I certainly understand what you are saying about not creating value, its kind of exemplified by a company with say 10 shares and net assets of say $100. Maybe they have $90 in equipment and $10 in cash. So the shares trade at around $10/share. So the company goes out and buys back one share, bringing the total assets down to $90, the total number of shares down to 9 and the NAV is still $10/share. However, what if the company were going to experience exponential growth in its earnings, and what if they could buy back say 15%-20%?
I have run the numbers, and if you believe the dividend will ever surpass $6.00 a share, it becomes highly accretive to do a repurchase. If XTXI is going to pay a dividend of $6.00 in the next 2 or 3 years, which I believe will happen, then if they bought back 2 million shares, and lets say they paid $75/share. So they spend $150 million. Lets suppose that they borrowed the whole amount at 7%, that is a grand total of 10.5 million in interest, they save a total of 12 million in dividends, meaning they could pay the interest, and pay down 1.5 million in principal(and they would be paying for this strictly with cash that was meant to be used for dividends on the shares that were repurchased-that is except up front when they first make the purchase, it is not accretive because the growth has not come yet but that period is probably 18 months). Obviously, they could probably borrow at lower than 7%, they probably can't buy the 2 million shares cheaper than $75 but they might be able to buy 1 million shares at $75 . It really just becomes an excercise in excel. My model also takes into account taxes. To simplify the whole thing, it makes sense at the point when the yield on the dividend on the original purchase price exceeds the interest cost. In other words, if they borrow at 7%, and they bought back the stock at $70, then when the dividend exceeds $4.90/share, it is accretive and value adding because they are saving enough on not paying out dividends to pay off the interest and some of the principal.
I encourage you to look at the prospects XTEX has with the North Texas Pipeline (98 million, 17.5 million in cash flow), El Paso acquisition (486 million in cost, 56 million in cash flow), North Texas Expansion planned for early 07(15 million cost, 17.5 million in cash flow). North LIG expansion, 250 million in cost, 40 million in cash flow. South LIG expansion?, numerous other small, yet very low multiple organic growth prospects as well as potential acquistions. If you look at some of my previos posts, you will see that I built a model out that predicts what I think the dividend and distribution will be in 18 months to 2 year.
Besides, I like XTXI being an operations free company. They do own 1 processing plant that is shuttered and they have mentioned in the past that they might re-open it. If they can do it at a multiple like Atlas is doing with their Sweetwater plant, then I say go ahead. If not, then keep raising the dividend, leverage up and buy-back say 2.5 million shares, bringing the total count down close to 10 million.