Beware the illusion of yield, says Jonathon Jacobson, the founder of Highfields Capital Management, speaking at today’s Ira Sohn Conference.
(from Barrons today)
Said Jacobson, “The problem is that all dividends are not created equal.”
...Another name on the beware list: a real estate investment trust Digital Realty Trust (DLR). It is a $69 stock worth $20, Jacobson says. It has a $9 billion market cap, and a 4.6% yield.
The “fundamentals are deteriorating, and rapidly. The data center business is a commodity business with no barriers to entry, recurring capex is materially higher than company represents. The dividend is not sustainable and depends on continue access to capital markets.”
True adjusted funds from operations (AFFO) is 87 cents per share, not the $3.90 per share the company reports.
Here is a smoking gun, he said. Digital changed the definition of non-recurring capital expenditures in 2011 to include maintenance capex expenditures. The company is issuing shares aggressively, and continues to acquire new assets, but that a creates a bigger cash flow hole down the road.
“Shorting stocks is hard. I ask you – do you want to pay three times book value for this?” Then he showed a slide of giant data storage boxes in a room. And then, a final slide that said DLR’s dividends are being paid with funds from future investors.
Highfields Capital Management is based in Boston, and Jacobson manages $11 billion at the invetment management firm.
Digital Realty shares are $5.02, over 7%, at $64 in late trading, AT&T shares are off 21 cents, or half a percent, at $37.62, and Linn stock is down 23 cents, or 0.7%, at $34.75. |
