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AMZA And MLP Funds: Clipping The Coupons While Waiting For Recovery

Aug. 07, 2018 12:30 PM ETAMZA, CEN, DSE, EMO, KYN153 Comments


  • "Keeping the faith" with AMZA and our other MLP funds has paid off, so far.
  • Accumulated cash income (i.e. distributions received) over the past year is about four times our current "paper loss" on the sector.
  • The lesson: High yields can help you dig out of poor purchase and/or timing decisions relatively quickly, compared to lower yielding assets.
  • It's easier to wait and assess a tricky situation if you're being paid well while doing so.

There have been a lot of articles and comments in recent months about the InfraCap MLP ETF (AMZA) and other MLP and MLP funds, particularly with respect to whether AMZA could or could not cover its distribution going forward, and more generally whether the beleaguered MLP sector would bounce back as the market recognized its cash-generating ability was still largely unimpaired despite a host of recent corporate, financial, tax and regulatory issues that have apparently disturbed and/or confused its investor base over the past year or so.

I even contributed to the hand-wringing with my own article in March suggesting that while I might not have chosen to jump into AMZA or the MLP sector de novo at that point, having already made the commitment I was inclined to clip my coupons and hope for the best, rather than risk selling out at the bottom.

That appears, so far, to have been the right choice.

Throughout 2017, I had built up a position in AMZA and a few MLP closed end funds, including Duff & Phelps Select Energy MLP Fund (DSE), ClearBridge Energy MLP Opportunity Fund (EMO), Fiduciary Claymore MLP Opportunity Fund (FMO), and more recently Center Coast Brookfield MLP & Infrastructure Fund (CEN). (Shout out and thanks to Jim_Likes_Dividends for alerting us all to CEN!)

My original premise was (1) that MLPs have provided essential infrastructure the need for which was not going to disappear for quite a while, and (2) that like most corporate managements everywhere, MLP business leaders probably would eventually figure out how to deal with whatever tax, corporate structure, financing and regulatory issues they were faced with. It also seemed like, by most accounts, MLPs were continuing to churn out cash flow despite their depressed stock prices, so buying in and collecting the (hopefully steady) income while waiting for the eventual rise in prices was a reasonable strategy.

This article was written by

Steven Bavaria profile picture

Steven Bavaria has 50 years of international banking and credit, journalism, and investing experience. A graduate of Georgetown University and New England School of Law, he was an executive at Bank of Boston and Standard & Poor's. His Income Factory® philosophy, outlined in his book “The Income Factory”, is designed to maximize cash income with peace of mind in all market environments.

Steven's Inside the Income Factory investing service lets hundreds of members learn and implement an Income Factory strategy alongside him. The Income Factory creates its own growth by reinvesting and compounding the "river of cash" generated by its high-yielding portfolio.  That income continues to grow through all sorts of markets - up, down, or sideways. Other features include a chat room, model portfolios, and ongoing insights into Steven's personal portfolio and his view of current economic and market trends.

Analyst’s Disclosure: I am/we are long CEN, AMZA, FMO, EMO, DSE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (153)

Tomeallen profile picture
Thank you cayecaulker, Tom
cayecaulker profile picture
Steven normally favors us with an update quarterly, so I expect to see the next one early to mid October.
Tomeallen profile picture
Hey Steven;

Retiring soon, when do you think next Savvy Senior advice coming out. Have a small lump sum coming to invest. Thanks, tomeallen
20$Bill profile picture
i sold both when crf hit 27 but the offering happened when clm hit 27. the offering said 1 for every 3 shares owned. but supposedly 1 share will get you as many as you want in clm. i kept 100 shares of crf in each account and 200 clm in each account. i got all i ordered in clm but not crf.

assuming the 27% premium is a constant, there is still some good alpha left in CLM since its only at 9.60 premium.

since i obviously missed the last RO, ill throw a couple K at market price and see what happens.
20$Bill profile picture
If either one hits 27 I'm out. But I think it's clm. It's going to happen right before the x and people want one more big dividend. And lose about a buck. Worst case you don't get out .and sell at 15 instead of 16 you still made 2.00 and collected a 21% dividend for 8 months. And rebooted about 1.50 cheaper adding shares.
when you say either one, does that mean you sell both if only one hits 27?

with regard to RO, i assume you only need 3 shares and then oversubscribe?
20$Bill profile picture
Current. It's at around 10 right now. If you go to clm homepage it list premium every Friday .
20$Bill profile picture
i watched it for over a year before i bought. there is never a bad time to buy because of the 20 % dividend. 27 % premium triggers a R/O so sell at 26 % premium. so to get max total return you need to buy at the R/O sell at 26 % premium. then buy back at the R/O . last cycle r/o was 13.86 sold at 15.95 bought back at 13.46 . crf bought back at 13.09 . 21 % dividend is reinvested at nav this month 12.86 and 12.50 . better then the r/o . to check it out buy a few shares because you need shares to get in on the R/O . some people don't buy and sell they just sell their dividends and reinvest them in the R/O
is the trigger 27% premium to current NAV? or RO NAV?

is the same 27% for both CRF and CLM?
20$Bill profile picture
if you ever buy in and learn how the fund works, you won't need any other stocks. last year in 8 mo 34 % total return.
I guess my issue is I'm still confused on a timing of purchases and sales
20$Bill profile picture
it is hard for me to believe that every person in the market don't own clm and crf. really surprised you don't. 8 months of the year that is about 90 % of my portfolio. the only reason it's not 100 % is i get bored..
Limited resources, can't own everything
20$Bill profile picture
Why does everything have to be so difficult on sa. You go ahead and buy a couple shares and click to sign up for drip. It's no problem. Your broker will buy shares at market. If you want to use your dividend to buy shares at nav, you will have to call . Probably 2 or 3 times. It will only Cost you 14.27 to find out. In the meantime if he listens to you he will lose 1.76 a share for a month until he finds out you were wrong. If you go to the comments on clm articles there are several people at your brokerage that have signed up. And several that are having difficulty even getting signed up.
Okay well, maybe I'll go buy some clm and see if it works
20$Bill profile picture
Type in clm homepage and look at dividend reinvestment. Ask your broker to sign you up for reinventing at nav. Once it's done it will happen automatically. Pretty sure I read a comment that fidelity will do it. I had to call in 3 times before I found someone that got it done. The broker answering the phone can't do it. You have to get corporate to do it. Pain in the A$$ but well worth it.
20$Bill profile picture
it's not a drip. you can sign up for drip and get shares at market. you have to call your broker and they will have to get off their lazy ass and contact clm's outside broker . you are buying shares at nav.
Alternative Investing profile picture
the above mentioned for oxlc, ecc etc at Fidelity happens automatically ….no calls to anyone , yet happens only when selling at a premium I believe.
So 5$ what is it called that my broker needs to ask for from clm's outside broker...any links to share on what you describe/shared?

no need to call at fido, if the drip exists, it automatic at fido..

i have several that as soon as i reinvest, they subscribe automatically to the drip.

never had to call.

if you get a placeholder waiting for the reinvest, you are subscribed.

that simple.
20$Bill profile picture
mac you can reinvest clm by clicking on reinvest. but it will reinvest at market. to reinvest at nav your broker will have to contact clm's broker. not really a drip. you receive your dividend then buy new shares at what ever nav is. today nav was 12.86 and 12.50 so my new shares that were sent out yesterday bought at 12.86 and 12.50 are worth 14.27 and 14.26 or you can hold onto them and sell when the market price is higher.
20$Bill profile picture
if you bought at r/o at 13.46 and 13.09 now at 14.27 and 14.26 21 % dividend is reinvested at nav 12.86 and 12.50 you can call it roc cor orc what ever it is it's pretty sweet. you just sit on the sideline whining about roc .. you can sell the reinvested div the day you receive it at a premium . no reason not to reinvest even if you sell it the day you get it.
Alternative Investing profile picture
5$Bill- does CLM div get reinvested at discount at all brokerages houses or just certain one's (who are you using)? Fidelity "enables" ECC,OXLC & EDI & STK to reinvest at a 5% discount when they are selling at a premium. Of course that is the arrangement set up between each cef and fidelity
also MAIN.

im pretty sure Fidelity participates in all drip programs, ive not run into any they dont.
CRF and CLM.
You give them your hard earned money to invest and try to make a decent return, right? What these funds do, every month they give back you own money (ROC) minus a fee, they called it a management fee. If you write yourself a check, if you keep certain balance as required by the bank, does your bank charge you a fee?
I rest my case.
theheckwithtech profile picture
CEN is my largest holding at almost 28% of my portfolio. Go ahead and laugh, but the very small paper loss on the capital investment means very little when the position pays your mortgage for your beach home.

AMZA is my 2nd largest holding, and it pays my car payment. That one I have at a capital gain.

My current accumulation favorites are CRF and CLM, and I'm considering breaking my rule of not reinvesting dividends for those 2, because the the discount you get for reinvesting is enormous. Read the latest prospectus if you get a chance.

Pewterbird profile picture
Thanks for your thoughts on AMZA. It's been quite a ride and I too have held onto it. I should break even in a couple of months. I enjoyed reading all the comments from others who own it and will consider CEN that today has a discount to NAV of -1.47% and a yield of 12.4%.
Hi Steve, I'm a huge follower of yours and ytd have made 15% in come following your advise. Also playing ex div game, then reinvesting all divs back into my core portfolio. Here is my question? I hold 12 securities, all yours by the way except FTW. The problem, if you call it a problem is I'm basically maxed out long on all securities. 10 % each. Should I get them down to 5 percent and buy more of what you own? or just keep plowing money into the ones I have.From what i read 10% is way to much. Any thoughts would be appreciated. I'm only 18 months into the game. Thanks again for your insightful articles. Got out of AMZA at 8.03, just dont trust that one. Regards, SG.
I'd mix is some lower yielding more stable ones like main and o if you are worried about being overweight.

It will bring your overall yield down, but they are growing they're divs every year to compensate
Jim_Purzickis profile picture
I currently have 27 holdings, my heaviest weights are OXLC and ECC at 8.5% each. That's probably a bit higher than it should be but I have plenty of diversification throughout the portfolio.
yes, great call, I was thinking T.
$AMZA All time high was 24.92.
Extreme Income Plus profile picture
@Marquis de Facade , that may be a fact but it has nothing to do with me, and I dare say with most income investors on this board.

Buying right is a big part of the battle. I’m in below $10, so IPO price is meaningless to me.

I don’t know the VWAP on this etf, but I dare say it isn’t too far above $10. Most of those early guys are long gone.

Jim aka Extreme Income Plus
Just an interesting fact, as to the exuberance of that time, which gives me a little perspective. I've only been invested for approximately two years and have managed to get into the green. any dividends or capital gains will make it palatable. Using accumulated dividends I would be more than even now.
ive been in for 1.5 years, im finally green on paper as of last week not including the divs.

If i include the divs, im way up.
Steven Bavaria profile picture
Jim -
Thanks. I still think that AMZA will bounce back as the MLP sector continues to prove that it will be around cranking out cash flow for a long time. Now that my accumulated cash flow in exceeds my cash flow out and grows more positive every month, I see no reason to bail out.

It may be sunny in Florida (where we spend most of our time) but it is raining cats and dogs here in the New York area, where we spend much of our summers.
Extreme Income Plus profile picture
Steve, I'm long AMZA and will own it for the foreseeable future. So no argument with you there. Also long ECC, OXLC and many of the goodies you write about.

I was talking about momentum and the swing in pricing from relentlessly horrid to recovering...finally.

And heck, you're probably sweating up there in NY and you can sweat here too. It's just that here you can sweat without state income taxes!

Jim aka Extreme Income Plus
Alternative Investing profile picture
@EIP- or you could be in TX with no state income tax (but the property tax rates nearly offset for property & homeowners) and really be sweating to the tune of triple digits...its been brutal this Summer.
RE: Momentum ,,,totally agree , I worked for the Coca-Cola Company (Sales & Marketing) for nearly 20 yrs and experienced the many positives of when MO does kick-in you smile and enjoy the ride!
Steven Bavaria profile picture
I know, that's why we moved our home/domicile to Florida. We also have one of our older sons and five grandchildren down there which was quite an attraction. Now we've sold our home in NY and are downsizing to a condo in Norwalk, CT. (Moving this weekend, in fact.) Keeping a foothold up north where we have younger kids in college and lots of friends, contacts, etc. Maybe I should organize an occasional informal "Income Factory" gathering at some local coffee shop.

Re momentum, I agree. when MLPs and AMZA finally break out of their doldrums, they will probably overshoot, although we won't know it until it ends and pulls back. Then people will write articles and comments about "woulda, shoulda sold at the high point, etc." Meanwhile we Income Factory folk will hopefully be clipping our coupons and still smiling.
Extreme Income Plus profile picture
Energy in general, and AMZA in specific, are now benefiting from the gremlin that previously haunted them: momentum. Another word might be "sentiment".

When those things are negative, NOTHING else matters. Not earnings; not fundies, nothing. AMZA went down and down and down for years...in spite of decent earnings, decent fundamentals, and the oil price more than doubling. Didn't matter; mo and sentiment were horrible and negative.

Now it appears that the worm has turned. As it continues to turn...which, given better earnings and fundies it always does...sooner or later...it will feed on itself. The folks who waited to buy will begin to pile in. They see it running away without them being in it. That begets further buying, which begets...etc.

Negative momentum can sap your courage and your resolve. Even for the most determined investor, seeing your baby go down day after day after day...month after month...can take its toll on your mind and your resolve. That's why many folks bail out at the bottom...the grinding down day after day just takes its toll on them. They get despondent and throw in the towel...often just as the bottom hits.

Don't get me wrong; I'm long AMZA and strong and optimistic, and have been for a couple years...bought too early. I solved that problem by reinvesting everything. I'm still not even but getting closer every day.

My point is this: momentum trumps almost all other investment factors. After decades of investing, I finally am getting that into my brain. One can be cognizant of that without becoming a trader.

Just an idea to add to your quiver on a sunny Saturday morning in Florida.

Jim aka Extreme Income Plus
ace41 profile picture
Well said, I think you're comments speak for many of us who have felt the fundamentals were solid.
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