Yellow Media Inc. pays a rich dividend in line with risk

Feb 25th, 2011 – 2 Comments

At this point it looks like YLO is on its way to testing support at $5.50. Neither the RSI or the MACD are signalling a change in momentum to the upside.


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Hi Lou

What’s with Yellow Media? Will it survive long term?

Ben

Hi Ben,

I have filed posts on Yellow Media Inc. (YLO TSX) twice. First on June 12, 2009 for Irwin, and the last time on January 26, 2010 for Nazir. Over the last two years the value of the units and now the shares, since the conversion from the trust structure,the price of the shares have been mostly flat on a buy and hold basis. On June 12. 2009 the units traded at $5.43 while on January 26, 2010 the units traded for $5.30. On February 24, 2011 it closed at $5.58.

There have been trading opportunities over that time frame and not to be ignored is the generous dividend paid to investors. Currently the dividend yield is 11.7%. which allows you to get paid to ride out the risk associated with the transition from the print edition of its publications to the digital versions.  The charts will provide some guidance going forward.

The three year chart illustrates the two most profitable trades. The first that ran fromFebruary 2010 at a low of $5.25 to the peak high of $7.00 in April of 2010. The second that began in August of 2010 from the low of just over $5.00 to  the high of $6.40 in November of 2010. On a percentage basis quite attractive returns.

The six month chart depicts the resistance at $6.40 and the selling that has come into the stock since early December of 2010. The break below $6.00 in February of 2011 came as YLO reported a Q4 loss on close to $30 million in charges related to its conversion from a trust to a corporation. The $30 million hit has had some scratching their heads given that in most cases the legal and accounting fees related to a conversion have usually come in at $1 million. A complicated financial structure was offered as the reason for the additional expense.

At this point it looks like YLO is on its way to testing support at $5.50. Neither the RSI or the MACD are signalling a change in momentum to the upside. Below that there is support at $5.00. Same story different year. The caution with YLO is the sanctity of the dividend. If anything happens to the dividend, it happens worse to shareholders.

MAKE IT A MASSIVE WEEKEND AND HAPPY CAPITALISM!

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