Smarty_Pants

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  • If Switching From A Total Return Strategy To A DGI Strategy Was So Simple, Then Why Isn't Everyone Doing It?  [View article]
    IMHO it's not the selling of TR and buying of DGI that is most difficult. Indeed, both investors wind up with the same income after the switch.

    The tricky part for Investor B is figuring out what to do in the future. If Investor A stops updating changes to his portfolio online (where Investor B found it initially to 'copy'), then Investor B is in uncharted territory regarding the maintenance of his portfolio.

    Investor A spent many years building his portfolio to meet his own needs and understands when changes may be necessary. How long will it take Investor B to reach the level of understanding where he is confident enough to make wise changes for his own benefit?

    As an analogy, I might be able to accumulate enough money to buy a jet airplane, but probably won't be able to fly it safely on day number one of ownership. It will take me some time to learn how it all works. Until then, it serves only as a static display piece.
    Feb 11, 2016. 08:12 AM | 4 Likes Like |Link to Comment
  • USA Compression Partners EPS of -$3.02  [View news story]
    EPS of -$3.02 per share perhaps;

    But a non-cash, one time "goodwill loss" of $4.68 per share is the reason. Absent that, the company's financial performance was better than in 2014 and even produced enough excess cash flow to support a slightly higher distribution.

    One might suspect the current share price sell-off is perhaps a buying opportunity in disguise, for those who can stomach 25+% yields.
    Feb 10, 2016. 07:21 PM | Likes Like |Link to Comment
  • High-Dividend Stock Yields 16%, Has Strong Dividend Coverage, Priced Below Book Value  [View article]
    "The long term contracts are only as good as the the third party payers... No point in a 5 year contract with a company that goes bankrupt." - 7596661

    I have seen at least one shipping company mention this matter in their earnings call (I believe it was KNOP). There is a well established legal precedent for such situations. In short, when Company A contracts with Company B to deliver their cargo, should Company A fail to make payment then Company B has the right to withhold delivery until payment is received.

    Now think about that. If you were Company A, and your only source of revenue is to get your cargo off that ship and into the distribution system on land, are you going to stiff the shipper? No revenue, no bills get paid, no future for Company A. Failure to pay the shipper would be cutting their own throat.

    The LAST thing the contracted producers are going to do is stiff their tankers. You'll see them cut spending a lot of other places before that happens. A typical tanker holds oil worth ~$30 million. Do you honestly think that ANY major oil producer (like Shell or Exxon) is going to risk having that much oil 'held hostage' by missing a daily contract payment of ~$50,000?

    In a word: No. Those contracted shipping payments are going to be made even if the producing company goes into Chapter 11 bankruptcy. Whoever is running the company while it reorganizes will need that ~$30 million of oil delivered and sold to run the business while the bankruptcy court sorts out the restructuring details.
    Feb 9, 2016. 07:49 AM | 2 Likes Like |Link to Comment
  • High-Dividend Stock Yields 16%, Has Strong Dividend Coverage, Priced Below Book Value  [View article]
    "not a tax man but if it gives a 1099 you pay tax. if it gives a k1 you don't." - 2 dollar bill

    I would check on that with a qualified tax person. It is my (non-professional) understanding that portions of any MLP distribution are taxable, whether a 1099 or k1 is used.

    The only portion that is not taxable (as I understand it) is the portion identified as a 'return of capital', which reduces your cost basis. Once you have reduced your cost basis to zero (via receipt of many distributions) the entire distribution amount received is taxed, as is the entire value of any share sold taxed at Long Term rates.
    Feb 7, 2016. 01:53 PM | 1 Like Like |Link to Comment
  • Why Do Corporations Pay Dividends?  [View article]
    "Why Do Corporations Pay Dividends?"

    Look at the developmental history of the corporate structure. Before there were publicly traded corporations there were partnerships, where every partner shared proportionally in the profits, losses, and liabilities. Most large partnerships started as smaller partnerships and grew via taking in more partners.

    A "dividend payment" was the way that excess accumulated profits could be distributed among the partners regardless of whether or not they earned a pay check as an employee. This is the key point. Absent the "dividend", an investment in the partnership only paid you if you worked for the partnership, but you faced the liability risk in either case. Only a simpleton would agree to buy into a partnership if there was no distribution of profits in return for assuming a share of the liabilities. So, partnerships generally distributed money to the partners if they hoped to attract sufficient numbers of investors to raise large amounts of capital for expansion. (The early so-called "Robber Barons" of the late 19th century generally ran their very successful businesses as partnerships.)

    Once the need to raise much larger amounts of capital emerged, the corporation was born so as to shield smaller investors from the liability issues of partnerships. This allowed a much larger percentage of the population to share in the success of a well run business without the high levels of risk. Still, investors expected to get a return on their investment, so dividend payments continued where financially possible.

    I don't know what other people are willing to accept as conditions for risking their money, but I expect to get paid a portion of the profits. To me, that is the very essence of INVESTING. I am an owner and I get part of the profits.

    Those who believe that they can "create their own dividends" by selling shares are actually SPECULATORS, as I see things. They risk their money with the thought that they can sell at a higher price later (as a result of improving company performance) and they don't expect to get a return in any other fashion.

    Mind you, I'm not saying that speculation is a bad thing. It's just a different approach than investing for making your money grow.

    As an investor I know that buying a company paying a 5% dividend, which manages to grow 5% annually, I will have my initial investment returned to me in 15 years in the form of dividends. If the company runs into financial trouble in year 20 and goes under, I will still have received more than my original investment over those years in dividends, to spend as I please.

    If instead I speculate and buy a company growing earnings at 5% a year with no dividend I can expect that it will be worth roughly twice as much as I paid for it after 15 years (all else equal). If the company runs into financial trouble in year 20 and goes under, I will lose everything.

    That is the principal reason companies pay dividends (as I see it), to make owning their company shares an investment, and not a speculation. This is a subtle, but significant difference in the risk profile of owning the shares. Running the company in either fashion is perfectly legitimate, but the mindset of those who buy shares is likely to be different (which probably explains why the debate about the relevance of dividends continues unabated on SA, and likely will continue indefinitely).
    Feb 7, 2016. 10:19 AM | 5 Likes Like |Link to Comment
  • High-Dividend Stock Yields 16%, Has Strong Dividend Coverage, Priced Below Book Value  [View article]
    "Question to all: what is the motivation for the general partner to "drop down" additional ships to this entity? What is the motivation for "drop down" in general?" - PapaAlan

    I'm nowhere near an expert on such things, but I can hazard a guess. The entities to which the ships are 'dropped' are generally MLPs, which are not taxed on distributions at the corporate level (in the US).

    It costs a few hundred million dollars to build one of these ships, which the parent company usually does by borrowing a significant portion of the ship's value (the ship is collateral on the loan). {Example: for an initial cost of ~$50 million, the parent company borrows ~$200 million and builds a ~$250 million ship.}

    Once the ship is delivered and a long term shipping contract is arranged, the ship is "sold" to the MLP in order to recoup the initial investment by raising capital under the MLP structure. Generally the loan is transferred to the MLP with the ship. {Example continued: The MLP pays ~$50 million to the parent, plus expenses, and accepts the ~$200 million loan liability with the already contracted ship.}

    Once the ship is dropped down, the parent is made whole (they have no more risk in owning the ship). They can repeat the process with the money received from selling the ship to the MLP and build another ship (with another secured loan) to repeat the process. {Example continued: Parent takes the ~$50 million received from the MLP and builds another ship, with another ~$200 million loan.}

    After the transfer the parent company gets paid to operate the ship and gets a non-taxed share of the profits it generates, at essentially zero cost (since they got all the money for building the ship back from the MLP and transferred the loan off their books to the MLP).

    The MLP owners make money if they can raise enough money {~$50 million for the example above} by issuing few enough shares to make the net cash flow accretive to the existing shareholders. Once the MLP has enough ships, they can use part of their excess cash flow to reduce debt, or fund more ships and reduce the need to sell as many shares to raise money.

    The trick for the MLP is to manage the cash flow vs debt vs. share count so as to generate increasing distributions over time without incurring excessive debt. If they can successfully manage that, the parent parent company's profits will also grow as a result. {i.e. After building the 10th ship with the "same" ~$50 million their share of operating expenses and profits on all 10 ships will become a significant portion of the original ~$50 million amount.} The fact that the MLP doesn't have to pay the 35% corporate tax rate leaves some appreciable 'wiggle room' for the cash flows that the parent company wouldn't have.

    As they say: Wash, Rinse, Repeat.

    As the author points out, the current environment in the energy sector has driven these MLP shares to absurd values, despite the nearly certain revenues that the ships will generate under long term contracts. No matter what, the oil and LNG being shipped will need to be moved if the producing companies expect to collect any revenue - regardless of the price of the oil or LNG they are shipping. The contract rates are fixed and do not change when the cargo's price drops - so the severe drops in the MLP share prices are somewhat irrational.

    Where else can you get a 15+% yield where the company's assets can be purchased for less than $0.80 on the dollar? Even if the MLP liquidates you will probably get all of your money back. How much safer than that can you ask for?

    Disclosure: long GLOP and KNOP
    Feb 7, 2016. 10:13 AM | 7 Likes Like |Link to Comment
  • Fed: Business lending standards tighten for 2nd straight quarter  [View news story]
    "Banks are tightening for business,because they may be going into a recession but getting easier for their soon to be laid off workers to buy homes" - thais123

    Don't forget Auto Loans, where the collateral is worth less than the 72 month loan balance due as soon as the signature ink dries. I fail to see how this won't become a bank balance sheet problem shortly after those lay-offs begin and car loan payments stop showing up in the mailbox.
    Feb 4, 2016. 04:08 PM | Likes Like |Link to Comment
  • High-Dividend Stock Yields Over 13%, Had Record Earnings, Goes Ex-Dividend This Week  [View article]
    "why would I buy GLOP instead of GMLP given his own recitation of ROI/ROE?" - donpizza

    My opinion on that question would be that GLOP is the lower risk investment. GLOP has a much more manageable debt burden than the others, a higher coverage ratio, and a Price/Book < 0.7 also puts a reasonable margin of safety on your investment (you would be likely to get your capital back even if the LP liquidates).

    As for financing future drop downs via equity issuance, that will have to wait for the unit price to recover, or for the LP to save up some cash to buy either a full (or partial percentage of a) ship in the meantime.

    Even if GLOP doesn't add a drop down for some time, you can collect >13% distributions (at current prices) while you wait for the share price to rebound. You could do a lot worse with companies whose balance sheets are much more suspect than GLOP's.

    At 13% yields even DRIP-ing more shares will compound your capital pretty quickly, if the unit price goes nowhere.
    Jan 31, 2016. 01:18 PM | 5 Likes Like |Link to Comment
  • The U.S. Coal Industry Is In A Hopeless Situation  [View article]
    Looks like that tide is beginning to turn already. California just approved new regulatory charges for solar customers on the grid:

    "Under the decision, new solar customers would face a one-time charge, what the commission calls “a reasonable interconnection fee,” to tie into the electric grid. The commission estimates the fee would range from $75 to $150 per solar customer.

    In addition, rooftop solar customers would pay a fee estimated at 2 cents per kilowatt-hour for electricity used from the utility companies, no matter how much power their solar systems generate. This fee would amount to about $6 more a month for the average solar user.

    Utilities also would place new solar customers on time-of-use rates, which rise during periods of high electricity demand."

    http://tinyurl.com/hda...
    Jan 28, 2016. 04:36 PM | Likes Like |Link to Comment
  • The U.S. Coal Industry Is In A Hopeless Situation  [View article]
    "The far left long ago abandoned any economic argument. Instead they've latched on to Hollywood end of days rhetoric to advance their agenda" - J Tanner

    The problem with non-economic agendas is they eventually run out of money to spend at staying alive.

    Besides, sometimes the result of pressing a political agenda benefits the intended victims. Look at the tobacco companies for Exhibit A on that count. The tobacco persecution effort only served to prevent any new competitors from getting started. The targeted tobacco companies are thriving now as a result.

    Perhaps that's good news long term for companies like ARLP.
    Jan 28, 2016. 03:43 PM | 3 Likes Like |Link to Comment
  • GasLog beats by $0.01, beats on revenue  [View news story]
    Book Value = $17.90
    Q4 Distribution Coverage = 1.43x
    Price ~= $12
    Yield > 15%
    Jan 28, 2016. 08:08 AM | 1 Like Like |Link to Comment
  • The U.S. Coal Industry Is In A Hopeless Situation  [View article]
    Looks like SolarCity is experiencing the downside of solar economics the hard way per a recent SA article:

    SolarCity Inevitable Downward Spiral Has Begun

    http://seekingalpha.co...

    Coal appears to be a lot more economical than current solar solutions.
    Jan 27, 2016. 03:47 PM | 2 Likes Like |Link to Comment
  • The U.S. Coal Industry Is In A Hopeless Situation  [View article]
    "Investors will be much better off selling their coal holdings and investing in renewable energy stocks like ... SunPower." - The Author

    Talk your book much? Maybe if you bash the competing stocks enough you can get your own stocks to rally. Tell us, what happens to solar stocks when the government subsidies end?

    Funny how SPWR has also lost ~50% in the past 18-ish months as well, despite the subsidies. At least ARLP has been paying regular distributions the whole time and with NO subsidies. SPWR - not so much.
    Jan 27, 2016. 08:13 AM | 3 Likes Like |Link to Comment
  • Compelling Bear Market Potential From High Yield MLPs  [View article]
    1/26/16 - A good day for holders of KNOP and GLOP. Both up 5+%.

    And both still yielding ~16%. :-)
    Jan 26, 2016. 04:59 PM | Likes Like |Link to Comment
  • Long Bonds: A Safe Haven In Volatile Markets  [View article]
    Beware the long end of the curve for anything but shorter term positions. While the "flight to quality" meme might hold over the short term, there is a possible risk of repayment in the long term, especially if the US Congress cannot (or will not) stop borrowing to make ends meet.

    If things continue as they have for the past 30 years (US Debt-to-GDP rose from ~30% to ~100%) even the mighty US Bond could lose its safe haven status one day. US GDP growth is dwarfed by the growth of government debt, and likely will be for a long, long time. Those ratios are only going to get worse, especially if a significant recession hits and US GDP stalls or shrinks.

    As for the Chinese selling of US Bonds, they are selling as much to get out from under 'King Dollar' as they are for defending the renminbi. Chinese government Debt-to-GDP stands at ~40% currently. Why would they want to risk their money any more than necessary when it's obvious that the US isn't going to rein in deficit spending any time soon?

    At some point the music will stop and everyone will be looking for a buyer of US debt and there will be few to be found. The Chinese are opting to leave the theater before the performance ends rather than wait for someone to shout "Fire!". Most everyone else is too engrossed in watching the orchestra to realize the potential problems surrounding them or the fact that the exits are too small for the size of the crowd.

    We are already beginning to see the onset of such a problem in the Treasury Bond liquidity measures. Finding a buyer of bonds is becoming more difficult, especially in large quantities. Even the Primary Dealers are having a difficult time dealing with all the risk entailed in such large transactions:

    http://on.ft.com/1nHPwWh

    So Yes, the US Bond will serve as a safe haven, until the day it doesn't. That doesn't mean your suggestions won't work for quite a while, but those who consider following them would be wise to understand the risks they are taking before they jump in. If they are left holding US Debt on the day the music stops, it's not likely they will be able to reach the exit.
    Jan 24, 2016. 01:54 PM | 3 Likes Like |Link to Comment
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