Wells BDC top quartile picks: GBDC HTGC TSLX ARCC TCAP and NMFC. They were particularly high on TCAP, but the report was issued in early Jan.
Stagg, the yield is a function of what a company pays and its stock price, but it is a dynamic statistic because the stock price is always fluctuating and the dividend/distribution depends on what the company earns going forward. The dividend/distribution is a historical figure because with companies like BDCs and mREITs, their divies can fluctuate. Technically that is true for all companies, but regular C corp operating companies usually pay out less of a percentage of their earnings or cashflow that you don't see as much fluctuation in the dividends (at least you don't see as many dividend declines).
So even though yield is a backward looking statistic that incorporates a dividend that has already been paid in the past (as opposed to the future) it can be instructive when comparing companies in the same sector. As I said, yield is a function of both the stock price and the dividend. If the stock price declines, the yield increases. So an increasing yield can be a sign that the stock price is declining (unless the dividend is increasing). That is why when companies increase their dividends, their yields usually decline because their stock prices increase as a result of the good news that their divies are increasing. As an example, SDRL and several of the e&p MLPs saw their yields increase to over 20%, not because their divies were increasing, but because their stock prices were falling. Then they cut their divies.
The other thing that usually happens when a stock's yield increases from the declining stock price is that their bond yields are also increasing. Increasing bond yields make it more expensive to finance deals, meaning they make less money.
It is a fact that companies with growing distributions have growing stock prices. Companies can change their trend through superior investment selection or through the use of more leverage. However, we have seen the risk of what happens when a company uses too much leverage.
I spent some time going through the Wells report on BDCs to see what they had to say. They issued a large report at the end of December. In general, they were positive on the BDC sector, but while KCAP was included in the list of companies that they reviewed, it did not make it into any of the quartiles that they rank, probably because it is relatively small compared to the many others that they cover. There's a lot to understand about BDCs, what they invest in, how they are funded and how management is compensated, and there are several companies, some with longer track records than others (makes mREIT analysis look comparatively simple). Anyway, on the technical front, it looks like KCAP has plenty of resistance ahead and the general chart is still in a downtrend. For me, it's always hard to buy a stock that has been in a downtrend and is now rallying because you don't know if or when the rally is going to run out of gas or if it is going to break through resistance. Stagg, will debate it, but stocks with yields larger than competitors in their sector, have a higher cost of capital which makes it harder for them to compete with these competitors for deals. I think the better BDCs are yielding in the 8-9% range. I'll try to post the stocks in Wells top quartile.
Looks like KCAP already has had a nice rally. Why do you think it continues? Please don't say because it is yielding 14%, otherwise I will change your nickname to Stagg.
Results came in ok. I think they were still below 1 coverage ratio for the 4th quarter, but they guided higher. But they said the same thing last year and could not produce a growing distribution. The stock could rally but the analysts will digest the report and conference call and have their recommendations out soon. Unless the big MLP analysts get behind this, it is not going to go far. Last year, Wells put out a buy on it, but removed it when the company underperformed. They might have lost confidence in their ability to perform.
The yield is high and looks to be sustainable, but I'd rather have growth. They could have problems if the Bakken slows or because of a negative reaction to negative news from Quicksilver.
I think I just talked myself out of adding. I had a small position from back when they took over from Quicksilver and sold recently. The only thing that keeps me moderately interested is the fact that they could try to sell the company to someone.
Feel free to compare the charts of something like EPD or MMP with CMLP. When I first started investing in MLPs, I made the mistake of inveting in the highest yielding ones and passed (initially) on EPD, MMP and some others. The ones that grow their distributions also grow their stock prices, while the ones that don't grow their distributions, stagnate. EPD is a double since I bought it. If you think about it, this makes sense, because a growing distribution is the result of growing cashflow. The growing distribution lowers the cost of capital which makes it cheaper for the MLP to buy or build new properties/pipes which then add to the bottom line, leading again to increased distributions.
Last year, CMLP also projected a growing distribution and they failed. They may have overpaid for some of their properties. This may rebound on better guidance, but I don't think they have any believers since the same thing happened last year. However, they could put the company up for sale if they don't get on the right track soon, but I wouldn't expect a home run in a buyout scenario.
Well the first thing is to understand that those MLPs that yield the highest may not be the best to invest in. The ones to invest in are those that grow their distributions the most. That is why some of the MLPs with lower yields are doing better, because as they grow their distributions, their stock price increases. The second thing is to look at coverage ratio (basically the ratio of their DCF to the distribution) to make sure they have plenty of room to keep paying their distribution at the current rate. And then you have to make sure they don't have too much debt, because a breach of debt covenants can prevent them from paying their distribution. Finally, if you own in a taxable account, you have to understand the tax accounting and K-1's.
Sarge, I'm sorry if I was too blunt. Apple may very well be one of those "get it and forget it" stocks to always hold and never sell (except if you are trading around a core position) as long as they keep turning out premium products.
If you look at a two year chart, you see a very nice upward sloping chart with no sign yet that it is rolling over. But you also see that almost every time that it gets over the upperbound of the trend, which usually correspond with the RSI going over 70, it pulls back. Some of these pullbacks are sideways, but some are about 10%.
We are all human and what separates us from professional investors is that we tend to let emotion get in the way of financial analysis. When we have a great winner, we become afraid of selling it because it has served us well and then it becomes possible to miss a trend change. Sometimes its better to let someone else have the last 10% rather than lose 10% because you got greedy.
Sarge, I disagree. You have to look at the actual products and their growth.
As for the stock price, at some price, it becomes fairly valued and then overvalued. When everyone owns it, who is left to push the price up further?
What are their margins on Macs? What are their margins on Apple pay? Do they even sell Apple TV or cars yet? The bigger Apple gets, the harder it is to move the needle and the more likely they can disappoint.
A few years ago, Apple approached $700 and then it hit a hiccup and sold off. the stock went from $700 to $350. While those who held are still ahead now, those that sold and bought back lower are ahead more. There was time to see that the new iphone was actually delivering and not just some big hope.
I've been watching these boards for a long time and it never fails that whenever someone starts bragging about a particular stock day after day after day (and you are starting to be a one song singer lately) and how great it is, it's a sign that they are falling in love and not objectively measuring the valuation. That's usually when people start losing profits. This doesn't mean that you should sell Apple, but just means that you should be more skeptical of future growth until at least they are producing that new product and it is showing signs of gaining a profitable following.
I am happy for you that you are making a lot of money, but you don't make the money unless you sell.
It means the production from January is paid in March. They refer to the month of when the production was earned not when it is paid.
Before they went to a monthly distribution, they used a similar terminology and referred to the Q1 distribution as being paid in May, etc.
No he has it right. That is what is disclosed in the press release and takes into effect the 1 for 2 distribution upon spin off. Remember, last week they projected 2.20, so this is quite a decline and stunning that it came less than 2 weeks after they projected $2.20.
One thing to draw your attention to. They have said that they will market their interest in the midstream unit, UEO, which is owned in part by another entity. They should do well in that sale, which may be worth some $3-5 dollars per EVEP share. Someone can do the math. However, since this is a midstream investment, that will be a taxable event to EVEP unitholders and reported on your K-1 for the year in which it happens, although at long-term rates. EVEP will no doubt reinvest the money or pay down debt, but you will pay the tax on that gain.
One day they might monetize their Utica acreage. Many here added units at much higher prices when they spent 2+ years trying to sell that acreage and bragged about $20,000 per acre sale prices. Never happened.
Well you don't mention their assets so how can you analyze a company by only looking at the debt side? The key is not the absolute debt but comparing to the assets and the cashflow from those assets. You are probably on the right track that they have been paying out too much in distributions and will be forced to cut them (didn't they just pay the latest distribution in kind).
Sarge, you are getting a little carried away with the future Apple products. They have been talking TV for several years now and still nothing. Let's see when the iwatch comes out. Is Apple really going to get into cars and compete with all the car companies, Google and Tesla. Makes me think of when Exxon got into computers back in the 70's.
Another thing. People keep talking about Apple's cash, but that cash is trapped overseas. They have to continually issue debt in order to pay out these dividend and share buybacks. IBM did the same thing to sustain their share buybacks, but then they ran out of revenue growth. Apple has a much longer way to go, but do you ever see anyone talk about Apple's debt. Remember when they had 0 debt. Since the debt is cheap and tax deductible, it makes sense for them to issue it.
This has been one of the problems in valuing the spinco in that there aren't any comparable publicly traded GP's of an upstream MLP. One can make the argument that the GP should have a higher yield because they are more levered to the underlying cashflow from the MLP via the IDRs. Maybe this analogy is wrong, but it's sort of like mREITs yielding 13% when their underlying mortgage backed securities only yield 3-4%.
A cynic might venture that the money is so that the Cohen's parachute payments could be paid after they sell the spinco in a takeunder..
It has to be after the reverse. The spinoff doesn't take place until after the TRGP/ATLS merger. In other words, there is no spinoff until the shares are distributed in the 1 for 2 fashion. The announcement is for the projected distribution -- why would a rate for shares that don't exist?
And there is risk that holders getting the new shares are going to dump it, potentially driving the price down under $5, where no institutions can own it. Wonder when Cooperman gets a margin call. This will probably result in a takeunder at some lowball price.
Even though I have no confidence in the Cohens, if this got beaten down to a ridiculous price because of such action, I could play it as a spec because of the possibility of a lowball takeunder.
It also depends when you owned the ATLS shares. If you are a recent buyer, probably not much. Most MLPs have a calculator on their K-1 website in which you can estimate your ordinary income/capital gain for a sale, but they take down last year's K-1 when it gets close to the new K-1 time.
Oops, this is even worse. The projection is 70-80 and that's after the reverse split brought the projection up to $2.20. When the original deal was announced, it was $1.25 based on a distribution of 1 for 1 (which would have been $2.50 with the new 1 for 2 distribution). Then it was cut to 1.10 (or 2.20 for the 1 for 2).