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Value Investing Series

Value Investing for Your Retirement - 4

February 20, 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 two later articles, I presented two such companies - Mechel OAO (MTL) - We bought it at $3.12 and is now traded at $24.70 and KKR Financial Holdings LLC (KFN) - Our buy price was at $1.79 and is now traded at $6.14 .

Now there is another chance:

Below is the company's dividend distribution history after it went public:

1998 - $1.77
1999 - $2.04
2000 - $2.04
2001 - $2.12
2002 - $2.39
2003 - $2.46
2004 - $2.40
2005 - $2.43
2006 - $2.70
2007 - $2.56
2008 - $1.27 (it stopped its dividend since Q4, 2008 because of recession ) .

More surprising thing is that the stock is at $1.00 level but its book value is $11.00 and just turned profitable.

Can you believe it?

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 our next Super Star and hold it for 5 years;
2. You will receive more than $100,000 annual dividend from your initial $100,000 investment.


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