American Capital Strategies, Ltd. (ACAS)

seadragons (89.92) Submitted: 6/05/08 11:15 AM

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Maybe you are only looking at operating earnings, and not total earnings including capital gains. Looking at total earnings, ACAS has been stockpiling undistributed profits at such a rate it's actually paid an excise tax on retained profit. If there's any criticism to be laid, it's that ACAS' dividend might ought to be higher, given its actual net.

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griderX (98.87) Submitted: 6/09/08 11:20 AM

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No business can continue this type of dividend policy (constantly issuing stock and increasing debt). My guess is that we will see a serious cut in the dividend this year.

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seadragons (89.92) Submitted: 6/21/08 5:51 PM

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I don't think you are following the thinking behind the dividend policy. ACAS pays dividends to avoid paying income taxes. ACAS' dividend is as high as it is because its earnings are as high as they are.

Remember that ACAS' net profit isn't as low as its operating profit; ACAS also has investment income.

Lastly, I notice you are concerned about share issuance. ACAS hasn't issued shares except ABOVE its listed book value. In other words, when ACAS issues shares, it doesn't dilute the assets per share, it grows average assets per share. The only reason to worry about this kind of practice is if you think "all the good deals are gone" and that the new opportunities would be of lower quality, and yield a lower return, than the prior crop of deals. Yet, the current market environment gives ACAS a superior position from which to make acquisitions. Nobody has a gun to ACAS' head making it enter deals (ACAS has walked from deals before when they got too pricey, even when it irritated analysts; management is obviously looking further down the road than the current quarter, and I salute them for it). ACAS can be as patient as required to wait for deals that involve good businesses at the right price.

It's easy to listen to the talking heads pretending that they have some sophisticated reason ACAS' days are numbered, but I have yet to hear anything that holds water.

ACAS' recent trades below NAV represent a screaming value. And the dividend is heading up, led by profit growth. FAS 157 doesn't give ACAS' actual exit prices, those were accurately described with the prior accounting practices. If you see something that really undermines the argument here:
http://jadedconsumer.blogspot.com/2008/06/professional-stock-analyst-opinions.html
Please let me know!

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bluedome (20.46) Submitted: 7/12/08 7:27 PM

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The company lost 2.5x its revenue last quarter. That cannot be good.

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