Wednesday, August 27, 2014

Defensive on Prospect Capital (PSEC)

I'm going over the recent earnings conference call and I'm not liking what I am seeing. Once again they have not covered their dividend with Net Interest Income (NII). For a business development company, NII is the amount of income they make off their loans. Consider it their revenue and sales that you would judge a corporation by. They haven't made enough for several quarters now.

How they have gotten by is through origination fees, the fees charged for issuing debt. They have been churning out a good deal of debt over the past year but how long can they keep it up?

In the dividend growth investing community speculation on price movement isn't often done. However I have said in the past that its critical to know what you are holding in a portfolio. PSEC is not a dividend growth stock. They do not raise dividends each year. They are not growing the company on a per share basis. They are all about high yield right now, not high yield on cost years from now. That's fine because that is what I bought them for. My two business development company positions, 1 is high yield and 1 has growth so I get the best of both. The market has priced PSEC at a 12.5% yield for a reason. Likewise the market has priced Main Street Capital (MAIN) at a 6% yield for a reason too. They grow the company on a per share basis and give dividend raises.

I prefer strong companies whose biggest problem is they are making so much money they have to give a special dividend like TCP Capital does (TCPC). PSEC's problem on the other hand is taking on more leverage, issuing riskier debt to maintain their yields, or cutting the dividend.

If its one thing I have learned from high yield investments its to not get greedy. Just look at GNI, BPT, WHX. You do not play musical chairs until the very end trying to get one more dividend or distribution.

I have a stop loss order in for PSEC @ $10.44.
EDIT: Out @ $10.44 same day.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Wednesday, August 6, 2014

Monthly Update: July 2014



Portfolio Acitivities
$1,500 deposited into the Investing Account

Sold MDT @ $63.45
Sold COP @ $84.20
Sold POT @ $36.11
Sold KO @ $39.50
Bought 14.9726 shares of ROST @ $66.52
Bought 10 shares of RKT @ $103.10
$450 deposited into Lending Club

Portfolio Income
Dividends ($105.52)
     AFSI: $2.31

     CIG: $66.55
     KO: $3.69
     MDT: $1.63
     ARCP: $6.35
     PSEC: $11.93
     NDRO: $2.35
     BLV: $2.69
     JNK: 4.65
     PCY: $1.99
     Interest from Cash: $1.38
Lending Club
     Interest: $31.35
Rental Income
     Townhouse 1: $950


Switching to a Total Return Strategy: I know this is sacrilegious in the dividend growth investing community but I am focusing on total returns these days. Lending Club is giving enough income to allow me to move into some positions that have lower yield but higher returns. So far this year it is working very well for me as I have 8.17% return vs S&P is at 5.01%
This is with a 5.01% forward yield on the portfolio with 28.5% cash.
Due to the massive deposits I am doing this year I am not posting or trumpeting my horn with the total return numbers as its a bit skewed with deposits.
At the end of the day though I am still an income guy. The capital gains are intended to buy more income producing assets.

Lots of activity: Lot of selling occurred this month as many of my stops were hit. Is this the beginning of the correction in equities everyone has been expecting? Who knows. All I did was look at what was overvalued and put stops on them. 
I don't like to be this cash heavy but with whats going on in Ukraine and Iraq I'm not exactly eager to deploy capital. Even with this cash heavy a position I am on pace to hitting my income goal for 2014.

Record Income: For the second month in a row I have hit a new record for income thanks mostly to CIG paying their annual dividend. I still would have done better then previous quarter but the January/April/July/October months are always my lowest.

Market seems to be aged: Its not like I am purposefully avoiding the standard dividend income positions. Its that they seem overvalued. Lots of them have hit high valuations over their own historic P/E ratios.
I don't know about anyone else but I am finding it hard to find many undervalued positions to deploy cash to. 

Anyone else out there finding it hard to deploy cash or is your style more finding whatever is cheapest on your watch list and deploying it asap?

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Tuesday, July 29, 2014

Company Review: Ross Stores (ROST)

I purchased ROST a couple weeks ago. It has solid numbers but appears to be falling recently. The story there is that ROST is predicting "only" an 8%-10% growth rate long term and everyone had been enjoying the high double digits. It still seems undervalued despite that.


ROSS STORES INC (ROST)
Last Updated: Q2 2014


Description: Ross Stores, Inc. is an off-price apparel and home fashion chain in the United States. The Company operates two brands of off-price retail apparel and home fashion stores: Ross Dress for Less (Ross) and dd’s DISCOUNTS. Ross offers designer apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20% to 60% off department and specialty store regular prices. Its merchandise offerings also include, but are not limited to, small furniture and furniture accents, educational toys and games, luggage, gourmet food and cookware, watches, and sporting goods.


How do they make money: Selling apparel and accessories that are slightly damaged or stitched wrong at a huge discount.


Key Brands: None company wide but sell many name brand clothes.



Company Overview
Ross also owns a chain of discount stores called dd’s Discounts. Unsure of the % mix


Best category: Juniors
Best geographic region: Texas


Strong buyback culture: Every year since 1993


Risks
Brick and Mortor store vs online: Their average sale is $10 which is hard to cover for shipping and handling. With returns, shipping etc that is hard to do online. Since Ross sells name brands at half off for their regular price there is less margin difference between them and online retailers.


Competitors
The TJ Companies (TJX)
The Steinmart (SMRT)

Company Fundamentals



Fastgraphs.com shows that its average P/E ratio is actually its support in the past 3 years. 




Company Stats
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014e
5y Avg
10y Avg
Share Price
$11.33
$14.65
$12.79
$14.87
$21.36
$31.63
$47.53
$54.09
$74.93
$81.03
$57.84
$36.42
EPS
0.85
0.95
1.17
1.77
2.31
2.86
3.53
3.88
3.88
4.21
3.67
2.54
EPS Growth
-
11.76%
23.16%
51.28%
30.51%
23.81%
23.43%
9.92%
0.00%
8.51%
13.13%
20.26%
P/E
13.33
15.42
10.93
8.40
9.25
11.06
13.46
13.94
19.31
19.25
15.40
13.44
P/B
5.5
3.9
4.1
3.3
2.2
2.8
4
5
6.3
5
4.62
4.21


EPS growth for a retailer is very high and fairly consistent.
EPS growth has slowed from previous years causing a hit to share price but long term growth projection of the company is still good.


Dividend Stats
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014e
5y Avg
10y Avg
Dividend
$0.13
$0.16
$0.20
$0.24
$0.35
$0.47
$0.59
$0.71
$0.80
$0.92
$0.70
$0.46
Dividend Yield
1.15%
1.09%
1.56%
1.61%
1.64%
1.49%
1.24%
1.31%
1.07%
1.14%
1.25%
1.33%
Share buyback %
2.73%
3.17%
3.65%
4.18%
5.20%
4.17%
4.35%
3.14%
3.24%
-
3.73%
3.76%
Div Growth
-
23.08%
25.00%
20.00%
45.83%
34.29%
25.53%
20.34%
12.68%
15.00%
21.57%
24.64%
EPS Payout Ratio
15.29%
16.84%
17.09%
13.56%
15.15%
16.43%
16.71%
18.30%
20.62%
21.85%
18.78%
17.19%


Dividend growth has been slightly higher than the EPS growth but payout ratio is still very low allowing for large future dividend growth. Even with the lower projected growth rate there is a lot of room for dividend raises.

Earning Report Notes
Q1 2014
EPS: $1.15 (+7% Y/Y)
Sales: +6%
Operating Margin: 14.6% (very high for a retailer)
26 Ross stores and 7 Discount stores opened in quarter (75 Ross and 25 Discount stores planned for the year)
Share buyback plan: $550 million a year (~3.5% a year)
Estimate $4.15 EPS for the year.


Q4 2013
EPS: $1.02
Sales: +2%


Full Year
EPS: $3.88 (+13%)
Sales: +3%
Operating Margin: 13.1%


Barbara Rentler new CEO June 1st.



Company and Industry specific commonly used acronyms and terms
None

Resources
Company Website: http://www.rossstores.com/#
Transcripts: http://seekingalpha.com/symbol/ROST/transcripts

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.