Tuesday, April 11, 2006

Seeking Out Special Dividends: A Hedge For Those Now Buying Into Natural Resources

Companies in market segments that have already rallied (i.e. mining companies) will likely not buy out other companies or mineral fields now and instead wait in favor of buying at cheaper prices (in my opinion).

This bodes well for the accumulation of cash on the company balance sheets and an increased likelihood of special dividends.

For the first quarter (2006), I'm receiving a special dividend of $6+/share from Rio Tinto (RTP). This amounts to approximately 3% of the stock price. I'm banking that more special dividends will continue and that this may provide a slight hedge against downside risk since special dividends are somewhat attractive to investors.

My advice, invest in these sectors with the understanding that they are inherently volatile. Consider the amount of cash on the books and the likelihood of special dividends when buying some of these types of companies. If they don't pay a special dividend, they may just as well buy back shares which will also increase share value.

Bottom line: Above you’ve read one philosophy/hedge. There are others to consider. Good luck w/ your investments.

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