi

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TIP OF THE WEEK - See if Insiders are Buying or Selling Their Stocks

See if Insiders are Buying or Selling Their Stocks

Jason Brizic

June 3, 2011

It’s always a good idea to see if company insiders are net buyers of the high dividend stock you are considering purchasing.

Sometimes this can give you a warning even if you haven’t done the deep analysis on a company yet.

You can use Morningstar.com to see insiders transactions and total shares held.

I was curious to see how much American Capital Agency Corp. (AGNC) stock insiders own.  Go to www.morningstar.com.  Type in AGNC in the text box and then select Insiders tab.  There are several sub-tabs.  I like the one called Insider Activity.  There is table below that with the tabs Transaction History and Holding Summary.

Image001

Several executives of AGNC own no shares of the company.  That’s not a good sign.  Do the same on a stock you are curious about.

For more tips, go here:

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

SeaDrill (SDRL) is a high dividend stock, but it is also speculative at $35.67.

Seeking Alpha contributor Power Hedge published an article on May 31st titled “SeaDrill: Analyzing First Quarter Results, Dividend Increase.”  He said that SeaDrill’s (SDRL) overall results were largely in line with expectations and overall continue to make the company look like a good investment.  I disagree.  I think that SeaDrill is a high dividend stock currently yielding 8.4%, but the dividend is not stable and the common stock has been speculatively priced since September 2010.

SeaDrill (SDRL)

Market price: $35.67

Shares: 466.55 million (from the latest quarterly report)

Dividend Record

Dividend: increase from $0.65 to $0.70 quarterly + $0.05 special dividend for the next four quarters

Dividend yield: 8.4% (includes special dividend)

Dividend payout ratio: 125% ($3.00 dividend/$2.39 adjusted 2010 EPS)  The dividend is in jeopardy.

Earning power

Earnings adjusted for changes in capitalization due to stock issuance

            EPS                 Net inc.           Adj EPS

2006    $0.61               $214 M            $0.46

2007    $1.20               $502 M            $1.08

2008    ($0.41)             ($164 M)         ($0.35)

2009    $3.00               $1,261 M         $2.70

2010    $2.73               $1,117 M         $2.39

5 year average earnings = $1.26

Value territory below 12x five year average earnings = $15.12 (stock price was at $15 in July 2010)

Speculative territory above 20x five year average earnings = $25.20  This stock has been in speculative territory since September 2010.

Current market price is 28.3 times five year average earnings.  This is SPECULATIVE.

Balance sheet strength: looks alright, but I haven’t delved deeply into it.  It appears to be expanding rapidly.  I’m concerned about what will happen when there is another financial crisis and the price of oil drops to the $40/barrel range again.

Image002

Book value per share: $11.45  SDRL last visited this price in July 2009.

Price to book value per share: 3.11

Current ratio: 1.15 (2.0 or greater is good)

Quick ratio: 0.87 (1.0 or greater is good)

Technicals: link to the 3 year chart with all my favorite indicators - http://stockcharts.com/h-sc/ui?s=SDRL&p=W&b=5&g=0&id=p71303834325

Disclosure: I don’t own SeaDrill.

Conclusion: I would consider buying this high dividend stock below $15.12 when the stock enters value territory.  You might even get this deep water ocean driller at or below book value per share.

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SeaDrill: Analyzing First Quarter Results, Dividend Increase.

SeaDrill Ltd. (SDRL) reported its first quarter results on Friday, May 27. The overall results were largely in line with expectations and overall continue to make the company look like a good investment.

First, a few highlights from SeaDrill’s first quarter earnings report:

  • SeaDrill had Q1 2011 EBITDA of $573 million.
  • SeaDrill reported Q1 net income of $823 million. This gives the company a trailing EPS for the quarter of $1.84.
  • SeaDrill increased the dividend to $0.70 per share per quarter. The company also declared an additional special dividend of $0.20 per share to be paid in quarterly installments of $0.05 per share each quarter for the next four quarters.
  • SeaDrill ordered a harsh environment drilling rig named West Linus. The company has already signed a five-year contract with ConocoPhillips (COP) for this rig. I briefly discussed this rig and included the details of this contract in an earlier article on Seeking Alpha, which you can read here.
  • SeaDrill ordered two new tender rigs and leased them out to Chevron (CVX). The rigs will be under a five-year lease with Chevron once delivered.
  • SeaDrill takes delivery of one ultra-deepwater semi-submersible rig and one semi-tender rig.

SeaDrill’s overall results showed little change from the fourth quarter of 2010. Most of the differences were caused by various accounting rules. The company’s first quarter results explain the causes of the numbers.

  • Revenues dropped from $1,169 million in Q4 2010 to $1,110 million in Q1 2011.
  • Operating profit dropped from $479 million in Q4 2010 to $430 million in Q1 2011. The fourth quarter results included a $26 million gain on the sale of the West Larissa jack-up rig. This is a non-recurring gain and is not included in the first quarter results. That accounts for more than half of the decline in operating profit. The remainder is due to small declines in revenues (and thus profits) from the Floaters, Well Services, and Tender Rigs divisions. The decline in the Tender Rigs profit was also due to non-recurring revenues that were booked in the fourth quarter.
  • Operating cash flow in Q1 2011 was $509 million. This represents an increase of approximately $39.6 million from Q4 2010. Q4 2010 operating cash flow was $479.4 million.
  • SeaDrill’s net income and earnings per share show substantial improvements over Q4 2010. Net income in Q1 2011 was $823 million. Net income in Q4 2010 was $268.1 million. Q1 2011 basic EPS was $1.84 compared to $0.61 in Q4 2010. Most of this was due to a gain of $477 million from the Seawell deconsolidation. SeaDrill’s interest expenses on its debt for the quarter also dropped from $109 million in Q4 2010 to $77 million in Q1 2011.

SeaDrill’s net income for the quarter is abnormally high and it is unlikely that the company will be able to repeat those numbers throughout the year. SeaDrill reported a first quarter EPS of $1.84. Annualized, that works out to $7.36 for the full year 2011. The company had an EPS of $2.73 for the full year 2010. It becomes rather obvious that the company cannot be growing at the rate that the numbers seem to show. It makes more sense to look at the company’s cash flow when comparing quarterly results in this case.

SeaDrill had Q1 2011 operating cash flows of $509 million. This is an increase of $39.6 million (8.26%) over the fourth quarter of 2010. While not as impressive as net income growth, this is still a respectable growth rate. It is also much more realistic and repeatable. If SeaDrill maintains the same operating cash flow for the remaining quarters of the year, it would have a full year 2011 OCF of $2,036 million. This represents an increase of 56.5% over the 2010 OCF of $1,300.4 million. If the company does indeed succeed in reaching an OCF of $2,036 million, this would almost certainly result in an additional dividend increase in a later quarter of this year.

SeaDrill is now paying a forward dividend of $3.00 per share (including special dividend). This gives the stock a forward dividend yield of 8.44% at the May 27 closing price of $35.56 per share. At a dividend yield that high, the company does not have to grow very much to outperform. It does look poised to continue its growth trajectory, however.

SeaDrill secured new contracts for $1.2 billion in this quarter. To put that number into perspective, it is more than SeaDrill’s net income in 2010. It is also very close to the company’s operating cash flow from 2010. As I have mentioned in previous articles on SeaDrill, the company is currently having no problems getting new contracts for its rigs. Furthermore, the company is securing day rates on new contracts that are very close to the current outstanding rates. SeaDrill looks like it is well positioned to take advantage of the growth in offshore drilling.

SeaDrill has continued to expand its fleet throughout the first quarter as it has done for the past several quarters. On November 10, 2010, SeaDrill CEO Alf Thorkildsen briefly discussed the company’s growth potential in a press release:

Our commitment to establish SeaDrill as a leading drilling contractor through investing in new high specification offshore drilling units built by quality yards has been well received by our customers and investors. With the most modern drilling fleet in the world and a total contract backlog of $11.5 billion, we have created a solid platform for further growth and a continued high return to our shareholders.

As Mr. Thorkildsen noted, SeaDrill has a revenue backlog of approximately $11 billion. This is roughly equal to 10 quarters of revenues. The company has expanded since then, however. The company ordered three new rigs in the first quarter, which are under contract (two to Chevron and one to ConocoPhillips). During the quarter, the company had 42 offshore rigs in operation and three stacked units. One of these stacked units will be returning to operation in the second quarter which should have a favorable impact on operational cash flow. The company will be selling the West Juno rig in June and expects to realize an $18 million gain on the sale price.

SeaDrill will also retire the T8 tender rig and expects this to have no adverse impact on the income statement for the second quarter. SeaDrill is retiring the T8 rig because of its age; the company specifically states that the modern fleet is a major competitive advantage for the company (and I agree) and this is one of the oldest rigs owned by the company. West Juno was built in 2010, so the disposal of this rig will not contribute much to the modernization.

Simply put, SeaDrill Ltd. Has a very high dividend that on its own is likely to make the company outperform - particularly if the S&P 500 stays relatively flat over the next year. In addition to that, however, SeaDrill also has rather impressive growth characteristics that should enable the company to outperform. The stock continues to look cheap at these levels.

Zack's Investment Research expects full year EPS to be $2.90 in 2011 and $3.23 in 2012. I would not be surprised to see EPS come in a bit higher than Zack’s predicts due to the abnormally large EPS from this quarter. A 2011 EPS of $2.90 gives the company a forward P/E for the current year of 12.26. The $3.23 EPS estimate for 2012 gives the stock a P/E of 11 for 2012. It gives the stock a PEG ratio of 1.08. Assuming that Zack’s is correct, the fair value for the stock is $32.94. It's predicting $0.68 EPS for the current quarter (Q2). I think that it's right; the current quarter will probably not be as high as the first quarter was.

Net income can be a poor way to evaluate this company for the previously mentioned reasons, however. If SeaDrill can maintain the same OCF throughout the year that it did in the first quarter, then the P/OCF ratio is 7.73 ($4.60 of OCF per share). SeaDrill had negative FCF for the first quarter as is typical for this company (for more information, read my article on SeaDrill’s business model). Analysts are expecting earnings growth for the next year of 11.36%.

At the current prices, an investor buying today is getting the 8.44% dividend for free. The stock has been hovering between $32 and $36 for months -- it is near the top of the range now. If you are willing to be patient, an even better entry price may present itself. The stock is certainly not a bad value at its current price, though.

Disclosure: I am long SDRL.

Link to Power Hedge’s article: http://seekingalpha.com/article/272628-seadrill-analyzing-first-quarter-results-dividend-increase

More Motley Fools are taking notice of high dividend stock Safe Bulkers (SB)

The Motley Fools are taking notice of my current favorite high dividend stock – Safe Bulkers (SB).  I agree with the positive reasons for being long this stock.

Disclosure: I don’t own Safe Bulkers (SB)  right now, but I want to.   I’m working on freeing up some funds to purchase this high dividend stock while it is still on sale at a low price.

Click on this link to see all the articles I’ve written on Safe Bulkers:  http://www.myhighdividendstocks.com/category/high-dividend-stocks/sb

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4-Star Stocks Poised to Pop: Safe Bulkers

By Brian D. Pacampara | More Articles
May 31, 2011 | Comments (0)

Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, dry bulk shipper Safe Bulkers (NYSE: SB  ) has earned a respected four-star ranking.

With that in mind, let's take a closer look at Safe Bulkers' business and see what CAPS investors are saying about the stock right now.

Safe Bulkers facts

Headquarters (Founded)

Athens, Greece (2007)

Market Cap

$521.7 million

Industry

Shipping

Trailing-12-Month Revenue

$165 million

Management

Chairman/CEO Polys Hajioannou

CFO Konstantinos Adamopoulos

Return on Capital (Average, Past 2 Years)

13.3%

Cash/Debt

$48.2 million / $486.4 million

Dividend Yield

8.2%

Competitors

Eagle Bulk Shipping (Nasdaq: EGLE  )

DryShips (Nasdaq: DRYS  )

Navios Maritime Holdings (NYSE: NM  )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 92% of the 228 members who have rated Safe Bulkers believe the stock will outperform the S&P 500 going forward. These bulls include dh1000 and All-Star TSIF, who is ranked in the top 0.1% of our community.

Earlier this year, dh1000 listed several of Safe Bulkers' positives: "Relatively new ships on contracts for varying periods of time (staggered terms) with solid customers; reasonable debt and good dividends."

Currently, Safe Bulkers even sports a cheapish P/E of 4.6. That represents a discount to rivals like Eagle Bulk (10.0), DryShips (6.1), and Navios Maritime (7.9).

CAPS All-Star TSIF elaborates on the bargain opportunity:

The excess shipping is creating bargains for those who can afford to buy new ones from cancelled orders left at distressed shipyards, but they have to come to market profitably. I think Safe Bulkers after it's drop the last two months has a decent chance of holding it's own, which is all you really need right now. If they can maintain thieir dividend, (which at today's depressed share price is almost 8%, they should be able to hold up handily against the S&P).

What do you think about Safe Bulkers, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!  

Link to original article: http://www.fool.com/retirement/general/2011/05/31/4-star-stocks-poised-to-pop-safe-bulkers.aspx

AGNC 2010 annual report and millions of more shares next year.

American Capital Agency Corp. (AGNC) issued a press release today that focuses on the rescheduling of its annual meeting of stockholders.  The press release failed to mention the inclusion of its 2010 annual report available from the link to the proxy materials.  Follow this link to download the annual report:

www.AGNC.com/2011proxymaterials

The annual report can be downloaded in PDF format.  I will read through it and begin blogging on new information that could jeopardize AGNC’s high dividend yield.

Why did AGNC delay the stockholders meeting?  According to them they wanted to give stockholders additional time to consider and vote on the amended proposal.  What is special about the amended proposal?

            “… and to modify the requested increase in the Company's authorized shares of common stock.  The amended proposal now only requests an increase in the authorized number of shares of the Company's common stock to 300,000,000 instead of 500,000,000. “

AGNC has 128.83 million shares currently outstanding.  It is currently paying a $1.40 quarterly dividend on those shares.  That totals $180.36 million dollars per quarter in dividend payments.  The company must periodically issue new shares of common stocks, to bring in capital, in order to leverage around 8x, to buy the agency securities yielding an average of 3.44% with repurchase agreements costing an average of 1.02%, to keep the difference, and to pay a whopping dividend of $1.40 per share per quarter.

It is a Catch 22 situation.  The trouble is that each additional outstanding share comes with an expectation of a large cash dividend.  The huge 18% dividend yield is the main reason that investors speculators are purchasing shares of AGNC.  The more shares the harder it is to keep the dividend the same or growing. 

Let’s assume for a moment that AGNC issues all the shares it can until it hits the 300 million limit proposed.  Will the company be able to sustain its $1.40 quarterly dividend?  Heck no!  300 million shares times $1.40 per share equals $420 million in dividend payments per quarter or $1.6 billion per year.

AGNC only earned $177 million in net interest income in 2010.  AGNC still wouldn’t have enough income to pay the $1.40 quarterly dividend even if it was able to triple its net interest income in 2011 to $531 million.  Couple this reality with an increasing risk of higher interest rates and AGNC’s current price of $30 per share looks like it has less upside than downside.

Disclosure: I don’t own AGNC; nor do I ever plan to.  It is a house of misallocated cards.

American Capital Agency Corp. Reschedules 2011 Annual Meeting of Stockholders

BETHESDA, Md., May 25, 2011 /PRNewswire/ -- American Capital Agency Corp. (Nasdaq: AGNC) ("AGNC" or the "Company") announced today that it has rescheduled its 2011 annual meeting of stockholders, originally scheduled for May 31, 2011. The new meeting date and time is Friday, June 10, 2011 at 9 a.m. (ET). The annual meeting will be held at AGNC, located at 2 Bethesda Metro Center, 14th Floor, Bethesda, Maryland 20814.  

The Company also announced that it has supplemented its proxy statement for the 2011 annual meeting to amend the charter amendment proposal to eliminate the proposed increase in the Company's authorized shares of preferred stock and to modify the requested increase in the Company's authorized shares of common stock.  The amended proposal now only requests an increase in the authorized number of shares of the Company's common stock to 300,000,000 instead of 500,000,000.  The Company rescheduled its annual meeting in order to provide its stockholders with additional time to consider and vote on the amended proposal.

The annual meeting will be held for the purposes set forth below.

1.     To elect the Board of Directors, with each director serving a one-year term and until his successor is elected and qualified;

2.     To approve an amendment to the Company's Amended and Restated Certificate of Incorporation to increase the total authorized number of shares of common stock from 150,000,000 to 300,000,000;

3.     To ratify the selection of Ernst & Young LLP to serve as the Company's independent public accountant for the year ending December 31, 2011; and

4.     To transact such other business as may properly come before the meeting or any adjournment thereof.

The Board of Directors of the Company has recommended a vote "FOR" all of the director nominees and "FOR" proposals 2 and 3 above.

Formal notice of the rescheduled meeting and the supplement to the Company's proxy statement and revised proxy card are being mailed today to the Company's stockholders.  More information on the items to be discussed at the meeting can be found in the Company's proxy statement, which is available at www.AGNC.com/2011proxymaterials.

Stockholders of record at the close of business on April 11, 2011 are entitled to notice of, and to vote at, the 2011 annual meeting and any adjournment of the meeting. If you wish to vote shares held in your name or attend the annual meeting in person, please register in advance by emailing Investor Relations at IR@AGNC.com or by phone at (301) 968-9300. Attendance at the 2011 annual meeting will be limited to persons presenting proof of stock ownership on the record date and picture identification. If you hold shares directly in your name as the stockholder of record, proof of ownership could include a copy of your account statement or a copy of your stock certificate(s). If you hold shares through an intermediary, such as a broker, bank or other nominee, proof of stock ownership could include a proxy from your broker, bank or other nominee or a copy of your brokerage or bank account statement. Additionally, if you intend to vote your shares at the meeting, you must request a "legal proxy" from your broker, bank or other nominee and bring this legal proxy to the meeting.

For further information or questions, please do not hesitate to call the Company's Investor Relations Department at (301) 968-9300 or send an email to IR@AGNC.com.

Original link to the press release: http://www.prnewswire.com/news-releases/american-capital-agency-corp-reschedules-2011-annual-meeting-of-stockholders-122583503.html

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Is Southern Copper heading north or south from $34.74?

It is time to take another look at Southern Copper.  Its stock price has declined from its most recent peak of $48.96 at the beginning of 2011 down to $34.74 today.  That is a decline of about 29%.  Has this copper producer entered value territory yet?  I’m going to perform my quick valuation checks to see what is going on with this mega-copper producer.

Shares outstanding: 850 million (slight buyback or the past five years)

Dividend record

Dividend yield: 6.4% projected

Quarterly dividend: $0.56 ($2.24 annual rate)  This is a two cent cut from the previous quarter.

Dividend payout ratio: 116% of 5 yr. avg. earnings per share (this means that another dividend cut is possible unless earnings improve enough to bring the dividend payout ratio down to 80%.  Earnings would have to improve to $2.80 per share at the current quarterly dividend rate).

Earning power

Last 5 years earnings adjusted for slight changes in capitalization

            EPS     Net inc.           Adj. EPS

2006    $2.31   $2,038 M         $2.40

2007    $2.51   $2,216 M         $2.60

2008    $1.60   $1,407 M         $1.66

2009    $1.09   $929 M            $1.09

2010    $1.83   $1,554 M         $1.83

5 year average earnings per share: $1.92 @ 850 M shares.  SCCO is trading at 18.1 times its 5 year average earnings.  I like value stocks below 12 times earnings.  Above 20 is speculative.

Balance sheet

Book value: $4.58

Price to book value: 7.58 (bad)

Current ratio: 3.25 (over 2 is good; no short term liquidity problems)

Quick ratio: 2.65 (over 1 is good; no short term liquidity problems)

Technicals

The 3 year chart confirms the beating that SCCO has taken lately.  Its technicals show that there is room to fall further.  http://bit.ly/SCCO3yrChart

Conclusion

Wait for the double dip recession to buy Southern Cooper (SCCO) below $23.04.  It would be trading for 12 times its 5 year average earnings per share at that price.  The dividend will likely be cut again and it won’t be a high dividend stock with any sustainability until the market price and the dividend come down.  It traded near $23.00 as recently as May 2010. 

Demand for copper at today’s high prices of will wane once the global double dip recession become apparent to most investors.  Also, copper demand at today’s prices will also decrease when China’s construction bubble pops.

Disclosure: I don’t own SCCO or plan to own it above $23.04 per share.

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