Finding myself in furious agreement with both of you. As @Klogg says, it is a prodigious business with an enviable return on capital. But the point @galumay makes on debt is one well made.
Given the very strong return on incremental capital that has been generated to date, the benefit of retaining a little extra equity capital via a dividend payout ratio of something more like 80% would make sense to me.
The problem with a 'foot to the floor' strategy is that, although it gets you there more quickly, it substantially narrows the margin of error. If debt markets get skittish when it comes time to roll something over, you may find yourself tapping equity at a much higher cost of capital.
Standing back and letting the Dicker team do their business has been the best strategy to date, they have tripled EPS over the last 5 years. Explaining strategy to a team that has grown per share earnings by 25% per annum may seem a little bold.
In the event that they intend to maintain the same debt levels, given their success with the $40m bond offering last year, perhaps they could undertake a $15m offering under similar terms each year or 18 months, so that there would be less than 1 years earnings exposed at any time the debt comes due for rollover. With the cost of that bond tracking at around 6.7% or thereabouts, I can understand David Dicker's preference for debt. Equity capital would be much more expensive at those rates.
Ceteris paribus, this business is incredibly cheap in the $1.50 range. An intrinsically conservative investor like myself just trembles a little at such high debt levels, almost everything else I own is net cash - Eternalgrowth
DDR Price at posting:
$1.54 Sentiment: Buy Disclosure: Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)