Investing for income

[Ves]

some of my Favorites and I' mainly in Midcap and small caps as these guys has much more potential to deliver better dividend as they get bigger.
CUP

ROE,

I actually had a look at this over the weekend, since accounting is close to my heart (I work as an SMSF accountant).

Just looking at the CUP thread and realised that you sold this at one point because your fundamental reason for purchasing changed (ie. FOFA legislation).

Did you re-assess this and buy back in? Any reason for changing your mind? Feel free to PM me if you want to discuss in private.

Outside of any legislation risk, I think the biggest challenge of their business is making acquisitions at the right prices (like our investing journey!) and making sure they can tie them all into their business model seamlessly going forward. They seem to want focus more on "Franchising" going forward, which, seems to be what helped Count Financial (before CBA bought them out) become successful.

 

[Muschu]

I am wondering what the views are on holding [in the circumstances of a SMSF retiree] very low liquidity stocks with little or no debt, little growth, but with FF dividends of
8+%.

I am also assuming the capacity to hold such stocks. The returns exceeds any bank /cash arrangement that I know of. Examples might be [more research needed] SND and KSC.

Thanks

Rick

 

[skc]

I am wondering what the views are on holding [in the circumstances of a SMSF retiree] very low liquidity stocks with little or no debt, little growth, but with FF dividends of
8+%.

I am also assuming the capacity to hold such stocks. The returns exceeds any bank /cash arrangement that I know of. Examples might be [more research needed] SND and KSC.

Thanks

Rick

You always need a bid in order to exit. You may not have any reasons to exit now, but with an illiquid stock, the added risk is that a bid won't be there when you want to exit. Worse still, if the company release some bad news out of the blue, you can bet that you won't have a bid to exit unless you really reach downwards.

So one needs to be mindful whether the return you are getting is worth the additional risk. I didn't mind the financials of SND but the lack of liquidity has deterred me.
Having said that, some companies do gain significant liquidity over time through their success. IRI is a good example.

 

[McLovin]

Examples might be [more research needed] SND and KSC.

Thanks

Rick

I don't know SND but KSC, from what I have seen, looks like a pretty low grade company (low margins/low return on assets/roe). Got to be careful if you go hunting dividends in stocks like that, often there is a reason the divvy is so high.

 

[ROE]

ROE,

I actually had a look at this over the weekend, since accounting is close to my heart (I work as an SMSF accountant).

Just looking at the CUP thread and realised that you sold this at one point because your fundamental reason for purchasing changed (ie. FOFA legislation).

Did you re-assess this and buy back in? Any reason for changing your mind? Feel free to PM me if you want to discuss in private.

Outside of any legislation risk, I think the biggest challenge of their business is making acquisitions at the right prices (like our investing journey!) and making sure they can tie them all into their business model seamlessly going forward. They seem to want focus more on "Franchising" going forward, which, seems to be what helped Count Financial (before CBA bought them out) become successful.

No I sold out Count (COU), because count are around fees and wrap platforms..CBA subsequently took them over and the founder agree for the take over...
He probably know the wrap platform fees good day are over so may as well let CBA have it...

where Count Plus (CUP) are more to do with accountant work, payroll process, more to do with ****ty paper works than the easy wrap platform fees...

CBA still has a big chunk of CUP by default of taking over COU, so they either sold out
or take over CUP at some stage...

CUP pay dividend 4 times a years....

 

[tinhat]

I am wondering what the views are on holding [in the circumstances of a SMSF retiree] very low liquidity stocks with little or no debt, little growth, but with FF dividends of
8+%.

I am also assuming the capacity to hold such stocks. The returns exceeds any bank /cash arrangement that I know of. Examples might be [more research needed] SND and KSC.

Thanks

Rick

I've heard it suggested that you should not own more than five times the average daily traded. For example, SND has an average daily traded (22 days) of just $5,576 (11,476 shares), so that is very illiquid.

That said, I own twice the average daily traded (in my SMSF) of GZL.

SND went ex-dividend on the 27/2 so no rush to buy it. You would really need to know about the company and its markets and have faith in its management and its story to buy. Its looks like a lumpy business (so far at least) with EPS growth swinging around a lot year to year and negative in many years. Profits also very lumpy year to year.

KSC average daily traded is $41,913 (33,804 shares). In terms of the fundamentals, everything has been heading south for this company for some time. EPS growth has been mainly negative, profits have been flat to falling, dividend has been falling, share price in long term decline. I can't see any reason to want to own this stock.

I'd suggest looking at AAD and ASZ. I don't own either but they are both on my watch list.

AAD - no growth in the business, near 100% payout ratio, no franking credit, yielding a touch over 10%.

ASZ - more growth oriented, just built a data centre and made a large acquisition in 2010 that has dinted EPS growth and return on equity. Dividend payout ratio of 77% but is a low capital intensive business. The business has a good story in my opinion. Current yield a touch over 9% fully franked. Will need to see the price turn around though. Will need to break out of its down channel. Ex-div date is 27/03 so I can't see myself picking it up before then unless I take a small punt and buy at around $0.80 as it should be worth over $1 IMO. Risk here though is that the federal budget is going to be tight for some years which might limit the government sector opportunities.

 

[skc]

Compared to highly illiquid / high yield stocks, I think A-REIT and utilities offer similar yields at much more volume and arguably better risk profile imo.

The IT sector is also yielding well at the moment.

 

[Muschu]

Compared to highly illiquid / high yield stocks, I think A-REIT and utilities offer similar yields at much more volume and arguably better risk profile imo.

The IT sector is also yielding well at the moment.

No idea what A-REIT is skc..... Displaying my ignorance.

Thanks everyone for the comments offered.

Rick

 

[Bill M]

No idea what A-REIT is skc..... Displaying my ignorance.

Thanks everyone for the comments offered.

Rick

It's the new name for Property Trusts, stands for Real Estate Investment Trust. Westfields, Stockland, Goodman group etc.

 

[Bill M]

Today I put in an application for the AGL Subordinated Notes. As an income investor I think that the return on these at current rates are good. The 90 day BBSW rate was 4.5% today + 3.8% spread = 8.3% return on cash invested. It will be part of my diversified income portfolio. This is one of many ways one can maximise their income.

More info here if anyone is interested:

http://www.agl.com.au/about/InvestorToolkit/Pages/AGLEnergySubordinatedNotes.aspx

 

[Ves]

ASZ - more growth oriented, just built a data centre and made a large acquisition in 2010 that has dinted EPS growth and return on equity. Dividend payout ratio of 77% but is a low capital intensive business. The business has a good story in my opinion. Current yield a touch over 9% fully franked. Will need to see the price turn around though. Will need to break out of its down channel. Ex-div date is 27/03 so I can't see myself picking it up before then unless I take a small punt and buy at around $0.80 as it should be worth over $1 IMO. Risk here though is that the federal budget is going to be tight for some years which might limit the government sector opportunities.

Disclosure: I own ASZ.

A few further risks that a perspective investor may want to be aware of:

1. The company really needs to win a $100 million+ IT contract to convince the market to re-rate it and allow for capital growth in its share price. They shared their intentions with the market quite some time ago now and have been unsuccessful with tenders to date.

2. The data center needs to start being utilised and create cash flow, as far as I can tell it is dragging on profit at its current usage levels.

3. The acquisitions that you mentioned need to be paid out in 2013. They have secured a $21 million loan facility, and also have an equity option. But either way, without some growth in earnings share holder returns will be diluted with an equity issue or interest coverage ratios will go up and may be uncomfortable for some holders.

Certainly not a stock that you can just put in the bottom draw IMO, especially with headwinds for the IT sector in general.

The plus side is that the above points could be looked up as positives; they also provide opportunity and catalysts for earnings growth if they tick all the boxes.

 

[Ves]

No I sold out Count (COU), because count are around fees and wrap platforms..CBA subsequently took them over and the founder agree for the take over...
He probably know the wrap platform fees good day are over so may as well let CBA have it...

where Count Plus (CUP) are more to do with accountant work, payroll process, more to do with ****ty paper works than the easy wrap platform fees...

CBA still has a big chunk of CUP by default of taking over COU, so they either sold out
or take over CUP at some stage...

CUP pay dividend 4 times a years....

Thanks for clarifying!

The part about the quarterly dividend payments did excite me when I first looked at this stock. Has an American vibe to it, except with franking credits!

It is on my list for the time being; I need to do some more research before I can make a decision. But it does look solid on first glance.

 

[So_Cynical]

No idea what A-REIT is skc..... Displaying my ignorance.

Thanks everyone for the comments offered.

Rick

skc is right in that the A-REIT yields are around 8 - 9% and they do in general have high liquidity, but no franking credits to gross up the yield and in general high debt or at least significant debt..with the income (rent yields) to back up that debt.

I own a couple of these (DXS, ALZ) that i brought during the GFC revival and again on the next dip, buying the low points in the share price cycle seems to help with ROIC yield, you certainly wouldnt want to be buying willy nilly at any old price because the SP of the A-REIT's can move around in a 10 to 15% cycle.

Sometimes a short cycle sometimes long...buy the bottoms and you cant go wrong...see the success myself and Nulla nulla have had in the DXS thread over the last 2 years.

https://www.aussiestockforums.com/forums/showthread.php?t=15351&p=553530&viewfull=1#post553530

 

[tinhat]

I've heard it suggested that you should not own more than five times the average daily traded. For example, SND has an average daily traded (22 days) of just $5,576 (11,476 shares), so that is very illiquid.

Correction. I meant to say that the rule I have heard is that you should not own more than one fifth (20%) of the average daily traded. For SND that would work out to about $1,110.

 

[tinhat]

Disclosure: I own ASZ.

A few further risks that a perspective investor may want to be aware of:

1. The company really needs to win a $100 million+ IT contract to convince the market to re-rate it and allow for capital growth in its share price. They shared their intentions with the market quite some time ago now and have been unsuccessful with tenders to date.

2. The data center needs to start being utilised and create cash flow, as far as I can tell it is dragging on profit at its current usage levels.

3. The acquisitions that you mentioned need to be paid out in 2013. They have secured a $21 million loan facility, and also have an equity option. But either way, without some growth in earnings share holder returns will be diluted with an equity issue or interest coverage ratios will go up and may be uncomfortable for some holders.

Certainly not a stock that you can just put in the bottom draw IMO, especially with headwinds for the IT sector in general.

The plus side is that the above points could be looked up as positives; they also provide opportunity and catalysts for earnings growth if they tick all the boxes.

Thank you Ves for sharing your opinions. This thread has been quite informative for me. I hope that it will keep going for some time as people identify and evaluate potential income stock for medium/long term holding.

 

[MrBurns]

Someone pointed me in the direction of FIIG Securities Limited.

As a general query, how do you feel about handing over hundreds of thousands of dollars to people you've never heard of ?

The banks are one thing but what about the rest?

 

[skc]

Someone pointed me in the direction of FIIG Securities Limited.

As a general query, how do you feel about handing over hundreds of thousands of dollars to people you've never heard of ?

The banks are one thing but what about the rest?

FIIG does research on hybrid securities - research that you probably have to pay for.

But you don't need to give them money to invest in the hybrids. Many of these are traded on the ASX via your usual broker.

 

[MrBurns]

FIIG does research on hybrid securities - research that you probably have to pay for.

But you don't need to give them money to invest in the hybrids. Many of these are traded on the ASX via your usual broker.

Ok so you dont send them a cheque, they tell you what to do and you do it yourself.
We seem to have the same amount of posts

 

[skc]

BTW, your general rule question about giving money to organisations you've never heard of...

Of course you know what the answer is but it also depends on how knowledgable you actaully are. You can alsways do more research to complement things you haven't heard of (which may be completely legit, as I believe FIIG is).

Ok so you dont send them a cheque, they tell you what to do and you do it yourself.
We seem to have the same amount of posts

Lol. Now we do. You and I must have plenty of spare time

 

[MrBurns]

BTW, your general rule question about giving money to organisations you've never heard of...

Of course you know what the answer is but it also depends on how knowledgable you actaully are. You can alsways do more research to complement things you haven't heard of (which may be completely legit, as I believe FIIG is).



Lol. Now we do. You and I must have plenty of spare time

Yep, thanks