Forum Archive Index - May 2003

["winner69 ." <wwinner69@hotmail.com>]

Agree with the thoughts of both Graeme and Snoopy

One good example is Fletcher Building. You get now get FBU March 2006 notes 
for a yield of 8% - but the dividend yield on FBU shares at todays price is 
7.9%.

With the FBU note rate being 3% above what you can get for March 2006 Govt 
stock the 'company risk'  is 3% and built into the notes price. Seems a fair 
enough risk premium.

But if you define the 'equity risk' as the difference between the bond rate 
and dividend yield (in this case being 0.1%) you would have to say there is 
essentially little risk in buying the FBU share.

Even if the FBU shareprice doesn't move over the next three years 
shareholders are no better or worse off than notes holders - but the notes 
holders have denied themselves of the benefits of increasing dividends and 
capital gains from an appreciating share price,

Buying a FBU note presumes (?) that the investor has confidence in the 
future of FBU - than why not partake in the future gains that the company 
makes.

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