Last five quarters, dividiend yield, price drops and std dev. Jack, I know you will bash me, but it is just data. Just like you guys, I want it to go up in the longer term.
Take it for what it is worth (data, just pure data). I feel that it needs to drop a bit more, as we have only dropped by $.47, with a little help from the fed. We did get to $34 today, and could have sold my puts, but I just want to see how this trades. Volume was kind of low for the day after ex-div.
I was happy to be wrong today, and I am happy to be wrong tomorrow. I just find the data interesting to consider. If we have another strong market tomorrow, it might start to rise, but we did pretty well today and Asia hasn't yet processed the idea that we have QE2 and a weak dollar.
That then works itself into Europe tomorrow morning. Needless to see the markets will be somewhat volatile. So, using the lowest drop from five quarters ago, take 1% off $34.74 to get to $33.74. The maximum drop was $3.32 in the very near term (like tomorrow). So, the first question is can we hold at these levels? If the QE2 strong enough to support the market and therefore LINN. The volume was pretty low today.
If we assume that we are rising from here, can we go at the same pace? Last two quarters the stock rose by 16% and 11%, respectively. Using an 11% price increase from two quarters ago, and a price of 34.74 before ex-dividend, this stock woujld hit $38.50, implying a dividend yield of 6.8%. Sounds achievable, but the company can't miss and/or the company will have to raise the dividend again challeing the dcf to distribution ratio.
The dividend yield has fallen steadily from 9.9%, 9.4%, 9.2%, 8.2%, 7.8% and then 6.8%.
The point is how high can we go? What dividend yield works? They just raised the dividend for the first time in quite while. The standard deviation is rising and the drops after ex-dividend are getting steeper and taking a bit longer. Because the stock keeps hitting new highs, the theory would go that the stock remains weaker until about the third week or longer after ex-dividend. Any external macro issues, the stock is a bit weaker as it climbs, resulting in steeper pull backs.
Div. Yield 9.9%
Maximum Reduction from ED -.99 (2 days of ex dividend)
Increase from Prior High 5%
Div. Yield 9.4%
Maximum Reduction from ED -2.66 (2 days of ex dividend)
Standard dev. 1.5 per share
Increase from Prior High 3%
Div. Yield 9.2%
Maximum Reduction from Ed - 3.32 (2 days frmo ex devidend)
Second Reduction from ED - 4.3 (11 days from ex dividend)
Standard Dev. .75 per share
Increase from Prior High 16%
Div. Yield 8.2%
Maximum reduction from ED - 2.76 (5 days from ex dividiend)
Second Reductio from ED -3.49 (16 days out from ex dividend)
Standard Deviation 2.33 per share
Increase from Prior Hgh 11%
Dividend Yield 7.8%
Yes Ben is OK. But he did misread the ambiguous drop in reported cash flow from some $300M last year to $183 this year to mean that earnings are dropping while interest and other costs are rising. He also made the mistake of assuming that the "old" data generated while Linn was only working arbitrage from old wells applied for prediction now--but Linn had in this past quarter begun a transition to a new business model by adding new well production at a high IP raTE AND PROFITS.
I had myself guessed in postings before the recent XDiv date that Linn could drop the 66 cent dist plus about a buck, and Ben and I seemed to agree about that as well as $40 being a near-term upper target.
Agree too with your other observations, and if Linn drops on trading dips from here, let's say about $1.5 to $2 down, I will add to my margin account (hate to do that in retirement).
Best of luck
It's a pleasure to read your posts; it takes me back to my old stat classes. One point that is apparent to me in this thread is that Linn's posters are very loyal, and for good reason. Linn's fundamentals are strong, with excellent growth prospects. Additionally, I'm convinced that we are in for much higher oil prices (partially due to demand, partially due to the continuous weakening of the dollar). This will bode well for Linn as they are moving towards more liquids. Having said that, every great stock has pullbacks. These pullbacks may be micro in the big scheme of things, but they do present situations to trade with short term buying/selling opportunities. That's all that Ben is really talking about. With past as prologue (nod to Willy S.), Linn, like most dividend yielding stocks, typically dips, E-div. The convergence of several factors thus far this week has seen a perfect storm working against the dip. Will it continue with its momentum and overcome its traditional performance post X-div? Hard to say. If it does, it will be a hiccup on they way to higher prices.
It does not have to bring dilution.
There are many large producers that want to off-load non core assets. Linn management has spoken to that fact in the most recent conference call. There are going to be energy acquisitions by Linn in 2011 at favorable prices which will return more than the 7.5% dividend. If they generate 15% returns per year on the asset purchases they pay off the debt and pay the dividend.
So what's the problem if they issue more shares in 2011 when the share price is $38-39-40?
Good post well reasoned and expressed.
We are all "playing the odds" with no certainty except death and taxes, as they told me when I was too young to understand or care (and with time getting too old now to be concerned about either--but my young wife sure is :)
Nothing to add, so why write. Because you want to pounce on and throw another punch. I got the one two punch from the masters of the LINE board. I started out by complimenting Jack, and find him to be an incredibly bright, informed and helpful poster, perhaps a bit myopic.
I agreed with the price target and said so the other day. I might argue about $40, but certtainly $38 or $39 is in the cards. I just tried to trade a trend that kicked my butt in the very near term. I will make a 100% return on the calls I bought today, but I have to net off 12% for the loss on the puts. In total, I made a return equivalent to buying 3,000 shares for 10% of the total cost of the shares.
I have pointed out some fundamental financial analysis issues like the credit rating, the lower cash flow from operations and the increasing leverage. These are topics you disagree with because everything is so far in the future that the entire potential of LINN has now been realised without a single risk. Wow!
I suggested that the yield compression will ultimately have an impact on this MLP, as has on the rest of the sector. You then say that LINN is becoming a seasoned company that will entice institutional investors.
You have had the benefit of, and I have been hit, by an extraordinary round of good news from QE2, from high oil prices, and from a Cramer pump. Tomorrow, the real business begins for the entire market.
So, you see we don't disagree, just the manner about how we position ourselves in the stock. We do disagree about some of the risks, but there is no biased reporting here.
NOw, I am marking a buy, but I also feel that we will fall back a bit, but you guys don't have to worry.
Holy cow, Jack, you leave me with virtually nothing to add. There are, in effect, two companies being considered here: Linn Then, LLC and Linn Now,LLC, both of which you have defined in telling detail. It's the latter which has been drawing attention and investment, and not simply because of the CEO's impressive appearance on Cramer's show. It's not that Linn Now, LLC won't be subject to a profit-taking pullback sometime soon, but it won't be much and it won't last long. There's simply too much growing awareness of how much this high growth/high income company has going for it. As I've said several times before: the growth/income combination, along with exceptional execution, makes Linn an unusually attractive investment.
Tech analysis is helpful for a company whose performance is stationary, steady staTE OR LARGELY PREDICTABLE. FUNDAMENTAL ANALYSIS BECOMES MUCH MORE IMPORTANT FOR A COMPANY THAT IS NON-STATIONARY, ONE WHOSE FUNDAMENTALS ARE CHANGING, AND SUBJECT TO THE PRICE SHOCK (UP OR DOWN) OF THOSE CHANGES.
lINN OVER THE PAST YEAR HAS BEEN TRANSITIONING BY ADDING TO ITS HISTORIC HEDGING ARBITRAGE Business Model FOR OLD NG WELLS, ACQUISITION OF PROSPECTIVELY RICH LIQUIDS (GW) AND OIL (PERMIAN BASIN) properties, and is now just starting to exploit these properties by drilling new highly profitable wells and selling product to the spot market.
Furthermore, it will be applying the new sources of cash flow from these new wells to drill even more, thus creating a positively accelerating earningds growth curve.
And all the while it will be paying out a healthy, growing distribution to unitholders. Its management owns many of the common units, and it avoided the standard MKO management structure that inserts a General Partner that has Incentive Distribution Rights that suck off earnings at a threshold-- Linn is registered as an LLC instead of a typical MLP.
On top of this boost from market esposure due to Cramer, it will be reporting results from drilling the new wells that will boost it even further.
A few days ago one analyst upped his price target to $37 and another to $40.
You ignore technical analysis, most of fundamental analysis, accounting (after reading you blast the guy who points out there are paying out more then earnings) and any historical reference to any financial calculations.
Anyone who has posts anything that is even the slightest bit negative gets blasted with an aresenol of impressive commercial facts. Like the guy that posted they he had sold during the Cramer hour and got hit with army of attacks for posting that the stock will hit $30 and that will be his new entry point.
You twist facts and give yourself creditability by saying you went to Las Vegas. The last post you then argue against the lower yield by saying that are now seasoned and institutional money will flow in to capture a lower yield because it is now a "viable long term investment". Wow, you are in hook, line and sinker.
Anyway, good luck, but you are bit over the top to say the least. I am certain that if they borrowed another $1.5B, the analysts would be all over it.
We see an equity offering in the future.
Apart from GW suddenly becpmmong a profit earnings center that started only this quarter, they have 400 new drilling cites mapped in the oil rich Wolfberry, and more funding allocated to drilling there than the GW (NG wells are getting maintenance funding only).
Rockov said something very interesting at the Vegas meeting, which was that they desired to have a higher equity to debt ratio long term, but did not need any new equity now with the long term financing in place and another $1.5 B available for quick deal arrangments.
What you are missing from review of old data is that the new wells will provide extra cash for retiring debt (no current plans that I've seen) or to accelerate new well drilling programs, thus creating a positively accelerating earnings growth curve. Management has been saying for months it has no need or plans for raising equity by selling units, and the new oil well growth is surely the reason.
If you are counting on a price drop from equity sale news, you are more likely to suffer a number of price pops as new well drilling results are announced. And in the meanwhile, the interest in Linn from Crammer's show, backed by recent analyst upgrades and target pricesmoved high above $35, are most likely to have the price set a new, higher baseline above $35 before it falls significantly on profit taking.
By the way, I expect on balance that there will now be more institutional buying (for yield) then selling, as Linn has matured as a viable long term investment.
I rather enjoy jousting, and wish no hurt or harm. I have in my career been a professor, that included teaching advanced stat, and spent the bulk of my career as an applied scientist. In my early years I did novel work in Multiple Linear Regression Analysis, published, and achieved recognition for the work in applied math and stat textbooks.
Your rendition of the data reveals that you share the presumptive fallacy of most tech analysists by disregarding the difference between stationary and non-stationary variables.
Below is an intro to the topic of stationarity:
From the definition of a random process, we know that all random processes are composed of random variables, each at its own unique point in time. Because of this, random processes have all the properties of random variables, such as mean, correlation, variances, etc.. When dealing with groups of signals or sequences it will be important for us to be able to show whether of not these statistical properties hold true for the entire random process. To do this, the concept of stationary processes has been developed. The general definition of a stationary process is:
Definition 1: stationary process
a random process where all of its statistical properties do not vary with time
Processes whose statistical properties do change are referred to as nonstationary.
Understanding the basic idea of stationarity will help you to be able to follow the more concrete and mathematical definition to follow. " For the rest of the article, see ( http://cnx.org/content/m10684/latest/ )
All of your analyses presumne that the data reflect a stationary statistical phenomena. If, however, the phenomena shift over time, whether abruptly (as positied by Punctuated Equilibrium Theory for Evolution, for example) or rather gradually, then those shifts must be accounted for to derive reasonably accurate statistical inferences.
In the case of Linn, its performance, both in purchasing and financing properties over the past year, and then most recently in exploiting them by drilling new wells, has created a non-stationary situation.
As shown by its most recent earnings report, and as clearly explained by its recent presentations at meetings of the financial community (see http://files.shareholder.com/downloads/LINE/992921745x0x409026/86CAB76B-F51B-4787-8ED7-8FD280255DA3/IPAA_OGIS_Pres_WEB.pdf ), its recent success in drilling new liquids wells has created what a UBS analyst called a Game Changer for Lynn dfrom the GW during the past quarter.
In addition, its Wolfberry property with about 400 prospective oil well drilling sites identified, and with drilling just starting, dramatically increases the validity of the "game changer" characterization.
The data you have reflect Linn's original business model which was to buy old wells with a stable, long production life remaining, and then hedging the small amounts produced by each well to ensure long-termn profitability. Property owners sold to get up front cash, and Linn was content to buy using its modeling discipline to ensure that each purchase was cash flow accretive. This model was a win-win for buyer and seller.
Last year, when markets were still in a sorry state, Linn was able to line up what we might call distressed sales in a buyer's market. The new GW and Permian Basin purchases created a radically differnt addition to its arbitrage model for tapping old wells. Linn is now drilling highly profitable wells, not for NG so much as for NG liquids (GW) and oil from the Permian Basin.
The data you have describes Linn in a former life. You do not have the data that reflects the new Linn. However, the info from the recent earnings report that I copied and posted for your convenience starts to reflect the new Linn. The the 30% increases reflect the beginning production from new wells. The new data do not show the prospects from all of the new wells that Linn has funded for drilling this year and into the future.
In other words, you are trying to analyze OLD data for a company that has been radically transformed recently from a steady state arbitrage income producer to a growth compaNY WITH VERY BRIGHT PROSPECTS from new well drilling in rich properties, on shore, easy to drill at low costs, with high find rates.
Best of luck