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Stock Talk

Phil Ash

Rick

Benjamin,

I’m not sure if you’ve covered Jollibee recently or not. I’m sitting on about a 140% gain thanks to your service (not quite the 170% or so in your portfolio.) My wife is Filipino, so I’m aware of the restaurant chain from her homeland. It’s huge there and in other parts of Asia. And I know they’ve made attempts at cracking the US market. Any updates on that progress? Do you still view it as a long-term hold? If so, based on any US growth or strictly overseas activity? thanks

Ben Shepherd

Ben Shepherd

Hi Rick,

Right now Jollibee has 25 stores here in the US but I think its growth opportunity in North America is likely fairly limited. So far most of the US locations are primarily located in areas with large Filipino communities and, even there, Jollibee is having difficulty turning in consistent sales growth. In first quarter US sales actually declined by -0.7 percent.

Right now I would say Jollibee’s greatest opportunity lies in the Middle East where there’s a large population of Filipino workers. Revenues in that region have consistently grown by better than 20 percent. China and the rest of Southeast Asia also looks extremely promising.

At this point I continue to rate Jollibee an excellent long-term holding.

Ben Shepherd

Phil Ash

Rick

Makes sense. That’s where the population growth is. thanks

Frederick W Wright

Frederick W Wright

Question for Ben Shepherd – I missed the Healthcare Spotlight segment at the Wealth Summit where you talked about Exleixis (EXEL) and I would like to know what your thoughts were. I am currently long the stock and think it has great potential if they can move beyond the rather narrow Thyroid Cancer approval. Your thought?

Fred Wright,

Ben Shepherd

Ben Shepherd

Mr. Wright,

I believe Exelixis is extremely promising and I believe it will likely be approved for prostate cancer.

While Phase III data for that indication won’t be released until sometime next year, a University of Michigan study showed that two-thirds of men with metastatic castration-resistant prostate cancer (mCRPA) showed substantial and dramatic improvement after treatment with Cometriq. However there was a limited sample of about 170 patients and there was some concern about toxicity, so a full Phase III was required prior to approval. But based on the data, a doctor familiar with the clinical trial process said the toxicity was comparable to chemo so the real issue is finding optimal dosing to balance risk with results.

If Cometriq is approved in mCRPA I suspect Exelixis could be in the black within two to three years. It is also being studied in at least six other indications so its market could be radically expanded within the next couple of years.

At this point, I like Exelixis and would stay long on the understanding that there will be more volatility depending upon the news — or lack thereof for the time being.

Ben Shepherd

Fred Seiden

Fred Seiden

Hi Ben…was great seeing you in Phoenix. You recommended a mutual fund specializing in African stocks….Nile Pan African NAFAX. When we went to buy it we found it had a front load of 5%. We usually stay away from front loaded funds and I thought you did too. Is this one worth the exception. Thanks.

Ben Shepherd

Ben Shepherd

Hi Fred,

It was great to see you too. I thought this year’s summit was a great success and I really enjoyed talking to everyone.

I avoid loaded funds like the plague they generally are but I think Nile Pan Africa is a special case.

There are a number of relatively low-cost ETFs available that will provide exposure to Africa but I have two general complaints on those; they tend to focus too heavily on politically and economically unstable North Africa and use passive indexing. While I am generally okay with indexing in the fund world, that’s not the way to approach the continent. If you have the time and the ability to do the research, there are pretty clearly delineated good and bad investments, so why take the bad with the good?

Of the available mutual funds, Commonwealth Africa Fund is too new for me to comfortable with and T. Rowe Price Africa & Middle East muddles things too much with way too much exposure to, again, North Africa.

I’m primarily positive on sub-Saharan Africa which Larry Seruma, manager of NAFAX, focuses on. I’ve also talked to him on several occasions and am generally comfortable with both his skill and investment approach. Plus, he’s gotten pretty good results with his funds.

So while I would say 99.99% of the time to run from a fund as soon as the word “load” comes into the conversation, in this case I think it’s probably worth it; it’s one of the few Africa funds available, it has solid management, gets good results and, the reality is, its working in an extremely expensive geography. Nile Capital Management is a pretty small shop and it has to cover its expenses.

I also have confidence that as the fund grows, expenses will fall though there are no break-points built into the prospectus. You can also dodge the load by purchasing the fund through the “no transaction fee” programs at the following brokers; JP Morgan, Schwab, Scottrade, TD Ameritrade and TIAA_CREF. I pulled the NTF information from Morningstar, so I can’t swear that each of those brokers still participates but it’s worth checking if you happen to have an account with any of them. I have no idea how much you plan on buying, but Nile is flexible on the charge with purchases of more than $50,000 per the prospectus.

Ben Shepherd

Louise Flynn

Louise Flynn

Hi Ben,

In April you spotlighted Weyerhauser (WY). I never saw it show up in the Portfolio. Left a phone message in April, also sent e-mail, no answer. What is the story on WY? Why was it never added to the portfolio. Thanks.

Sincerely, Louise

Ben Shepherd

Ben Shepherd

Hi Louise,

Weyerhauser was not intended as an addition to the resources portfolio, it is simply a resource-related stock that I’m particularly positive on. It has fallen recently after S&P revised its outlook on the company’s debt to negative after its recent acquisition announcement — it will be using debt to fund a portion of the timberland purchase which will increase leverage — and concerns that home sales might slow down with higher interest rates.

I’m not too concerned about either of those points so I would suggest using this current weakness as a buying opportunity.

Ben Shepherd

apfco

apfco

I own 6 closed end municipal mutual funds purchased under the Wealth Society reign of Neal George. I have held the positions with resolve even through the onslaughts of Meredith Whitney and others. My question at this point, given the massive sell off:

Provided the municipalities remain solvent shouldn’t the payouts remain the same (with variances due to leverage) and shouldn’t the NAV’s of the funds and thus the prices (exclusive of discounts or premiums) recover overtime as the various bonds mature?

Or am I in a totally losing proposition?

apfco

apfco

Apparently no opinion??

Benjamin Shepherd

Benjamin Shepherd

I apologize for the delayed reply but I had to dig way back into the archives to find that collection of muni CEFs.

In theory, you’re correct that if the underlying bonds are held to maturity all principal should be recovered while collecting the coupons along the way. However, the average turnover on those funds is better than 25 percent annually and there are some pretty extended durations, so odds are very few bonds are actually held to cash out. Add in the effect of leverage, you end up with yields that have been pretty variable over the past few years and a fair amount of duration risk.

I wouldn’t go quite so far as to say you’re in a totally losing proposition, but that’s going to be entirely dependent upon your horizon. If you’re looking to hold for another ten years or so, you might be okay given that all assets are cyclical. I also wouldn’t be surprised to see a modest recovery sometime in the near-term given the discounts most of these funds are trading at over the past few months (AFB alone has gone from an almost 3% premium in April to a 7% discount today).

If you hang on to them though, you’re looking at a pretty rocky ride over the couple of years. The data is pointing to the fact that the Fed could start tapering sooner rather than later so, with average durations of about 6 years or more, you’re looking to take a pretty big hit when interest rates start rising. And if management takes the tack of shortening maturities as rates are rising, you’re going to start taking a bigger hit on NAV.

So if you’re concerned about near-term capital preservation, I’d probably consider selling.

Fred Seiden

Fred Seiden

Hi Ben….do you still feel good about Exelixis? Thanks.

Benjamin Shepherd

Benjamin Shepherd

Hi Fred,

I still feel quite good about Exelixis and was pretty impressed with their ASCO presentations in June. Cabozantinib showed good 2 year+ survival in MTC and while interim results in pretreated metastatic castration-resistant prostate cancer probably could have been better, it’s still showing real promise and is the best thing around in terms of survivability so far. I suspect when the final data is out next year, Cabozantinib will get approved for mCRPC fairly easily.

Ben

Lynn Scull

Lynn Scull

Just thought you should know Shoprite Holdings (SRHGY) split 2:1 early in December last year. You may want to update your GIS Portfolio information. I have a little less than a 25% unrealized loss in the stock, and have been considering selling it. Any comments in upcoming issues would be welcome.

Fred Seiden

Fred Seiden

Hi Ben….at last Wealth Society you recommended Exelis, which has been a fun ride. Do you have an opinion on another Bio-Tech called MannKind (MNKD). Thanks.

MurphyB

MurphyB

Hi I have been trying to buy 450 share of DVSPF (Best Buy #2). I can’t get my order filled. My broker said that it was due to low volume and not meeting the ask price. I lower the # of shares and raised my limit price but still was not filled. Does anyone have any advice? Does anyone know how I find out the current ask price? Thanks.

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Richard Stavros

Dear Murphy,
Please excuse, there was a keying error, and the ticker for Dividend 15 Split should have been displayed in the table as it has been in the publication as DFN.TO. Dividend 15 Split trades on the Canadian stock exchange and we have been assured by the company and exchange authorities that there is ample liquidity.

The ticker you used is on a gray market or Over The Counter which is unaffiliated with the company. Again, we regret the error and any inconvenience that may have resulted.

Richard

William Vanderhorst

William Vanderhorst

Just for thought, I own DVSPF via Fidelity, but I check the price on the Toronto exchange, convert that price to USD and use that as my limit price, I believe the fugable DVSPF price may not keep current with the Toronto exchange, or there may be a market maker in the middle. I may be wrong, but it does not hurt to check.

Richard Palter

Richard Palter

Ref: Global Income Edge: Conservative Portfolio Stock: Duke Energy Int Ger Paranapanema SA
Is the “Ticker” DEIWY or DEIPY
Thanks,
Richard Palter

Robert Frick

Robert Frick

Richard,

That was a typo on our part, sorry about that. The correct ticker is DEIPY – it will be corrected in the tables.

– Bob

RW

RW

I tried to buy DFN.TO through Fidelity but instead got DVSPF, is there any difference between these two?
Also I could not purchase DEIPY online electronically through Fidelity, they said it was due to the huge spread between ask and bid price and the extremely low volume that if I was lucky to get in, it would be difficult for me to sell. I would appreciate your comment.

RW

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Richard Stavros

RW,
Thank you for your question. Yes there is a big difference. Having spoke to Dividend 15 Split and the Toronto Stock Exchange – there should be no liquidity issues if you buy the stock under the ticker DFN.TO. The ticker you mentioned has no affiliation with the company and is probably a proxy (pink sheet or ADR) being sold by a third party. And, yes, some of these can be very illiquid and should be avoided. There are a number of online brokerage accounts such as Interactive Brokers where the DFN.TO stock can be purchased directly.

I’ve been in touch with the parent, Duke Energy (NYSE: DUK), which is the largest US utility by market capitalization, which stated that there should not be any trouble in buying shares on the Toronto Stock Exchange as there is liquidity in DEIPY. Of course, the firm still owns 95% of the Brazilian division, and what the utility has made available for investors participation is by definition limited. This is essentially a small-cap, and with a 10.26% dividend yield, has created a lot of demand as it’s affiliated with a large utility firm.

For those that may have difficulty accessing the Toronto Stock Exchange or are uncomfortable buying a small cap stock with fewer shares outstanding, we are recommending to investors in general consider investing in the parent company. This would give investors stakes both in the firm’s regulated operations in the U.S. and its international division, which has even greater exposure to Latin America than its Brazilian spin-off.

Duke Energy’s Brazilian assets are 40% of its international division. The rest of that division has infrastructure investments in Peru, Argentina, and Chile. Duke Energy receives more than 85% of its earnings from its regulated operations in the U.S. and yields 4.4%.

I hope that was helpful.

Richard Stavros

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Richard Stavros

PS: Just a correction on my Duke Energy answer for DEIPY. The stock trades on the OTC and not the Toronto Exchange. That being said, as stated, the parent company has assured me that there is adequate liquidity.

Giulio Leone

Giulio Leone

Seadrill has taken a significant fall this past year. What are chances of continuing deterioration in price and cut in dividend? Have not invested in it yet. Thanks.

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Richard Stavros

Giulio –
Thank you for your query. I believe in the long-term Seadrill with its more modern deepwater oil drilling rigs is a long-term value play. The current weakness in oil prices and increased competition in offshore deepwater oil rig markets will serve to displace many of Seadrill’s competitors – which have much older, higher cost rigs.

Seadrill has affirmed the dividend through 2015, and we will be watching closely to see over the next months how the firm manages these headwinds.

Richard Stavros

RW

RW

Thank you for your prompt reply about DFN.TO, unfortunately, and not realizing I bought DVSPF instead, even though I entered the symbol DFN.TO on my broker’s order. Should I hold it? It pays 0.090/share monthly, or just over 10% yield. Thank you.

RW

avatar

Richard Stavros

Hi RW,
To make your decision on whether to keep the OTC stock you mistakenly purchased, which I’m not familiar with, my best suggestion is to contact your broker/financial adviser to advise you on how this OTC stock is different from the Dividend 15 Split (DFN.TO) that trades on the Toronto Stock Exchange that is recommended by Global Income Edge.

For example, ask your broker whether you received actual shares, or a proxy. And if not Canadian shares , ask your financial adviser whether that matters, as some proxies afford the holder all the same benefits, as if buying on a foreign exchange and holding the actual stock with more convenience.

I can reconfirm that Dividend 15 Split Corp. (DFN.TO) is our #2 Best Buy in our Conservative Portfolio of Global Income Edge. And we continue to be attracted to the firm’s straightforward business model of investing in Canada’s top dividend paying companies and offering a 10.23% dividend yield.

Richard Stavros

Ralph Allen

Ralph Allen

how do I buy stocks on the Toronto exchange ?

Robert Frick

Bob Frick

Mr. Allen,

From our sister publication, Canadian Edge:

There are two brokers we favor that provide access to most Canadian securities and facilitate trades at reasonable prices.

The Canadian king continues to be PennTrade, the online trading division of Pennaluna & Company, which charges a flat fee of $26.95 per trade for Canadian stocks and $16.95 per trade for U.S. stocks.

That may be more than what online discount brokers charge for U.S. stocks, but the quality of PennTrade’s Canadian services is superior to its peers, and you’ll have peace of mind knowing that your orders are being properly executed.

The minimum deposit for opening an account is $500, and the initial deposit can be met with cash, equivalent securities or any combination of the two.

If you’re a more advanced and tech-savvy investor, you may want to consider Interactive Brokers’ trading platform. Interactive Brokers is a low-cost leader in providing investors direct access to global markets, and it routinely earns top rankings from venerable publications such as Barron’s.

Interactive Brokers’ one weak spot is customer service. It’s really only in the business of cheaply and efficiently executing trades, not providing research and hand-holding.

Ralph Allen

Ralph Allen

Is deipy still buy??

Richard Stavros

Richard Stavros

Dear Ralph –
Thank you for your questions – I’ll answer both right here.

1. I understand that Interactive Brokers and Penn Trade, as well as good many other online brokers allow for easy buying and selling on Canadian Exchanges such as the Toronto Exchange.

2. Duke Energy’s Brazil spin-off – has had a lot of volatility recently based on the Brazilian elections (business didn’t favor the winner, Dilma Rousseff), and the electric power subsidiary had a bad quarter. as a result of currency issues, lower volumes and higher purchased power – as such the stock has declined by double digits. (This had helped raise its current dividend yield to 9.7%.)

I met with Investor Relations reps last week of Duke Energy, its US parent, to find out what their position is. They are still committed to Latin America but are undergoing a strategic end-of-year review of all of their businesses – so we’ll be monitoring the situation closely.

We continue to believe Duke Energy’s Brazil operations – Duke Energy International Geracao Paranapanema (OTC: DEIPY) – are a steady income opportunity as its power plants generate 3% of that nation’s power, for the largest city in Brazil, Sao Paulo, which is also the largest city in the Americas and the world’s twelfth largest city by population. Not to mention that the Brazilian utility operations’ are majority owned and supported by Duke Energy, one of America’s largest utilities.

Finally, despite the new president’s socialist leanings, there is an acknowledgement that Brazil will have to invest in more infrastructure and business to get its economic engine humming again, and any improvement in the economy is a boon for this power producer in Brazil. Furthermore, we also hope the run-up to the 2016 Olympics in Brazil will attract foreign direct investment that will generally further boost the region’s fortunes – though the games themselves will be in Rio.

I admit that I didn’t expect this sleepy power producer to be so volatile (it’s low beta or low risk rating would indicate its as sleepy as you can get) – but this is Brazil! There is nothing sleepy about this country. I would recommend investors only approach this stock as part of a highly, diversified portfolio as we have. Trading at its 52-week low, we will continue to monitor the stock to see whether it stabilizes – as I think in the long-term there’s an opportunity here which offers great diversification – and income – at a discounted price.

Frank Booth

Frank Booth

Thoughts on ENDTF and BREUF?

Richard Stavros

Richard Stavros

Frank –
Thank you for your question.I’ll answer your last first, and your first last. With regard to BREUF – I wouldn’t recommend micro-cap stocks (and shy away from OTC shares) as a good income investment. We typically look at $1 billion market cap as a threshold. BREUF is a $100 million market cap with revenues of $34 million. I recognize the dividend yield of 9.88% might be the attraction here – but with a 547.7% payout ratio and a dividend cover of .0029 (TTM) we have a situation here where earnings are not fully covering the dividend. We like to see ideally a dividend cover of 2X and payout ratios that are significantly under 100% to have confidence in a firm’s ability to consistently pay the dividend over time. So – bottom line – given our criteria – this firm would not be suitable as an income investment.

With respect to ENDTF I wouldn’t buy the OTC shares as you may encounter liquidity issues – the Canoe EIT Close-End fund trades on the Canadian exchange under the ticker – EIT.UN.TO So, I’d say if you can’t buy the TSX traded security – don’t bother. I was surprised to find so many great U.S. names in this supposedly Canadian fund (top holdings are Proctor & Gamble, J.P. Morgan and Wells Fargo).

As you know – it’s trading at a discount to NAV. And I think the reason is that many of its holdings are U.S. (there are many other funds in the U.S. where you can invest and get these names) and the recent fall in oil prices has hit many of its other energy holdings. The fund manager published an update on December 2014 do an update. See link: http://www.canoefinancial.com/assets/pdf/EIT_11_30-14_FINAL_1.pdf

I would hold off on investing for income on any fund or security that is tied to the oil and gas industry. Global Income Edge recently de-risked the portfolio by selling off its oil and gas holdings. So, on that principle I’d steer cleat of the Canoe EIT fund.

Best regards –

Richard

Asa B. Groves,(deceased)

Asa B. Groves,

pril 28th. Are thes cardinal dates to be concerned about?

Vincent Lucy

Vincent Lucy

I notice that VOD has been a “best buy” since I became a subscriber to your service. I did but this stock based on the best buy recommendation and am pleased. I am now looking at SO. It seems to me that SO is a better buy now than VOD based on the percentage below the “limit” price for each stock.

I realize that the “safety rating” of the stock might come into play when it comes to picking the “best buys.” Is this true and what other criteria (gestalt?) if any are used to determine the best buys besides significant value below the “limit” listed? Would you consider SO to be a “close to” “best buy”? Thank you.

Vince

Richard Stavros

Richard Stavros

Vincent –
This is an excellent question, thank you. And I plan to highlight it in our next issue (a new Q&A feature in the March publication) so others can more fully understand the Best Buy process which I think will be valuable to all of our readers.

I’m sure my editor will probably somewhat edit this response for publication purposes, but here is my take on your question.

A. As you may know, from a valuation standpoint, all of our stocks are priced using a version of the Gordon Growth Model which evaluates dividend strength. I use an approach to valuation which blends aggressive and conservative valuation scenarios. So, most of the time those Buy limits are set very conservatively. The stocks may have significantly more potential for price appreciation than is conveyed by its limit price, but given that we are an income publication we prefer to be more conservative. So, the percentage from the limit should be viewed as a general rather than precise gauge of our sentiment.

Best Buy assignments usually involve both a quantitative and qualitative factors. In this case, Vodafone was significantly undervalued when we placed it in the portfolio in August with respect to other firms because of the slow recovery in Europe.

But I realized early on in August last year that Vodafone has a very diverse business globally and it was being unfairly penalized for being a European multinational.

Further, as time went on it has become clear that Vodafone has the opportunity to benefit from increased consolidation in the European telecom space, and stimulus from the European Central Bank promises to speed up the recovery in the region and improve the fortunes of firms doing business there. So, it is these last two trends that we’re watching to play out for Vodafone which could significantly enhance shareholder value – and the reason it’s still the #1 Best Buy in our Conservative Portfolio.

But this is not to take away from your observation that our #2 Best Buy is indeed a good value that challenges Vodafone’s claim to the #1 Best Buy throne. Southern’s stock value had been beaten down all last year as a result of concerns that the utility would bear more than its fair share as a result of cost overruns on two new power plants its building.

But it became quickly clear last summer that the company had been able to largely resolve many of these issues, though there have been delays on completing these plants. But given the improved economic situation in the U.S., Southern’s improving electricity demand in its service territory means the firm’s future earnings are on the rise. And the reason we’re optimistic about this firm’s prospects.

I hope that was helpful.

All the best –

Richard

Ryan

Ryan

Don’t forget USB, another very good bank.

LouisB

LouisB

you list the yield butcan you give me the quartly dividend for the following HCP SO VOD MIC AB . I would appreciate this info thank you

Richard Stavros

Richard Stavros

Louis – Please excuse the delay in replying we’ve had a revamp of our financial databases.

A bit crude as it was in an Excel sheet….please let us know if you need any additional info…

Ticker Company Name TTM Dividends Dividend Yield Notes

HCP HCP Inc. 2.26 6.07% 4 dividends of $0.565

SO Southern Company 2.154 4.63% 3 dividends of $0.543 and 1 of $0.525

VOD Vodafone Group Plc 1.741 5.41% 1 dividend of $0.556, 1 dividend of $1.185 and share price of 32.16

MIC Macquarie Infrastructure Corp 4.33 6.58% Dividends: 1.13,1.11,1.07,1.02

AB AllianceBernstein Holding LP 1.93 8.29% Dividends: 0.43, 0.48, 0.45, 0.57

All the best – Richard

George Alexander

George Alexander

Now that HCP has taken it on the chin, should one buy, sell, or hold? I read several conflicting articles about the company. What is the real scoop?

Richard Stavros

Richard Stavros

Dear George –
Thanks for your query, We are not at present going to change the Buy rating on HCP as we believe there really hasn’t been any new news and the stock is declining on fear selling. Clearly, the fall in shares has been dramatic – along with the broad market – but we believe it will snap back as investors seek safe havens and HCP resolves its short-term ManorCare issues.

On the issue affecting the stock, we’ve known about the ManorCare problem for awhile now, which we think is very serious, but resolvable by a management that has been able to deliver strong dividend through thick and thin, the reason it is a Dividend Aristocrat, having providing 31 consecutive years of dividend increases.

Further the company does have the cash in the short term to keep supporting the dividend. The CFO recently said: “we’ve got $165 million of free cash flow after our dividend payout ratio today, so we’ve got quite a bit of cushion today and continue to have cushion in our dividend payout ratio.”

And let’s not forget that HCP posted revenues of $668 million, comparing favorably with the year-ago number of $603.5 million. And It anticipates 2016 same property performance cash net operating growth, (excluding HCRMC) to be in the range of 1.5% – 2.5% and same property performance cash NOI growth rate of 2.3% – 3.3%. So on balance the firm is still growing.

It’s easy to lose one’s head in this highly volatile environment, but I fundamentally believe a company and management that has had a long track record of high financial and operational performance deserves some latitude to right the ship in stormy waters. And investors will be richly rewarded if they are successful.

That being said, we will be monitoring this firm closely to see if the situation deteriorates, but again we believe the Manor Care problem and the slowdown in the post acute/skilled nursing sector is a short term bump as the gargantuan, long-term senior care needs of retiring baby boomers will prevail.

I hope that was helpful.

Richard

Rick W.

Rick W.

Hi,
I am taking your service for a test drive and am a bit overwhelmed by the number of positions you are currently recommending. If you had to boil your choices down to no more than four to invest in right now, 5% of my total portfolio would be allocated to each one, which four would you choose as top choices now? I do not currently own any real estate type investments other than my home. Thank you.
Rick

Richard Stavros

Richard Stavros

Hi Rick –
Thank you for your question and welcome to Global Income Edge!

Though we take a portfolio approach, we recognize that investors are also interested in individual names.

We employ a Best Buy system where we highlight 3 individual stocks in each of our 3 portfolios. Our most current Best Buys can be found next to the ratings advice online in the Portfolios tab, or in the back of the latest issue.

As far as which ones, one of the limitations of general research is that I can’t know your particular circumstances or risk tolerance, so I can’t say what would be best for you. We would recommend that you consult a financial adviser that can look at your financial background and give you a detailed assessment of what’s best for your circumstances.

But that being said, each of our portfolios have been designed for different risk tolerances to aid you in your own risk assessment.

There’s our Conservative Portfolio and Aggressive Portfolio, which clearly say what they are from a risk perspective, and REITs which can offer some risk diversification from the broad market, and is regarded as aggressive income investments.

The stocks in the Conservative Portfolio are low beta stocks, so they are more likely to hold their value and dividend income during difficult market environments. The portfolio produces a lower dividend yield than the other two portfolios, but than there is less risk. The dividend yield is presently 4% for the portfolio.

This Conservative portfolio is globally diversified and it is our belief that global diversification will allow the portfolio to deliver better risk-adjusted returns than a one-country portfolio as many of these are global companies that are not exposed to one region.

The Aggressive Portfolio is made up of high beta stocks and are dependent on a good and growing economic environment. These stocks are sensitive to sudden changes as they move with the market more strongly. We expect our Aggressive Portfolio to outperform in high growth, positive market environments. The Aggressive Portfolio presently delivers a 5.1% dividend yield.

So, as you probably know, how aggressive or how much risk you take on really depends on your risk tolerance, time horizon to retirement, or if you are already retired. Only you can answer this.

Finally, REIT investments have a tax benefit and have been shown to help diversify an equity portfolio risk-wise as REITs historically have been less correlated to the market. The current yield on the REIT portfolio is 7.5%

The one thing to know with REITs is that they can be volatile around times that rates are expected to increase, and they are our most aggressive yield portfolio.

There was a big REIT selloff last year on expectations of a major rate increases. But lately, many of our holdings have rebounded as its become clear that the Fed is going to maintain accommodative policy. Some believe the FED may not raise rates this year. As such, those looking for income have again realized that weak growth means low rates and few income options, so REITs have been coming back slowly.

One thing to note, is there are a few holdings on Hold, precautions we took on some names that were oversold during the market rout earlier this year. We have recently started changing some of those names back to Buy as the market has rebounded. But certainly I advise to double check the rating. Other advice I would give is to double check the limit price as sometimes the stock may be trading above.

Finally, many of our stocks are grouped into themes. Our Conservative Portfolio is made up of key sectors such as healthcare, utilities or infrastructure, telecom and consumer staples. There are key demographic and economic trends underpinning why they were selected.

In our Aggressive Portfolio, the majority of our holdings are banks as financial institutions are typically the first to benefit from positive changes in an economy.

Further, the Aggressive Portfolio has a infrastructure theme (look for our #1 Best Buy) that looks at demographic and economic trends where governments around the world are replacing aging infrastructure or building for new demographic and economic trends.

Finally, there is a Buy American theme, where we have selected strong firms that stand to benefit from the continuing U.S. recovery.

I hope that was helpful, and again, welcome to our investment research service.

All the best –

Richard

Gayle Koch

Gayle Koch

What is the problem with IHG? It has really gone down since we took your advice and bought it.

Richard Stavros

Richard Stavros

Hi Gayle – Please excuse the delay in responding. Thank you for your question.

High oil prices affected tourism/travel in some of its businesses in the Mideast, and some European travel was somewhat down before rebounding, and an early Easter was also the reason that shares of Aggressive Holding IHG were impacted, according to management and market analysis.

So, we still believe the hotel group will do well in the long-term, but it may face some headwinds as various parts of the world are experiencing slower global growth.

The World Bank this week downgraded its 2016 global growth forecast to 2.4% from the 2.9% pace projected in January. The move is due to sluggish growth in advanced economies, stubbornly low commodity prices and weak global trade.

The IHG CEO continues to have confidence: “Despite economic and political uncertainty in some markets, current trading trends and the momentum behind our brands give us confidence for the rest of the year.”

And certainly the U.S. operations have been doing well, more than half of InterContinental’s rooms are in the U.S., where Revenue per available room (revpar) rose 1.5 percent, driven by record levels of industry demand. Demand was weaker in oil producing areas. The company also bought U.S. boutique chain Kimpton Hotels last year, which help expand its reach into the U.S. upscale segment, according to a Bloomberg report.

The reported added: “European sales did eventually climb 1.4 percent, after terrorist attacks in Paris and Brussels damped travel in the region. Revpar in France was down 2.3 percent. The profitability measure rose by mid-single digits in Germany and former Soviet Union countries.”

We continue to believe Aggressive Holdings such as IHG will be the first beneficiaries when global growth returns, and we’re cautiously optimistic that Europe is on the mend, though it may happen in fits and starts, so investors should allow for higher volatility in the Aggressive Portfolio as a result.

I hope that answers your question.

All the best –

Richard

Karl

Karl

As an U.S. tax alien i have to pay Effectively Connected Income (ECI) of 39,6% on the distributions paid by MLPs issuing form K-1 instead of the 15% under the tax treaty for normal corporations.
Now i found the InfraCap MLP ETF (AMZA) which invests in midstream MLPs but the dividends are paid by a corparation (form 1099). Do you think this a good managed fund where i could invest?
Best,
Karl

Richard Stavros

Richard Stavros

Hi Karl –
Thank you for your question. Regrettably, we do not cover oil and gas MLPs at Global Income Edge.

For your question, I would direct you to our sister publications, The Energy Strategist or MLP Profits, which cover almost all of the companies that are listed as top holdings in the ETF you referenced. And I’m sure one of our energy/MLP analysts, Robert Rapier or Igor Greenwald, would have something substantive to say on your query.

All the best –

Richard

Karl

Karl

For IHG is a 12-month yield of 19.08 % pointed out. As i saw on the webpage of IHG there was a special dividend of 632.9¢ per ADR paid on 23 May 2016, a yield of 18.01%. But for the year 2015 only 57.5¢ + 27.5¢ = 85.0¢ was paid which is a yield of 2,42% only!
Please explain me what yield i can expect from an investment in IHG.
Best,
Karl

Richard Stavros

Richard Stavros

Hi Karl –
Thanks for your question. We’ve run into this issue in the past with other holdings where the company deviates when and how it pays its dividend, European don’t spread out the dividend evenly as U.S. firms do, and in various circumstances have different criteria.

We’ve been in touch with IHG to double check the math as it is being calculated by them and by financial data reporting agencies, and will be in touch shortly.

We had a recent case where the financial data firms that provide info to Yahoo, Bloomberg and Cap IQ perpetuated an error because they extrapolated a second smaller dividend payment as the forward yield. Finally, when the error was pointed out the dividend yield was reset globally.

All the best –

Richard

Richard Stavros

Richard Stavros

Karl –
After receiving correspondence from IHG, which I will share below, my conclusion is that the recent global financial volatility, Brexit and currency impacts must have been largely responsible for the odd dividend yield reporting, which is typically based on last year’s payouts.

At this writing, when I look at my S&P Capital I.Q. terminal shows a 23.5% dividend yield, but when I look at Yahoo Finance it’s 2.83%. I would stay with under 3% as an expectation.

I went back to when we first recommended the stock in January, and the dividend yield at the time was just under 2%. We had chosen the company mostly for dividend growth based on the the improving European growth picture, pre Brexit. Further, given the strengthening dollar, which is making European travel cheaper, and it’s globally diversified, this company will benefit in the long-term as global economies recover.

From IHG investor relations, they made the following points in an e-mail;

“We don’t give forward guidance on these matters, but looking historically I’d make the following points:

1. In terms of ordinary dividend, we paid (i) 77 cents per share for financial year 2014 (announced Feb 2015) and (ii) 85 cents per share for financial year 2015 (announced Feb 2016). Based on the share price the day before we announced the final dividends, (i) represented a 1.9% yield and (ii) was a 2.4% yield.

2. It is a stated policy that after (a) investing as needed in the business, our next priority is to (b) continue sustainable growth in the ordinary dividend. Since 2014 we have grown the ordinary dividend at a CAGR of 11%.

3. After (a) and (b) we have stated that we will look to return excess cash to shareholders – for example via the May $1.5b special dividend that your correspondent mentions. Since 2003 we have returned over $12bn to shareholders, about 2/3 of which reflects the proceeds from the now-complete asset disposal programme, but the other 1/3 is generated from our regular free cash flow.

4. In terms of this free cash flow we generated over $400m p.a. for the last six years, with the ordinary dividend cost running a little below $200m in the last few years. A continuation of that trend would mean that we have capacity for further returns.”

I hope this answers your question.

All the best –

Richard

Richard Stavros

Richard Stavros

PS: another reason for the problem in dividend yield reporting in this case, is that many financial databases use a trailing 12 month model which changed when they included IHG’s special dividend. This is what I think happened as we have seen this occur on other occasions when other European companies have issued special dividends. We do try the best we can to identify the irregularities when they happen, but like yourself, we are all somewhat dependent on the financial data reporting companies.

Karl

Karl

Richard,
thanks very much for this detailed answers!
Although you set all Aggressive Portfolio holdings to hold i decided to buy some IHG near its nadir (no risk, no reward!). Until now i have a gain of 10% and i hope more to see if your investment thesis fulfills.
Best,
Karl

Rick R

Rick R

For Jim Fink:
Jim,
A number of years ago you made a compelling case for W.R. Berkley as investment whose return rivaled that of Berkshire Hathaway. I bought the stock then. It’s been a very good, sleep-well-at-night recommendation but it seems to be below-the-radar as far as news/analyst coverage goes.
Would like to add more shares as I like the way the company is conservativlely managed, a mid-cap, definitely shareholder friendly, e.g. special dividends, and gives straightforward earnings calls/reports .
Would truly appreciate just a quick comment if your original thesis for owning is intact and a fair price now to buy more.
Many thanks,
Rick R.

Steve Coop

Steve Coop

A suggestion to do a put spread on ALB and the stock is trading a lot lower than the 125 strike we sold. Why are they not assigning us the stock as I though the idea was it stay above the 125 strike. Having a hard concept understanding how you sell a put spread and need the stock to stay above that strike price. Seems to me you would want it to go down below the strike you sold and they wouldn’t assign the stock to you because they can buy it even cheaper than the strike you sold them. Seems backwards or do I have it wrong?

Jim Fink

Jim Fink

Post your OFI question on the OFI discussion board, not the Global Income Edge discussion board.

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