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A 7% yield is awfully tempting
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I'm usually an oil and gold person. But when Bob Rubin went on television today and said that Citi's dividend was secure, my heart pounded with the excitement of a winning lotto ticket. The secret to making money in any asset is to buy it right. If the price is affordable, one can easily hold the asset until the return reaches maximum potential. Since Citi was selling at 55 earlier this year before all the subprime issues came out, that may be a reasonable target to shoot towards as an exit point later down the line. In the interim, think 7%! You can't find a 7% yield of this quality with all the upside potential of C. At today's price of thirty dollars, you stand to earn 100% on your money if you include the dividends. Think of it. C's dividend is $2.16 per share annually. It has a p/e of 8, yes eight, and way below the current S and P average p/e ratio. Two years ago it was the telecoms that were in the dirt. People that bought AT&T in the twenties are patting themselves on the back for their brilliant purchase. Sectors rotate and fall in and out of favor. Right now C is definitely out of favor, but a 7% yield and a dividend that is secure adds considerable plusses to this picture. | ||
Comments (2)
Liquid Gold ,I thought you were hyping up a cold beverage made out in the foot hills of Golden ,Co. I was as some one named DuffBeer would do head out to go buy a sixer and try one.
Then I spot the name Rubin and my excitement fizzled out just like a flat brew. Funny Rubin has a big time job at Citi and finally he shows up after one of the Arab Sheiks tossed in a lot of oil $$$. Nice to get some back. Be careful here could this be one of those previously discuss
Value Traps
Check this out from Robert Navallier
Interestingly, Citigroup's stock actually closed lower, down $0.38 to $30.32. It turns out that Citi had to give the ADIA an eye-popper of a deal for the cash. Citi will pay the ADIA 11% per year, or $825 million, then allow a swap into common shares priced between $31.83 and $37.24 per share.
The 11% rate is almost twice the rate that Citi offers its bond investors, well above average junk bond rates (around 9%), and substantially more than the 7.25% rate that Countrywide paid Bank of America for its emergency financing three months ago. And the deal will dilute Citi's common stock by as much as 235.6 million shares. Ouch! No wonder the stock was down.
Apparently financing is becoming very expensive, even from sources that are awash in cash.
The Citi news clearly helped the market, but we still don't know how bad the situation is or how many banks can tap similar capital if necessary. One thing is for sure, the price for cash just went up substantially.
Cheers, DuffBeer
Posted by duffbeer | November 28, 2007 9:57 AM
I agree with your analysis on Citi, but I still think it is a little too early. The information about the severe damage in the credit market has been coming out slowly. Just when it seems like we know the extent of damage, more negative info dribbles out. I'm not about to point fingers and accuse anyone of trying to minimize the damage, but insiders at Citi knew they were going to be hammered. I wish they would take a page from Machiavelli and give us the full painful dose all at one time and begin moving on. I'd like to get well into a recession. My time frame is at least 9 months before pulling the trigger.
---Jonathan
Posted by Jonathan Coyle | November 29, 2007 10:34 AM