Darian Frost

Long/short equity, growth at reasonable price, value, oil & gas
Darian Frost
Long/short equity, growth at reasonable price, value, oil & gas
Contributor since: 2012
Bob, I believe you will like the next article I release, since it will explain what will likely happen to the LNG industry, especially to producers that have not protected themselves with long term contracts, and instead attempt to focus on the spot market. I agree that the spot market for LNG looks like it will eventually get oversupplied, but Cheniere has done a good job of preselling a lot of their capacity, which gives me hope for this company specifically.
Darian
Tom
If that is true, it definitely alters their costs. However, I must have read through all their documents like 3 times. Ill keep an eye out and edit the article if that is true.
Thanks for pointing that out.
Darian
I would say the hiccup was pretty minor. From what I can tell, it should not be an indicator of widespread operational failure. I will keep an eye on it moving into the future, and will let you know the moment I believe it implies even partial operational failures.
Darian
Bob,
Your comments on LNG are always insightful and often times hit the nail on the head.
An interesting fact about the way Cheniere has set up the sales contracts is that as Henry Hub rises in price, they may get 15% of that rise in price as additional revenue, but the remaining 15% of capacity they sell on the spot market is sold with 100% of the rise as an increase in cost. I expect that some amount of this will even out over the long run.
The major issue, and one I know you are aware since you have mentioned it before, is the decline in overseas natural gas prices. That could completely wipe out profits from their spot market sales.
Darian
Trains refer to Liquefied Natural Gas "assembly lines". Each "train" in this project can produce 4.5 Mega tons of LNG per Annum. (Mtpa)
Darian
Cheniere Energy has a goal to contract approximately 87% of production for long term purchase agreements.
Darian
Hey Teetay,
Brandon has not insinuated that Australia's businessmen are incompetent at all. To the contrary, they are taking advantage of arbitrage opportunities that American companies have also seen and have taken action to cash in on.
However, the economics for Australia are different than Texas LNG. Australia is much closer to its primary customers (Asia) and with their massive LNG production growth, the arbitrage margins cannot help but compress. However, with an advantage on shipping costs (they are so close) they will always make an economic profit on their investments. American LNG will need to rely on Europe as a primary market eventually.
Aurelien,
Thanks, I tried to use all the information I could find in the quarterly and annual reports. So, I would have to say from the reports. I will try to find the investor presentations to which you are referring to resolve the discrepancy.
Can I get a link to one of the ones you are referencing?
Thanks,
-Darian
Hey Jasper!
While I analyzed the company, I really like the concept of what they are offering. I honestly think personal medicine is the way of the future, should costs come down enough. I also like their longer term picture, should they be able to scale appropriately. The overwhelming thing for me was the fact that many things can not be adequately protected through patents, so I saw this industry as getting more commodified because of the SC ruling. What do you think? (I enjoy these discussions)
-Darian
Bob:
Dividend Growth is not for everyone. Someone in your position may benefit quite a bit from the higher yields. It is my philosophy that companies with higher yields(utilities are one of these) may not be able to grow cash flow or earnings as much as their dividend growth counterparts. This sometimes makes their share price stable, but limits growth in capital appreciation. Dividend Growth companies, on the other hand, "should" increase in price to match the dividend growth. Notice that i put should in quotations. This is because the market is a varied beast and doesn't always act as it "should". Good luck!
Hi,
The thing about all these companies, is that i am trying to fit them into a theoretical mold in order to prove a point. That is not the easiest thing to do. Even before i wrote this article i knew that not all companies can sustain high percentage dividend growth rates. I am going to do another article showing the difficulties facing companies that get bigger and bigger from paying out a constant percentage year over year. What i didn't know is the concept of denial that companies do with their dividends. That is really interesting.
Darian
Chowder:
Thank you for clarifying which metric to use with MLP's. I learn something new every day! Mostly because this is all a learning experience. And now guess what topic I am going to be studying today? :) Sorry for my ignorance of how MLP's are valued.
Darian
From a dividend investor's standpoint, the fact that exchange rates are so volatile does speak toward whether they should own the stock. I'm guessing that it might all even out in the end (i'm not quite sure. a little help please?) But if it is a reliable income you are looking for, the exchange rates do wreak havok on the "reliable terms".
Oh, well then please disregard my previous comment! Playing matchmaker when I don't have to! :)
Darian
Oh i like the perspective presented in that newsletter. I think i am going to investigate it further. But of course, like i said before, even yield calculations are no substitutes for due diligence! Thank you.
With that sort of success with the Dogs of the Dow strategy, you may be interested in someone else here on SA. Miz Magic Dividogs has adapted that same strategy to the CCC lists and presented it in their "Confessions of a DGI Lite Investor" series. I found it interesting. In fact, we are going to be doing a competition with stocks picked from that strategy and from this article's strategy. I hope this is useful?
Hey Miz!
I read your stuff, and i am a fan! I can't believe i haven't followed you yet. Time to fix that.
I really like the idea of the competition. Lets do it! I'll start researching now, but when are we planning to start this hypothetical portfolio? 1/3/13? Just trying to iron out some details.
Darian
I believe that he answers that question in the article. He made a table indicating the various gains/losses resulting from different prices at expiration. Just trying to help!
This is a great resource. I had always seen it like that in my mind. I would subscribe to it simply in order to see what they believe is the yield in the middle of the overvalued and undervalued lines. Thank you.
Darian
Hi,
That sounds like a really interesting study. I think i'll do it. I will publish the results in another article then! Thank you for the idea.
Darian
Cash Flows is a great metric to use. Very useful. However, because the Payout Ratio is included in the stock selection, like cash flows, also provides a view into the sustainability of the dividends. A company with a Payout Ratio above 100% is obviously having some problems with cash flow. Likewise, if cash flows begin to decline, and dividends remain constant, the payout ratio goes up. That also grants a red flag.
But you are right, i should use the actual cash flow metric and include it in the strategy.
Darian
I love Warren Buffet quotes. The guy is on record saying some funny things and some useful things. But if we can't use any of those things, what do we use? :)
Darian
Hi,
There are a few such funds out there. Vanguard Investment's VDIGX is one.
Fidelity's FDGFX fund is another.
Goldman Sachs' GSRIX is another.
I hope this is useful, if it isnt good enough, I can do more research for you!
Darian
What sort of software are you using to plot the risk profile? I am new and would like to know about a tool like that.
Mack:
Oh absolutely, it was not my intention to keep that from the readers at all. I will try to make it more clear next time. I definitely don't think this strategy is good for every stock. Some stocks will gradually work their way down. For those stocks it is just better to own it, due to the fact that you can easily get out without losing too much. For this stock though, when the spreads do squeeze, i would be concerned about a steep drop in the price. Past $30. But yes, i was also concerned about that. Hopefully, this comment has helped for the whole "both eyes open" thing :)
Darian
Wise words from a wise man, I presume? Thank you sir! I'll be paying much attention to these little guys.
Darian
dave:
Oh yea, after looking at the figures on Yahoo Finance, they suggest that any time over the past 5 years would have been a good entry point. I knew they had good dividend returns before i did this article, but I didn't know about the capital appreciation.
Really good job on this one!
Darian
Is that the academic paper that you references in your post? Is it available for viewing online?
I am thinking of purchasing this book. Just for fun/interesting reading of course. Would this book increase my understanding of options BEYOND the typical time/intrinsic value of the option?
I just happen to have credit left on my amazon account, so I just ordered it. Thanks!
It seems to me that this article is a great answer to the "when should i sell" question asked by many people in this section of SA.
Tim
I am also a fan of David Crosetti and David Fish, and after being introduced to you, have developed a liking for your articles. In reference to your response to Toledoinvestor, i do have a question. Would it be an advisable asset allocation strategy to place a fixed amount of principle in higher-yielding dividend stocks, then take those dividends as cash and reinvest them in known Dividend Champions? My question is whether this would be advantageous to advance to an independent side-strategy from the paper-trading stage?