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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (20588)	2/3/2005 3:58:37 PM
From: hoyasaxa	Read Replies (2) \| Respond to of 78700

KKD: How has dunkin' donuts been as an investment? Not sure if that's even applicable. The franchise structure must be looked into as well as their leases and any real estate value - could well be another Boston Chicken. TPE: Hard pressed to find anything substantive. I don't trust the AMEX in general nor a business I cannot value with any degree of certainty. Do a search on SI and online for TPE and see what you find. The Brinks picks have intrigued me for some time despite the "defensive self promotion of late" (who cares if people don't see your successful record - and its great if people challenge your ideas here, that's part and parcel of why we come here right?). Some great ideas potentially. And the dialog b/t CW and Brinks is amusing too. And CW- stand by my opinion on the home builders. Its only a matter of time.... By the way, ever see stocklemon.com (or something like that) - good stuff there. -HoyaSaxa

To: Paul Senior who wrote (20588)	2/3/2005 6:27:30 PM
From: E_K_S	Read Replies (1) \| Respond to of 78700

Hi Paul - Another stock picker I talked to today mentioned his interest in KKD. I really did not pay to much attention about this company after I heard some reports about channel stuffing. I do not know how one would channel stuff donuts but if there was some creative accounting, that may be the reason for the low stock price. If you get a chance to do more research on this one, please post your comments. ============================================================ Dividends are now categorized as "Qualified" or "Non-Qualified". Qualified dividends receive a better tax treatment (I believe no higher than 15% for Federal), while non-qualified dividends are treated as ordinary income. The exact rules as to what makes a dividend qualified or non-qualified is complex to me but I suspect many investors will just accept what is reported on their 1099 form especially for mutual fund holders. From a brief review of the law, foreign ADR's, REITS and other "return of principle investments" get treated as a "non-qualified" dividend and are subject to the much higher tax rate (the highest tax bracket is 35% for Federal). If I can save 20% in Federal Taxes by focusing on equivalent "qualified" dividends, I would say this is another type of value investing. Here is what I have discovered. There are some very high yielding Hybrid Investment Units typically packaged as a "Preferred" stock that in many cases carry the safety and low risk aspects of a bond but their dividends are treated as "qualified dividends". Companies have used these HIU's in place of floating corporate bonds in the last few years and are bought and sold like the common stock. One HIU unit I have been eyeing is the Albertsons Preferred A convertible that was issued last year in order to finance their purchase of the Shaw's stores. A 424b4 SEC form was filed that covers the unique features of this preferred equity (http://phx.corporate-ir.net/phoenix.zhtml?c=103172&p=irol-secToc&TOC=aHR0cDovL2NjYm4uMTBrd2l6YXJkLmNvbS94bWwvY29udGVudHMueG1sP2lwYWdlPTI3NzE4NDEmcmVwbz10ZW5r) It pays a quarterly "qualified" dividend of $0.45 (7.46% yield) and can be converted into the common according to a three tier conversion table based on the 20 day average price of the common. On May 16, 2007 the preferred is automatically converted into common shares. finance.yahoo.com My thought was while ABS works on their company turn around which may take another 24 months, one could hold this preferred series, collect a nice dividend and then receive a 1:1 conversion of shares in May 2007. This strategy works as long as the common stock trades between $23-$28. The difference in the common and the preferred series is (1) the price of the common ($23.36 & 3.27% yield $0.19/qtr) and (2) the price of the preferred $24.55 & 7.46% yield $0.45/qtr) or $1.19/share. There is aprox 8 more quarterly payments remaining for the Preferred A series that generates $2.08/share more dividend income ($0.45/qtr-$0.19/qtr X 8qtr) Vs the $1.19/share stock price premium to buy the series A preferred. There is a possible capital gain of $3.45/share if the common reaches $28. Therefore, you receive a 7 1/2% yield on the dividend and a potential 14% capital gain on any conversion over $28 generating a 21% return for at most a 24 month holding period. The downside is if the stock falls below $20 on May 2007, you are stuck with a capital loss which negates the premium they have paid in a higher dividend. Anyway, I thought it was an interesting potential "value" investment that provides a better income stream for the investor while waiting for the company to complete it's restructuring. Have you ever invested in any convertible preferred Hybrid Units? It appears that there may be more value sometimes in the HIU unit than owning the common. Have I missed something in my analysis? EKS