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Home > Weekend Investor > Weekend Investor: Bank Stress Tests Plus Recent Buys

Weekend Investor: Bank Stress Tests Plus Recent Buys

The major U.S banks have finished up their Federal Reserve stress tests. Nearly every bank passed, though a few (BB&T, JP Morgan, Goldman, Ally) didn’t pass or got a conditional pass which requires some changes to their financial plans.

Most of these banks are flush with cash and are wanting to increase dividends, buy back stock and retire debt. This stress test gives the banks the green light to move forward. If you are invested in corporate debt, this means more of the same: high interest rate debt will be retired plus newer issues will be at lower interest rates. The low interest rate policy of the Federal Reserve has helped to force all kinds of interest rates down. Even though everyone currently thinks that the economy is getting stronger, the interest rate picture still is the same story: debt interest rates are trending down. Unfortunately, this might mean that some of the debt I own now will be called.

This is still playing out, we will likely continue to see low interest rates even after the Fed starts to pull the punch bowl.

Realty Income Stock Issuance

In other debt news, Realty Income (O) successfully completed a common stock issuance. I own their preferred stock which is immediately callable. Briefly, the preferred (O-E) traded down near par on the expectation that Realty would use the proceeds to buy this debt back. There wasn’t any reference to it in their press release, they mentioned only their revolving credit line. It could still be called, but for the moment I took this opportunity to add to my position. I generally add to it whenever it goes below $25.50 per share.

Bought Lorillard Ex-Div

You can sometimes get a free lunch on a stock if you buy it ex-dividend. Lorillard traded up to it’s ex-dividend date, then subsequently dropped about 2 dollars a few days after. Since the dividend is $0.55 per quarter, this means that you could have bought the stock for a lower price and get the dividend for ‘free’ since the stock traded below the ex-div price.

As much as I like to collect dividends, a cheaper price is always better. And at a dividend yield of 5.7%, the stock was attractively priced.

 

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