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Get In Early On This New REIT

Iron Mountain (IRM), the New Jersey-based document-storage firm, said that its board approved a plan for the company to convert to a real estate investment trust, or REIT.  Iron Mountain also boosted its dividend 8% for an annual payout of $1.08 a share. A quarterly dividend of 27 cents will be paid July 13 to stockholders of record June 22. Iron Mountain, one of several companies that have been weighing the decision to switch to REIT status, said the conversion would happen after Jan.1, 2014, pending U.S. government approvals. “The REIT structure provides stockholders with dividends from U.S. tax savings and other increases in distributable income that will enhance stockholder returns,” CEO Richard Reese said in a statement. Iron Mountain leases 64 million square feet of storage space around the world.

In accordance with tax rules applicable to REIT conversions, Iron Mountain expects to distribute accumulated earnings and profits (E&P) of approximately $1.0 billion to $1.5 billion to stockholders, to be paid out in a combination of at least 20% in cash and up to 80% in Iron Mountain common stock. The company expects it will distribute a significant portion of this E&P distribution in the fourth quarter of 2012. The company expects to distribute the balance over several years beginning in 2013 based, in part, on U.S. Internal Revenue Service (IRS) rules and the timing of the conversions of additional international operations into the REIT structure.

IRM is currently trading at $31.94, up from $28.40 prior to the REIT announcement this week.  The current target price for IRM is in the range of $36-40 following regulatory approval of the REIT conversion.

Barclays estimates Iron Mountain’s (IRM) planned conversion to a REIT could boost the records management and storage company’s value by $10/share.

William Blair Analyst Nate Brochmann believes benefits of conversion, include lower tax rate, more efficient financing, opportunity to shift capital structure toward equity, greatly outweigh costs, will enable IRM to increase returns to shareholders.  Based on simple dividend discount model, thinks there could be 40% upside to the stock due to conversion.  Given value he believes REIT conversion unlocks for shareholders, recommends investors purchase shares.

Iron Mountain (IRM) was initiated with an Overweight at Piper Jaffray with a price target at $35.

Cabot Microelectronics Declares $15.00 Special Dividend Boost

Cabot Microelectronics Corporation (CCMP), the world’s leading supplier of chemical mechanical planarization (CMP) polishing slurries and a growing CMP pad supplier to the semiconductor industry, today announced that its Board of Directors has declared a special cash dividend of $15 per share, or approximately $345 million in total, payable to shareholders of record on February 23, 2012, that will be paid on March 1, 2012. Approximately half of the special cash dividend, along with related fees, will be funded from the company’s available cash balance, and the remainder will be funded from a new five-year secured credit facility.

The company’s declaration of the special cash dividend follows the announcement on December 13, 2011 of its new capital management initiative, intended to provide additional value to its stockholders, which includes a leveraged recapitalization with the special cash dividend. At $15 per share, the special cash dividend represents approximately 30 percent of the company’s closing stock price today. Pursuant to the rules of the Nasdaq stock market, when a dividend is declared in an amount that exceeds 25 percent of a company’s stock price, Nasdaq must determine the date on which that company’s shares will begin to trade without the dividend, or ex-dividend. Applying this rule to Cabot Microelectronics’ declaration of its special cash dividend, Nasdaq has advised the company that the ex-dividend date has been set as March 2, 2012, which is the first business day following the payable date for the special cash dividend.

The company understands that this will mean that stockholders who purchase the company’s stock after the record date of February 23, 2012 and before the ex-dividend date of March 2, 2012 will be entitled to receive the special cash dividend, and stockholders who sell the company’s stock during that same time period will not be entitled to the special cash dividend.Investors who enter into trades to purchase the company’s stock on or after the ex-dividend date of March 2, 2012 will not be entitled to the special cash dividend payable on March 1, 2012.

The portion of the company’s special cash dividend that will be treated as a qualified dividend for U.S. tax purposes will depend upon the amount of the company’s accumulated earnings and profits as of September 30, 2012, the end of the company’s current fiscal year, as determined by the Internal Revenue Code. Therefore, at this time the company is not able to determine the portion of the special cash dividend that will be treated as a qualified dividend. However, based on its analysis and indications to date, the company expects that the entire dividend will be treated as a qualified dividend for U.S. tax purposes.

How to Get a Dividend Boost of 10 Times

Six Flags Entertainment Corporation (SIX) announced today that its board of directors has approved an increase in the company’s ongoing quarterly cash dividend from six cents per common share to sixty cents per share. The first-quarter dividend will be payable March 12, 2012 to shareholders of record as of March 1, 2012.

In December 2011, the company announced a new credit agreement that provided incremental financial flexibility and in January 2012, the company announced a $250 million expansion of its share repurchase plan through 2015.

Shares of Six Flags Entertainment (SIX) have advanced above their 10-day MA of $44.06 on a volume of 858K shares.  This may provide short-term investors a chance for a long position, as such a crossover often suggests higher prices in the near term. In the past 52 weeks, shares of Six Flags Entertainment have traded between a low of $24.72 and a high of $47.27 and are now at $47.08, which is 90% above that low price.  In the last five trading sessions, the 50-day moving average (MA) has climbed 1.2% while the 200-day MA has risen 0.4%.

About Six Flags Entertainment CorporationSix Flags Entertainment Corporation is the world’s largest regional theme park company with approximately $1.0 billion in revenue and 19 parks across the United States, Mexico and Canada. For more than 50 years, Six Flags has entertained millions of families with world-class coasters, themed rides, thrilling water parks and unique attractions including up-close animal encounters, Fright Fest and Holiday in the Park.

The Safe Trade for a 15% Yield

As a reader of this blog, you know we focus on generating monthly income from investing.  A favorite and safe way to accomplish this goal is through writing calls on stocks.  Done correctly, you can achieve yirlds in the double digits without the worry of a dividend cut or significant price decline.  When you hear a suggestion to purchase a stock with a 15% yield you automatically go on code alert as there must be something wrong with a stock yielding this much money.  In most cases you are right to be alarmed but today I will show you a safe way to get a 15% yield.

In the current market, Microsoft seems to be a hated stock as it is large and its fast growth days are behind it.  However, you can use a stock like this to your advantage if traded properly.  Microsoft is trading at around 10 times earnings indicating it is relatively cheap at the current price of $27.25.   Microsoft is sitting on about $50 billion in cash equivalents and still has hugh profit margins.  This is a perfect setup for a safe stock to use for covered call trades.

The strategy is to buy 100 shares of Microsoft stock and use a monthly call trade to generate monthly income.  Microsoft pays an annual dividend of $0.64 per share of $0.16 per quarter.  This equals a yield of 2.4% in dividends.  So how do you get from a 2.4% yield to a safe 15% yield?  This is where you add the monthly covered call write.  On average, an at-the-money call will sell for $0.30 for MSFT.  Some months have higher premiums than others and vice versa.  By selling 1 ATM call each month for an average of $30 per month will generate a total of $360 over a one year period.  based on a total cost of $2,725 for 100 shares, the covered call will produce a yield of 13.2%.  By combining the covered call yield (13.2%) with the dividend yield (2.4%) you get an annual yield of 15.6%.

Microsoft stock has support around the $24 level so there is little downsize risk.   The stock has a typical volatility at around 25% or lower.  In the case the stock moves in the money, let it get called away and keep the premium.  If not called away, then continue to sell monthly calls ATM to generate more income.

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