Remember the Goals
In February I talked about 2023 goal number five. This goal applies to growing income the easy way by reducing future income taxes. Taxable Income Planning should be on everyone’s radar. By way of review, the goal is: “This goal focuses on prudent tax payments for 2023 and lower potential taxes going forward. It also provides the potential of greater tax-free income for the balance of my life and for Cindie’s life. Simply stated, the goal is to move more investments from my Traditional IRA to my ROTH IRA. I get another year to do this before the RMD’s start due to changes in the tax law. I already created a spreadsheet to help me with picking the positions I want to move.”
This week market behavior was conducive to taking another step in this goal. I looked at my IRA and determined that Global Ship Lease (GSL) was ripe for a ROTH conversion.
Global Ship Lease, Inc. owns and charters containerships under fixed-rate charters to container shipping companies. As of March 10, 2023, it owned 65 mid-sized and smaller containerships with an aggregate capacity of 342,348 twenty-foot equivalent units. The company was founded in 2007 and is based in London, the United Kingdom.
EIS Investment Number Twelve
This is the twelfth post in the series. My goal is to present arguments in favor of a simplified and uncomplicated way to have income before and in retirement that grows even if we do nothing.
Start with the Scores
GSL certainly has investment risks. This risk includes the reality of GSL’s small market cap and a jaded history of dividend payments. However, there are enough positives that I have invested in GSL in our grandchildren’s UTMA accounts. With higher risk comes the potential of higher rewards. GSL, I believe, has been treated in the same way as other containership companies that have far less desirable characteristics. Most shipping companies have poor growth prospects and currently also have poor price momentum. GSL is ahead of the fleet.
First of all, GSL has high rankings by Weiss Ratings (B-), Fidelity (9.9 Very Bullish), and Seeking Alpha (QUANT 4.58 STRONG BUY). These ratings, I propose, are based on excellent earnings prospects, a sweet dividend payout ratio, an amazing dividend yield, a wonderful P/E ratio, and a business focus that is, in my opinion, focused and strategic.
Stock Rover Analysis
Stock Rover is a good source of high-level information about investments. I like to be able to see growth in an investment. The following image shows sales growth, EPS growth, and EBITDA growth for GSL versus the industry. GSL rates a score of 97 out of 100.
The next image shows GSL’s valuation. Pay attention to the Price/Book ratio. P/B ratios under 1.0 are typically considered solid investments by value investors. Stock Rover’s score is 95 out of 100.
GSL also has a good profitability score. Don’t buy unprofitable investments if you want to use an easy income strategy.
The Piotroski F Score is also a helpful indicator. The Piotroski score determines the financial strength of a company based on 9 criteria. Companies with a score of 8 or 9 are considered strong. Scores between 0 and 2 indicate a weak company. GSL has an 8, so it is on the high end.
All good stories have an oh-oh. In the case of GSL, the risk is primarily two-fold. It is a micro-cap business and it makes money leasing ships. The company owns and charters out containerships under long-term, fixed-rate charters to container liner companies. The majority of the company’s revenues are derived from charters to MAERSK. Its fleet consisted of more than 60 containerships. So don’t buy GSL thinking this is a no-risk investment. However, I think long-term investors will be rewarded.
The ROTH Conversion Process
The benefit of a bear market is that asset prices drop. This means that the total income tax on the withdrawal from the traditional IRA to the ROTH IRA conversion offers a lower tax potential. By moving 500 shares of GSL from the IRA to the ROTH, I have to pay income taxes on the value of the shares at the market close. Yesterday GSL closed at $18.23, so my tax liability is 500 shares times the closing price. I owe Federal and Wisconsin income taxes on $9,115 of income in 2023.
The following three images show how easy it is to convert the GSL shares to the ROTH IRA.
Using Active Trader Pro to Watch the Conversion
Although the transfer transaction is immediate, the true value of the transfer is not known until the market closes. The nice thing about ATP is that it is easy to see the movement of the 500 shares from the IRA to the ROTH.
Potential Future Easy Income Benefits
There are good Easy Income potential benefits from this tax-avoidance change. First of all, all future dividends will be tax free. Secondly, any capital gains from the sale of these shares will also be tax free. Thirdly, any options income, if I sell covered call options on these shares, will be income tax free. Finally, this reduces the total investment balance in my IRA, so that my RMD for 2024 will be lower as a result. There are no Required Minimum Distributions on a ROTH IRA.
What Should You Do?
Don’t buy GSL shares. Of course, what I really mean is that you need to have a strategy and goals in place before you buy any investment. Also, bear in mind that your investment mix might need to be different from mine. If you want simplicity, then invest in low-cost dividend growth ETFs.
I own 1,500 shares of GSL. I have no plans to sell my shares.
I think bonds are a poor long-term choice for most investors.