In your rush to discredit me, you took my comments out of context. Obviously, I was too "big picture" for a detailed person like yourself. I was referring to the share valuation issues not the accounting or tax issues. Allow me to re-state my point.
The crux of the matter is that SFPP is not a "big growth" investment for ENP, but rather a slow steady growth cash cow. It now dominates the ENP portfolio. All other things being equal, it should "weigh down" the ENP P/E because it doe not merit such a high multiple by a PEG, industry comparable, or any other type of measure.
ENP can only fulfill its investors high growth expectations (as exhibited by its relatively very high P/E) by buying other low P/E (and low growth) companies. This cannot go on forever.
When ENP eventually runs out of leverage to continue buying up lower P/E companies its price should fall by 50%
When SFPP has any significant (or even minor) operational upset it will be cash poor because the Kinder GP is raiding its cash, and ENP will have to borrow to get by. Here again - a lower share price should result.
At some point, someone (ENP or their successor) has to settle down and operate these companies as is. Then they are exactly the same as other 15 P/E comapnies - another 50% + drop in ENP stock is merited.
These issues overshadow the depreciation allocations, UBTI, "accretive EPS numbers", or any other accounting or tax issues.
There has been a lot of talk on this board about taxes. can somebody please clear this up for me once and for all?
If I buy 100 shares of this company at $36/share (today's price), what are the tax ramifications if they shares are bought in:
1) a regular taxable account
2) an IRA
3) any other type of retirment account, 401K, Keogh
I'm just confused here and could use some help. Thanks
Re: 1.ENP buying Sante Fe with lower p/e and diluting itself. Take an accounting class. When a company with a high P/e buys
a company with a low P/E it is accretive. By taking on the debt, it gets a writeoff and higher Depreciation to the extent that
the price paid exceeds book value. Remember, it's cash flow per share growth not earnings growth that count in this business.
What is true is that total growth by any measure is not the important thing, it's the growth on a per share measure that counts
and they just doubled. But, for all tha being said the fact that the stock has doubled should speak for itself.
2. Because of the sheltering aspect of the depreciation and amortization on MLP in general P/E is not a good measure of
success. Cash flow per share of CAD- cash available for distribution is a better measure. Tru, low debt, low acquisition companies
will show better EPS, but also growth is much lower. IT's a trade off you have to decide for yourself. As to Kinder being paid
handsomely-yes, yes, yes. As long as they leave some for me, I'm a hapy camper. By the way, it just went XD yesterday and bounced back
3. UBTI is based on the dividend. So if you have less than $1100 in total dividends in a retirement account from this sort of investment you are ok. Over that you pay taxes. By the way, there are numerous TOPRs--Trust originated preferreds that do the same so check with your accountant or broker to make sure you don't have a problem. Good luck.
All this esoteric tax shelter stuff is important, no doubt, but it is only a side issue when you really come down to it. You guys are way over-emphasizing that whole thing. Here is my take on the 3 most important issues regarding ENP. Read on >>
1) The disparity between the prior earnings and dividends:
This spread is not as big as Craigy the MLP technician is claiming. Kinder is smart and you have fallen into his trap as
exhibited by your question. Kinder acquired a much bigger company (SFPP) with a much lower P/E by issuing (and diluting) ENP stock and
taking on a lot of debt. Kinder has put out news releases comparing prior period earnings (when he did not own SFPP) with current
or projected periods (when he does own SFPP). People not watching closely enough are tricked by these kinds of comparisons and
say WOW! What excellent earnings growth. Beware - It's APPLES and ORANGES guys - not the real thing!
2) ENP's P/E versus other MLP's:
ENP has a P/E of over 2X the industry. There is no fundamental reason for this. In fact it should be the opposite because Kinder has set up a riskier structure than the other MLP's and ENP should have a significantly higher yield than all the other MLP's. This will happen with a fall in the unit price.
3) The General Partner's Incentive Payment:
Kinder would love to raise the distributions - but not to help out you guys. If you have been a unitholder, and have been reading your prospectuses, you should have noted that the General Partner who owns 2% of the MLP, gets 50% of the cash distributed if he raises distributions any more. The fact is that any distribution that the common unitholders get is way less than they should because they are paying Kinder WAY TOO MUCH!
You guys can debate the tax shelter issues all you want. You will be focused on the less important issues and that is just what Kinder wants - until he siphons off all the cash and you guys are left holding the bag. Things are not always as they seem...
You are forgetting that MLPs throw off what is called Unrelated Business Taxable Income, which if over $1100 in a year would be taxable even in an IRA!! Check with your accountant, but this has been the fact for many years and is in the prospectus of any MLP offering that has ever come down the pike.
This has nothing to do with what happens when you withdraw it from an IRA. Then your basis is the value on the date of removal.
When your cost basis is reduced to zero by the distributions the dividend becomes taxable as it is no longer treated as a return of principal. If you hold long enough that will happen. It will be taxed at ordinary income levels when you withdraw it from your retirement plan. It is an excellent stock for retirement plans.