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Don't believe the REIT dividend stablity hype.

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Don’t believe the hype that REIT’s dividends are any more stable than government bonds.  REITs like American Capital Agency Inc. (AGNC) are benefiting temporarily from abnormally low interest rates caused by massive Federal Reserve money printing.  Interest rates have nowhere to go but upward.  It is just a matter of time until bond investors wake up, smell the smoke, and start running for the exits.  Don’t get trampled.

The market participants can see all the money printing.  They will demand an inflation premium for the bonds they are prepared to purchase.  This means that they demand higher interest rates.  Higher interest rates will squeeze AGNC’s profits.  They will be forced to cut their dividend drastically.  Just understand the risks of owning AGNC shares.  Their dividends are enormous right now.  That is mighty tempting.  Don’t let your AGNC shares exceed 5% of your high dividend stock portfolio.

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SOURCE: The Bedford Report

 

Jan 31, 2011 11:25 ET

REITs Remain the Top Destination for Dividend Investors

The Bedford Report Provides Analyst Research on Annaly Capital & American Capital Agency

NEW YORK, NY--(Marketwire - January 31, 2011) - In the past year Real Estate Investment Trusts (REITs) have been one of the most popular investments in the financial sector. Since the start of 2010, the Vanguard REIT ETF has surged more than 30 percent while the overall financial sector has been relatively neutral. REITs' ability to generate this significant capital appreciation is one of the industry's main allures, as most investors flock to REITs for their hefty dividends and stability. In fact, most of the success of the industry in the last year can be attributed to low interest rates. When interest rates get this low the return on dividends can far exceed that of bonds. The Bedford Report examines the outlook for diversified REITs and provides research reports on Annaly Capital Management, Inc. (NYSE: NLY) and American Capital Agency Corporation (NASDAQ: AGNC). Access to the full company reports can be found at:

www.bedfordreport.com/2011-01-NLY

www.bedfordreport.com/2011-01-AGNC

The Vanguard REIT index had been stagnant for most of January, however it surged last week as investors bought up a number of the fund's top components on speculation of a wave of M&A activity in the industry.

M&A speculation in the REIT sector increased after ProLogis confirmed it is in talks with rival AMB Property about a possible merger. The two industrial REIT giants have a combined market cap of $13.9B, and are considering an "all-stock, at-market transaction, based upon the unaffected trading prices of the two companies' stock prior to media reports of a possible merger."

The Bedford Report releases regular market updates on REITs so investors can stay ahead of the crowd and make the best investment decisions to maximize their returns. Take a few minutes to register with us free at www.bedfordreport.com and get exclusive access to our numerous analyst reports and industry newsletters.

Companies such as American Capital Agency and Annaly earn their money on the spread between low-interest short-term borrowing and purchasing high-interest long-term securities, which leads to solid profits given the current conditions. Federal Reserve Chairman Ben Bernanke says that he is prepared to keep rates in the range of 0 - 0.25 percent for an extended period if the unemployment numbers don't drop significantly.

Solid profits for a REIT keep those dividend payments stable. Presently, American Capital pays an annual dividend of 5.60 for yield of about 19.60%. Annaly, meanwhile, pays an annual dividend of 2.56 for a yield of 14.40%. While high yielding dividend paying stocks are appealing, be forewarned that companies can cut, slash, or suspend dividends at any time, often without notice.

Link to original article: http://www.marketwire.com/press-release/REITs-Remain-the-Top-Destination-for-Dividend-Investors-1387799.htm

AGNC Will Report 4Q2010 Earnings on February 8th

American Capital Agency Corp. (AGNC) will report 4th quarter 2010 earnings after the US markets close on February 8th, 2011. The company said earlier this month that earnings would exceed $1.20 per share. Unnamed analysts expect earnings of $1.29 per share. AGNC also reported that they would pay another dividend of $1.40 per share. Expect a dividend cut in an upcoming quarter because their dividend payout ratio exceeds 100% and has exceeded it for more than one quarter.

I think this confirms the fact that AGNC does not have the earning power to sustain a $1.40 per share dividend. Be sure to subscribe to www.myhighdividendstocks.com/feed to receive more AGNC analysis delivered to your reader once their quarterly report is available.

Disclosure: I don't own AGNC.

Here is the link to the press release: http://finance.yahoo.com/news/AGNC-Will-Report-Q4-2010-prnews-3553937482.html...

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Home price drops exceed Great Depression: Zillow

The price of houses will continue to decline due to excess inventory and high unemployment.  There are millions of foreclosed homes that the banks are keeping off the market.  They are known as the shadow inventory.  I’ve seen some articles put the number of homes in the “shadow inventory” close to 7 million homes.  That is literally years of inventory.

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Unemployment was really at 16.7% in December 2010 (the U-6 number  http://www.bls.gov/news.release/empsit.t15.htm ).  And it is not going to improve until the commercial banks increase lending to small businesses.

Unfortunately, that lending will create rising prices in all goods through the fractional-reserve banking process.  This is what happens when the Federal Reserve doubles the monetary base.  It will lead to huge price increases once the commercial bankers increase lending.

This article from Reuters confirms what we know in our heads.  But the newspapers and the TV news coverage tries to cover these facts up.  They avoid comparisons with the Great Depression because they are taught to believe the great Keynesian lie of consumer spending is the only way to grow the economy.

Lower home prices due to increased foreclosures would further erode the value of mortgage backed securities in the market.  That would make the agency securities on American Capital Agency Corp’s (AGNC’s) balance sheet worth less.  This would also hurt their sale price.  All this should hurt AGNC’s earnings.

However, if the FED buys more MBS after the point they previously said they were going to stop, then things change.  If the FED continues to purchase mortgage backed securities from Fannie and Freddie to bailout the big banks that still have MBS’s on their balance sheets, then this would increase their price in the market due to the increased artificial demand.  AGNC might have to pay more to buy its next batch of agency securities and the risk increases of a collapse in market value of MBS’s if the FED decides to sell some of its MBSs.  They would be propping up the MBS market for a bigger bust later.

Home price drops exceed Great Depression: Zillow

NEW YORK | Tue Jan 11, 2011 8:40am EST

NEW YORK (Reuters) - Home prices fell for the 53rd consecutive month in November, taking the decline past that of the Great Depression for the first time in the prolonged housing slump, according to Zillow.

Home prices have fallen 26 percent since their peak in 2006, exceeding the 25.9 percent drop registered in the five years between 1928 and 1933, the housing data company said in a report on Monday. Prices fell 0.8 percent over the month.

It is a dubious milestone for the U.S. housing market which has failed to gain much traction despite a host of government programs to reduce delinquencies and encourage demand with temporary tax credits and lower interest rates. Many economists expect further price drops, even if there are some anecdotal signs of growing demand, such as in pending home sales data.

"For the next six to nine months, the larger factors affecting the housing market that will produce more home price declines will be the excess inventory of homes, high negative equity and foreclosure rates, and weakened demand due to elevated employment, Stan Humphries, Zillow's chief economist, said in a blog post.

Declines are accelerating, and it will take a while before falling unemployment and other signs of economic improvement support the market, Zillow said.

Home prices fell at a 0.78 percent pace in November, the fastest since February 2009, the company said.

(Reporting by Al Yoon, Editing by Kenneth Barry)

http://www.reuters.com/article/idUSTRE70961E20110111

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Last Article Ended Prematurely. Here Is The Rest.

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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.

    Average earnings vs. trend of earnings. An AGNC example.

    Which is more important - 1) the average earnings of a period of years or 2) the trend of earnings over those same years?  The answer is not clear cut.  AGNC, the stock I have been analyzing lately, has only been in business since 2008.  It hasn't been around long enough to even create a trend with three yearly data points.
     
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    American Capital Agency Corporation earned the following per share in recent years:
     
    2008 = $2.36
    2009 = $6.78
    2010 = at least $6.28 (my estimate)
     
    AGNC earned $5.05 in the first three quarters of 2010.  I think it is safe to say that AGNC will earn at least $6.28 per share in 2010.  That is the total of the first three quarters ($5.05) plus a repeat performance of their worst quarter of the year ($1.23).  It will earn $6.73 if it can simply earn the average of the first three quarters ($1.68) in the fourth quarter of 2010.
     
    Here are AGNC's most recent quarterly earnings from their SEC filings:
    1Q2010 = $2.13
    2Q2010 = $1.23
    3Q2010 = $1.69
    4Q2010 = $1.68 (my estimate based on a simple average of the first three quarters of 2010)
     
    Its annual earnings trend appears to be flattening.  If AGNC's earnings stagnates at around $6.00, then the maximum of the stock price could reach and still qualify at a conservative investment according to the late-great Benjamin Graham is $120.00/share ($6.00 earnings time a 20 P/E multiple = $120).  AGNC is currently trading at around $28.74 per share.  That would equate to a multiple of 4.5 times earnings.  That is a very low multiple even for REITs which are averaging around a 8.5 multiple right now. 
     
    Let's assume for a moment that AGNC earns $6.28 in 2010.  In that case the three year earnings average would be $5.14.  Place a twenty multiple on top of the $5.14 figure an you get a maximum value of $102.80 per share.
     
    AGNC's earnings are a function of their portfolio size and their interest rate spread.  Their earnings won't stagnate unless one or both of those change their trends.
     
    Be seeing you!

    AGNC earnings power

    American Capital Agency Corp. (AGNC) has a massive dividend of near
    20%. That easily meets my first criteria for a high dividend stock
    which is a dividend yield greater than 6%.

    But what about its earning power? I like at least five years of
    annual earnings to examine, but ten years is even better. A longer
    record of earnings will usually encompass at least one Keynesian
    central bank induced boom-bust cycle (e.g. 2001 - present). It is
    important to know how the business performed at the top of the boom
    and the bottom of the bust in order to determine the average earning
    power.

    AGNC earnings power

    Year, Earnings
    2005, not in business
    2006, not in business
    2007, not in business
    2008, $2.36, MAY to DEC ($3.15 annualized)
    2009, $6.78
    2010 (my est.), $6.28 - $7.18*

    Low average = $5.40 EPS/year [($3.15+$6.78+$6.28)/3]
    High average = $5.70 EPS/year [($3.15+$6.78+$7.18)/3]

    AGNC has been paying a $1.40 quarterly dividend for the last 5
    quarters. That equates to a $5.60 annual dividend payment per share
    if the company does not change the dividend. It is just too soon to
    tell if the average earnings power of AGNC can sustain that $1.40
    quarterly dividend. The company's interest rate spreads tightened in
    the last quarter. The company's net income will decline if the
    interest rates spread tightens and that will lower earnings per share.

    I would personally stay away from any bank, financial, insurance, or
    REIT unless you can understand how the company makes money. I'm still
    confused by much of what I read in AGNC's annual and quarterly
    reports. I'm staying away from AGNC despite its huge dividend. I
    don't think the dividend is very safe.

    AGNC closed today at $29.47.

    *2010 earnings by quarter
    2010 Q1, $2.13
    2010 Q2, $1.23
    2010 Q3, $1.69
    2010 Q4, $?.?? (low $1.23 - high $2.13)

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    AGNC will probably cut its dividend

    American Capital Agency Corp. (AGNC) will have to cut its dividend at some point in a few quarters if its operating results are similar to the 3Q 2010 it just reported.
     
    Recap: AGNC reported earnings of $1.69 per share during third quarter 2010, compared to $1.82 in the year-earlier quarter. Excluding non-recurring items, recurring net income for the reported quarter was $1.11 per share.
     
    Its current dividend is $1.40 per share.  That equates to a 126% dividend payout ratio (1.40 divided by 1.11).  Dividend payout ratios above 100% can't go on forever.  The company only has $115.3 million in cash and cash equivalents to pay for the gap between its dividend and its recurrent earnings.  It could sell some of its agency security holdings like it did this quarter, but you should count on this tactic to earn money everytime.
     
    The whole banking system is a house of fractional-reserve cards.  Stay away from it.
     
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    AGNC analysis of the income account> Fictitious value placed on stock dividends received

    American Capital Agency Corp. (AGNC) does not own any controlling interest in another company’s stock.  Also, it has never received any stock dividends.  Therefore, no adjustments to its earnings are necessary for fictitious value placed on stock dividends received.

    Read the relevant section from Securities Analysis below to see how some other companies in the past have padded their earnings with fictitious stock dividend values.

    Be seeing you!

    ------------

    Fictitious Value Placed on Stock Dividends Received. From 1922 on most of the United Cigar Stores common shares were held by Tobacco Products Corporation, an enterprise controlled by the same interests. This was an important company, the market value of its shares averaging more than $100,000,000 in 1926 and 1927. The accounting practice of Tobacco Products introduced still another way of padding the income account, viz., by placing a fictitious valuation upon stock dividends received.

    For the year 1926 the company’s earnings statement read as follows:

    Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,790,000

    Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000

    Class A dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,136,000

    Balance for common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,254,000

    Earned per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

    Market range for common . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117–95

    Detailed information regarding the company’s affairs during that period has never been published (the New York Stock Exchange having been unaccountably willing to list new shares on submission of an extremely sketchy exhibit). Sufficient information is available, however, to indicate that the net income was made up substantially as follows:

    Rental received from lease of assets to American Tobacco Co. . . . . . . . . . . $ 2,500,000

    Cash dividends on United Cigar Stores common (80% of total paid) . . . . . $ 2,950,000

    Stock dividends on United Cigar Stores common

    (par value $1,840,000), less expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 5,340,000

    Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,790,000

    It is to be noted that Tobacco Products must have valued the stock dividends received from United Cigar Stores at about three times their face value, i.e., at three times the value at which United Cigar charged them against surplus. Presumably the basis of this valuation by Tobacco Products was the market price of United Cigar Stores shares, which price was easily manipulated due to the small amount of stock not owned by Tobacco Products.

    When a holding company takes into its income account stock dividends received at a higher value than that assigned them by the subsidiary that pays them, we have a particularly dangerous form of pyramiding of earnings. The New York Stock Exchange, beginning in 1929, has made stringent regulations forbidding this practice. (The point was discussed in Chap. 30.) In the case of Tobacco Products the device was especially objectionable because the stock dividend was issued in the first instance to represent a fictitious element of earnings, i.e., the appreciation of leasehold values. By unscrupulous exploitation of the holding-company mechanism these imaginary profits were effectively multiplied by three.

    On a consolidated earnings basis, the report of Tobacco Products for 1926 would read as follows:

    American Tobacco Co. lease income, less income tax, etc. . . . . . . . . . . . $2,100,000

    80% of earnings on United Cigar Stores common . . . . . . . . . . . . . . . . . .$ 6,828,000*

    $7,928,000

    Class A dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 3,136,000

    Balance for common . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,792,000

    Earned per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7.27

    * Excluding leasehold appreciation.

    The reported earnings for Tobacco Products common given as $11 per share are seen to have been overstated by about 50%.

    It may be stated as a Wall-Street maxim that where manipulation of accounts is found, stock juggling will be found also in some form or other. Familiarity with the methods of questionable finance should assist the analyst and perhaps even the public, in detecting such practices when they are perpetrated.