Theoretical dividend - some examples

The post from Ägamintid about his theoretical dividend inspired me to write this regarding my own situation at the moment. I could today probably shift all my investable assets into one stock only. At my disposable I would have about 6,5 MSEK (after paying off deferred tax). So then I could for instance go for the following extreme allocations of capital (many more examples exist):

Alternative A:
100% in Awilco Drilling. I would be able to buy about 42000 shares, and expecting about 28-30 SEK/share in dividend during the upcoming 12 months, totalling some 1,175 - 1,26 MSEK in annual dividend (and then one should deduct about 41 kSEK for tax assuming the new investment has been done in an ISK account). That would more than well cover our expected total living costs. ;-)
But there is a problem; I can with a high probability expect that the dividend will be lowered or even suspended for some time due to various reasons (e.g. one of the rigs run into unexpected problems or more likely there will be periods of maintenance which will drive the dividend down or hopefully the company finds productive ways to use their cash in order to expand their operations), which would pose a cash problem if this would happen in the short-term.

Alternative B:
100% in Telia. I would be able to buy some 132 000 shares. I should be able to expect some 3 SEK / share in dividend totalling some 355 kSEK per year after tax. This is unfortunately somewhat too little to comfortably (with a decent margin of safety) cover all our long term living expenses. This paired with - in my view - somewhat unclear long term development for Telia (although most likely much more stable than Awilco in the upcoming 5-10 year period) does not make this alternative too interesting. However, if I could buy Telia shares at say 42 SEK/share, then this could be a really interesting option.

Alternative C:
100% in HM. I would be able to buy some 22 300 shares and expect some 10 SEK / share in dividend next year, totalling some 182 kSEK after tax. This would be nowhere close to cover our living expenses, but I would feel fairly safe with the level of dividend for a long time going forward.

Alternative D:
100% in ROST. I would be able to buy some 14 600 shares and expect (at 0,8 USD / share) some 55 kSEK in dividend in upcoming 12 months (keeping the stock in a normal VP-account). Well, this wouldn't work for too long... But I could be close too 100% sure that this amount would increase substantially (10-20%) every year for a long time.

So, what to do? If I had some more guts, I should probably go for alternative A (had I done it when I found out about the company I would have already had about 2 years of living expenses covered AND a much higher value of my total portfolio). But in that case there is a clear risk of a complete or near-complete wipe-out of all my capital, so it is not an option for me. Rather, I am pursuing a portfolio where I mix all of these alternatives to balance the risk of capital and/or dividend loss, with the opportunity for continuing growth of capital and dividend. I am also having a substantial sum of money on the sideline to be able to capture opportunities, such as if Telia would fall to 40-42 SEK and I would still judge the dividend to be maintained.

40percent2years - Possible or not?

Investing for stable stock dividends now and in the future is my main way of creating the positive cash flow that we are going to live off. The blogger 40percent20years is setting a very good and clear long-term goal for his investments (40% dividend yield 20 years after your investment).

So could there be cases where you could be 10 times faster reaching a 40% dividend yield, i.e. to reach it in two years time? Yes, matter of a fact I found out about one case fairly recently!

In the period between March 21st and August 20th 2012 (i.e. during 5 full months) it was possible to buy Awilco Drilling for 53,5 NOK or lower (however most of the time between 46-51 NOK). Total value of stock transactions during this period was over 190 MNOK, however most of this I do not think traded between normal small investors. My understanding is however that at least 23 MNOK did, so it would have been possible to take a significant stake in this company. At this time the company did not pay dividends, but clearly stated the following in its full year 2011 report: "During the course of 2012 Awilco Drilling is scheduled to repay debt to Transocean amounting to approx. USD 46 million. The scheduled debt repayment in 2013 is USD 11 million. This significant decrease in debt repayment will enable a return to investors of a major part of the company’s free cash flow generated in 2013 and beyond. The level of dividend will reflect the underlying financial position of the company, while taking account of opportunities for further value creation through profitable investments. The dividend will normally be distributed on a quarterly basis with expected commencement sometime during the first half of 2013."

The first quarterly dividend was paid on June 20th 2013 and after that quarterly. The first four dividends amounted to 24,9144 NOK, corresponding to a yield of 46,5% on a price of 53,5 NOK. Buying the stock at 49,5 NOK would have yielded 50%... So new target should be 50%2years. ;-). The company also just paid out its fifth dividend, which was the highest so far at 6,8909 NOK.

NB: Closing stock price today June 24th is 145,5 NOK. I have a position in the stock (started much later unfortunately)