Early March 2016 Purchases

With the stock sales and the dividend cuts from KMI and BBL, my forward annual dividends had significantly decreased by the end of February. In somewhat better news, the sales also left me with some free cash.

Of that cash, roughly $3600 needs to be held in the account for the margin requirement of the Boeing put. The put has a strike price of 115, meaning that technically $11,500 would need be kept as cash-on-hand. However, since I was approved for level 3 options trading, I only need to keep a portion of that as cash, freeing up the rest for other investments.

While it may seem that that the cash is sitting unused, you do have to remember that it is earning interest (albeit very small in today’s climate). It also generated around $1,170 in premium, which I am able to use immediately. Even if I wasn’t approved for level 3 trading, that $11,500 would effectively yield 10.2% for the year. If the cash requirement is taken as today’s margin requirement (which fluctuates), the yield goes up to 32.5%. Now there’s nothing guaranteed, and I may need to buy 100 shares of BA at 115 in January 2017 at a price less than 115, but I’d be very happy with either of those two scenarios!


My other early March purchases include:

1) 7,142 shares of First Mining Finance (FFMGF) at $0.2855/share. This company is in the mining industry and was started by Keith Nuemeyer, founder of First Quantum Minerals and First Majestic Silver. Mr. Nuemeyer was recently interviewed on Frank Curzio’s investing podcast.

First Mining Finance is a very small company with a market cap of around $88 million. It was started about 10 months ago for the purpose of acquiring mining assets at depressed prices. It trades on the pink sheets (FFMGF) as well as on the Toronto Stock Exchange (FF.V).

To show the upside potential of this stock, First Quantum Minerals currently has a market cap of $3.5 billion and First Majestic Silver of $740 million, even in this horrible mineral commodities market we’ve been in the last few years. Both are down roughly 75% from their peaks in 2011.

This purchase brings my ownership in First Mining Finance to 10,342 shares (worth approximately $3100). As I had discussed earlier, I’m going to be diversifying into more speculative micro-cap companies that have huge upside potential.


2) I also added to my position with IBM by purchasing 25 additional shares at 134.5075. This purchase adds $130 in annual dividends. It also decreases my cost basis to the point where I’m getting close to breaking even. I currently hold about $6400 in IBM. Today’s prices continue to be an excellent entry point, especially considering that they finally seem to have found a growth model for their business.


3) My final purchase was of a company that I’m sure not many of you have heard of, called Navient (NAVI). It was a spin off from Sallie Mae in 2014 and is hated by the market (and probably much of the public) right now. The reason being is that it holds roughly $100 billion of student debt. However, nearly 95% of that is backed by the US government.

They also just announced in December that they will be doing $755 million of share buybacks. At their current market cap of $3.7 billion, this means that roughly 20% of the outstanding shares will be bought back. My favorite investing podcast, Frank Curzio’s Wall Street Unplugged, just discussed this as a huge contrarian opportunity for those of us that can stomach the “blood on the streets.”

Frank tells us that some of the smartest investors in the world hold positions in Navient and have been increasing their positions: The Vanguard Group (10% owner), BlackRock (5.6% owner), Fidelity (4.9% owner), State Street (4.7% owner) and Goldman Sachs Asset Management (1.3% owner).

Lee Cooperman, chairman and CEO of Omega Advisors, Inc., recently inquired during Navient’s Q4 2015 earnings call why Navient shouldn’t just invest the entire buyback amount immediately given today’s excellent share price. The transcript is available on Seeking Alpha and portions of it are actually quite interesting to read.

Even if the entire lump sum buyback isn’t done at today’s price, Navient does pay a nice dividend yield of 5.88% that is easily covered by free cash flow. The payout ratio is only 18.3%. The buyback also effectively creates a floor that can almost guarantee that share buybacks will occur.

Again, a little more risky investment, but one that should be financially rewarding.

You may also like...

6 Responses

  1. It feels so horrible that I have never heard of NAVI before this. Their numbers are awesome and that yield… mmmm delicious! The only thing I worry about is the low stock price. With it that low, it takes almost no move at all to drop you 10% or more. On the other hand, you could see the change in the opposite direction… Anyways, thanks for sharing!

    • scott says:

      Hey Dividend Monster,

      I agree with you on low stock price. I generally like things a bit higher as well. But, they have a ton of money reserved for buybacks so an artificial floor is likely set near the $10 or so. That’s my hope at least!

      Thanks for the comment,

      Scott

  2. amber tree says:

    Thx for sharing this info. I will have a closer look to the NAVI stoc. It could be a good diversifyer for my play money.

    • scott says:

      Hi amber tree,

      NAVI is definitely a contrarian play right now. Not really loved by too many people. But, I think it will work well for the long term.

  3. DivHut says:

    One thing is certain when I come here, I’ll learn about something new. Level 3 options, FFMGF, NAVI??? My recent buy posts must seem boring when I write I picked up some CAT, EMR, KO, PEP, etc. A couple new names to look up but FFMGF is waaaaaaaay too small for my taste and long term portfolio. I appreciate you opening my eyes to other stocks and investment strategies. As you noted above, high risk/high reward. Will be interesting to see how these trades work out.
    DivHut recently posted…Dividend Income Update February 2016My Profile

    • scott says:

      I’m always trying to learn new stuff. The Level 3 options stuff does allow me to do very risky trades on margin if I wanted, but it doesn’t mean you have to. I’m using it so that I don’t need to have as much cash-on-hand for puts as I would otherwise.

      Nothing wrong with those “boring” stocks! I own all those but PEP (prefer Coke). I’ll definitely be adding more to each of those soon.

      As far as FFMGF, yes, it is a very small company, but not your classic “pump and dump” penny stock. We’ll see how it plays out once the commodities market picks up again.

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge