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  • Get Skeptical About This MLP Claim [View article]
    Devropr speculated that "since GPs (general partners) distribute "after tax" funds - the tax problems (with MLP investments in IRA due to their UBTI generation) are avoided."
    THAT is an incorrect perception. Some GPs (KMI. OKE, PAGP, TRGP, WMB and XTXI) are organized as C-corps. C-Corps do not produce UBTIs. C-Corps report on 1099s. Some GPs (AHGP, ATLS, CEQP, ETE, NSH and WGP) are organized as partnerships and DO produce UBTIs. Therse GPS report on K-1s.

    Devropr wrote that holding MLPs in IRAs has "strong negative consequences". Not all MLPs produce POSITIVE UBTIs. There is a tax on positive UBTIs - and not negative UBTIs. There are MLPs with long histories of only producing negative UBTIs. I have shared "MLP UBTI Data" for tax year 2011 in a Seeking Alpha InstaBlog message of 9-04-13. There is a long list of MLPs where every reporting of UBTIs was negative.
    This data was gathered (for several years) from volunteers on the Investor Village MLP board. There were a few "data gathering volunteers" who supervised the data submissions. Data submissions HAD to be supervised - because volunteers had problems providing "UBTI per 100 units owned" on their own. Those who volunteered received MLP stat updates from me twice per month over the rest of the calendar year.
    The Investor Village MLP board is a big board - with over 500 members (membership is free - but donations to maintain the board are strongly encouraged). at the current time and close to that many at the time the collection effort was done. My data is pretty dang good data - so we have a good "carrot" as a reward for participation. But the most the effort could generate is around 110 "data providing" volunteers. For tax year 2012, we failed to generate the number of "data gathering" volunteers to support another effort.
    The belief that "all MLPs produce negative tax consequences when held inside an IRA" is wrong. For many investors, the dominant source of funds for investment is inside their IRAs. Holding MLPs inside an IRA ends the "married for life" consequences of buying a MLP (the mental perception that the tax consequences are too high to ever sell). In summation - I wish that the UBTI collection effort were still ongoing. I would still volunteer to provide the carrot for another effort. There are many new MLPs for which we lack a UBTI history.
    I strongly believe that all UBTI information provided by the brokerages are written by their lawyers. Due to the possibility that UBTIs could be positive for any MLP at some date in the future, the lawyers are compelled to go into "cover your @ss mode" and write that MLP investing can produce negative tax consequences - and should never be done. If I were a lawyer looking out for my brokerage client, I would do the same thing. But I am not a lawyer. I know from personal experience that such a rule of thumb is wrong. I know from the data from a heck of a lot of volunteers that the rule of thumb is wrong. I personally have done a heck of a lot to try to change the rule of thumb perception.

    Sorry if I was too much "on the soap box" for much of the content in that reply. This is a topic that is emotionally rich with the frustrations I have with the MLPs, the tax code, the IRS, the brokerages and my fellow investors.
    Jan 29 03:36 PM | 3 Likes Like |Link to Comment
  • Get Skeptical About This MLP Claim [View article]
    My response to the questions from boomerang2:
    (1) Going only by the metrics, OKS is a better buy than KMP. OKS has a better "yield plus CAGR". OKS also has superior distribution coverage. But both are IDR paying MLPs.
    (2) You are correct in that my metrics would indicate that SXL and TLLP are the best buys in small cap MLPs.
    (3a) ACMP and WES are high fee component G&Ps. That makes them low risk G&Ps. They both have strong distribution coverage - and strong distribution growth inertia. They both have great CAGR projections.
    (3b) APL's history of DCF projection accuracy is terrible - but improving. Based on the DCF projections - the distribution coverage is good . . . good enough to support another year of around 9% distribution growth. APL is bargain priced because the market knows of its earning projection uncertainty. It would be hyperbole to call APL "more of a high yielding lottery ticket than an MLP." But there is some truth in that hyperbole. Let me put the same thought in different - and maybe better - words: APL is a "hate yourself in the morning" stock - only that morning is coming 12 months in the future. There is a 25% chance you will hate yourself for not buy more. There is a 25% chance that you will hate yourself for buying it at all. There is only a 50% chance that you will feel good about the decision. I want my portfolio to be extremely heavily weighted in stocks where "the odds of feeling good" about the purchase is very good. On the other hand, I am not against taking some risk.
    (4) I know the above article was not about any "general partner" MLPs - but I would have liked to see some "IDR receiving" investments on your radar, given that every MLP where you had a question was a "IDR paying" MLP.
    Jan 28 06:24 PM | 3 Likes Like |Link to Comment
  • Simple Rules For MLP Investing [View article]
    Farzadzaman asked "Does anyone know where I can find a MLP's distribution coverage ratio?"

    Unfortunately, you are opening up a can a worms with that question. For REITs, NAREIT (the National Association of Real Estate Investment Trusts) provides a generally accepted method of calculation for their key earning metrics of FFO and FAD. The National Association of Publicly Traded Partnerships does not do the same thing for MLPs and their DCFs. The result - you can not rely on the results in the earning releases from the individual MLPs. For example - MLPs paying IDRs will, in some (most?) instances, provide total DCF -- and not the DCF that is available to the limited partners. Only by using "DCF available to the limited partners" can one be using a good apples to apples DCF number. I find that different brokerages (or analysts) provided different DCF numbers on "historical" data. It is my opinion that both of those factors are disconcerting. I have failed to generate a sufficient number of volunteers in my previous collective efforts to address those problems.

    The DCFs that I provide are average projections (or in some cases consensus projections that are average numbers that ignore the two projections on the extreme ends) from ten major brokerages that cover MLPs. If there was a free and publicly available source of consensus DCF projections, then I would not go to the substantial effort of making my own. From my interpretation of the footnotes in the analyst reports, the brokerages that provide "street" (or consensus) numbers in their own reports use a much smaller coverage universe of sources for their consensus numbers.
    Jan 21 12:12 PM | 3 Likes Like |Link to Comment
  • Why BDC Portfolio Weighted Average Yields Are Falling [View article]
    BDCs YTD & Valuation Stats for 12-18-13 have been placed in my Seeking Alpha InstaBlog. It is probable that I will replace that with 12-20-13 stats - updating the prices and changes to price targets and EPS projections - on Saturday morning.

    I apologize for the slightly misleading title. "Why weighted average portfolio yields are falling for some BDCs - and not for others" would have been a much better title. But that title was just too long.
    Dec 19 01:49 PM | 3 Likes Like |Link to Comment
  • Right Now Is The Wrong Time To Be Buying Healthcare REITs [View article]
    1 - I tracked short sales for MLPs for two years - and found that data to be of no predictive value. It was not that labor intensive - but every needless data tracking task I can cut assist in making time to track on every expanding coverage universe.

    2 - Your understanding that "health care REITs could NOT operate their own facilities" WAS true - but is no longer true. You can look up RIDEA or the "REIT Investment Diversification and Empowerment Act" for the specifics. You can also look at one of VTR's supplemental reports to see that they break income by property type into operating and triple net when it comes to senior housing.
    Dec 4 04:58 PM | 3 Likes Like |Link to Comment
  • Right Now Is The Wrong Time To Be Buying Healthcare REITs [View article]
    From the skilled nursing facility owning OHI conference call: We (OHI) project that the Affordable Care Act will have a limited impact on our specific business. Most of our residents are already covered - either via private insurance through the Medicare program or through the Medicaid program. We think the Affordable Care Act will extend insurance to a younger crowd. That really has limited effect in terms of what happens inside skilled nursing facilities. There is one element of the Affordable Care Act that will affect our tenant partners - and that’s the cost of insurance. And it’s not terribly significant. But it will affect the expense equation for a number of our operators having to meet the mandate. Again, it's not going to really move coverage ratios in a material way - but it is something that they all have to think about.
    Dec 3 07:19 PM | 3 Likes Like |Link to Comment
  • Right Now Is The Wrong Time To Be Buying BDCs [View article]
    It is my opinion that there are two different metric attributes that lead to safety. The first safety attribute is measured by portfolio weighted average yield. These BDCs would be PFLT, SUNS, KED and TAXI. They have portfolio investments that have a relatively low yield.

    A second safety attribute is measured by strong dividend coverage. These would be BDCs that have dividend/EPS ratios in the low 90s - or even lower. This is the specific group that has had a dramatic shift in the last month towards lower spreads.

    Devropr (or Phil) also asked if I believed that "BDCs' per se are bad investments". I would not put my belief in those terms. On the other hand, I do believe that the median BDC will be suboptimal investment in a median year. And that is due to the fact that the median BDC is usually lacking in dividend and/or NAV growth. The median BDC would have a NII/TII ratio that I would not find attractive. The median BDC also has a degree of transparency in reporting their earnings that I do not find attractive.

    Those personal preferences make me an atypical and relatively demanding BDC investor. On the other hand - this retired investor - of relatively moderate means - lives on dividends and never touches his capital. I can not support my current life style living off of the income from PEP and PG. Those personal attributes leads me towards finding the few "good" BDCs an attractive investment.
    Nov 30 01:15 AM | 3 Likes Like |Link to Comment
  • Right Now Is The Wrong Time To Be Buying BDCs [View article]
    If one does not own MLPs and does not plan to own them in the future due to their K-1 reporting attributes, then KED is an interesting option. They have a good history at meeting their guidance numbers, and their "Net Distributable Income" growth projection is really big for Q4-13.

    The percentage of private MLPs in their portfolio is falling - and they do not an a great history in that portion of their portfolio. So that is a good thing. KED owned PAGP pre-IPO. The amount of MLP debt is now a tiny percentage of their portfolio. So they are more of an MLP CEF than they are a BDC. KED has stopped calling itself a BDC - but they still report metrics in a BDC-like format.

    The numbers: KED has a price to NII (or P/E) ratio that is below sector average. The price to book ratio premium is tiny. Dividend growth inertia is good - and if KED's projections are accurate, it should improve. NAV growth is great. Portfolio diversification is OK - if you like MLPs (and I do). Portfolio risk is relatively low. From a "yield plus dividend CAGR projection" point of view - KED is still attractive.

    Outside of "not that BDC-like" KED - I do not see anything that is currently attractive - but I would say the same about most of the sectors that I track. The good BDCs have been on a share price growth spurt since the end of Q3-13.
    Nov 29 03:56 PM | 3 Likes Like |Link to Comment
  • Redefining Value Investing For MLPs [View article]
    Spectra Energy Partners, with a "yield plus CAGR minus RRR" of 1.48, just made it on the top ten list. EPD, with a "yield plus CAGR minus RRR" of 1.43, just missed being on the list. And that was based on the closing prices of 9-20-13. Prices - and thus the relative valuations - change daily.

    The difference between a 1.48 and 1.43 is trivial. I own units in EPD - and I am not selling. So if you want to own only units in a top ten list of MLPs, you are not violating the spirit of such an effort by having shares in EPD. I would say the same thing if the questions was about MWE. I would say the same thing about someone putting one or two E&Ps on the list.

    For someone holding a small weighting in MLPs - say a weighting that is close to or under 10% - I would not argue with the addition of MLPL, the leveraged MLP Exchange Traded Note.
    Sep 23 06:15 PM | 3 Likes Like |Link to Comment
  • The Self-Evident Truth About Healthcare REIT Valuations [View article]
    I am not an accountant. I do not like using valuation metrics that involve a lot of math. It is not that "math" is hard. Finding the right data - THAT is the hard part.

    For example - I gave apartment REITs a demerit in this article due to the lack of reporting AFFO numbers. Getting an AFFO number is easy if you have a recurring cap ex number. But the multi-family REITs that fail to report AFFO also tend to fail to report recurring cap ex.

    Almost all Health Care REITs specifically report FAD/share. Two of the three that do not, report AFFO. The one that does not report FAD or AFFO - VTR - will tell you that "Normalized FFO excluding non-cash items gives investors a very good representation of cash available" for distribution. That is the only REIT in this sector where a calculation was done.
    Sep 6 10:53 AM | 3 Likes Like |Link to Comment
  • Overcoming Obstacles: A Unique Method For Assessing Risk By MLP [View article]
    I will - selectively - post some simplistic articles with short and clear suggestions in order to generate SA income from the audience that seeks to be "led". I don't look forward to doing it. I still does not feel like the right thing to do - even if readers are asking for this service. This article was part of a series on freedom from borrowed opinions. I did not feel like a whore the morning after writing the above article. I felt good about it - even if the audience generated by the article has been smallish.

    You are not only going off topic by asking for specific suggestions - you are going against the spirit of the article.

    You are also being told (by the data) in advance what I will be suggesting in those upcoming articles - and why. The message is in the data. I will "echo" the message in the data.

    For example - CAGRs sell at a discount - right? Take advantage of the discount. Lower risk stocks appear to sell at a premium. I argue that the premium is insufficient. Take advantage of the (pardon this oxymoron) "discount on the premium". The older you are - or the more conservative your temperament - the more heavily weighted you should be on the low RRR (the safer) investments. Also - know your portfolio CAGR. The higher your bond or zero CAGR component in your existing portfolio - the higher your MLP portfolio CAGR numbers needs to be. Be prepped for inflation (which implies buying high CAGR projection MLPs). Be prepped for the next season of unpleasantness (which implies buying low RRR MLPs). Buy MLPs that you want to hold for life.

    If you want to pry loose the available information from the "Yield + CAGR Total Return Expectations" spreadsheet and post a sample portfolio of 6-10 stocks for my feedback - I will do so. Is that an acceptable compromise?

    I am reading between the lines in your response - which is a dangerous thing to do - and it sounds like you have the impression that number crunching is a difficult task. The task that is required of the reader of the "Yield + CAGR Total Return Expectations" spreadsheet is really very simple. There is a fair amount of labor required to get to that point. But once you are at "that point" - the task is easy.
    Aug 21 12:31 PM | 3 Likes Like |Link to Comment
  • Overcoming Obstacles: A Unique Method For Assessing Risk By MLP [View article]
    Bruce writes: "Any reason you don't just provide the approximate weightings of your MLP holdings."

    The message in this and in my prior articles has been to build your own CAGRs and RRR and make your own decisions based on those two factors. The message was not "buy what I currently own". Some of what I currently own I would buy again today. Some, I would not.

    Your question implies that the message you gained from my articles is "Factoids knows MLPs, invest like him". That was not the intended message. The message is that the data contains enough information for you to make your own decisions. There is a ton of hope and freedom in that message.
    Aug 21 09:17 AM | 3 Likes Like |Link to Comment
  • Overcoming Obstacles: A Unique Method For Assessing Risk By MLP [View article]
    DanH writes: "I would like you to make recommendations, if you had new money, which MLPs look to offer the best value today."

    The message in this and in my prior articles has been to build your own CAGRs and RRR and make your own decisions based on those two factors. That is a system that works. Don't listen to borrowed opinions. For anyone else other than me, my opinion is a borrowed opinion.
    Aug 21 09:04 AM | 3 Likes Like |Link to Comment
  • Overcoming Obstacles: A Unique Method For Assessing Risk By MLP [View article]
    DanH wrote: " I have a hard time drawing a correlation between your current holdings disclosed above and your analysis in the article."

    (1) Approximately 90% of the income MLPs provide to their unit holders is tax deferred. That tax deferral is recaptured on the sale of the units. That tax hit keeps almost all MLP owners holding some MLP units they bought in the collective yester-years that they would prefer not to hold today. I started my due diligence on MLPs in the spring of 2004 - and started investing in MLPs at the start of 2005. So I have quite a view "yester-years" of holdings

    (2) If all I held were the undervalued MLPs - then I would probably be holding a group of MLPs that have failed to appreciate like my stats are projecting. Ironically, that would be a logical argument that "my system" of valuation does not work. Right?

    (3) SA requires that their writers disclose what they own when they are writing about sectors where they also own stocks. While I believe that is the fair and proper thing to do - that is a lot of disclosure. I am more "disclosed" than I want to be - already. On the other hand, the readers have no idea what weighting I have in these stocks. My weightings vary from a high of 7% of my total portfolio to a low of just under 1%. Seven of my 12 holdings (I have holdings in sub-sectors outside of the midstream MLPs discussed in the above article) have weightings near 1%. That is a lot of variation. The picture one would get from my weightings would be very different than the unweighted picture.
    Aug 20 07:41 PM | 3 Likes Like |Link to Comment
  • The First Metric MLP Investors Should Know [View article]
    I own 12 MLP or MLP related equities. Two of those are K-1 free general partners. I have recently added one E&P. That E&P may be a holding that does not last for three years. MLPs currently are just over 25% of my total portfolio - an allocation that is on the high side. I will need to do some MLP selling at year end. I have plans to buy others - put I do not have an expectation that I will add to the allocation percentage.

    There is diversification between oil and gas in my MLP portfolio. There is diversification between large cap midstream and mid-cap G&Ps. But that 25% allocation is all in energy MLPs or MLP related equities. These stocks do have more correlation with each other than the market in general. So there is a diversification problem.

    On the other hand, one would want to be more heavily invested in sectors that have a record of beating the general market. And one should want to have a heavier weighting in stocks with secure and growing dividends and distributions. None of my MLPs cut their distributions in the crisis of 2008. The same is true with all the consumer staple stocks in my coverage universe. That factor generated a lot of intangible customer loyalty for investments in those sectors.
    Jul 20 08:29 PM | 3 Likes Like |Link to Comment