Forum Archive Index - February 2003

["Pat Fields" <pat_fields@hotmail.com>]

Hi Snoopy

>
>
>Yes, but high yielding shares can also provide a good return during
>those times.  I made 20% overall (after tax) on my portfolio of high
>yield shares (my substitute for capital notes) last year.   The idea
>that there are times that *all* share returns are low or negative is
>a myth.
>


At the time I started this thread on capital notes, I was considering if (1) 
a potential decrease in Govt. cash rate, (2) a softening of corporate 
earnings due to slowing down of NZ economy over the next 18 months or so and 
(3) the fact that capital notes in the USA (i.e., "convertible securities") 
are the flavour of the month over there - all these could make capital notes 
an interesting alternative to high yielding shares.

A decrese on RBNZ's cash rate would push the price of the the notes up hence 
there is some capital gains there.  A softening on earnings would not affect 
the income payments on the notes (assuming no default, of course!) whereas 
dividends from shares would go down (potentially).  The issue that 
convertible securities is fashionable in the USA, if replicated here, would 
push up the price in the secondary market.  Obviously, all this is pure 
speculation but I was wondering to what extent those would make the case for 
capital notes over the next 18-24 months a little bit more compelling.  
Whether the market right now has already priced all of the above or not, I 
don't know.

In any case, I was interested to read your comment on your porfolio's 
performance last year.  I've been piling up high yielding shares for quite 
some time now - since I saw live a presentation by Peter Lynch in 1998.  He 
had just two overhead charts durng the entire 90 minutes - one of them, he 
said, encapsulated his philosophy: "Dividends drive the market".  Since 
then, I've been fan of high yields.  At the moment, I have CMO, ALF, WKL, 
CNZ, NAP, LPC, KIP, RBD, HLG, and STU.  As you can see I'm still sceptical 
of WRI... but you've been slowly convincing me ;-)

The only one that I just can't assess is NZR.  I think that high NZD (I 
heard that NZR had not no currency hedging at all in place!!) plus the Kyoto 
Protocol are not particularly good for them - however, how much effect they 
may have on NZR's earnings, I can't tell.  Even if the high NZD is 
temporary, I don't really know if they are competitive, and oil companies 
can and do source refining services from overseas - NZR does not have a 
captive market, even when the oil companies here do have a stake in NZR.

How achievable is a 17%-18% yield for NZR this year on the basis of last 
year's earnings?  Any comments?


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