The chart does not look good. Looks to be in a downward sloping channel after having had a nice run up over the past couple of years. This may just be the case of the earnings having to catch up with the valuation. It just goes to show you that in investing you can have the correct theme, but your timing could be off. The water theme is something to keep an eye on but the chart will tell you if the time is right.
With the continued cold weather, you might have to look at the e&p MLPs with large nat gas exposure. ARP comes to mind. I don't think nat gas is necessarily going to continue to rise much more even with continued cold weather, but this spurt will give them a chance to lock in higher hedges. It's not an MLP, but I added some AR which went public last year and has big exposure to the Marcellus.
Not sure if you follow Factoids from the investor village board, but he has written some pieces for S.A. on MLPs, the highest yielding MLPs usually don't turn out to be the highest performers. Some low-yielders like PAA, EPD and MMP have had much better total returns than higher yielding MLPs. If this correction continued, I would consider adding MMP which I wanted to buy almost 15 points ago, but wanted it to get cheaper. Sometimes they don't get cheaper.
Finally WGP would have to be on the list.
jk, things could get worse before they stabilize, this being a Friday and the next larger Fed purchase (close to $4 billion) is not until next week (there are smaller purchases each day next week). The 50 dma is at $14.44. We've needed a good market selloff to take some of the froth out of the market and maybe today provides that.
I'm not sure if you are looking at the price action before the ex-date or before the actual payment date. Generally, the market maker reduces the opening price for a stock trading on the ex-dividend date to reflect that fact that the dividend will be paid to the previous record holder. The effect on the stock price is more pronounced for trusts because their stock price is largely calculated by a discounted value of the stream of dividend payments they will make over a set time. With one less payment to be made, the value goes down. Of course there is some uncertainty about the amount of those future payments and the interest rate at which they will be discounted, so the stock price continues to fluctuate as investor's views of those inputs changes.
But there is something more technical going on with the trading of these types of trusts around their dividend dates, typically referred to as the "dividend run-up period." It is self-fulfilling. Investors start buying these trusts several weeks before the dividend announcements because they have seen the pattern that the stocks tend to rise into this date, then they sell before the ex-date. In essence, they are capturing the dividend payment from stock price appreciation without having to hold the stock thru the record date. Because the yields are so high on these trusts, those that can use leverage and options strategies stand to make large % gains without risking as much capital. Then once the ex-date comes, the same hedge funds and algorithm traders can short the stock, which causes stop losses to be triggered which causes further selling pressure and possible margin calls.
The other fundamental reason is that many of these trusts have had disappointing production results that are announced when the distribution is announced. Many of the trusts have not earned the full amount of their dividend, but each period there is a new hope that the production issues will get straightened out.
stagg, I agree with much of what you say. As we all know, there are many different types of mREITs, but generally the agency mREITs suffered the most from the Fed's taper talk and the rise in rates. Typically when rates rise, we see a shift in performance from the agencies to the nonagencies and then to the commercial REITs. While mREITs are like many other stocks, they are different in that what they own is pieces of paper with readily ascertainable prices -- they don't have the complexity of industrial companies with factories and labor contracts and different input prices and selling markets. mREIT book values are more closely related to their actually business and the book value drives the profit (with industrial companies, book value of the assets has very little impact because its about earnings) so for mREITs you should pay attention to book value. They trade based on a multiple of their book value (p/e ratios are less important). When they get over book, they do spo's and when they trade at a discount to book, they sometimes buy back stock --- that doesn't happen as much and doesn't have the same impact with regular industrial companies.
The interesting debate is that some view the economy getting stronger and with that view comes a shift in investments to those that will benefit from stronger business and consumer strength and away from interest sensitive stocks. But some think the economy can't handle higher interest rates, not to mention increased costs like the new healthcare law and other structural issues, and they think the economy will soften more quickly, making interest sensitive stocks, like agency mREITs, good buys at some point.
The way this thing swings, there really is no reason to own it through the volatility. Why hold it through the ex-div date when you know it is going to decline by the amount of the distribution and then likely fall further, especially if there is any bad info on well pressure or production? Letileaf made a good buy at $10.50 and if it gets to $12.50, he will have made almost 20% in one quarter. Annualized that is much greater than the current yield. Holding it further only lowers his return and increases his risk.
I would suggest that the reason that the mREITS are rallying is because the 10 year interest rate has declined and is now 2.77%. This is a dramatic turn of events as everyone (including me) was expecting 10 year rates to increase above 3% because of the Fed's taper and the apparent improving economy. There are some international issues brewing which may be causing the run into the safety of Treasuries, including a crisis in Turkey that is causing the Turkish lira to drop, an Argentina currency crisis and a report of some bank and trust failures in China.
Some of the mREITS had gotten below book value and some were buying back their stock, but I would not say that this rally was due to their production of solid income, as most of them had significant book value declines and dividend cuts ever since May. And with the Fed still set to taper at each of their next meetings, it may be premature to say that rates won't resume rising.
Lots of misses on earnings or revenues. China slowing. Would be interesting if the Fed's tapering instead of causing interest rates to rise, actually causes more deflation to set in. I read the NASDAQ is breaking out technically. Maybe we are in that part of the cycle where money rotates to high growth and away from the Dow and S&P names.
grgsvll, you need higher production AND CHKR needs to get higher sales prices. Remember, they don't get the NYMEX price, although you would expect that their selling price should also have increased. But will it be enough to make up for production
There's a post on the investor village board from a blog that tracts the weather. The author follows the weather models and is saying that we are in for another Polar vortex at the end of January and early Feb. Said some low temps in the upper mid west could reach MINUS 40. If this happens during the Super Bowl, it will be the last time they have a Super Bowl outside unless its in California or FL.
Ed, I finally bought some WGP a couple of weeks ago on one of the days when it was down. The dividend increase was 40% over the year earlier. I continue to believe the GP's are the way to go. I own TRGP, WGP, ETE (should not have sold some of that) and ATLS. ATLS has flattened out recently as there are rumors that the weather may have effected APL's results in the Permian, but higher nat gas prices have helped the other sub, ARP. Eventually they should get the Permian straightened out, so any miss that unduly effects ATLS should be a buying opportunity.
Right now, the question is whether to switch the MLPs for the GPs and take a tax hit on the gains in the MLPs. I also have WPZ which has been somewhat disappointing and WMB seems to finally be perking up.
As for the propane discussion, EPD has been one of the better performers and they had figured out exporting propane along with many different subsectors of midstream.
mrreits, to clarify my post, I didn't mean to imply there would be no dividend in February, but rather that it could be much lower than the original projection and even miss the subordinated threshold, which would be negative.
Anything is possible, but that doesn't make it probable. What's the theory for why this should go back up? Unlike operating companies that can change strategies, this is a trust with a set area for wells to be drilled for a set time. Many are buying this because they believe nat gas prices will increase, but here we are with the coldest weather in several years and nat gas is around $4.30. Then we hear the story about LNG, but that is still year's away. If you like the LNG story, buy one of the stocks directly involved in LNG export.
In the third quarter, the trust disclosed real problems with the pressure in its wells that is effecting volumes. Unless the volume problem can be fixed, no realistic increase in nat gas price is likely to make up for this problem.
Having held my share of loser stocks throughout my investing history, it is one of the hardest things to do to decide whether to continue holding or to cut an investment loose. The best saying I heard is "hope is not an investment strategy." In order to make that decision, you have to know why a stock declined in the first place and whether the company can fix it.
Bayman, DO NOT BUY CHKR unless you are just planning on a short term trade. You can read my posts on the CHKR board. Since last year, CHKR has been exhibiting a pattern where it runs up into the dividend announcement only to fall off a cliff after the ex-date. I have played puts on it 3 quarters in a row to play this decline and made over 5 figures with much less capital at risk. Each time CHKR runs up, it stops right at a prior resistance level and then resumes its downward path. If you are interested in playing nat gas, there are much better plays. In my view, retail investors are getting suckered in by the "high" yield without realizing that this yield will decline once the subordinated period ends. Once the ex-date comes, the stock falls off a cliff losing more money than the distribution. Stop losses are triggered and hedge funds pile on the short side causing further declines. I'm happy to continue the discussion on the CHKR board, but these new types of royalty trusts are turning out to be disasters. Check out what happend to ECT, which was one of the first of this type of trust.
Don, mREITs historically have traded based around 1-1.1 times book value. Book value doesn't matter for operational, industrial type of companies because their assets are plants and equipment, booked at cost. For such stocks, you aren't buying the factory, but what the factory can earn and then reinvestment and/or distribute. But for mREITs, book matters because that value represents the real value that is levered up to produce the large divies. Changes matter because those changes are magnified by the leverage of 6-9 times and because the funding is short-term and the repo lenders have possession of the collateral that they can sell in a heartbeat.
Distribution should be announced next week. Do you think it bounces if there's no bad news (i.e the distribution is maintained). Granted that could be viewed as a disappointment but if this is just a weather-related bad quarter, it should provide a good entry point. Could the market be relieved after the distribution announcement but then sell off when the earnings are released later?
It's not really baffling. Once they did that PIPE offering to take care of the preferreds, you knew the investment banks and mutual funds would get on board once they could see a common dividend in the near future. But of course, my good friend Skittle famously said that the stock would go down once they paid the preferreds. I'm anxiously awaiting his apology, but he is off trading biotech penny stocks.
Stagg, Ladenburg Thalman gave a recommendation on STAG. They also recommended GPT, another industrial triple net REIT. They must be doing a review of the sector. As the economy improves, this sector should improve as tenants become stronger and rents (many that increase with inflation) and property values improve. Stagg, I disagree that this is a "poor" yield. It's only considered poor because of comparisons to more risker yields found in the mREIT space and among energy exploration firms. Many property REITs trade with yields in the 3-4% range so a 6% yield is very good. I would rather have a safe 6% that is increased over time, than a 15% yield that is cut and leads to big share price declines, as what happened in the mREIT sector.
If the strength in the economy continues, I think there's a good chance that you could see some mergers and acquisitions in this area as the big players have to move the needle by buying large amounts of properties
Ed, I saw somewhere a chart of different sector performance over the years. Although the rule didn't work all of the time, the leading sector of one year is almost never the leader in the next year (they usually drop into the middle of the pack -- however, a few years back, emerging markets lead the performance for 4 or 5 years in a row). Those sectors at the bottom almost always move up toward the lead, but it usually takes 2 years before they top the performance. And that makes sense as after a poor sector starts to improve, it attracts the momentum players and sector rotation crowd.
One of these days, I am going to divide my portfolio into different baskets (the sector rotation basket, the put selling basket and some other basket) and see which strategy really works the best.