More on BEP
Two days ago I wrote a post on more exotic stocks to deepen your exposure in the market. More specifically, I wrote about the S&P Covered Call Fund (BEP: chart, Y!, ETFconnect).
Well, I’ve had more time to research the stock, so I’ll present what I’ve dug up. I may ask Winston to chime in here too, as he’s more in tune with more advanced aspects of the market than am I.
The first thing I’ve noticed is that the NAV has not been keeping up with the share price. In fact, it’s going downhill while the share price has been marching up, leaving it at a premium of about 19% to the NAV.
Now on to the dividend. They are paying out about $2 per share annually, which translates into about $34 million per year with just over 17 million shares in circulation. However, compare this to the $12 million (net) they took in in the first 6 months of ‘06, and you can see they are about $10 million in the hole each year. That won’t continue for long.
In other words, the dividend is attractive, but don’t expect it to stay where it is.
I have a feeling that the price appreciation is due to a large influx of individual investors staking claim based off of mentions on the likes of CNBC, TheStreet.com, and other talking heads shows that drive us commoners to a specific stock.
Much like CLM though, the train will find the end of the tracks sometime, and you better be prepared to jump!
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I believe this is more a play to hedge against volatility, however this ETF itself has proven to be volatile. I like the idea of it, but it does seem to be a bit expensive right now….however I’ve always been confused as to how to properly value an ETF. I’m also confused as to how some of these products pay the div they do, i.e. CLM. So, there’s not really any good advice there.
Regarding ETF’s, I think you should check out a couple products by Proshares, SDS and SSO. SDS is short play on the S&P whereas the SSO is a long play on the S&P. I should note that these ETFs are more aggressive, they double the daily return of the S&P. Money managers use them to hedge against their positions. So, if your portfolio is weighted heavily in large caps and you’re uncertain of their future performance, you might buy a few shares of SDS.