Astute investors can pick up terrific dividends by approaching dividends from the back door. If an investor can acquire shares via a spin off, via a restructuring, or via a stock warrant - then often times the new shares pay a healthy dividend. In this article, I will highlight 5 such companies who have tremendous leverage opportunities for the informed investor. Poseidon Concepts (POOSF.PK) is such an example as a recent spin off. The company sports a healthy 7.4% annual yield. The dividends are paid monthly to dividend hungry investors.
Open Range Energy Corporation spun off Poseidon Concepts on November 4th, 2011. Poseidon Concepts is currently paying a monthly dividend that equates to an annual yield of 7.4%. This spin off was a welcome surprise to investors aware of Poseidon Concepts' growth prospects.
Poseidon Concepts is a relatively new independent company that has gone from industry leader to a successful spin off in a short time frame. Poseidon was formed by a team with significant experience in oil exploration and production (E&P) where, first hand, they felt the need for large, easy to assemble, all weather, environmentally friendly fluid storage systems (dismantle-able tanks) at E&P sites that use fracturing for resource extraction.
In June 2010, Poseidon got its first revenue producing job for its 18,000-barrel capacity Poseidon system. In 2011 and early 2012, the company introduced three additional models - the 4,500 barrel Neptune, the 9,000 barrel Triton and the 41,000 barrel Atlantis, and also received a Canadian patent for its system. For comparison, a standard steel tanker stores 450 barrels and while lined pits store more, they are more resource intensive to build and pose environmental and hazardous waste problems, making Poseidon's solutions more cost effective, safer and greener.
By December 2011, Poseidon had 240 tank systems deployed across 14 major oil and natural gas producing states in the U.S. and every major unconventional E&P site in Canada where these systems performed well under severe weather conditions. 75% of its contracts are in oil plays and 25% in natural gas plays with high liquids content.
On November 4, 2011, Poseidon listed on the Toronto Stock Exchange and on December 15, 2011, it made its first monthly dividend distribution of 9 cents (Canadian) per share (9.073 U.S. cents). Poseidon headquarters are in Calgary, Alberta, Canada and it has offices in Denver, Colorado and Dickinson, North Dakota.
The centerpiece of Poseidon's business strategy is its first to market advantage with an easy to assemble, field proven system designed specially for fracturing jobs. Poseidon's modular system is easily transported on flat bed trucks, quick to deliver to sites, easy to setup and tear down, and has practical design features such as one pump heating and circulation and fewer hoses and connections. Poseidon also offers four models that fit most jobs and deliver between 30% and 75% in cost savings.
Poseidon systems are environmentally friendly because they replace multiple storage trucks and reduce trucking needs by 95%, reduce energy consumption for heating, reduce leakage, and are placed above ground so there is no groundwater contamination from leaks. Poseidon has delivered almost a thousand installations without a reportable safety incident.
Poseidon is well positioned to grow with strong horizontal drilling and fracturing activity in North America and with long-term contracts, typically one to three years, which give it good visibility into earnings and allow it to pay dividends. In addition to strong revenue opportunities at horizontal fracturing operations, Poseidon's tanks are increasingly being used for other water, exploration byproducts, liquid hazardous waste and related storage operations, increasing its addressable market.
Looking forward, Poseidon expects to grow its tank fleet to 400 units by June 30, 2012 and projects 2012 EBITDA earnings of $170 million.
That said, Poseidon's product is simple and competitors are jumping in on this opportunity. Poseidon could start spending considerable sums on litigation to defend its patent. In time, the detractors believe Poseidon's margins will likely come down and this could become a regular, mundane business with high competition, commodity-based pricing and significantly lower margins.
I believe the company will continue to grow and become stronger. They have first mover advantage with state of the art technology and employs a foundation of informed employees and management team.
In 2011, Poseidon's revenue jumped to $79.4 million from just $5.5 million in 2010 which strongly endorses the demand and acceptance of its storage solutions. The company delivered a healthy pre tax income of $61.1 million and net income from continuing operations of $45.3 million. In 2011, it took a charge from discontinued operations that took it to a net loss of $12.4 million for the year. Poseidon generated $36 million in operating cash flow in 2011.
For its fourth quarter ended December 31, 2011, Poseidon had revenue of $34.1 million and net income of $18.9 from continuing operations.
At year end 2011, Poseidon had assets of $103.7 million, net debt of $26.8 million and shareholders' equity of $18.9 million. The table below highlights the 2011 revenue and earnings growth:
Poseidon paid its first monthly dividend on December 15, 2011 and has since paid 9.073 cents in January, February and March 2012. Its annual dividend forecast is $1.09 and with shares trading at $15, it offers a dividend yield of 7.2%.
Poseidon's shares trade on the Toronto Stock Exchange and as pink sheets in the U.S under the ticker POOSF.PK. As of March 26, shares were trading at $15.1 with a market capitalization of $1.2 billion, considerably more than book value. Since their November 2011 spin off, shares have traded between $9.664 and $16.892 and are currently off highs.
Poseidon primarily competes with steel tank storage providers and new companies that are aping its products such as a similar above-ground rapidly installable large tank solutions from Total Energy Services (TOTZF.PK). Oilfield equipment rental margins at companies such as Canadian Energy Services Stallion Oilfield Services (SLOH.PK), Chesapeake Oilfield Services, Black Diamond Equipment (BDIMF.PK) and Strad Energy Services (STRDF.PK) are typically lower than Poseidon's margins which are currently higher because of its first mover advantage.
I believe investors are well served to research Poseidon Concepts for an dividend and revenue growth opportunity. The current 7.4% yield is likely to rise over time. The company has quietly spun off from Open Range, and is operating on all cylinders.
ConocoPhillips is an integrated global energy company. The exploration division looks for crude oil, natural gas liquids, bitumen, natural gas, and liquefied natural gas. The company's refining and marketing, referred to as Phillips 66, will be spun off into a separate legal entity by June 30th, 2012.
CEO Jim Mulva spoke on March 5th about the company's progress. Per page 5 of the March 5th presentation, the CEO stated the goal is for the the company to provide dividend growth of 10% and continue to buy back shares:
The Phillips 66 spin off will create a 15% dividend increase from present levels. This 15% increase will be directly tied to the Phillips 66 dividend.
I own ConocoPhillips. Upon the spin off I will share the Phillips 66 shares. I don't want to own the cyclical refining and marketing segment. I believe oil will go higher in the future, and the energy and production unit will benefit from this assumption.
FieldPoint Petroleum Corporation (FPP)
FieldPoint Petroleum Corporation is an independent oil and natural gas producer. The assets are in Louisiana, New Mexico, Oklahoma, Wyoming, and Texas. The company has collar options in place to hedge approximately 50% of their daily oil production through the middle of 2012.
FieldPoint Petroleum issued a warrant to shareholders, effectively trading March 27th. The warrants provide owners the right to purchase one share of FieldPoint Petroleum at an exercise price of $4.00 per share. The warrants are good for 6 years.
I plan to hold FieldPoint Petroleum and the warrant. The company has effective collar hedges in place near the $100 per barrel price. FieldPoint Petroleum management provides ongoing updates on all of its drilling programs. I anticipate the stock going upward. I will hold onto my shares and warrants until I have earned a reasonable profit.
Kinder Morgan (KMI)
Kinder Morgan is the General Partner and owns the Incentive Distribution Rights of the largest midstream master limited partnership complex in N. America.
Kinder Morgan is merging with El Paso Corporation. Kinder Morgan has agreed to pay, per Amendment 1 of the SEC Form S-4:
" ... in cash and approximately 43% (excluding the warrants) is paid in Kinder Morgan Class P common stock, one of the following: (1) 0.9635 of a share of Kinder Morgan Class P common stock and 0.640 of a warrant to purchase one share of Kinder Morgan Class P common stock; (2) $25.91 in cash without interest and 0.640 of a warrant to purchase one share of Kinder Morgan Class P common stock; or (3) 0.4187 of a share of Kinder Morgan Class P common stock, $14.65 in
cash without interest and 0.640 of a warrant to purchase one share of Kinder Morgan Class P common stock ... "
The warrants are exercisable at a strike price of $40 with a life span of 5 years. Based upon most option modeling scenarios, the warrant offers value as Kinder Morgan is close to the strike price, as of March 27th, at $38.44. American options do not extend beyond a couple years. A 5-year warrant offers adequate time for Kinder Morgan to breach the $40 barrier.
I own Kinder Morgan warrants. I hope to watch the shares extend their upward trajectory over the coming years. Investors should consider buying the warrants if they believe Kinder Morgan will move north of $40 per share.
P.A.M. Transportation Services (PTSI)
P.A.M. Transportation Services operates as a truckload transportation and logistics company in N. America. The freight haul includes a wide mix of commodities. These products include automotive parts, retail merchandise, and consumer goods. The company is paying a special $1.00 per share dividend.
Per the SEC 8-K filed on March 20th, the company will pay the special dividend on April 7th to shareholders of record as of March 30th. Because the company has a market cap of over $107 million, it takes quickness and patience to accumulate shares before everyone hears about the special dividend. The stock was up 6.38% today, March 27th, due to dividend seekers jumping on board. Typically it is too late to buy when everybody knows about the special dividend.
In this table, the investor can note when the special dividend was released and the run up through today:
I own P.A.M. Transportation Services. I plan to sell tomorrow, which is the ex-dividend date.