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Bail out Freddie Mac (if you want to get as far through the paywall as you need to be click here instead)
Nick Timiraos in The Wall Street Journal
The government-rescued mortgage-finance company will make a $7 billion dividend payment to the U.S. Treasury next month. While Freddie isn’t allowed to pay off the $71.3 billion of bailout money it received beginning five years ago, the latest payment brings to $36.6 billion the amount of dividends it will have returned to the Treasury, leaving its net cost to taxpayers at $34.7 billion.
36.6/(5*71.3) = 10.27% Wow.
Note the very strange accounting. The net cost of $34.7 billion counts the value of shares which just paid a $ 7 billion dividend at $0.00.
Recall that the Fannie & Freddie bailout is the last huge part of the financial rescue which was supposed to cost the Treasury huge amounts of money.
Now I don’t predict that Freddie Mac will become a major profit center for the US Federal Government. It would be socialism for the US Federal Government to have a major profit center. Instead it will be privatized for a fraction of the value of the stream of dividends correctly discounted at the Treasury rate.
It has become obvious that it is trivially easy for the US Federal Government to make huge profits. The only argument against is that finding an way to finance the government alternative to taxes would be “pointless.”
Not bad at all. As trivial as it may be, it’s a method. But the key is to not putt all your eggs in one basket – diversify.