STUDENT TRANSPORTATION INC 5.25 PCT DEBS T.STB.DB.A

Melt-up

[slimjim11]

Back in the dark days of January, when some people were posting on third that the end was nigh, I was pointing out the business is solid and the cash flows cover the dividends. That was at around $4.50 per share. Now, the market price has recovered to $7.17, the debts have been lengthened and interest rates lowered, and the dividend continues to be paid. The yield at current prices is 7.9%, and yet there are 3,459,011 shares short. With the stock near five-year highs, these positions are probably losing money. Some possible explanations: 1) the shares are hedged with convertible positions. Long the convert, short the stock, lock in the yield. 2) The shorts are boxed: go long the stock in a parallel account, rather than cover a money-losing short. When the momentum turns, sell off the long position, on down ticks if needed, and re-establish the net short. In the meantime, no net damage. 3) The shorts are neither hedged nor boxed, and are losing money. ach day the stock rises, the pain grows. At some capitulation point, buying panic sets in. If a reasonable yield is 4, and the current yield is close to 8%, the shares could easily double from here. All the longs have to do is: nothing. Don't offer shares for sale. Don't let the shorts exit their positions. And as their losses mount, so will their panic. A melt-up is the opposite of a melt-down.

[BuffaloBob]

Thanks for a common sense analysis. As i have said, good luck shorting the higher yield. The volume has been up compared to recent months. Institutions are probably seeing the payout going lower and lower with tailwinds of fuel and interest rates lower and lower than previous years. The lease deals they have been doing are now starting to show as rates of 2% fixed and then buying them out at 6

[slimjim11]

Thanks, BuffaloBob. I think the dividend is currently US$0.03667 per month, or US$0.44 per year. If the stock gets priced at a 4% yield, this would suggest a stock price of US$11.01 or C$14.15 at a convert rate of C$/U$=1.28637. Sit back and enjoy the (school bus) ride.

[righand2]

You did sound credible until you made that ridiculous comment. If you think a stock that pays the divided out of cash flow, derived from depreciating short-lived assets that have to be replaced, should yield less than banks and utilities, you are either fooling yourself, or trying to fool others.

[las5513]

As long as buyers of this stock understand STB trades on the dividend yield, feel free to climb on board, but if some unforeseen event were to cause a dividend reduction the stock price will suffer.

[slimjim11]

las5513, thanks for your perspective. I disagree. The stock trades on cash flow, with a payout of roughly 70%. Whether the company re-invests cash flow, or pays part of it out as a dividend, it's the cash flow I'm ultimately buying. The cash flow is backed by a broadly diversified customer base, each customer is municipally backed, and has signed long term contracts. The dividend is easy

[las5513]

Enjoy the ride "slimjim", but remember nothing lasts forever.

[slimjim11]

I agree with you there, las5513. Nothing lasts forever. Kids going to school will last until..... My youngest starts university next week. GLTA.

[las5513]

Both my boys have graduated and I remember how much it cost me, I don't know if they do or if they even care.