Building A Diversified High-Yield Energy Portfolio - Three-Month Update

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Includes: CAFD, GLBL, RIGP, SXCP, XOM
by: Short/Long Trader

Summary

This article provides an update on the five high-yield energy sector companies I've included in a high-yield energy portfolio.

Of the five companies I recommended, four have seen some degree of share price appreciation and two have increased their dividend payouts.

Overall this portfolio is up 25.4% in three-months not including dividends. This portfolio has outperformed the S&P 500 Index which is up only 9.8% in the same period.

Introduction

Three months ago I decided to create a high-yield energy sector portfolio. My original article argued that in spite of the mess in the energy sector, there are some value buys long-term investors should consider.

I identified five energy sector companies that appeared undervalued for various reasons and recommended investing in each because of both high-yields and the potential for capital appreciation. The five companies I recommended from lowest to highest risk are Exxon Mobil (NYSE:XOM), 8point3 Energy Partners (NASDAQ:CAFD), Transocean Partners (NYSE:RIGP), SunCoke Energy Partners (NYSE:SXCP), and Terraform Global (NASDAQ:GLBL). This article provides an update on each of these companies and the overall performance of portfolio so far.

Exxon Mobil

Exxon Mobil has seen significant share price appreciation alongside the broader recovery in oil prices. It reported solid Q1 earnings of $1.81 billion alongside a decrease in capex spending of 33% year-over-year. Production averaged 4.33 million barrels of oil-equivalent per day (MMBOE/d).

As expected, Exxon Mobil increased its dividend 2.7% making this the 34th straight year it has increased its dividends. However, Exxon Mobil lost its AAA credit rating for the first time since 1949 with Standard and Poor downgrading it to AA+ because of low oil prices. But in spite of this downgrade, Exxon Mobil remains the safest play in the energy sector today.

8point3 Energy Partners

8point3 Energy partners continues to experience significant share price volatility alongside broader headwinds in the solar energy sector. After climbing above $16/share in February, it has fluctuated in the $14-16 range ever since.

8point3 Energy Partners reported strong Q1 results. It recorded $18.3 million in cash available for distribution, which is $3 million above Q1 guidance. It also completed its acquisitions of the 50 MW Hooper project and 40 MW Kingbird project. It declared a Q1 2016 distribution of $0.2246 per share, which was 3.5% higher than its Q4 2015 distribution. In addition, it remains committed to increasing its quarterly distribution going forward. Although there are broader problems facing the renewable energy sector, 8point3 Energy Partners remains the best yieldco in the sector today.

Transocean Partners

Transocean Partners offshore drilling rigs continue to provide consistent drilling services to oil majors in spite of cancellations of other contracts in the broader oil sector. It has seen significant share price appreciation and its share price may continue to move higher if oil prices stabilize in the $45 to $50 bbl range.

Transocean Partners reported decent Q1 results. It had distributable cash flow of $34 million and fleet utilization remained at 100%. Its quarterly distribution of $0.3625/share remains steady and it should be able to maintain this distribution for the entire year. While it will not face any problems with its current contracts, longer term problems may arise if oil prices fall again.

SunCoke Energy Partners

SunCoke Energy Partners has been the strongest performer in this portfolio. Its share price has more than doubled in 3-months and it still yields an impressive 21.6% at its current share price of $11.

SunCoke Energy Partners released excellent Q1 results. It had distributable cash flow of $45.9 million and reaffirmed full year distributable cash flow guidance. It repurchased $53 million of face value bonds and maintained a quarterly distribution of $0.594/share. Although issues do exist in the broader coal sector, SunCoke Energy Partners long-term, take-or-pay contracts will continue to insulate it from broader problems in the sector.

Terraform Global

Terraform Global has faced the most significant challenges compared to the rest of this portfolio because its parent SunEdison (NYSE:SUNE) filed for Chapter 11 bankruptcy protection. As many of Terraform Global's operations are tied to its parent company, it has been unable to release an up-to-date 10-K. Consequently, the exact financial progress of the company remains unknown.

Is spite of the problems with SunEdison, Terraform Global continues to have an impressive portfolio of operations in a variety of emerging markets. It did pay out a quarterly dividend of $0.275/share in March, but the future of its dividend payments remains up in the air because of unresolved issues with SunEdison. If issues with SunEdison are resolved, then Terraform Global could see the kind of share price appreciation SunCoke Energy Partners saw during these past couple of months. However, there remains a high degree of uncertainty surrounding Terraform Global that will continue to persist for the foreseeable future. This is why it is the only company of these five that has decreased in value these past three-months.

Performance

The first three months of this portfolio have been excellent. When I originally proposed this portfolio, I suggested a modest $20,000 investment evenly spread over these five companies as follows:

2-14-16

Company

Share Price

% Yield

Div Rate

Shares

Cost of Shares

Comm.

Total Cost Basis

Anticipated 1-Year Dividend Distribution

XOM

$81.03

3.6

$2.92

49

$3,970.47

$10

$3,980.47

$143.08

CAFD

$14.03

6.2

$0.87

285

$3,998.55

$10

$4,008.55

$247.95

RIGP

$7.97

18.2

$1.45

500

$3,985.00

$10

$3,995.00

$725

SXCP

$5.97

39.9

$2.38

670

$3,999.90

$10

$4,009.90

$1,594.60

GLBL

$3.03

36.3

$1.10

1,320

$3,999.60

$10

$4,009.60

$1,452.00

Click to enlarge

Total Cost: $20,003.52

Anticipated Total 1-Year Distribution: $4,162.63

Total 1-year Yield: 20.8%

The portfolio today looks much stronger:

5-14-16

Company

Share Price

% Yield

Div Rate

Shares

Share Value

Comm.

Unrealized Gain/Loss

Anticipated 1-Year Dividend Distribution

YTD Dividends Received

XOM

$88.66

3.4

$3.00

49

$4,344.34

$10

+$243.33

$147.00

$36.75

CAFD

$14.23

6.3

$0.90

285

$4,055.55

$10

+$275.00

$256.50

$64.01

RIGP

$11.70

12.4

$1.45

500

$5,850.00

$10

+$1,465.00

$725.00

$362.50

SXCP

$11.00

21.6

$2.38

670

$7,370.00

$10

+$3,239.50

$1,594.60

$397.98

GLBL

$2.63

41.8

$1.10

1,320

$3,471.60

$10

-$577.60

$1,452.00

$363.00

Click to enlarge

Current Value: $25,091.49

Percent Change: +25.4%

Dividends Received: $1,224.24

Percent Change Including Dividends: +31.6%

What we can see so far is that all of these companies with the exception of Terraform Global have seen some degree of share price appreciation. RIGP and SXCP have been the strongest performers and could potentially see further appreciation going forward. All of the dividends listed above have been paid out with the exception of the second dividend payment from RIGP and first distribution from SXCP, which investors will be receiving soon and hence are included in the data.

Looking at these five companies today, the only one that I am considering increasing my position in right now is CAFD. I believe it remains a solid long-term investment opportunity for both capital appreciation and its increasing dividends. In terms of the rest, each seems to be more fairly priced today with the exception of GLBL. Although GLBL might outperform if a lot of things go right for it, there is still too much uncertainty surrounding it to warrant a larger position in it today.

Conclusion

This portfolio has outperformed the past three-months, having gone up 25.4% compared to only 9.8% for the S&P 500 Index in the same period. If we include dividends, then this portfolio is up 31.6%. This demonstrates individual investors can find value in beaten down sectors, especially at the height of investor pessimism.

I like to buy companies as cheap as possible with the goal of getting the highest returns. At the end of the day, all investors are looking to get the most bang for their buck. I believe that investors will continue to be able to do so through this diversified high-yield energy portfolio.

Note: Investors who want to follow my coverage of this portfolio can do so by clicking the orange "Follow Short/Long Trader" button below. Investors are reminded to complete their own due diligence before investing and positions may change at any time.

Disclosure: I am/we are long XOM, SXCP, CAFD, GLBL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.