Cheniere Energy's Dividend Isn't Reason Enough to Invest

Aug.27.09 | About: Cheniere Energy (CQP)

From Alejandro:

I have been trying to diversify my portfolio, and I found this company Cheniere Energy Partners, L.P. (NYSEMKT:CQP). I did my DD, and I think is an interesting opportunity, even when it's trading high I think It has big possibilities to growth. One thing that caught my attention about this share is the dividends payment; I'd like to ask you, based on your own experience, what are your thoughts about buying a share that pays a good dividend (as an investment to take money regularly and speculate about their growth), and what would be your smell test about this one? Thanks in advance!

VFC's Take: CQP doesn't look too bad in terms of possibilities of growth, but there's a couple of possible red flags that go through my mind here; remember, I haven't done as much DD on this one as Alejandro, there are just general red flags that are more relative to my investing style:

One, I am hesitant to buy into energy companies right now. The volatility of the energy market in combination with the general global desire to move towards alternative energy has me skeetish about some of these companies moving forward (with the exception of some of the big boys).

Two, the amount of debt that this company has would be worrisome for me, especially in combination with my first point. This also brings me to my next point;

Three, the dividend. Because of the debt, I wouldn't be so confident that the dividend would always be there and if it was, it could be reduced at some point. I don't invest in stocks solely for the prospects of a dividend payment because it would take a rather large investment of money for a small investor to buy enough shares of this stock - or others comparable - to make the dividend payments worthwhile. I, personally, would not factor the dividend into the equation when analyzing this company or the stock - to me, it's a non factor, because a dip in price could easily wipe out any dividend gains.

At first glance, CQP could grow, but I think that there are better energy related stocks out there - Capstone Turbine (CPST), for instance - with more potential to produce higher percentage gains than this one.

If you want in, add it to the watch list and wait for any significant dips, in my opinion.

Also, I'm not a fan of buying a stock solely to be diversified. A good stock is a good stock, period. I'd rather have two good stocks in the same sector than one good stock in one sector and an ok stock in another. If my good stocks both dip at the same time due to a 'sector retreat', then I've got two good buying opportunities on my hand. If you carry my philosophy, however, you've got to have a tough stomach and not be too concerned with the day to day value of your portfolio.

Regarding CQP, there's nothing specifically here that makes this one jump out at me, but a lot of my take is based on my own investing style.

Disclosure: No position.