Seeking Profits

Energy, tech, dividend investing, long/short equity
Seeking Profits
Energy, tech, dividend investing, long/short equity
Contributor since: 2013
The dividend is secure the next 6 months in my opinion. The point I am trying to bring home is that even a bad scenario for NLY, I only see the dividend cut to $0.21. During the last hiking cycle, the dividend got cut to $0.10. My point is that I don't see the dividend being cut that far. I think the stock is pricing in a dividend cut, but as the Fed should move slow, the risk to the dividend is not as grave as the market is pricing in.
Both KMI and ETP are Investment grade companies, and I think both can handle their debt load. However, ETP is less levered than KMI (4-4.5x EBITDA vs 5.5-6x for KMI)
I am not speaking to an IRS requirement but a requirement from the ETP partnership agreement reading, "Within 45 days following the end of each Quarter, an amount equal to 100% of Available Cash with respect to such
Quarter shall, subject to Section 17-607 of the Delaware Act, be distributed in accordance with this Article VI by the Partnership to
the Partners as of the Record Date selected by the General Partner in its reasonable discretion." (page 47)
This type of language (with available cash essentially operating cash flow less maintenance cap-ex) is fairly common in MLP partnership agreements.
CVX and COP are definitely more levered to oil than XOM, and their dividend growth over next 2 years will likely be lower (though they yield more currently). However with their strong balance sheets and commitments to their dividends, I don't foresee cuts from either name
ETE is a levered play on ETP, so I think it can work as well. However, ETE is currently engaging in an effort to buyout WMB, so there is some uncertainty around the name. That speculation should not impact ETP, and I do worry a bit ETE may over-pay. Given that, I retain a slight preference for ETP.
If ETE does not buyout, I think a roll-up of ETP like with KMI is quite possible.
To be honest if you don't think oil will be over $40 for 10 years, I wouldn't own oil stocks. I also think this would imply a fall in demand (ie a recession), so you wouldn't want to own cyclical stocks either.
that is an interesting theory and is plausible as at $90 billion (plus a premium) BA is to big for Buffett to easily buy
Yes I think Mintzmyer wrote a compelling piece. My one qualm would be his focus on averaging historical 3 year cash flows/results to come up with future valuations. The bull case rests (I believe validly) on FCF continuing to rise the next 3 years, making valuation more reasonable. It all comes down to how the business performs going forward, and smart, reasonable people can come to different conclusions. That is what makes investing so much fun!
I would nominate 3 of my ideas
1. This negative on SDRL calling the dividend unsustainable back in February because of a levered balance sheet (SDRL has since eliminated the dividend). This article caused quite a bit of controversy (
2. My first of many negative articles on Linn, arguing it could not generate accretive growth (also quite controversial!)
3. My long thesis on Synaptics when it was trading $45 saying the move to touchscreens would push it pass $70 (
Thanks for the support rlp!
I expect it to be minimal as KMI only signs long-term contracts with very credit worthy borrowers. The average E&P company contracted to the pipeline has a single-A credit rating, meaning there should be very few bankrupt companies that KMI is exposed to.
The average credit rating of a shipper on its pipelines is single-A, so these are less levered firms that will most likely survive the downturn. While there will be bankruptcies, this will have a very limited impact on KMI. In the tar sands, I've read everything from $55 to $100, depending on location. $70 is probably a good average cost estimate
That is correct.
What's your beef? I got CREE wrong and have said so in the past. No one bats 1.000, and in investing, you have to learn to manage mistakes. If you look at my articles, I have been NEGATIVE on T for months not positive. That has worked out well. Good luck investing!
Thanks for publishing this article. Nothing is better than vigorous debate when making investment decisions. We'll see who's right over time, but I always enjoy your pieces (Perhaps we'll both be right to some degree with the stock falling into the $70's before recovering). Best of luck!
debt to EBITDA is how I calculate leverage
Frankly, I did not see the dramatic fall in oil coming, and that is my mistake. I am working to ensure I don't make another one like that.
Admittedly, I got CREE totally wrong, but I am comfortable with my track record (ie recommending selling SDRL and LINE months ago). Inherent in investing is making mistakes. If you can't handle that, don't buy stocks.
Thank you!
I want to spend a moment on this taxable income/NII debate. Investors should be focusing on NII and not taxable income when considering long term sustainability of the distribution. Taxable income can be distorted by one time gains that are not sustainable sources of cash flows which is why I prefer to look at net investment income to taxable income. Recording a one-time capital gain/getting a windfall dividend is nice but it may never happen again, and can make taxable income look a heck of a lot better. However, that strong taxable income is really a false sign of health as those cash flows don't re-appear. Net investment income is a superior measure of long term dividend capacity, and I focus on the 90% level since overtime 90%+ of profits must be returned to maintain BDC status. Taxable income is important for near term payouts, but I am focusing beyond the next Q, hence the emphasis on NII
If you read my articles, you will see I've been consistently recommending selling SDRL since February. I am many things but not late
The average diluted share count last quarter was 1.701 billion. In the year ago quarter, it was 1.738 billion, so the share count did fall in aggregate. Because of share compensation as you are well aware, share count falls by less than the buyback, but the company is actually cutting share count. I agree with you that QCOM should continue to pay out growing dividends, along with buybacks from its free cash flow. A balanced capital return plan is best.
I have two primary concerns. First, if revenue and actual earning stagnates why do you think the multiple will expand so much. Second, in real terms (ex-inflation), revenue would be falling. However, I expect things like wages will go up. As such a 0% revenue growth scenario would likely lead to margin erosion. In other words, don't you think there would be a decent chance if revenue stays the same (but some costs presumably rise with inflation), IBM could not earn $16 billion if revenue stayed flat over time?
Thank you very much!
Given KMI's ownership, and KMR's 35% stake (remember KMR holders face no tax loss so they will certainly vote yes), I think the merger happening is at least a 90% probability.
I don't as only 15% of EBITDA is directly linked to oil.
Thanks, I will work on an update this weekend.
I am on the record arguing that very point in past article
I am working through an article on the tax treatment for all parties. To be brief, KMR holders face no tax consequence and your basis transfers over. KMP holders will get taxed. in this sense, holders of KMR are better off. More details coming, hopefully published tomorrow.
I did not expect a deal so soon, and this merger is clearly a win win. I have an article pending explaining why I am a fan of this deal.
I'll be the first to say I am stunned, in particular that KMI bought KMP and not the other way around. I have an article in the pipeline (pun intended) that goes over this transaction; it is definitely a positive for everyone and makes me feel like a moron for selling my KMP two months ago!
nope, I have never had a position in TWTR, either long or short.