Multiplex SITES (MXUPA) - food for thought

This week I met with Fred Wollard of Samuel Terry Asset Management to swap war stories. Fred also seems to be attracted to cigar-butt type situations: like me he also must have done something wrong in a previous life. 

Multiplex SITES (MXUPA) is hardly a cigar-butt - it's an income stock, but nevertheless came up in discussion (I last commented on MXUPA here). We firmly agreed Multiplex/Brookfield had done an exemplary job in managing the balance sheet and continuing to pay distributions, however Fred has a few reservations about the stock. I own MXUPA so I thought I better listen closely to see if I had missed something. 

The first reservation relates to the combined effect of discretionary and non-cumulative distributions and Multiplex itself now longer being a listed company. The potential result could be that suspending distributions will be less of a PR issue should the need arise. 

The second reservation relates to the ability of the issuer to convert MXUPA into Multiplex stapled securities. As Brookfield Asset Management took over the stapled securities, they are no longer listed. I have spoken to Brookfield who have confirmed the conversion facility has no longer been in place since the takeover.

This got me thinking.

In isolation these issues don't particularly bother me as the underlying financials have been and continue to be in good shape. But anything is possible, and as noted in my previous post there is some disparaging research on Brookfield Asset Management. The article is quite scathing, and quite scary if true. If BAM truly is a house of cards which were to fall over - or perceived to be able to fall over - the knock-on effect could be horrendous even to in-direct satellite securities such as MXUPA.

I can see the argument in not bothering with MXUPA and finding other interesting income stocks or even just go for the Australian version of the Dogs of the Dow which pays 7.16% p.a. grossed-up compared to the current MXUPA rate of 7.8% p.a.* I will remain with MXUPA, but it does reinforce the need to constantly question one's holdings.  

Kristian 

Disclosure: own MXUPA.  

*Top 10 Grossed-Up Dividend Yielding Stocks from the ASX50 (Source: SMH 3/8/13):
CBA 6.99%
WBC 7.72%
ANZ 7.26%
NAB 8.39%
TLS 7.91%
AMP 6.91%
WRT 6.29%
SGP 6.63%
ASX 7.06%
CFX 6.48%
Average 7.16%