Analysis of WaMu securities: HUQ, PQ, KQ, UQ
Analysis of WaMu securities if dividends reinstated after a buyout or settlement:
Until mid-2007, WAHUQ traded in a range from $50 to $60 per share. From its' issue until mid-2007, WAMKQ traded just slightly above $25. WAMPQ was issued in late 2007, trading up to $1233.98 and then declining to the present price.
WAHUQ pays a dividend yield of 5.375%. WAMKQ pays a dividend yield of 4% or 3 month LIBOR +0.7%, whichever is greater. WAMPQ pays a dividend yield of 7.75%.
I would expect WAMKQ to pay 4% in the near term as rates will be kept low to stimulate the economy for some time. Due to the present low interest rates, I would also expect WAHUQ to trade at a premium to its' $50 face value as it had in the past. A similar premium should also apply to WAMPQ.
WAHUQ is subject to ordinary capital gains taxes. WAMPQ and WAMKQ are subject to a reduced 15% Federal tax rate, provided certain conditions are met.
Closing prices Friday of WAHUQ=$3.20, WAMKQ=$0.13, and WAMPQ=$4.20 per share.
So let's compare positions with a $250,000 face value:
WAMKQ: 10,000 shares = $1,300 cost Gross Dividends = $10,000 / year Net Dividends after 15% tax = $8,500 / year
WAMPQ: 250 shares = $1,050 cost Gross Dividends = $19,375 / year Net Dividends after 15% tax = $16,468.75 / year
WAHUQ: 5,000 shares = $16,000 cost Gross Dividends = $13,437.50 / year Net Dividends after 30% tax* = $9,406.25 / year
* Your overall Federal tax rate would vary depending upon your income. I just used 30% as a representative example.
Notes:
I have ignored the possible effect of WAMUQ dividends in this example.
WAHUQ dividends are cumulative, and dividend payouts have already been missed, so the first dividend payment would be higher. I have purposely neglected to include this to simplify calculations.
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Now let's say you're not interested in dividends, but in capital gains from your investment. Assuming you sold the securities after holding for more than 1 year so that the capital gains would be subject to the long term rate of 15%:
WAMKQ: 10,000 shares = $1,300 cost Potential Capital Gain at $25 per share: $250,000 - $1,300 = $248,700 Net Capital Gain after 15% tax = $211,395 Return On Investment: 16,161%
WAMPQ: 250 shares = $1,050 cost Potential Capital Gain at $1000 to $1250 per share: ($250,000 to $312,500) - $1,050 = $248,950 to $311,450 Net Capital Gain after 15% tax = $211,607.50 to 264,732.50 Return On Investment: 20,053% to 25,112%
WAHUQ: 5,000 shares = $16,000 cost Potential Capital Gain at $50 to $60 per share: ($250,000 to $300,000) - $16,000 = $234,000 to $284,000 Net Capital Gain after 15% tax = $198,900 to $241,400 Return On Investment: 1,143% to 1,408%
WAMUQ: Since shares have no face value, I have not done similar calculations for gain or ROI.
Notes:
I have ignored the effect of dividends on this example.
There is a risk of WAMPQ being converted in a buyout, but it is not a certainty that this will happen. This would complicate projections, but each share of WAMPQ could receive either $1000 in value, or 114.8 times the value received per common share, or possibly some other negotiated value.
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