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  • Sleep Soundly With Phillips 66 Partners' Drop-Down Story [View article]
    This is a very good article that might be missing one component -- one can find similar stories with MPLX, SHLX and VLP. One can find MLPs with similar attributes (same kind of assets in a stocks with a higher yield and lower growth story) with DKL, TLLP and WNRL.
    As the author pointed out - aggressive growth stories can and do 'backfire'. As a group, 'aggressive growth stories' strongly tend to out perform. I use what appears like a logical recipe of being diversified in 'aggressive growth'. I have holdings in MPLX, PSXP, SHLX and TLLP with smaller than average weightings in all four. If I was not over weight in MLPs, I would also own the other three.
    Oct 15, 2015. 11:16 AM | 2 Likes Like |Link to Comment
  • Explaining Returns On Dividend-Paying Large-Cap Tech And Industrial Stocks [View article]
    NV_GARY - A spread is a calculation of the high minus the low projection, divided by the consensus projection.
    A rating is an impression. For companies where I have several years of data - those companies with zero instances of projection falls over 10% have ratings under 2.0. Each instance of a 10% fall adds one point to the rating. Several companies are new to the coverage universe (ORCL, STX, DHR, EMR, ETN, NOC, PH and PPG) - and have only two years of data. For new companies, my rating tends to be based on the spread. For older companies, my rating is more based on the historical accuracy stats.

    For newbie companies (to the coverage universe) where beginning of the year projections were provided (usually in the end of the year earnings release), I used the midpoints of the projections for the beginning of the year consensus projections. Example:

    PNR earnings and projection history:
    On 1-28-14 PNR provided 2014 adjusted EPS guidance of $3.85 - $4.00.
    On 1-29-13 PNR provided 2013 adjusted EPS guidance of $3.10-$3.30. 2013 adjusted EPS was $3.21.
    On 1-31-12 PNR provided 2012 adjusted EPS guidance of $2.60-$2.75. 2012 adjusted EPS was $2.39.
    On 2-01-11 PNR provided 2011 adjusted EPS guidance of $2.20-$2.35. 2011 adjusted EPS was $2.41.
    On 2-02-10 PNR provided 2010 adjusted EPS guidance of $1.75-$1.90. 2010 adjusted EPS was $2.00.
    On 2-03-09 PNR provided 2009 adjusted EPS guidance of $1.70-$2.00. 2009 adjusted EPS was $1.47.
    On 2-05-08 PNR provided 2008 adjusted EPS guidance of $2.25-$2.40. 2008 adjusted EPS was $2.20.
    On 2-06-07 PNR provided 2007 adjusted EPS guidance of $2.00-$2.15. 2007 adjusted EPS was $2.09.

    In my Seeking Alpha blog, I have provided multiple case studies where I have shown that analyst projections are almost always based on midpoint numbers reflecting company guidance. There are investors who do not believe this. I believe they are denying the obvious.
    Oct 12, 2015. 08:48 AM | 1 Like Like |Link to Comment
  • Newtek Business Services: NAV Decline And Recent Equity Offering [View article]
    DSandman999 asked "Of the 42 BDCs you cover, do you have another one that is internally managed with banking subsidiaries equivalent to the SBA parts of NEWT?"

    No. And I also agree that a good assessment of NEWT will have to wait - but I am waiting for different reasons. I want good run rate numbers - so we will know which quarters are atypical. For BDCs which generate more than 20% of Total Investment Income from fees - I want 12 quarters of data to generate a sense of seasonality in fee income. NEWT appears to fall into that category.

    Need an example? The "transaction volume related" fee type income for TSLX had oscillated between 8% and 33% of TII over the last nine quarters. (I include pre-payment fees and accelerated amortizations in volume related income.) As a result, NII/share/quarter has substantially fluctuated. Will the NEWT business model result in the same fluctuations? It is too early to tell.

    I see a dangerous type of Catch-22 with NEWT. The high yield and special dividends will appeal to newbie investors and yield hogs - who tend to be low due diligence investors. But the newness of this atypical business model should result in NEWT being owned by high due diligence investors. And high due diligence investors should tend not to own NEWT due to the current uncertainty.

    I am a "once burned - twice scared" BDC investor due to owning ACAS in 2008. I follow the investment advice in the misheard lyrics of Stevie Wonder - "If you invest in things you don't understand, then you'll suffer".
    Oct 11, 2015. 07:25 AM | Likes Like |Link to Comment
  • Explaining Returns On Dividend-Paying Large-Cap Tech And Industrial Stocks [View article]
    hk22 - The "split ratio" came from Yahoo Finance. On 7-01 DD spun off The Chemours Company (CC). DD stockholders received one share of common stock of Chemours for every five shares of DuPont they held. CC began trading at $21 - which means it was worth $4.20 per DD share. I adjusted dividend data (because Yahoo provided those numbers) but did not adjust beginning price targets or other historical pricing data. Many of the DD stats could be off approximately 5.3%. CC ended Q3-15 at $6.47. Thus holders of one share of DD had $1.30 in CC.

    DD closed 9-30-15 at $48.20. DD closed 10-09-15 at $56.18 as the market appeared to celebrate the retirement of the unpopular CEO. Comparing the spin-off to the recent price move - the spin-off is trivial. The Q4 dividend for CC will be three cents. Divide that by five - and that amount is trivial.

    What is the right thing to do? (1) Subtract $4.20 from all historical prices of DD as reflected in the spin-off price? (2) Subtract $1.30 from all historical prices of DD to reflect current market pricing? I leaning toward option three - (3) Ignore the very small effect on historical pricing and keep the adjustments already done on the historical dividend data.
    Oct 11, 2015. 06:18 AM | 1 Like Like |Link to Comment
  • Newtek Business Services: NAV Decline And Recent Equity Offering [View article]
    BDC Buzz wrote " Factoids - NEWT does not include unrealized gains in NII - only realized. There's a big difference."

    Long term - the difference should be big. In Q2-15, the difference for NEWT was tiny. Unrealized earnings were lightly negative. NEWT NII + Realized gains = $5.045 million or $0.4943/share. NEWT NII + realized and unrealized gains = $4.876 million or $0.4778/share. (Tiny or not - this is an error that I am glad that Buzz caught. Thanks Buzz.)

    Information (which is from another source and info I have not verified) would indicate this will be an ongoing occurrence. That info:

    "NEWT's biggest business is originating SBA loans. The SBA guarantees between 75% and 90% of each loan. NEWT immediately sells the government-guaranteed piece, usually at a gain - if the gain exceeds certain amounts, the SBA shares in the gain. NEWT accumulates the non-guaranteed pieces, immediately writes them down by 5% and pools them in a securitization transaction periodically. BTW, the SBA shares in losses on the non-guaranteed portions but I don't understand the mechanics of that.

    OK, so the accounting - NII does not include the gain on the sale of the government-guaranteed piece, or the 5% write down of the non-guaranteed piece. Those gains and losses are shown immediately below NII in the financial statements. However, NII does include NEWT's costs of making the loans. So NII includes the expenses but not the gains or losses. If you were to adjust NII for these 2 items, it would have been a positive $5.4 MM in the (quarter/period) rather than the $2 MM loss that was shown."

    If that info is correct, then the $0.50 dividend is covered by (5.4/10.206) $0.5291/share/quarter of NII. But we still have no idea if the $5.4 million is a good run rate number. I also do not like the sound of 5% 'unrealized' markdowns that fail to hit adjusted (for this unique business model) NII while any reversals of those markdowns at the close out of those loans will fall in realized gains that goes into NII.

    I am not saying this business model is bad. But at the current moment, it makes earnings projections less trustworthy due to its difference from everything else (in my coverage universe) in the sector. Even if one chooses to take a gamble on NEWT - the added uncertainty should be a factor in your weighting of this investment.
    Oct 10, 2015. 08:30 PM | Likes Like |Link to Comment
  • Ball Corporation: When Boring Is Beautiful [View article]
    I am not an expert on BLL or a share holder -- but it is in my coverage universe due to owning one percent portfolio allocations in PKG and WRK.

    This sector does not report normalized or core earnings - and the EPS projections I get from Yahoo Finance are close to GAAP earnings. Packaging companies tend to be international - and thus they are being hit with currency conversion issues. For Q2-15, Ball reported "12 cents per diluted share for unfavorable currency effects in the quarter". Ball also had $0.24/share of Q2-15 EPS declines due to "debt refinancing, economic hedging gains, business consolidation and other costs". 2014 EPS was $3.88 compared to the current 2015 EPS projection of $3.31. While the 2016 EPS projection is 'only' $3.79 - one can find a consensus 2017 EPS projection at NASDAQ as being $4.05 and the 2018 projection of $4.45. I should note that the number of analyst projections going into the 17 and 18 projections are relatively low. And I should note that EPS projections in this sector have been volatile over the two years that I have tracked EPS projection intra-year changes.

    Thus the P/E ratio escalation to 21 is due to a temporary EPS projection dip (a dip that is projected to reverse) -- or at least that is what a quick view of the numbers is telling me. While total dollar earnings growth is relatively low - EPS growth is attractive.

    So I find Daniel Holzman's comments under nuanced and under informed -- but a better article on Ball (I'm not saying this article was 'bad' - it may be 'insufficiently complete') would not have left Mr Holzman in such a vulnerable condition.
    Oct 10, 2015. 07:55 PM | 1 Like Like |Link to Comment
  • Making Sense Of Year-To-Date Price Changes In Business Development Companies [View article]
    I should note that I now own MRCC.
    Oct 10, 2015. 09:45 AM | Likes Like |Link to Comment
  • Newtek Business Services: NAV Decline And Recent Equity Offering [View article]
    RLP2451 appears to innocently ask why using an adjusted NII is so wrong.

    Historically, the BDC sector has been hazardous to innocent, low due diligence, low metric awareness investors. If the numbers are not screaming that lesson - then you are not listening.

    (1) What NEWT is calling adjusted NII is NOT adjusted NII. It is NII plus realized and unrealized gains on the portfolio. None of the 42 BDCs in my coverage universe adds realized and unrealized gains to arrive at an adjusted NII number. It is voodoo accounting that will put a curse on your nest egg.

    (2) Dang near every BDCs has, over the long run, 'realized and unrealized gains' that are either negative or near zero. Almost all BDCs have major oscillations in in the realized and unrealized gain numbers. For every other BDC, it is not a source of funds that can be counted on quarter after quarter or year after year to fund the dividend.

    (3) There are three NII estimates - with a high of 2.05 to a low of 1.60. What are the three estimates? Take 1.80 times three minus 2.05 minus 1.60 to also get 1.75 for the median projection. I want to do valuations on the median projection and not a skewed average projection.

    (4) Is the current $.50/quarter dividend 'covered"? No. One should never buy a BDC with an uncovered divided - and I have shown those stats in multiple articles at Seeking Alpha.

    (5) If NEWT has an uncovered 2016 dividend - at what Price/NII ratio should it be priced? At the end of Q3-15 (or on 9-30-15)

    The following companies had Q3-15 Dividend/EPS ratios of more than 100% and 2016 Dividend/EPS ratios of more than 100%: GLAD, KCAP, OHAI, SCM and TICC. Their mean yield = 14.22% - and they sold at an average price/book ratio of 0.72 and an average price/nii ratio of 8.95.

    At a 14.22% yield and a $2.00 dividend, NEWT should be priced at $14.06 (but the lack of coverage for NEWT is huge - so the yield should be higher than that average.)

    At a $1.75 NII and an 8.95 Price/NII, NEWT should be priced at $15.66. (But I have no confidence in the NII projections. I took an optimistic view to get adjusted Q2-15 NII at $0.37 given in my prior reply. When using $0.37 as a run rate NII - the annual projection is $1.48 - and at an 8.95 Price/NII, NEWT should be priced at $13.24 at the first of the year 2016.)

    At a 0.72 Price/Book and a $13.33 book, NEWT should be priced at $9.60.

    As I write this, NEWT is selling at $16.95 with the special dividend yet to be paid while the above numbers are a 'post special dividend' valuation assessment.

    There is so much uncertainty that I lack faith in the hypothetical valuations provided above. At the same time, investing with a 'mid case scenario' in mind has guided me to the right investments. And only the last number ($9.60) is a true (or unconditional) mid case scenario.

    NEWT is so full of uncertainty when it comes to forward NII - that it is more to a lottery ticket than it is an investment. I am never going to put a meaning amount of money 'investing' in the lottery - and you would probably feel the same. So why then would you own NEWT?

    I hope the author is tolerant of my long winded response and allows this overly long reply to remain. If not - then I will understand the deletion.
    Oct 9, 2015. 06:57 PM | 2 Likes Like |Link to Comment
  • Newtek Business Services: NAV Decline And Recent Equity Offering [View article]
    Putting a value on a BDC that has only reported one quarter as a BDC AND reported negative NII in that quarter -- I would not attempt that task.

    I have two big rules for BDCs - Never buy an uncovered dividend (or NII must be higher than the dividend) and Never buy a falling NAV. NEWT currently has an uncovered dividend and a falling NAV.

    The author used the average price/NAV ratio of the three good internally managed BDCs to set an price/NAV average - and used that ratio to value NEWT. There is one other internally managed BDC - KCAP. KCAP has been a dividend cutting, NAV falling, nest egg eating snake with a price/NAV of 0.65 at the end of Q3-15. At this point in time - and based on the metrics I follow - there are too many unknowns for me to say that NEWT belongs with the good three -- or with the bad one -- when setting a model price/NAV ratio.

    I would want to do a valuation assessment of NEWT on a price/NII ratio basis. Until I can sense a run rate NII, I could not do such an assessment. I would want to know that the current regular dividend is covered based on run rate NII.

    What about a valuation based on TII (total investment income)? Q2-15 TII was $0.56. An optimistic NII/TII ratio would be 65%. And 65% of 56 is $0.37. Compared that to a current dividend of $0.50 - and the dividend is dramatically uncovered. But . . . I have no idea of a run rate TII. The 2016 analyst provided NII projection is $1.80 (from Yahoo Finance) -- which also leads to a conclusion that the $0.50 dividend is not sustainable.
    Oct 9, 2015. 10:22 AM | 4 Likes Like |Link to Comment
  • Explaining Returns On Dividend-Paying Large-Cap Tech And Industrial Stocks [View article]
    SDS - Some sites use GAAP earnings numbers that include one time events. Some sites use GAAP earnings numbers subtracting one time events. Some sites use core earnings. For credit metrics - some sites (and some brokerages) use LTM EBITDA while some use a 2015 EBITDA forecast.

    For MLPs, each brokerage has a slightly different formula to arrive at DCF - and most MLPs fail to report a "DCF available to the limited partners". For BDCs, each company has slightly different formula for NII - but all report NII. For REITs, I strongly prefer FAD to FFO - but there are sub-sectors where it is impossible to arrive at a FAD due to failure to report "maintenance cap ex". The triple-nets (which should not have maintenance cap expenses) still report differences in FFO and FAD (when they do report FAD - and many of those do).

    For retail investors, you are lost if you do not invest with CAGR and RRR awareness. But if you do not have multiple sources for your CAGR projections and RRR assessments, one can fall victim to unknowingly using an out of consensus CAGR or RRR - with negative results (this use to happen to me). When you do have multiple sources for data, you have conflicting data. Resolving those conflicts will often be above your pay grade.

    Even when it is within your pay grade - the effort is time consuming. Doing your own numbers from scratch is possible - but only for a small coverage universe due to time constraints. My efforts on the message boards to inspire collective efforts at data gathering (for BDCs and MLPs) has failed to generate "sufficient" volunteers. And those efforts were on boards where I had some gravitas. Anyone else trying would probably get zero volunteers.

    One has two choices. Give up - or muddle through. I muddle through. CAGR awareness has made me money. RRR awareness has helped me avoid potholes. Even with huge problems using metric awareness, I refuse to go back to the path of 95% of retail investors (a low-ball guesstimate) who's idea of due diligence is borrowing the opinions of others.
    Oct 9, 2015. 07:07 AM | 1 Like Like |Link to Comment
  • Explaining Returns On Dividend-Paying Large-Cap Tech And Industrial Stocks [View article]
    One of the failings of my portfolio is the lack of an age appropriate bond allocation. I get enough yield from a 6.4% weighting in BDCs and a 20% weighting in MLPs. I mostly own the safer components in those sectors - but long term that is a riskier way to generate income. If I stick with those weightings long enough, I will probably be the owner of a few dividend or distribution cutting equities. I call the ownership of income decreasing equities "imploding income".
    If I need to replace some imploding income, then I will want to have some capital gains I can harvest from the majority of my portfolio that is in dividend growth investments.
    Because I own some BDCs and MLPs to generate yield, I can own many stocks with low yields but great "yield + dividend CAGRs". Because I own many growth investments, I should have some capital gains to harvest if and when I need to replace imploding income.
    This plan seems logical and sounds great. But I do not know with certainty the degree that plan is based on hope, instead of reality. I would like to see the capital gains happen in advance of any imploding income. I want to witness some capital appreciation to provide confidence in the plan. Thus far, I have. I want the evidence to keep on building.
    Oct 8, 2015. 07:31 PM | 6 Likes Like |Link to Comment
  • Making Sense Of Year-To-Date Price Changes In Business Development Companies [View article]
    On GARS - (1) It is running into the rule "If something looks too good to be true - it probably is." GARS reports debt/EBITDA metrics - and they are so low (with low being good) that they are hard to believe.
    (2) I love the distribution coverage. I do not like the fact that this great dividend coverage is not resulting in NAV growth. That is not logical.
    (3) GARS had had 4 straight quarters of negative portfolio gains - with two straight quarters of significant negative gains. This is a concern.
    (4) I do like the better than average NII/TII ratio.

    Once I have answers to those first two questions (or uncertainties) - I would have enough info on GARS to make an assessment. But I do not at this time.
    Oct 4, 2015. 10:26 AM | Likes Like |Link to Comment
  • TPG Specialty Lending's Income Falls $4 Million - Why? [View article]
    Balance Sheet Guru wrote "Please provide a link to a chart with a dividend coverage list".

    The dividend/EPS (which is really dividend/NII) metrics are already in the 'year to date' spreadsheet shown in this article. The spreadsheet shows:
    (1) the dividend to the 2015 NII projection;
    (2) the dividend to the 2016 NII projection;
    (3) the dividend to the LTM NII historical metric;
    It even shows the (4) dividend to NAV ratio. As a general rule of thumb - The dividend/NAV ratio needs to be 150 bps under the 'portfolio weighted average yield' for the dividend to be sustainable. The needed spread is lower for those BDCs with lower weighted average yields like GBDC, PFLT and SUNS.

    I have provided BDC dividend history in other articles. You have LTM dividend history in the 'year to date' spreadsheet.

    A spreadsheet of companies with higher energy related loans already exists on the web. If you need the link - you will have to send a message to me.
    Sep 30, 2015. 10:35 AM | Likes Like |Link to Comment
  • Making Sense Of Year-To-Date Price Changes In Business Development Companies [View article]
    User14783102 wrote that the wide range in BDC price performance might be due to the sector being "very heterogeneous and individual constituents of the group do not benefit from comparisons to other BDCs or the group."

    I do not buy that. Here is why.
    I track and share Health Care / Pharma stats and post those in my Seeking Alpha blog. Year to date the prices changes for that sector range from +29.80% to -16.73%.

    I track and share midstream stats and post those in my Seeking Alpha blog. Year to date the prices changes for that sector range from -3.64% to -58.00%.

    I track and share Packaging sector stats and post those in my Seeking Alpha blog. Year to date the prices changes for that sector range from -1.96% to -27.77%.

    I track and share Transportation sector stats and post those in my Seeking Alpha blog. Year to date the prices changes for that sector range from +6.49% to -43.05%.

    I track and share Large-cap Consumer Staples stats and post those in my Seeking Alpha blog. Year to date the prices changes for that sector range from +32.36% to -20.22%.

    And those are for the sector where I have updates in the last two weeks. My stale stats with Technology and Industrial stock sectors had wide spreads in performance for both. My stats for REITs show variety with a smaller performance range. The same for regional banks.

    (1) I do not see the wide spreads in performance in BDCs being atypical. (2) The only other sector where I track price/book (or NAV) is regional banks -- and they have wide ("wider", actually) spreads on that metric than the BDCs. (3) MLP yields ranged from 3.34 to one atypical 17.36 with multiple instances of yields in the 13s and 14s. (Note: I posted fresh MLP data last night.)

    I can agree with your statement that the BDC sector is heterogeneous -- but disagree that it is atypically heterogeneous. And whether the sector is hetero or homo (I hope that intro to the sentence is not a victim of unnecessary censorship - grin) -- we can still benefit by knowing the comparisons.
    Sep 29, 2015. 01:30 PM | Likes Like |Link to Comment
  • Making Sense Of Year-To-Date Price Changes In Business Development Companies [View article]
    As measured by the BDC EFT BDCS, the sector was down 6% today. Some fell much less. Some fell much more. I posted a new 'year to date' spreadsheet in my Seeking Alpha blog using prices as of market's close today.

    The link is
    Sep 28, 2015. 06:32 PM | 2 Likes Like |Link to Comment