The ADR shares of Argentine energy company YPF SA (YPF) are currently a dangerous place to have money invested. To an income investor, YPF may, at first, provide an attractive picture: It is the dominant energy company in a country with large and growing oil and natural gas reserves. YPF also owns over half of the refining capacity in Argentina. And the cherry on top is a current dividend yield over 10 percent.
The problem with investing in YPF is the current Argentine government. The administration of President Christina Fernandez Kirchner - CFK - is pushing a policy of economic protectionism which could be very detrimental to any type of investments in Argentina.
Although it has tremendous reserves, Argentina has gone from an energy exporting country to one which imported $10 billion of refined energy products in 2011. The government maintains strict price controls, increasing demand, but has eliminated incentives for energy exploration and production. In recent months, the government controlled press has started pushing for the renationalization of YPF.
More recently, Argentine government officials have gone after the YPF board concerning the company's dividend policies. The officials want the company to spend more on exploration and less on paying dividends to shareholders. Add this pressure to recent government restrictions on taking capital out of Argentina and it seems the pressure will increase on YPF to reduce or eliminate the dividend payments.
The CFK administration is relentless and has no regard to international conventions and rules when they choose to exert government control over a portion of the economy. The neighboring trade partners are currently very upset with Argentine restrictions on imports, directly violating free trade agreements.
Spanish oil company Repsol YPF SA owns 54.4 percent of YPF. Argentine industrial company Grupo Peterson holds 25.5 percent and the Argentine government owns just 0.02 percent. The free float is just 17 percent of the outstanding shares.
For U.S. investors, the ADR shares are way too risky for a long investment. However, the shares are shortable, and according to the shortqueeze.com website, short interest in YPF increased by 44 percent in the last reporting period for free data. The next semi-annual dividend would be paid in late April or early May. It is the belief here that the next dividend will be significantly reduced or eliminated due to some action by the Argentine government. When that news becomes public, the share value will decline significantly.
In the meantime, income investors should look for other options in the high yield stock arena.