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  • Why Has Enterprise Products Partners Fallen? [View article]
    Galicianova asked "how far would EPD have farther to decline for EPD to be as valuable as KMI?"

    I am going to take this opportunity to mess with your collective minds - and post something this is completely the opposite of what I wrote in the article. I am writing 'the opposite' because the valuations are saying two very different things. I focused on "thing one" in the article - which is the price implied CAGR based on the Total Return - yield. Here I will focus on the price implied CAGR based on the price/DCF ratio.

    Using the price/DCF ratio, EPD has a price implied CAGR of 3.88% while KMI has a price implied CAGR of 8.35%. Based on my projections for CAGR, EPD has a (3.88/5.60) 69.3% "CAGR to price implied CAGR" ratio while KMI has a (8.55/9.40) 90.9% ratio. Put in simple words, EPD is selling at more of a discount than KMI "using the price implied CAGR based on the price/DCF ratio". (I expect to correct the failure of giving equal time to this metric when I edit this article).

    Stats on ETE are included with stats on ENLC, NSH, OKE, PAGP, TRGP, WGP and WMB when I post messages on "MLP GPs".
    Jul 4, 2015. 12:25 PM | 1 Like Like |Link to Comment
  • Why Has Enterprise Products Partners Fallen? [View article]
    OKE is the GP (general partner) for OKS. OKE owns the IDRs (Incentive Distribution Rights) - which results in the GP increasing its dividend or distribution much faster than the MLP.
    Twice as fast as a zero increase is still a zero increase. A lack of distribution coverage should result in OKS not increasing its dividend in 2015. The Q2-15 distribution for OKS did not increase over the Q1-15 distribution. You have to go all the way back to 2009 to find a quarter without a distribution increase for OKS. At that time (in 2009), the distribution/DCF ratio was around 95%. The "current distribution to 2016 DCF projection" ratio is 98%. So there is some chance that there will be no distribution increase for OKS until 2017.
    OKE can merit a dividend increase if OKS offers more units. More units results in a larger payout by OKS in total. And the IDRs kick in with an increase in distribution dollars - not distributions per share or unit by the MLP. This kind of GP dividend increase tends to be small.
    The way I see it, OKE merits selling at a 6% yield (which is its current yield) or higher due to the prospects of anemic dividend growth.
    The current consensus 2017 and 2018 DCF projections support an expectation that OKS (and OKE) will return to distribution growth. But there is lots of volatility in projections that are THAT far out in the future. Thus there is some risk in betting on that outcome.
    I have the expectation that the price of OKE is going nowhere. If I were also "looking for reasons to buy OKE" (and I am not) - then I would procrastinate until late 2016 before doing that transaction. At a 6% yield, you are not being "paid enough to wait". And you could be waiting on dividend growth that could be very anemic.
    It is really weird for me to be writing the words that one should buy the MLP and not the GP. I am making a big deal about the 316 bps difference in yields. But we are still in a yield starved environment. OKS is headed back to distribution coverage. It is hard to find a relatively safe 9% yield. It is not rare to find a 6% yield. OKE at 6% is only attractive if it has very good prospects of 5% dividend growth staring in two years. I think such an outcome is probable -- but it is a long way from certain. Wait for the time when the 2017 projections are more visible and certain.
    Jul 4, 2015. 11:54 AM | 2 Likes Like |Link to Comment
  • Why Has Enterprise Products Partners Fallen? [View article]
    Bruce Miller and I have had this discussion on earnings metrics a few times before. There are only two questions an income investor needs to answer: (1) Is the distribution/dividend safe? and (2) Can the distribution/dividend grow?
    If the DCF projection was "as useful as palm readings" - then the distribution/DCF ratio would be a "garbage in - garbage out" metric when it comes to assessments of safety and growth. That is not the case. It is not the case with intensity and consistency.
    Mr Miller and I arrive at the same conclusion on a heck of a lot of things. But one this one issue - we are at opposite ends of the pole.
    Jul 4, 2015. 11:07 AM | 4 Likes Like |Link to Comment
  • Why Has Enterprise Products Partners Fallen? [View article]
    Alschroed wrote "So EPD gets punished because they conservatively only raise their distribution .005 per quarter per share or 2 cents per share per year."

    I am not reading the numbers in a way that supports that conclusion. EPD sells at a price to DCF ratio that is roughly in line with the sector average while its CAGR is well below sector average (and the safety attribute justifies the difference). EPD sells at a yield that is well below sector average (ditto the justification). These are not 'results' that indicate that EPD is being punished.

    EPD is under valued - but it is under valued to a smaller degree than the rest of the large-cap MLPs.

    Here is additional evidence to support the conclusion that MLPs are under valued. While the coverage universe of midstream MLPs ended June with a 7.02% yield - the large caps ended with an average 6.22% yield. That is significantly higher than the yields on the junk bond ETFs. The junk bond ETFs are dividend cutting investments. The dividends for April, May and June of 2015 (0.189 + 0.188 + 0.185) were $0.562 for JNK -- 4.42% lower than in the same period of 2014. The dividends for April, May and June of 2015 (0.406 + 0.402 + 0.402) were $1.210 for HYG -- or 7.42% lower than in the same period last year.

    I should note that one reason the average large cap sells at a yield of 6.22% is due to OKS selling at a 9.29% yield. If you are looking for a MLP that is being punished (for terrible distribution coverage and for a falling DCF projection) - then look at OKS.
    Jul 4, 2015. 09:58 AM | 4 Likes Like |Link to Comment
  • Analysts Have The Recipe For BDC Investing Success [View article]
    I would not touch Eagle Point Capital (ECC). The disclosure in the earnings press release is about as poor as it gets. My first impression is that it may be 100% invested in CLOs. Even the yield on the preferred equity (ECCA) is relatively high compared to the baby bonds of other BDCs. NII projection accuracy for the last two quarters (its a recent IPO without THREE quarters of history) is also as bad as is gets. Its market cap is tiny. But with five analysts already covering the stock, ECC could creep into my coverage universe one day. ECC is too risky for me - but there are times when risky investments pay off. For example: HTGC is too 'venture capital' for me - but until recently it has been a good BDC.

    With a quarterly dividend of $0.60/share, Oxford Lane Capital Corp. (OXLC) at today's closing price of $14.78 yields 16.24%. The yield is shouting that "the market hates me". With a NAV of $14.08 - the price to NAV reflects some (misplaced?) love. There is a high yield despite the fact that OXLC has had increases in the dividend per share since it IPOed in what looks like 2011. With a 2015 NII projection of $1.44/share (from a single analyst), the dividend is far from covered based on projections. Q1-15 NII was $0.41/share while 'distributable net income' was $0.60/share.

    Look at the NAV history. OXLC began the fiscal year that ended Q1-12 with a NAV of $18.19; began the fiscal year ending Q1-13 with a NAV of $17.05; began the fiscal year that ended Q1-14 $16.20; and began the fiscal year that ended Q1-15 with a NAV of $16.26. Current NAV is $14.08. That is a pretty dang bad NAV history. When NAV falls, share prices fall. That history shouts "don't touch OXLC". I would advise you to listen to those numbers.

    I would let the history of OXLC's NAV influence my expectations of what the ECC's NAV path will become. So FreshLegacy - you are right. I don't like these two.
    Jul 3, 2015. 12:41 AM | Likes Like |Link to Comment
  • Retirement Strategy: While Greece Implodes, My Income Keeps Paying The Bills Just Fine And Dandy [View article]
    It is my perception that it is really hard to make a good portfolio out of only 12 holdings. And given that limitation, this portfolio is very good. But if I am going to make an error, I would rather err in having too many holdings.

    If the portfolio was bumped up to 20 - then (1) you can have two consumer staples - I would add HRL; (2) you could own two in health care - I would add CAH; (3) you could own a relatively safe BDC like ARCC, MAIN or PFLT; (4) you could own a MLP or two - and to keep it simple I would add a c-corp like KMI or WMB; (5) you could own a dividend paying tech - you could add AAPL.

    Would a portfolio of 20 stocks in even more sectors be too much for beginners? For some - yes it would. So I am nitpicking on an issue where I am offering advice that could be mishandled 'by some'. And some of my suggestions require the investor to be aware and track the dividend safety metrics. If you are a light weight on the metrics - you need to keep your portfolio safe and simple. And the portfolio suggested here by 'RS' does that. Thus my suggestions are only appropriate for the minority that has advanced beyond 'beginner' status.
    Jun 30, 2015. 11:58 AM | 10 Likes Like |Link to Comment
  • Analysts Have The Recipe For BDC Investing Success [View article]
    I feel good about the substitution of ACSF for ACAS. Once I get HCAP and SCM added, I will (temporarily) feel good about about my coverage universe.

    GSBD will be added in Q2-16 -- after it has produced one full year of data. (FYI - an 8% yield on a BDC with a portfolio weighted average yield of 11% is a bad deal - while on the other hand, the dividend coverage is superior and partially justifies the out of alignment in BDC yield and portfolio yield. With a $2.00/share 2016 NII projection, the 2016 price/NII is 11.24. GSBD merits a price to NII that is slightly above ARCC's [GSBD has a higher yielding portfolio, but a better NII/TII ratio] - and ARCC's 2016 price/NII is 9.90. GSBD merits a price to NII that is below TSLX's [TSLX has a safer portfolio yield and the same kind of NII/TII] - and TSLX's price/NII is 10.51. Thus GSBD appears to be about 10% over valued - and my readers should not be harmed by my one year BDC quarantine.)

    Sorry for answering "why not GSBD?" instead of "why not ACAS?" - but I think I answered a better question.

    I sometimes wonder why I generate a much smaller readership than BDC Buzz. Then when I read responses like I made above about GSBD, and realized that the audience that can understand such statements would surely be smaller than his, I have my answer.
    Jun 21, 2015. 09:57 PM | 2 Likes Like |Link to Comment
  • Analysts Have The Recipe For BDC Investing Success [View article]
    The "low cost attribute" is not a predictor of better total returns for MLPs.

    (1) Compared to other G&Ps since 2012, MWE has under performed ENLK and WES on both a total return and unit price basis. While MWE has beaten NGLS on unit price appreciation, it trails NGLS on a total return basis.
    (2) Compared to other large-cap MLPs, EPD has under performed SEP and SXL which has GPs and pay IDRs. PAA (which pays IDRs) has beaten BPL (which does not).
    (3) A GP that has assets that it drops down to the MLPs is a good thing.

    The "low cost attribute" - or internal compared to external management attribute - may not be such a good predictive quality for BDCs. MAIN belongs to the internal group - and being 25% of that group makes the whole grouping look good. If one remembers to put KCAP in the internal grouping - then this groupings average performance drops.

    There are internally managed BDCs that still have sub-par NII/TII ratios (KCAP and HTGC). The stats are telling me to avoid BDCs with poor NII/TII ratios. I have not done a recent correlation testing based on the NII/TII ratio - so you will have to wait for the evidence. (I'm putting that on my 'to do' list). I do have stats that show a strong positive correlation between the NII/TII ratio and the Price/Book ratio. And having a good Price/Book ratio is a good thing since it is (in effect) a license to print money with every secondary offering.

    Summation - You are correct in thinking that 'low cost' is a good thing - but it is not the most important thing. Thus a focus on low cost (specifically for MLPs, but also for BDCs) results in suboptimal portfolio selections.
    Jun 19, 2015. 08:00 PM | 4 Likes Like |Link to Comment
  • Analysts Have The Recipe For BDC Investing Success [View article]
    "Follow-up loans" is an attribute that I do not track.
    Jun 19, 2015. 07:15 PM | Likes Like |Link to Comment
  • Analysts Have The Recipe For BDC Investing Success [View article]
    9403281 - The analyst rating numbers are gathered from Yahoo Finance. Yahoo tells us that 'Strong Buy' is 1.0 - 5.0 is 'Sell'. So the lower the number, the better the rating. Go to the site and look up ARCC - and you will find the rating is currently 2.3. Yahoo credits the source of this rating assessment is Thomson/First Call. I update the rating numbers once per quarter at a time that is close to the end or beginning of the quarter.
    Jun 19, 2015. 08:30 AM | 2 Likes Like |Link to Comment
  • Analysts Have The Recipe For BDC Investing Success [View article]
    Dividend Sleuth wrote "You're helping us hear and interpret the data in a particularly murky sector".

    First off - thanks for the complement. Second, while the perception that this sector is "murky" is probably a consensus opinion - it is probably an emotionally based assessment. When the mind sees a fair number of dividend cuts, the fear factor rises - and the result is the murky perception. The data supports the expectation that forward dividend cuts in a metrically justified portfolio of our choosing can at least be minimized.

    And that is an interesting theory - that dividend cuts in the sector leads to a perception that this sector is risky - and that higher level of perceived risk leads to the assessment that the sector is "murky" or uncertain. If that theory is correct - then that might lead to the expectation that lower risk BDCs might be under valued and higher risk BDCs might be over valued - because things look murky. That is a 'factoid' that one can use.

    But I have little expectation of finding that out - and sharing it with my readers. As you can see by today's poll, participation has been from 32 out of the (as of this writing) 895 readers. One can not have much confidence in the findings of a poll with a sample size of 32 (or a 3.5% participation rate). If the response trend was maintained over a sample size of . . . say 400 - then we would all have evidence that stocks 'loved' by the analysts have the potential of being under valued due to the low level of expectations that the analysts have the ability and the history of choosing the better performing stocks. Only 'we' can tell 'us' that analysts ratings are lightly regarded.
    Jun 18, 2015. 09:28 PM | 4 Likes Like |Link to Comment
  • Analysts Have The Recipe For BDC Investing Success [View article]
    ejmail - most "EPS projections" are really G.A.A.P. Net Investment Income projections. The extra information provided by FinViz is not that relevant to BDCs. I like knowing the number of estimates that go into the consensus projection and the spreads between the high and low projections. Yahoo Finance provides that while FinViz does not. I also like the Nasdaq site for gathering earnings projections that go further into the future.
    Jun 18, 2015. 01:52 PM | 1 Like Like |Link to Comment
  • Analysts Have The Recipe For BDC Investing Success [View article]
    This is the second of two poll questions. Respond with a "like" to indicate agreement. Please do not make a text response to this comment. The comment:

    "I would have expected the degree of out performance by the more liked by analyst BDCs."
    Jun 18, 2015. 11:35 AM | 19 Likes Like |Link to Comment
  • Analysts Have The Recipe For BDC Investing Success [View article]
    This is the fist of two poll questions. Respond with a "like" to indicate agreement. Please do not make a text response to this comment. The comment:

    "I would never have expected the degree of out performance by the more liked by analyst BDCs."
    Jun 18, 2015. 11:34 AM | 46 Likes Like |Link to Comment
  • Apollo Investment Corporation Has A Falling Earnings Projection [View article]
    AINV has too much exposure to energy related loans - compared to other BDCs - for it to have a good share price performance. It quickly went from a BDC with a rising NAV to one with a falling NAV. Some analysts questioned if AINV was taking enough write-downs on energy loans - so the thought 'is out there' that more NAV falls are in the future. AINV's NII projections are falling. So yes - AINV has spent the last nine months getting uglier.
    Jun 17, 2015. 12:10 PM | Likes Like |Link to Comment
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