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Value Investing Series

Value Investing for Your Retirement - 3

January 05, 2010

In the first article of "Value Investing for Your Retirement" series published a year ago, I said:

"Do you believe it if I tell you that there exists a company in which $100,000 investment will give you a stable $100,000 annual dividend in just few years?"

In a later article, I presented one such company - Mechel OAO (MTL).

Now another such company may appear in our Portfolio: That is KKR Financial Holdings LLC (KFN) .

We took a major position in July 30, 2009. Our purchase price was $1.79.

This is an investment company. Below is its dividend history since the company went public:

2006 - $1.86.
2007 - $2.16.
2008 - $1.30 (the company stopped its dividend distribution from Q4).
2009 - $0.05 (the company resumed its dividend distribution in Q4).

If the company maintains the dividend level in 2010, we will receive $0.20 dividend in 2010. If the annual dividend returns to the average of its 2006-2007 level in four years, we will see $2.10/share dividend in 2014.

That is, $100,000 investment in 2009 will turn into $112,290.05 annual dividend in 5 years. If you re-invest all the dividends the company distributed during the years into its stock, your annual dividend will be much more than that.

At the same time, the stock price will certainly go up. I will not be surprised to see $20.00/share by then. That is, your asset will be up more than 10 times. A new millionaire will be born in 5 years:

1. You will become a new millionaire by investing $100,000 in KFN and hold it for 5 years;
2. You will receive more than $100,000 annual dividend from your initial $100,000 investment.

Here is its weekly Chart

Footnotes:

The company increaced its dividend from $0.05 in Q4, 2009 to $0.07 in Q1, 2010.

 

   
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