I agree with what you have said. I think DMLP could easily go to $22 before the tax loss selling stops near the end of the year. The Feb. distribution should be slightly lower than the Nov. distribution. Current pricing for the May distribution is much more favorable. If the 2007 distribution average $0.55 per quarter meaning a $2.20 year distribution, then at $22, DMLP would yield about 10%. That is about what this partnership has provided in the recent past.
DMLP broke through its 12 month low of $23 a few minutes ago. Tax selling should continue through this week. Then it should stabilize going into the Feb. distribution announcement around Jan. 15.
This is a good buying opportunity.
Good comments re. DMLP finally breaking $24. Considering that the Feb. distribution will be about the Nov. distribution, the 12 month low of $23 should be challenged and probably broken by the tax loss sellers.
Long term, DMLP is a good holding but buyers should be careful where they place their limit orders (not market orders unless they want bigger losses).
Sorry, I haven't come across such a reference source. It would be great if it existed. As limited partners, we receive very little info. from the general partners. The percentages I mentioned previously only were available because DHULZ holders had to approve the merger and the ratios could be calculated on a proforma basis from the merger agreement documentation. In fact, the general partners used to give DMLP limited partners more quarterly info. such as ave. price received for NG and oil from the Net Profits and Royalty Properties segments of the partnership but now all they give us is the distribution value for the quarter. It's like the old joke of trying to identify an elephant under a sheet by what you can touch!
I agree with you that DMLP should go back to the $24 area and even below. Today (Thursday), a buyer does not receive the Nov. distribution and by paying $25.50 for DMLP, they seem to be satisfied with a yield of about 8.1% annually. That seems to be too little compared with other NG/oil partnerships.
At the time of the merger between DHULZ and Republic/Spinnaker, for the combined partnership NG was about 2/3 of the total revenue while oil provided about 1/3.
Can't be sure how the ratio has changed in the interim but I doubt that NG is 90%.
To answer you point by point:
I expected about 57 cents for the distribution based on Friday oil/ng closing prices for the 13 weeks of the quarter. I use this as an estimating tool. It cannot be totally accurate because when prices increase during the quarter, the distribution is generally higher than the estimate. When prices decrease during the quarter, the opposite occurs as shown by the 52 cents compared to the 57 cent as the estimate showed.
Basis for the Feb. distribution using the same method yields (at the present time) an estimate of 53 cents. There is still a little more than two weeks for NG pricing and six weeks for oil pricing for the February distribution so if pricing strengthens, it should be slightly higher. If not, perhaps a little lower.
But, even management doesn't know YET a number for February. But they do not share any of this data with the limited partners.
Regarding 8.2% yield based on the price at the time of your message, historically DMLP has yielded in the 9% to 11% area. At the present price, it compares unfavorably with other oil/ng partnerships.
I have never been short DMLP. I have owned units since the original spin-off from Dorchester Gas in 1982. I am interested in buying some additional units but not at this price. DMLP is a very well run LP but the current unit pricing does not make much sense.
Using your $2.04 annual distribution estimate and a 10% return, DMLP should be trading around $22.
I posted the original message at 12:10. It took 2 and 1/2 hours of trading above $25 before the current selling began. So much for the efficient market theory.
I certainly concur that the energy situation is grim for the U.S. This NG price weakness is temporary but it offers an opportunity to buy at the lowest price in well over a year.
BUY @ $22.00!
I expected. Only 52 cents versus August distribution of 78 cents. The February distribution at this time looks worse than the November distribution. Why is the unit price still so high?
Good summary. What is surprising is that only 12 trading days ago, DMLP was over $29. As I have said previously, the buying was in anticipation of distributions similar to the last 3. The Nov. distribution looks to be about 57 cents and the current trading of oil and NG suggests a Feb. distribution of 53 cents. I think that the 12 month low of $23 will be penetrated.
But buying on weakness below $23 could be a good buy looking down the road 1 or 2 years away.
I follow the market for DMLP very closely. I have for many years since the precurser publically traded partnership (DHULZ) was spun off from Dorchester Gas in 1982 (I think). You mentioned the high of $28.00 today. Someone put in an open order (not a limit order) for 700 units at the opening. A market maker took advantage (as they are prone to do) and xxxxxx them.
There seems to be many new investors in DMLP. They appear to be fixated on the prior 3 quarterly distributions that have averaged about $0.75. As I have previously stated, the Nov. distribution money is "in the bank". Unless there is a special bonus payment, it looks like it will be about $0.60. The Feb. distribution data, at the present time looks worse.
I have some additional funds to invest in DMLP. I believe that domestic natural gas has a great future until LNG significantly penetrates the U.S. market. But, unfortunately, from over $15 late last year as a result of the Katrina/Rita situation, we have a price below $5.00. I am very surprised because I believe in the 6 to 1 energy equivalent ratio between oil and natural gas.
Previously I thought that $24 was a good entry point. But now, if nothing changes, I think DMLP will challenge and penetrate its 12 month low of $23.
Who knows where the unit price will go. I certainly don't "know". We shall see.
since July 20, the ex-distribution date. Since then, more than 1M units have traded as the unit price has risen from $25.90 to over $29.00. If there will be no significant bonus payments in addition to normal gas/oil receipts, unit price should go down to around $24.
We have just completed the first month of NG pricing for the February distribution period. If NG pricing for the next two months is roughly the same, February NG income will be about 6% higher than the equivalent period for the November distribution. Oil pricing for the February distribution is just beginning and can't really be estimated. But if the current trend persists, February Oil income will be about 6% lower than the equivalent period for the November distribution. That would suggest that both the November and February distributions will be about the same and in the 60 cent area, excluding any bonus payments. DMLP equity pricing at this time is surprisingly strong!
I have also been surprised at the strength of DMLP recently.
A little history:
Dec. 2005 low of $24.05 prior to $0.80 distribution
March 2006 low of $23.00 prior to $0.73 distribution
June 2006 low of $23.80 prior to $0.78 distribution
If this relationship holds, next month low should be about the same as the prior 3 quarters - especially since the November distribution should be much less unless there will be bonus payments as yet unreported.
The only other reasonable explanation is that DMLP has been discovered by many more investors who are quite happy with a yield in the 8% area.
It's not a formula but an estimating tool. The November distribution receives most of the money from NG sold in May, June and July and oil sold in June, July and August. These months are now closed for the Nov. distribution. I use the Friday closing price for NG and oil for the respective 13 weeks and compare these two estimates with the corresponding estimates for the August distribution. For the Nov. distribution period, NG Friday closings was down 12% from the August period while oil Friday closings was up 8%. Since NG is about 2/3 of DMLP income and oil is about 1/3, I use these percentages to adjust from the August distribution (without the Arkansas bonus). This results in a Nov. distribution (except for additional bonus payments if any) of around 57 cents to 60 cents.
Management may surprise with additional bonus payments but they would have to be received by the end of September to be included in the Nov. distribution.
Hope this helps. But remember it is only an attempt to estimate the payment. The method has worked well in the past except, of course, for the bonus payments.
We have just enjoyed 3 good distributions (80 cents, 73 cents, and 78 cents). The gas pricing period for the Nov. distribution just closed (May, June, July) and the average Friday close was about 12% below the comparable period for the Aug. distribution. There is still one month to go for the oil pricing period (June, July, August) and the average Friday close to date is about 8% above the comparable period for the Aug. distribution. Unless management can come up with another lease bonus like the Arkansas lease (perhaps 17 cents of the August distribution), the Nov. distribution looks to be in the 60 cents area.
I was a little disappointed with the May distribution of 73 cents. Based on Friday closing prices for the respective nat. gas and oil quarter, I expected a distribution of 77 cents. Still, a good distribution.
The recent news of the Arkansas property is good news. However, the $616,000 bonus payment will fall in the August distribution period (= about 2 cents) while the 5.5M bonus payment will fall in the November distribution period (about 19 cents).
We just closed the nat. gas quarter for the August distribution while we have another month for the oil component. It appears that the portion of the August distribution due to ongoing sale of nat. gas and oil will produce a distribution of about 60 cents while the bonus would add about 2 cents. That may disappoint some holders but in the coming quarters, there will be better news regarding nat. gas pricing. Hard to tell about oil pricing.
I don't know how long you have known about the DMLP board but there are many individuals, like myself, on this board who know quite a bit about MLPs. Your three points are well taken and valid under certain circumstances. But don't assume that everyone in the investing world is a momentum player. Those who do not prepare their own income tax returns would be ignorant of these points unless they actively review the returns and understand every line entry.
As to holding DMLP only in a taxable account, while the ROC lowers the basis and is not taxed until the units are sold, the taxable remainder does not qualify for the 15% dividend break and is reported on Schedule E.
I hold all my position in an IRA. When DMLP was DHULZ, UBTI was a problem but is not now a problem following the merger.
There is great value at not having an approximate 11% annual distribution being taxed even partially, reinvesting over many years and then in retirement, structuring one's taxable situation such that the IRA withdrawals are taxed at the 15% rate. Of course, if you will earn $500K annually in retirement, this strategy won't work. But then not many people are in that situation.