Wednesday, August 25, 2010

High-yield dividends

I came across this excellent note on companies with a high-yield in dividends.

Many of the companies are REIT or Business Development Companies (BDC), which are required to distribute most of their earnings in the form of dividends.

Among those mentioned are:

Company Yield %

PDL BioPharma (Nasdaq:PDLI) 16.89
Anworth Mortgage Asset Corporation (NYSE:ANH) 15.02
Annaly Capital Management (NYSE:NLY) 15.47
Frontier Communications Corporation (NYSE:FTR) 13.33
Alpine Total Dynamic Dividend (NYSE:AOD) 12.11
Apollo Investment Corporation (Nasdaq:AINV) 11.65
MFA Mortgage Investments (NYSE:MFA) 10.48

Another note has an interesting overview of the Business Development Companies.

Business development companies are similar in some respects to a REIT in that they must pass on 90% of their income to shareholders. In addition BDCs may not place more than 5% of assets in one company, can't own more than 10% of the voting stock and can't invest more than 25% of their assets in companies that are considered to be in the same industry. This provides a modicum of diversification.

Of particular interest, perhaps, Apollo Investment Corporation (AINV), which allows retail investors to invest in a quasi-private equity environment.

According to the Morningstar Equity Research Profile,

Externally managed by the private-equity firm of the same
name, Apollo is a closed-end business-development
company that invests in the debt and equity issuances of
middle-market companies. Subordinated debt, second-lien
loans, equity, and preferred stock make up 58%, 26%, 13%,
and 3%, respectively, of its investment book.

Tuesday, August 24, 2010

Brazil is (probably) coming down

The iShares MSCI Brazil Index ETF (EWZ) is probably coming down.

It has already fallen from its 52 week high of 80.93 (reached in January) to 68.3 (with a fall of -1.7 % just yesterday).

However, it is still probably over-valued, for several reasons:

a) the Brazilian real is over-valued.

b) Emerging Market stock indices are over-valued in general, including Brazil's (the EEM Emerging Markets index ETF is down from 46.66 to 40.65 in the same period).

c) Many commodities that Brazil exports are over-valued (including agricultural and mineral products), and will probably fall in price given China's slowdown.

d) the Brazilian economy is slowing down, posting a negative growth (or fall) of -1.0 % in industrial production in June 2010 (the third consecutive fall).

e) Lula's handpicked successor, Dilma Rousseff, is gaining in the polls, and may prove to be more populist than Lula (particularly in economic policy).

Other than shorting EWZ, another way to benefit from this fall would be to buy ProShares Ultrashort MSCI Brazil (BZQ).

UPDATE:  As of December 12, 2013, the iShares MSCI Brazil Index ETF (EWZ) has fallen to 43.8 (that is, almost half its level of January 2010).  Almost all of the factors I mentioned in this 2010 post have come to pass, except that Dilma Rousseff actually has run a tighter policy than Lula.  The HSBC Brazil Purchasing Managers’ Index (PMI) has slipped into contractionary territory. On the other hand, the Brazilian stock market seems to have been pummeled enough, and might be ready for a correction.