Respect, I think you have to look at the debt covenants and terms of the preferred for each issuer. There should be a section in their SEC reports that described what their debt limits are and what happens if they breach them. Similarly, check the terms of the preferred. Since oil is resuming its slide today (after the predicted bounce), it may not be safe to enter any of these. Gary Schilling is out saying oil could go to $20. Who knows if he is right, but at that price we are bound to see common dividend cuts. The preferreds will get cheaper as common divis are cut.
I can't speak to which preferreds that Bob bought during the financial crisis and when, but just because it worked out for him doesn't mean it will work out for you with energy preferreds. We bounced out of the financial crisis because the Fed bailed out the big banks and the auto companies (because of the unions) with TARP. I doubt they would bail out a few smallish oil companies. I do believe the price of oil will eventually go back up to a higher price once the high cost supply is removed from the market. Meanwhile nat gas is plunging today on the warmer weather.
Pale, to follow up on the different costs in the shale basins, Antero has a presentation that displays the different basins by Internal Rate of Return (the lower the cost, the higher the IRR). These are the highest basins (highest first) based on IRR:
Utica Shale rich gas
Marcellus Shale super rich gas
Marcellus Shale SW liquids rich
Eagle Ford liquids rich
Wolfcamp Mid Hz
Eagle Ford oil window
Yahoo finance has an article from CNN on dividend investing. Here is a few sentences:
"Investing in dividend stocks can be a powerful and effective strategy to obtain superior returns over time.
However, there is much more to successful dividend investing than simply going after companies with big yields. Disney (DIS), Starbucks (SBUX), and TJX (TJX) (parent company of T.J. Maxx) show that investing in businesses with increasing dividends and healthy fundamentals can be the key to outperforming the markets in the long term."
Notice there was nothing in there about how chasing high-yield stocks (that end up cutting their dividends and crashing the share price like SDRL) beats stocks with dividend growth. If investing in high-yield stocks always beats stocks with good dividend growth, why are there no articles about it as a proven investment strategy?
Pale, I think they mean cost of drilling. The cost to drill in the many different shale basins varies by a wide amount. There are some very good investor presentations from various companies that set out the different prices per shale basin and per commodity (e.g. the price to drill wet gas in the Marcellus is different from dry gas in the Marcellus).
Two interesting posts from the i.v. board. The first is a clip from Credit Suisse:
Subsector Calls: Entering 2015 the list of stocks which look interesting after the correction is long. Adding it up to a subsector perspective, we are overweight low-cost shale E&P, large-cap U.S. refiners, competitive power producers and the MLP space. We are underweight Offshore Drillers, higher cost E&P around the world, emerging market oils and Asia LNG producers. We prefer the Canadian and European Majors to the US.
The second post was about layoffs in Ohio/PA in the energy and energy related industry as some projects are suspended and moved off into future years.
stagg, like many investors, my portfolio has declined because of the slide in oil. I think I am down 10% from the highs during the summer, but not including the 5 figures of dividends that I have received. But several of my holdings are still up considerably and pay nice distributions. I too invest in dividend paying companies, but I don't make blanket silly statements that a 6% yield is low versus a 20%+ yield in a company with only 2 assets.. That is the main point where you and I disagree, and the facts prove that some high-yield stocks can be risky (like SDRL). Yesterday, I told you about my gain in WGP, which you would call a low yield risky stock, that I made over 50% on. I also have about a 33% gain in TRGP, with another "low" yield of around 3% (TRGP was a double earlier in the year). I have a basis of $17 in ETE, another low-yield stock paying 2% and it's selling in the $50's.
Yesterday you mentioned that your current holding ADM is risky because if it declined you would not have high yields to cushion your loss. To me, this is backwards logic. All stocks are subject to declines, but if you look at ADM (which I don't own) it is up 1800%, so history shows that it has weathered the storms pretty well, while never cutting the dividend. You can't say that about SDRL.
I have been investing for a long time and have seen the pitfalls of chasing seemingly "high" yields. What typically happens is that investors become enamored with the high yield and don't watch the principal erode. Then when the inevitably soft patch comes, the dividend is cut creating a snowball effect of a loss in principal. Did this not happen with SDRL, yet you still think SDRL was a less risky stock than ADM? There are times when investing in high yield stocks can pay off, but it requires that you keep a close eye on what is happening and, most importantly, it requires one to fight the normal human conditions of greed and hubrus.
stagg, I don't track my Total Returns like you do or compare to what others say they have made because 1) it's not a competition, 2) there's no way to prove what you say you've made and 3) it doesn't consider risk tolerances, and personal circumstances. Whenever I challenge your silly statements, you always bring up LINE and EVEP. I note both are still paying dividends, which SDRL is not.
I sold LINE and bought LNCO in its place but sold that at $22. Small losses, but I have not added back the divies to determine the total return.
I still have EVEP and it is probably my biggest loser that I still have.
I also have losses on ARP, but they too are still paying their monthly dividend.
Today, I sold PAGP with a small loss and WGP with a 22 point gain (bought at $38, sold at $60. Held it for about 1 year. It's yield was around 1%, but my total return was about 57%, so stick that in your Total Return hat.).
I've mentioned my Yahoo option trade and BABA option trades (combined over 5 figure profits). I also had some profitable puts on some of the royalty trusts (CHKR, SDR and SDT).
I am still holding IRM which is up about 20% with dividends since July.
I have several other holdings and have made more trades this year than typical. I'll provide a summary at the end of the year.
I have had numerous ideas that have worked and several that have not, but the difference between you and I is that I tend to mention an idea once or twice or if asked about it, but I try not to pump something in every post I make. EVEP did not work out, but I don't constantly post about how I think it is still a good idea when it clearly has declined (unlike your posts on SDRL, AWLCF, the Brazilian fertilizer company) I also try to delve into the fundamentals and technical analysis and don't rely on Santa Claus to make my investment decisions.
For the record, I think it is good that you mention things like the fertilizer company, just don't keep pumping it only when it is up.
You would have to check the merger agreement to see what their termination rights are. Usually they would have to pay a large fee to terminate.
Book value as of end of Nov was $15.17. WMC seems to be in a range between higher $14s and high $15's. I still have some. Risk of an spo is probably off unless the stock goes over $16.
JBC, I don't think you are correct about EBITDA improving with less shares and lower distribution. I believe EBITDA is calculated before distributions.
I agree with you about potential suitors, but ARP would not be a desperate seller yet. There will be some sellers of properties and the big independents will pick up some properties cheap.
I cut loose PAGP and WGP. I love the general partner MLPs but I think you are right that this could be a temporary bounce.
Two things to consider. Selling now triggers a gain for 2014 tax year. Once we get into Jan, I would expect the talk about the release of the tax plan at the Jan earnings call to propel the stock higher. The release isn't until the earnings call which is after option expiration, but the talk should start in early Jan.
Credit lines generally can't be used to buy back shares. Notice MEMP said they would use cash on hand.
Second, it's not the cashflow (or earnings per share) that is the problem. Rather, the debt covenants have debt to Ebitda limits (not calculated on a per share basis) that could limit their distributions if they are exceeded. So the issue is the overall debt. If ARP has any money to spare, they should buy back their debt if it trades at a substantial discount. The alternative would be to buy more producing properties, but the prices are probably still too high. In fact, if they did announce an acquisition, it would be bad as the market would assume that the Cohens overpaid.
As for Targa getting into the upstream business, why would they want to get away from what they do best and get into something more risky, even if the price is right?
Stagg, another thing you do is only provide updates on your holdings when they are up -- otherwise known as pumping. When one of your picks goes down, you never provide an "update". Recently, inNovember, you pumped AWLCF right before they paid their dividend, even though the sector was clearly having problems. AWLCF has since declined by 33%, yet no update from you or admission that you were wrong to pump it. Previously you pumped that Brazilian fertilizer company when they had a good announcement. That stock has declined from $1 to under 40 cents, yet no update, no calculation of total returns. But I bet if the stock pops for some reason, you will be sure to let us know, and tell us that you have been reinvesting your high yield dividends in it at the bottom all along.
Stagg, I have noticed that whenever I challenged one of your silly statements, you change the subject. You never answered the question I posed: How is ADM a risky stock when it is up 1800% and has increased its dividend while SDRL is up only 50% and has cut their divy?
Now you are trying to save face by claiming you made a profit on SDRL while at the same time denying that it was a high risk resulting in you losing 75% of a potential gain. Sounds like fuzzy math to me.
Stagg, my responses to your posts are not meant to be personal, but I understand how you think they are personal because they attempt to point out the many flaws in your logic. You claim that ADM and F are high risk because they have low yields, but I ask you to compare the total returns this year of ADM and F against SDRL, a former high yield stock that you never called high risk. Of course, SDRL has no yield now, so I guess you don't consider it to be a high yield stock anymore. I don't know how you can conclude that ADM and F are high risk in comparison to SDRL when SDRL has declined close to 75% and eliminated its dividend. If losing 75% of ones investment in one year and eliminating a dividend is not the definition of high risk, I don't know what is. I don't follow ADM but a quick look at its profile page shows a long history of dividend increases and a long-term chart that shows a 1800% stock price gain versus SDRL which cut its dividend to 0 and has only increased 50% over the same time period.
Be careful, the oil bounce may be over for now. XOP turning south and oil now going down (although some older headlines still say it is up). Putin also made a speech yesterday in which he didn't sound like he was backing down, so I don't know where Stagg came up with that statement.
Buffet also said "see who is swimming naked when the tide goes out." Let's see how we get through the borrowing base determinations and any debt covenant breaches before we declare victory. If Buffet buys an e&p name, then that may be the signal that we hit bottom.