Response to Scare tactics -- corrected postBecause I used some funny punctuation marks, some of Darkstar's comments that I was responding to were not reproduced. here is the corrected full post:
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Darkstar asks: "How long can a trust borrow money to pay their distributions?"
Not too long. BUT Boyd basically stopped the bleeding by cutting the dist (probably a little too little and a little too late). The dist is now generally in line with distributable cash.
And when you look at their balance sheet (like I did), you find that the company's debt level has actually decreased by $1.2MM between 3rd and 4th quarter, while short-term cash requirements (for Accounts Receivable minus Accounts Payable plus Inventory plus Prepaid Expense) increased by $1.4MM. So they essentially financed the increase in short-term cash needs AND paid down $1MM of debt. The debt they have is a little more bank-oriented and a little less long-term than before, but the debt trajectory is now flat to downward. They're not going under, by any means.
He also asks: "What happens when the US goes into the inevitable recession?"
People still get their cars fixed when they get into accidents. That's what happens. They may get cars fixed even more if they can't afford a new car. Recessions hurt lots of businesses but body shops are going to be hurt a heckuva lot less than BMW dealerships. Auto repair is a classic defensive recession-proof investment. No dice with this old chestnut of a scare tactic because it doesn't wash with me.
Finally he asks: "What happens if they start to lose money?"
That's a risk I'm willing to take at this price. I notice you very carefully said <> so even you admit they aren't losing money now, darkstar.
Overall -- There is a risk of a cut in dist to the 48-60 cent range (A good mgr would have cut to 55-60 cents instead of 70 cents in May). BUT a dist in that range is sustainable. And the risk of that kind of a cut is priced in at $2.50. There is something else that could hurt the company, but it isn't anything you mentioned -- it's continued appreciation of loonie since they have US denominated revenue and Canadian denominated debt.
So cut the scare tactics, darkstar. Boyd was a lousy deal at $8, $7, $5 (or even $4), but it's a pretty good deal at $2.50 for a percent or two in the more speculative part of your portfolio.