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Value Investing Series

Value Investing for Your Retirement - 2

February 01, 2009

In the first article of "Value Investing for Your Retirement" series, I presented an Income Company good for long term BUY-and-HOLD strategy - Bank of New York Mellion Corporation (BK). I also answered the question: "Do we still have such a good investment now?"

I said that the answer is YES and said that we may not need the 25 years to achieve the same level of return now. Thanks to the financial crisis. It gave us the rare opportunity you may never have again in your life time.

That is, you may invest $100,000 in a company now and will receive a stable $100,000 annual dividend in just few years, may be in as little as 5 years.

I will present one of such companies in this article. That is Mechel OAO (MTL) - The second largest mining and steel maker from Russia.

The company went public in November 10, 2004. The company started the distribution of its annual dividend from 2005. 2005, 2006, 2007 yearly dividend is $0.488, $0.47 and $0.89 respectively. The amount of 2008 annual dividend will be decided in the middle of this year. If the company's dividend distribution policy keeps the same - to distribute 50% of its annual profit, 2008 dividend will be doubled again from 2007 level.

Let us assume that the dividend will be kept in the same 2007 level for the next three years.

MTL share price reached year low of $2.57 on January 20, 2009. Suppose we bought it at $2.60, $100,000 investment will give you 36,461 shares of MTL stock. $0.89 dividend equals to a 34% yearly return.

If you re-invest the dividend for the next three years and buy the stock at the the same low $2.60 level, 36,461 shares will become 92,541 shares. The annual dividend will become $82,361, still less than $100,000 but is close.

If the stock price is lower than $2.60, you can get more shares with the same amount of dividend.

Of course, MTL has only four years of history as a public company. Its future dividend is not guaranteed. But remember, not many companies gave consecutive yearly dividends in their early years as a public company.

We strongly believe that investing in MTL at this price level will give you a very good returns in long term. 10-bagger is not impossible.

MTL is not the only stock worth long term investment. Many such good investment opportunity exist now. More will be given in later articles.

 

   
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