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  • How Retail MLP Investors Can Profit By A Focus On Growth [View article]
    Bob Johnson, thanks for your feedback. Personally, I am glad there are lots of investors out there making valuation judgments like the ones you are making. If there were not, then growth MLPs would be selling at even lower yields. I really like growth at a reasonable yield. And you should be glad that there are investors like me that place an emphasis on growth, or the lower growth investments that you suggest would sell at lower yields. (Ain't markets great!)

    At the risk of putting words in your mouth with which you might disagree, it appears you are suggesting investments like BWP and EEP - MLPs with 2% CAGRs and 6.5% yields. I like EPD and MMP at yields of 4.24% and 3.64% with 5 year forward distribution growth projections of 6.7% and 9.0%. I have put those who follow my advice in a position to have a larger bond component in their portfolio. I would suggest that you have not. Those who follow my advice are prepped for high inflation. I would suggest that those who follow your advice are not prepped. Those who follow my advice are capturing the discount at which growth is currently valued. Those who follow your advice are not getting a discount.

    You want the certainty of one bird in the hand. I want a lot of metrics to justify my growth expectations. I want distribution growth inertia, consensus growth projections, and a story to justify those projections. I do not want promises made out of thin air. But I do prefer the promise of two birds in the bush.

    We disagree. I think we can disagree without questioning credentials. I believe I have been sufficiently transparent in disclosing that my credentials rest on doing an atypical amount of number crunching for a period that is barely over ten years. For MLPs, the time spent tracking the numbers is eight years.
    Jul 29, 2013. 03:18 PM | 7 Likes Like |Link to Comment
  • Is Dividend Growth Inertia Dead At Medley Capital? [View article]
    The other "good" BDCs regularly report their portfolio company Debt to EBITDA ratios and interest coverage ratios. TCAP does not. I really like TCAP's NII/TII ratio. I love the dividend growth and NAV growth. I am not selling just because TCAP fails this major transparency test. But I would like it to change its evil ways on this issue.
    So I would list some of the reasons I love them, and then ask "Why is such a good BDC continuing to fail a majority transparency test?" My suspicion is that TCAP fails to report those metrics because their numbers are ugly. But this investor wants to know the size of the ugliness.
    May 7, 2013. 10:13 AM | 7 Likes Like |Link to Comment
  • Full Circle Capital's Q4-12 Earnings And Valuations: Does It Belong In Your Portfolio? [View article]
    I am a total return projection investor. So I want to max out on yield plus CAGR. CAGR is an acronym for Compound Annual Growth Rate of the dividend or distribution. It is frequently a five year projection. There are CAGR projections for EPS - and it is my observation that the Yahoo Finance CAGR projections are for EPS and not distribution growth. I do not use EPS CAGRs. Most retail investors should borrow their CAGR projections from trusted sources. I am outside that majority - I tend to make my own CAGRs based on performance metrics - and I also restrict those projections so that they fall within the range of trusted or borrowed opinions from the major analysts.

    I do not like specific companies. I like specific 'attributes'. Some of those change. Some of those attributes are relatively constant. I like dividend growth - and their is inertia in that attribute.. I like dividend coverage - and higher coverage both adds dividend security along with dividend growth. I like a growing EPS, FFO, DCF or NII per share. I like companies with low projection spreads in EPS, FFO, DCF and NII. I like a high degree of historical accuracy in meeting those EPS, FFO, DCF and NII projections. I like business models that lead to earning projection accuracy.
    Mar 3, 2013. 09:47 AM | 7 Likes Like |Link to Comment
  • What You Can Do To Perhaps Avoid Dividend Cuts [View article]
    I am going to express what strongly appears to be a minority opinion. I did not find much utility in this article. I believe that author was using data that was too backwards looking.

    I do not know how one can discuss a strategy that avoids dividend cuts without looking at the dividend/EPS ratio or projections for EPS growth? How can you cover the topic of safety without looking at historical EPS projection accuracy?
    I do not believe this author has looked into a wide enough array of metrics to find correlations that are predictive of dividend cuts.

    PFE was one of the stocks mentioned. Before PFE's cut in 2010, PFE had three straight years of having a div/EPS ratio in the 60s and 70s. The ratio was in the 40s in 2004 and 2005. That metric is alarm bell number one.

    The long term trend in the pharma sector is for div/EPS ratios in the low to mid 30s. PFE was not retaining sufficient earnings to stay competitive in its sector. That is alarm bell number two. This one ratio was SHOUTING that a cut in the dividend needed to come.

    The trends in EPS growth were not supporting an expectation of dividend growth for PFE. Earnings per share was falling at this time. That is alarm bell number three.

    But . . . one needed to have these metrics on their own personal radar before one could hear the alarms going off.

    The PFE story illustrates the point. One needs more metrics on their radar before they can successfully avoid dividend cuts. Following a bunch of metrics can be a pain. But these are really easy metrics to gather and follow. One does not need a degree to follow the logic behind them. And the alarm bells are easy to hear.

    Mr. Wells - I hope I can be forgiven for giving you a thumbs down on this one.
    Dec 9, 2014. 08:02 AM | 6 Likes Like |Link to Comment
  • My Vision Of What The 'Perfect Retirement Portfolios For Dummies' Might Look Like [View article]
    Nathan Kemalyan MD wrote "I have a strong bias towards this kind of portfolio for the young investor".

    If I were making suggestions for a younger audience, I would alter the weightings and the components . . . . but it would still look a lot like this portfolio. I would invest without having yield as a consideration. The younger the investor, the less of the need to get rigorous with sector weightings that match the S&P 500. The younger the investor, the less the need of over weighting the defensive sectors.

    I would drop the BDCs and the preferred stocks. I would lighten KMI and WMB and add TRGP and WGP. I would drop UPS and add CNW, JGHT, NSC and UNP. I would lighten JNJ and RHHBY and add MCK, PRGO, TMO and ZTS. All of these suggestions would drop the portfolio yield while significantly increasing the dividend CAGR.
    Oct 12, 2014. 07:54 PM | 6 Likes Like |Link to Comment
  • MLPs And The Conspiracy Of Silence [View article]
    bbyrdfree asked "why no E&P examples?"

    There are several requirements before a data base will produce output that starts to become meaningful.
    1 - You need a large enough coverage universe. Prior to 2010, there were only five E&Ps in my coverage universe (BBEP, EVEP, LINE, LGCY and VNR).
    2 - You need time for patterns to emerge.
    3 - You also need quality DCF projections. Prior to 2011, I believe I lacked lacked access to enough projections.

    I need to be vague enough to avoid legal issues - but I believe I can safely say that some of my DCF "inputs" were of inferior quality. It took time to learn what inputs to ignore.

    By 2015, I may have enough data to generate some output that could contains some lessons. For right now, it would probably be "garbage in / garbage out."

    It is still scary how divergent the DCF projections for this group can be. It is equally scary how volatile each DCF projection can be by source. And those two attributes tell me to - mostly - "stay away from E&Ps".

    In general, "the market is usually right". From the data that is available to me, the E&Ps merits those sky high yields. This investor prefers to get his high yields from "the safer" BDCs. But I follow enough predictive BDC metrics to self assess BDC safety.
    Jun 22, 2014. 10:03 PM | 6 Likes Like |Link to Comment
  • Get Skeptical About This MLP Claim [View article]
    The subject of GPs ("general partners" - which should not be confused with G&Ps - which are "gathering and processing" MLPs) is one the deserves a series of articles. One needs to make the case that high CAGRs are needed and predictable in the short term. And one needs to make the case that high CAGRs are - at least for a large number of years - sustainable. I can do that. But I have yet to create a "headline" that will get people to read that information.

    I have already published information that CAGRs sell at a discount. I have already published information on how one can find CAGR projections. I have published - at least in my Seeking Alpha InstaBlog - data on my CAGR projections for the GPs.

    I do take your request seriously. Raising "CAGR awareness" has consistently been a key issue with me - in my writings on Seeking Alpha and in my writings on Investor Village message boards. I am working on that issue. But the "packaging and marketing" of that information is labor intensive - and still needing more work.
    Jan 29, 2014. 12:03 AM | 6 Likes Like |Link to Comment
  • The Ugly Truth About BDC Earnings Projections [View article]
    The above article was already full of data. That resulted in my leaving out two usually posted spreadsheets. In case you might be missing that data, I have posted the usual BDC year to date stats and valuation spreadsheets for 10-18-13 in my InstaBlog at SA.

    After having written "What one can read between the lines can be just as important as what I have physically typed" - I had a psychological need to omit the logical conclusion to the article. "What is the ugly truth about analyst earning projections?" If you are doing good due diligence, you don't really need them. They are just as likely to lead you astray as they are to correctly guide you. Most retail investors delegate the task of earning projections to the analysts. It is my hope that some of you - those doing good due diligence - will see the error in that choice.
    Oct 18, 2013. 06:09 PM | 6 Likes Like |Link to Comment
  • How Retail MLP Investors Can Profit By A Focus On Growth [View article]
    As much as I try to be an intentional investor in each and every year, I still end up owning large parts of my portfolio due to inertia. I own stuff because I bought it in the past. That results in owning Investments that I would not buy again today. It is not tax efficient to have large portfolio turnover. At the same time, it is not "return efficient" to hold on to some investments with falling CAGRs. This results in trying to strike a balance between those two goals.

    I own 12 MLPs. I would like to have that number under 10. I have 25% of my portfolio in MLPs. I want that allocation between 20% and 25%. My portfolio is 57% invested in individual stocks. My average holding in each individual stock is close to 2% of my portfolio. I own 38 individual stocks. So that makes me more of a manager of my own mutual fund than an average retail investor. That info should inform you that any numbers advice on how many MLPs to own is coming from a warped source.

    I want the cushion that such diversity provides. I can psychologically live with the disaster of owning AAPL in 2013 as long as I am diversified and the AAPL misfortune is a small allocation. Owning AAPL also keeps me humble. If all I owned were GEL, OHI and PB (which are all in my portfolio and all up over 40% this year), I would probably morph into someone who thinks they know what they are doing. I believe that such an attitude is dangerous. And -- if all I owned were ten stocks, I would not have had the good fortune of owning those three.

    My portfolio generates 48% of its income from MLPs. I want to keep that "income allocation" well under 50%. I have sold BDCs in 2013, and that has caused my MLP "income allocation" to swell. I believe that having the "income allocation" picture is important because "income allocation" can be significantly different than "portfolio allocation". This picture probably provides me with a more accurate reading on portfolio risk. Due to having a high allocation in lower yielding and higher CAGR MLPs, my "income allocation" is much lower than the typical MLP investor with a 25% "portfolio allocation".

    I believe that MLPs are a due diligence intensive sector. If you are going to take the time to follow it, then your time commitment justifies a high allocation. I would call a high allocation somewhere between 20% and 30%. If you go above 30%, then you end up with too high of an "income allocation". On the other hand, if you are only going to put 10% or less into MLPs, you are probably off buying a sector ETN.

    To get sufficient diversification, I would suggest owning three or four large cap, midstream, investment grade MLPs, two or three high CAGR and high fee component gathering and processing MLPs, and at least two very high CAGR general partners. For those needing and wanting more yield than such a portfolio would provide, own two or three exploration and production MLPs. Going with the minimum numbers in those suggestions, you are already at nine. I have vetted this allocation advice on the message boards - and it passes inspection from those readers. For MLP beginners, grow into that nine allocation slowly - over three years or so.

    This suggestion comes from a biased investor. MLPs have been very, very good to me. I am bullish on the sector. I enjoy doing most of the due diligence.

    Sorry for a long answer to a simple question. But I am prone to long answers. The above article was meant to be short. It answered only one question. But even with the goal of brevity, it swelled to five pages in MS Word before the inclusion of the spreadsheets and pictures.
    Jul 29, 2013. 11:39 AM | 6 Likes Like |Link to Comment
  • The First Metric MLP Investors Should Know - Part 2 [View article]
    WGP - as GP of WES, offers the best dividend growth potential. But with it being priced at a sub 2% yield, that good news appears already priced in the stock. I want to own it - but at a better price or yield.

    EXLP leases compression to pipeline companies. That is a different business model. RGP does some of this kind of business. But given the lack of other companies in the same business, I have no other companies with which to compare. And the distribution growth for EXLP has only been average. The yield is attractive - but the higher yield appears merited. On the other hand, historical DCF projection accuracy has been high. This implies higher than average earnings visibility - and low risk. I do not own it - and it is not on my buy list. I am not interested because of the low "yield plus CAGR". But I currently rate it as above average in risk due to EXLP being in the G&P sector in most analyst reports. That could be an incorrect characterization of the company.

    MMLP, while listed under marine transport in my spreadsheets, has only 10% of its EBITDA generated by that segment. It is heavily generating income from Terminalling & Storage. Its distribution growth has been low. The DCF projection accuracy for MMLP has been bad. It has produced end of the year DCF below the beginning of the year projections in each of the last four years. That kind of performance scares me. The CAGR projections are low. I am not interested.

    EQM is not yet in my coverage universe. The CAGR projections that I have seen are high. But the market has seen those projections, too. That explains the current sub 4% yield.

    I only have metric based valuation information to provide to readers. If I am not gathering data on the MLP, then I have no opinion.
    Jul 21, 2013. 07:55 AM | 6 Likes Like |Link to Comment
  • Using Metrics To Build A Superior MLP Portfolio [View article]
    The KMP distribution/DCF ratio foretells of slower distribution growth for KMP. My guess is distribution growth around 4.5% to 5.5%. The formula for the price-implied CAGR suggests the same rate of growth. So the slower distribution CAGR projection (compared to EPD, MMP & PAA) warrants a higher yield in the here and now. DCF growth is projected to be low in 2013, 2014 and 2015.

    Once you get three years in the future - the DCF projections have less of a bell curve. And the sources I have for those projections drops off. So the numbers - in general - look flakey. .

    The good news for KMP - the historical DCF projection accuracy is very good. That home-made metrics measures the change in the DCF projection from the end of the year to the actual number. This is one of my key risk metrics. KMP is low risk.

    In summation - low risk + 6% yield + 4.5% distribution growth = a pretty good investment. I won a bit of it. I am not expecting yield compression.
    Jul 9, 2013. 02:07 PM | 6 Likes Like |Link to Comment
  • Part 2: Money Making Lessons From The 2014 Data For Midstream MLP Investing [View article]
    I do not have a positive gut reaction to HIP.
    (1) I know REITs, BDCs and MLPs -- and HIP owns a lot of tickers I have never heard before. I believe CEF HIP owns many shares in many other CEFs. So you end up with two different levels of management fees.
    (2) On the 'e' list members - HIP owns shares in EEP and EXLP without owning any EPD.
    (3) On the 'm' list members - HIP owns shares in MMLP and MEMP without owning any MMP or MPLX.
    (4) On the 's' list members - HIP owns shares in SNH (maybe the worst Health Care REIT) without owning any SEP, SHLX or SXL - or REIT SPG.

    In summation - I do not see the quality names I would look for in MLPs. It lacks many quality REITs (I could not find AVB, BXP or ESS).
    Feb 6, 2015. 07:17 PM | 5 Likes Like |Link to Comment
  • Retirement Portfolio For Dummies - The Health Care REIT Components [View article]
    I am aware that I was overly brief in my discussion of setting RRRs for this sector. That process is involved. That topic was addressed in a prior article with the title "Should You Invest With A Property-Type Bias?" published in March of this year. For those who require a longer explanation of the setting of REIT RRRs -- that explanation can be found in that article.
    Dec 9, 2014. 06:26 PM | 5 Likes Like |Link to Comment
  • My Vision Of What The 'Perfect Retirement Portfolios For Dummies' Might Look Like [View article]
    akaralph asked about TIS - or Orchids Paper Products Company.

    TIS is too small ($200 million market cap) for me to include in my coverage universe. I follow large caps with nationally known names that have major brands. The dividend/EPS ratio is terrible. It has a yearly div of $1.40 compared to 2013 EPS of $1.73, a 2014 projection of $1.32, and a 2015 projection of $2.07. That oscillation in EPS scares me. On the other hand, dividend growth has been great and the consensus CAGR is 17%. With a yield of 6.03%, it is attractively valued on that metric. Using the 2015 EPS projection, the P/E ratio is tiny (11.22).

    TIS "manufactures and sells tissue products for the at-home market in the United States. Its products include paper towels, bathroom tissue, and paper napkins." I would be very concerned with a small cap that competes with KMB and PG.

    I would have to do a lot of research in an area outside my expertise for me to gamble on this one. But I can see why anyone would find it interesting.
    Oct 12, 2014. 11:12 PM | 5 Likes Like |Link to Comment
  • A Closer Look At Plains All American Pipeline's Q2'14 Distributable Cash Flow [View article]
    I would also nitpick on the authors projection of distribution growth in 2015 being in the 10% neighborhood. I am projecting 8% distribution growth. My current numbers indicate a distribution to DCF ratio of 88%. In prior years when PAA had this high a percentage of DCF payout - distribution growth was lower. It is my interpretation of the data that an 8% distribution growth expectation is more in line with its current payout ratio.

    We are in agreement that PAA is a buy. But if you like PAA - then you should love its GP PAGP. But such a recommendation is context sensitive. If you are retired and seek to max out your current income, PAA is the choice. If you seek to max out your total return, PAGP should provide that price appreciation that more than makes up for its lower yield.
    Aug 15, 2014. 12:46 PM | 5 Likes Like |Link to Comment
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