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Michael Connellan

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  • Linn Energy: How Low Can It Go? [View article]
    LINE's basic problem seems very straightforward: the company is not earning enough cash to support the dividend. Valuation is of little relevance; cash is the determinant. The company is selling stock and/or borrowing money to pay the dividends. The Statement of Cash Flows clearly tells the tale. 60 pct of the capitalization is debt so they're reaching a limit there. The more the stock drops the harder it is to sell stock to pay the dividend. The end game is clear unless operations improve markedly - LINE will be forced to reduce or eliminate the dividend. Avoid the stock.
    Jul 3, 2013. 01:39 AM | 2 Likes Like |Link to Comment
  • Bed Bath & Beyond - An Excellent Investment With Takeover Target Potential [View article]
    I believe the facts as stated, plus the circumstances of ownership, support the conclusion. Investment bank M&A teams are constantly analyzing potential deals like this one, which they then take to possible acquirers in an effort to get a deal going and put the target 'in play'. By coincidence, to illustrate, Jim Cramer happened to state this same exact view about BBBY on his show last night.
    Apr 13, 2013. 12:42 PM | Likes Like |Link to Comment
  • Revisiting Seadrill's Dividend Sustainability [View article]
    We should all keep in mind that when the dividend exceeds operating cash flow less maintenance cap ex, the company becomes dependent upon the ability to borrow more at reasonable rates, and to sell equity at fair prices. Should access to the capital markets be closed off or prices unreasonable - as in 2008-2009 - there is a high likelihood that the dividend will have to be cut in time. In the short run the most likely scenario would be a sharp cut in all except mandatory cap ex.
    Dec 13, 2012. 11:42 AM | Likes Like |Link to Comment
  • Seadrill: Drilling For Cash? [View article]
    Toasty - IMHO this is a very aggressive holding. They're already stretching to maintain the dividend. Their newbuild focus may not work out. I own it, but under 1 percent of my portfolio (my max for any security is 2.5 percent; you never know...remember BP?). You can get a solid 5-7 percent yield from some solid pipeline companies. For a goal as important and date-certain as your child's college education, I would not rely on SDRL.
    Dec 1, 2012. 12:39 PM | 1 Like Like |Link to Comment
  • Seadrill: Drilling For Cash? [View article]
    I own it and have for some time, but I'm keeping a careful watch on it.
    Dec 1, 2012. 12:31 PM | 1 Like Like |Link to Comment
  • Selling Puts - Investing Made Easy [View article]
    Taking DD just as an example, it's at $45 and the one month $45 put is at $1.00. So if I sell it and receive $1.00 - ignore commissions and cash held - and it closes at $44 or above, I break even or make money. All good. But if it goes down to $43 then the Put is at $2 - right? And I lose $1. Below $43 my losses mount fast. Am I missing something?

    I've often sold puts on stocks I want to own at a lower price, but this naked put strategy seems highly leveraged and speculative. If one runs out of cash you may simply not have enough capital to realize those long term expected returns.

    What am I missing?
    Oct 28, 2012. 11:20 PM | Likes Like |Link to Comment
  • 14.42% Dividend Payer PetroLogistics Should See Strong Growth [View article]
    Yes, it is. With 10 yr T's below 3 percent, a yield over 10 percent is itself a danger signal. No lifeguard on duty; swim at your own risk.
    Sep 27, 2012. 12:21 PM | Likes Like |Link to Comment
  • How Savvy Seniors Beat Hedge Funds [View article]
    Steve - Fine article. For me, though, the 8.2 percent yield comes with too high a cost in volatility due to the 30 percent leverage used. Look at Nuveen's highly similar JCL loan fund in the 2008-2009 period when it dropped about 60 percent,I believe. An unleveraged loan fund would be good as an inflation hedge, and should pay 3.5-4 percent (middle market private companies typically borrow at LIBOR plus about 3.5 percent).
    Sep 26, 2012. 12:36 PM | Likes Like |Link to Comment
  • 14.42% Dividend Payer PetroLogistics Should See Strong Growth [View article]
    David - Fine article, but when a yield gets into double digits, Mr. Market is telling you to stay away. Either you're in effect getting some of your own money back, or there's something going on and the real riskis much higher than it appears.
    Sep 26, 2012. 12:25 PM | Likes Like |Link to Comment
  • Recent Events Make This 8% Yielder Even More Attractive [View article]
    I like VNR but one thing an investor should always recognize about these companies,and REITs too, and that is that they are always dependent on the capital markets for their survival. This is different than Intel, for example, which throws off free cash flow in excess of (cash from operations - cap ex - dividends). VNR's cap ex plus dividend amounts exceed cash generated from operations so they constantly have to go back to the markets for debt or equity.

    Most of the analysts and pundits are naive and have never run a business so they fail to understand that the single most important number in the financial statements is cash flow from operations!
    Sep 26, 2012. 12:19 PM | 2 Likes Like |Link to Comment
  • Sleep Well At Night With These Durable Health Care REITs [View article]
    I've known HCN since the mid 1980s and Bruce Thompson in Toledo, and now George Chapman, and these are quality folks who know what they're doing. Buy and hold HCN indfinitely,as I have, and you'll be happy you did!
    Sep 21, 2012. 12:54 AM | Likes Like |Link to Comment
  • 8.54% And Higher Dividend Yields For My 'Personal Pension Plan' [View article]
    Todd - Very interesting. I share your general enthusiasm. However,regarding QRE, thesingle most important number in the financial statements (I've been a CFO, CEO and Chairman so I speak from experience) is Cash Flow from Operations. Cash is what pays vendors, meets payroll, and pays shareholder distributions. In 2011 QRE generated $60 million in cash but paid out $88 million in distributions. Therefore they are dependent on the external capital markets. I would be VERY careful about investing much mobey in a company that is essentially paying distributions by borrowing money and continually selling more stock.
    Sep 18, 2012. 01:34 PM | 5 Likes Like |Link to Comment
  • Why Teekay Is Overvalued And Its Dividend Is Not Safe [View article]
    Understanding a company's business, and management's experience, is vital to an understanding of the numbers, assumptions, and outlook. Personally I think the most important thing about TGP is the outlook for LNG and the need for specialized tankers globally.

    Note too that TGP, Seadrill, and certain other Teekay companies also share offices in Hamilton, Bermuda. This is not a coincidence; the common thread is John Fredericksen, Chairman.
    Sep 10, 2012. 08:56 PM | 1 Like Like |Link to Comment
  • Why Teekay Is Overvalued And Its Dividend Is Not Safe [View article]
    1. Lots of interesting data. A key change, however, would be the weighted average cost of capital. TGP's cost of equity is about 9.8 percent (div yield plus div growth rate) but their cost of debt is far less. Look at the BS fortotal debt, and IS for interest expense. Overall TGP is about 2/3 debt and 1/3 equity, so TGP's weighted average cost of capital is much less than the 9.8 percent used, which will materially change a number of the calculations.

    2. MLPs are far different structures, and applying corporate analyses to an MLP can at times be misleading.
    Sep 10, 2012. 12:02 PM | 3 Likes Like |Link to Comment
  • Vanguard Natural Resources Combines High Yield Plus Dividend Growth [View article]
    On a very long term basis, the 8.5% current yield plus a 4.0% rate of dividend increases will produce a very attractive return of 12.5%. That's fine with me, even if the stock price never increases! [though it would, eventually, if the dividend kept increasing]
    Sep 7, 2012. 06:42 PM | 1 Like Like |Link to Comment