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Strategies & Market Trends : Value Investing

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To: - with a K who wrote (23638)	3/24/2006 8:33:14 PM
From: E_K_S	Read Replies (1) of 78746

Hi- with a K - My criteria for the shippers is similar to the others but I am buying this position as an alternative to other similar revenue producing investments specifically REITs. I am looking for a stream of dividends (best if "qualified") that are generated from the business, that are some what fixed and provide an equity kicker as the company grows. If I can accomplish this by buying value (i.e.. $0.50 on the dollar) it makes a good long term holding in my portfolio. The key to my analysis is "qualified" dividend income. Many of the REITs and limited partnership trust investments DO NOT have "qualified" dividend income. Their distributions are taxed as ordinary income (both Federal & State). However, many of these shippers do pay a "qualified" dividend (are taxed at a maximum of 15% Federal) so the after tax gains are significant. Currently I have 6% of my portfolio(s) invested in shipping companies including both my taxable and IRA accounts. I like SFL (http://finance.yahoo.com/q?s=sfl) which is a company that finances oil tanker ships. Their biggest customer is Frontline Ltd. (FRO) and eventually will grow their business to provide fleet financing to several other shippers. Under their standard financing agreement, SFL receives a 5% profit sharing distribution (as an added dividend) when the fleet generates more than contracted revenues each quarter (usually as a result of higher day rates for the previous quarter). SFL has paid this extra 5% kicker dividend since their inception last year. I have added other shippers to my holdings that appear undervalued based on the company book value, have potential growing "leveraged" revenues as day rates go higher and most importantly have the staying power and management experience to weather the volatile day rate cycles. The key is to balance debit and cash flow as well as the age of the fleet. Hopefully, this will provide an additional equity kicker to my core holding SFL. The current dividend return is just under three times that of what I can get by buying 10 year treasury bills at 4%. This becomes an attractive "value" investment when viewed based on the income generated from the "qualified" dividend stream from my basket of shipping stocks. To summarize, this is a long term "value" investment for me that generates "qualified" dividend income with an equity kicker (as long as management performs and sector growth continues). It's possible to also play the cyclical "value" proposition and load up when day rates are low and then be quick with the trigger and sell as day rates peak. This type of speculation is not important in my investment decision but can help my overall return if I am right. That's how I see it. I may be wrong in my analysis and there is always company specific issues that can arise which sour the investment. That's why it is important to diversify. However, the sector PE, cash flow from operations and future global growth prospects make this a compelling investment for me. EKS

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