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Published: October 12, 2010
This investment has beaten just about anything you can think
of since it started in 1997... including gold.
Even better, you haven't missed a thing. It is an incredible
value right now. AND it's safe.
The stock actually hasn't climbed much at all since 1997...
Almost all of the profits (over 400% of them) have come from
"boring" dividends. No joke!
This chart below from the company's latest shareholder
presentation tells the story... The blue line is the total
return of the investment I'll tell you about today. As I said,
it's beaten everything. The green line is the greatest living
investor's company (that's Warren Buffett's Berkshire Hathaway).
The other lines are various stock indexes. As you can see, it's
crushed them all.
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We've been successfully trading this stock for years. Here's
what we do:
We buy when it's cheap and sell when it's expensive. Also, we
buy when conditions are right for the company to make a lot of
money, and we sell when they're not.
This stock is cheap whenever it trades close to its liquidation
value (book value). As I write, this company is trading at just
a 5% premium over its book value.
Conditions are right for this company to make a lot of money
when the "spread" between short-term interest rates and mortgage
rates is wide. Ever since the Fed cut short-term interest rates
close to zero, that spread has been wide. So this company has
been able to make a fortune.
Normally, the stock is not cheap when conditions are right for
it to make money. Both criteria occur together less than a third
of the time. But... when they do coincide, the stock compounds
at a rate of 47% a year (including dividends).
Right now, we have both criteria in place. It's time to own this
stock.
We have two ways of making money here...
First, because it's trading so close to its liquidation value. I
expect it can easily rise +20% or more.
Second, because of the dividend. The stock is currently
paying a 15% dividend. I'm not kidding. In a zero-percent world,
it's paying a legitimate 15% dividend. (Even if falling mortgage
rates force this company to cut its dividend to, say, 10%, it
still beats anything else out there.)
Once investors "get it" and see the high dividends are not that
risky, they'll buy up the stock for the dividends. Who doesn't
want double-digit dividends in a zero-percent world?
I think you could easily collect a 15%-30% profit – including
both capital gains and dividends – in this stock in the next 12
months.
The stock is my longtime favorite virtual bank, Annaly
Capital Management (NYSE: NLY). Buy it today and plan on
holding for a year. Use a trailing stop to protect your downside
risk.
If the gains come quick, the downside risk will be greater than
the upside potential. So the safest course of action would be to
sell once you have a total return of 30%, even if it comes in
just a couple months.
We are not at the beginning of this trade... but it's definitely
not over yet, either. For big dividends and a shot at capital
gains, check out shares of Annaly.
--Steve Sjuggerud
Editor
Daily Wealth
Note: This article originally appeared on
Daily Wealth |
