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What am I mising here?



August 08, 2008 – Comments (4)

One stock I have had interest in is ACAS.  I see a stock trading low 20s paying a dividend of over $4 per share.  Now normally when I see a high dividend yield I do a little homework to see why.  Oftentimes it means the stock is plunging and the dividend is most likely going to be cut. So I do some more homework here.  And all I find is pretty much an assurance that they will continue to pay its dividend with sufficient existing funds to pay even half of next years so far.  Further homework shows that this stock's original IPO was $15 in 1997 and has to date paid over $29 in dividends.  So in essence if you bought it and held you made almost 200 % on your original investment over 11 years.  That's a pretty damn good annual return I think.

So what am I missing? Yeah financials are a crap shoot at the moment.  But this company holds its own paper with no pressure to sell.  So the income off the paper continues to the end.  There is also no indication of high default rates at all. In fact almost negligible. So is this just a broken stock?  And if just a broken stock, for 20% annual yield people would be nuts not to buy this and hold.

4 Comments – Post Your Own

#1) On August 08, 2008 at 2:18 AM, AnomaLee (28.87) wrote:

I wrote a pitch against AINV last year. I think ACAS is too big to repeat its historical growth rate, but because it is a BDC the dividend pay out is relatively secure to its income...

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#2) On August 08, 2008 at 6:56 AM, StockSpreadsheet (67.73) wrote:

ACAS got hammered recently due to an accounting change.  I forget the accounting rule, but there was a recent ruling regarding forcing institutions to mark-to-market a lot of their assets, (even though most banks and investment banks haven't done this yet and have just started calling all their bad debt Tier 3 securities, meaning that their is no market for it and in their case most of it is truely worthless).

For ACAS, most of its assets are also not traded, (loans out to various enterprises, and almost nobody has money right now to buy loans, so their is no market for them).  Because of the rule change, ACAS had to mark down their assets something like 75% - 90%, (I forget the exact number), even though historically they have suffered very few losses in their loan portfolio.  I own ACAS, and so have been following this stock for years.  Their losses on their loans has always been minimal, (less than 5% historically, if I remember correctly), whereas their gains have always been very good, so that their net gains each year are in the 15% or more range.  This is a good return on assets.  Due to these good returns, their care in who they loan to, and their low losses, they have always been able to pay out good dividends.

But in this environment, with a credit crunch going on, people are avoiding MTM securities and almost all financial companies.  I think that in ACAS's case, they are throwing the baby out with the bathwater.  I think that they can still make a good return on their money and still pay a good dividend, (and as far as the stock has been beaten down, they are paying a GREAT dividend).  I plan on holding this stock long term and just banking the dividend.  I think eventually the credit crisis will pass and then ACAS will come into favor again, and at that time their stock price will shoot up.  In the mean time, it will pay me nice dividends while I wait.

That's just my opinion.  Make up your own mind and do your own research.


Long ACAS and AINV. 

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#3) On August 08, 2008 at 10:35 AM, chk999 (99.96) wrote:

ACAS is basically a bet on Malon Wilkus. If you think he will run well for a long time, then this stock is really cheap. (And he's pretty young.)

The stock drop seems to be due to the aforementioned accounting rules change. Since most of the assets are various ownership and loans to non-publicly traded companies, the only time we really know the value is when they get sold or written off.

Chris - long ACAS and re-investing those nice dividends into cheap ACAS stock 

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#4) On August 08, 2008 at 10:43 AM, awallejr (38.93) wrote:

Thanks for the replies.  I don't really care if their dividend growth rate doesn't continue as in the past.  Even if it goes up just a few pennies a year at this point it still appears to be a great dividend producer at this price.  I have bought a bunch of shares and was  thinking of buying some more.  I just didn't understand why it isn't higher.  Panic is one thing, but I would think the professionals could see the chaff from the grain.

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