Wednesday, September 3, 2008

Investment Disinformation at Yahoo

Since the report here will change within a quarter, I've made a screen capture to show the kind of information Yahoo offers the unwary investment researcher:

American Capital Agency (AGNC), an American Capital Strategies (ACAS)-managed REIT investing solely in agency-backed home mortgage investments, receives income every month from payments made in connection with the underlying mortgages. Although AGNC pays management fees on a monthly basis, it pays dividends on a quarterly basis. AGNC, which was just launched in April, has had only one quarterly earnings period -- and it was a stub quarter in which it was invested some 27 days. After making 37¢ during the 27-day stub quarter, and paying a 31¢ dividend on that performance, AGNC looks like it's threatening to pay a dividend over $4 per year while reinvesting most of a dollar.

In short, the stock Yahoo lists as paying a dividend of $0.31 (1.6% of the listed price) per year has actually paid, since inception, over a penny and an eighth per share per day after every completed quarter. At that rate, and at the price Yahoo lists, one would peg AGNC as a stock paying a dividend exceeding 22%.

People who don't look closely at the numbers -- in particular, the denominators -- are going to get really poor information at times. People looking only at listings of high-dividend stocks without doing their homework on the likelihood that the stocks' dividends will be maintained.

The warning is this: Yahoo isn't a substitute for due diligence. Yahoo warns people not to base investment decisions on the "information" it prints:
All information provided "as is" for informational purposes only, not intended for trading purposes or advice.
from in the footer of Yahoo's entry on YHOO shares
Yahoo is, according to the same footer, merely parroting the "data" supplied to it by vendors. Yahoo's vendors themselves have better things to do that make sure they warn you when the amount of time involved isn't divisible into quarters (much less provide an adjusted calculation), or put an asterisk next to impressive dividend information to warn you the company has announced dividend cuts.

It's a pity that better information isn't as easily retrieved as at Yahoo, or at least better warnings for consumers about the limitations of particular pieces of information. There is an upside, though: the world is full of folks who aren't doing much homework, and are making stupid decisions that occasionally create serious deals.

When you find a company whose management and business you can really believe in, keep an eye out for bargains.

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