Stocks and Trading Thread - Channeling your inner Mono

[Admiral Yi]

I've got a limit sell order on my mom's SPY at 175.

[Phillip V]

Good rally today for Sprint (S) due to analyst upgrades. I sold off part of my position for a slight profit, but stand ready to buy if the price dips to $6 again.

[Admiral Yi]

PBI has come back from the grave.  Up 20% since I bought in. 

AGNC continues its death spiral, but I ran the numbers and the last dividend was still good enough for a 8% yield.

Anyone know anything about Master Limited Partnerships?  Specifically, a bar buddy of mine who does electrical engineering for Apache opted out of his employee stock plan because (according to him) if you own an MLP you have to file taxes in every state they do business in.  I'm trying to find out if that's true or not.

[Phillip V]

AGNC is once again oversold. What makes people think the company's portfolio will suffer any more book value loss from $25? Interest rates have fallen from their peak in early September.

I bought more shares last week at $22.09 and the company's President bought more at $21.66

Near-term threat is that "experts" now think there is a chance of Fed QE tapering in December.

[MadImmortalMan]

Anyone know anything about Master Limited Partnerships?  Specifically, a bar buddy of mine who does electrical engineering for Apache opted out of his employee stock plan because (according to him) if you own an MLP you have to file taxes in every state they do business in.  I'm trying to find out if that's true or not.

Check the MLP you want to invest in. There may be a way to get the exposure to the investment without the tax headache. Kinder-Morgan has a listed stock (KMR) that exists to own shares of their MLP (KMP). Hopefully that makes sense.

http://seekingalpha.com/article/1328851-kinder-morgan-management-a-cheaper-way-to-own-kinder-morgan-partners

Just an example.

[Admiral Yi]

Check the MLP you want to invest in. There may be a way to get the exposure to the investment without the tax headache. Kinder-Morgan has a listed stock (KMR) that exists to own shares of their MLP (KMP). Hopefully that makes sense.

http://seekingalpha.com/article/1328851-kinder-morgan-management-a-cheaper-way-to-own-kinder-morgan-partners

Just an example.

Not crazy about the mandatory stock reinvestment.  Seems to me like your dividend is just diluting your ownership.

Can you confirm the tax hassles of owning an MLP outright?

[Napoleon XIV]

Check the MLP you want to invest in. There may be a way to get the exposure to the investment without the tax headache. Kinder-Morgan has a listed stock (KMR) that exists to own shares of their MLP (KMP). Hopefully that makes sense.

http://seekingalpha.com/article/1328851-kinder-morgan-management-a-cheaper-way-to-own-kinder-morgan-partners

Just an example.

Not crazy about the mandatory stock reinvestment.  Seems to me like your dividend is just diluting your ownership.

Can you confirm the tax hassles of owning an MLP outright?

There really is no dilution so long as it's a distribution that is appropriate to your share of ownership (and you reinvest all of it).

MLPs can be an abject bitch tax-wise.  You end up owning a unit interest in a Publicly Traded Partnership.  Now, that means it'll trade like your garden variety corporation, but because you own an interest in a partnership you will received a K-1 showing your pro-rata share of the Partnership's operations during your period of ownership.  I remember I had to do taxes for a guy who day traded the damn things.  I ended up having to wade through a stack of K-1s about a foot or two tall with all kinds of weird oil & gas tax credits (and all this for about 23 cents of allocable income due to his ownership of .00002% of several MLPs for 24 minutes on July 22nd).

As to whether you'd have to file taxes everywhere, probably not.  Unless you've got a huge stake, your allocable share of the operations in each state is not likely to be huge enough to trigger the mandatory filing requirements.  It depends on the state though.  That's my thinking anyhow.

[Admiral Yi]

If new shares are not being created when you reinvest your dividend (thus diluting ownership), where are they coming from?

[Napoleon XIV]

The issue here really is whether your ownership is being diluted.  It isn't if you're reinvesting.

Let's say you own 100 shares of something that has 1000 shares total.  The company decides to do a stock dividend (to make things easier in this example) of .1 shares per share owned.  You would get 10 shares, boosting your ownership to 110 shares.  The overall stock out would get kicked up to 1100 shares.  Before the distribution, you owned 10% of the company.  After the distribution, you own 10% of the company.  More shares out, but *no* dilution of your interest in the company.

Same deal with cash dividends if you're reinvesting, except that by reinvesting when others are not your ownership interest is actually increasing.  Like, in the above example, imagine if instead of taking the shares you took cash while everyone else took the stock.  Then you'd have 100 shares and some cash, but total shares out would be 1090.  Thus, your ownership would have been diluted down to 9.17% from 10%.  Flip that around such that you're the only one taking the shares and everyone else takes cash, you would end up with 110 shares in a company that has 1010 shares out (i.e. 10.89% ownership).

So that example assumes they're just issuing new shares from a stack of authorized shares.  The other way they could give you shares is by selling you Treasury Stock.  Companies tend to buy back a bunch of their stock on the market so that they can then give it to employees as part of some stock compensation plan, or to sell to shareholders as part of a DRIP (Dividend ReInvestment Plan).

So... yeah.  That's roughly how it works.

[Admiral Yi]

Well that seems to be the kicker, doesn't it?  Whether the stock your are purchasing through DRIP is existing stock or new stock.

And I mispoke when i said dilution earlier.  What I meant to say is that (assuming DRIP buys new stock) is that your dividend is buying nothing.

[Napoleon XIV]

Well that seems to be the kicker, doesn't it?  Whether the stock your are purchasing through DRIP is existing stock or new stock.

And I mispoke when i said dilution earlier.  What I meant to say is that (assuming DRIP buys new stock) is that your dividend is buying nothing.

Eh, not really.  Stock is stock.  If they're issuing new authorized stock, the total pie is increasing and your proportional ownership (and entitled to dividends) is staying exactly the same or rising depending on the actions of other shareholders.  If they're selling you stock out of the Treasury, it pretty much works out the same way.

The dividend is buying something - more stock.  The more shares you have, the more shares you will get dividends on.  And when you go to sell the stock, you're selling more shares.  So you are getting something.  Eventually.  The only problem is that the something you're getting could drop in value, whereas the cash is what it is forever.  It really depends on what your outlook is on the company.

(And what's up with these verification questions?  I disappear for three or four years and everything changes...)

[Barrister]

Holy shit - Nappy?

[Admiral Yi]

Eh, not really.  Stock is stock.  If they're issuing new authorized stock, the total pie is increasing and your proportional ownership (and entitled to dividends) is staying exactly the same or rising depending on the actions of other shareholders.  If they're selling you stock out of the Treasury, it pretty much works out the same way.

I don't see how.  If your dividends are buying new stock, then the next go-around you're just slicing up the existing dividend pie into more slices.

[MadImmortalMan]

Maybe that explains the share price discount between the reinvest fund and the straight-up partnership shares.

[Napoleon XIV]

Eh, not really.  Stock is stock.  If they're issuing new authorized stock, the total pie is increasing and your proportional ownership (and entitled to dividends) is staying exactly the same or rising depending on the actions of other shareholders.  If they're selling you stock out of the Treasury, it pretty much works out the same way.

I don't see how.  If your dividends are buying new stock, then the next go-around you're just slicing up the existing dividend pie into more slices.

Yes, except the dividend pie isn't fixed.  In theory, if you take your dividend pie slice and kick it back into the company, the company will have that much more to invest in its operations.  If the company is at all decent at doing what it's doing, the return it earns on that reinvested capital should exceed its cost of capital, leading to more profits (and an overall larger dividend pie to be cut up).

Or something like that.