and it will only get worse as the Fed hikes rates
The yield is too low and that's a result of the distribution growth not being aggressive enough
Some say that aggressive growth is too costly
Well wait to you see how costly it is when EPD dos its next equity offering @ 25+% off its highs
raising the distribution growth rate to 3/4 of a cent costs all of $5 mil a Q out of a retained $250+ million Q
going to $0.00625 (5/8s vs the current 1/2 cent) Q costs a whopping $2.5 mil Q
whereas the company has lost $20 Billion in market cap since its highs
This loses another 25% off its current value in a combo broad mkt correction/Fed action and you're looking at a $25 equity
I've kept my mouth shut through a 25% decline
The time for action is now
Well you couldn't have suffered the 08/09 losses... we aint going there but the broader mkt is going to see a 20% correction
How energy can see that kind of further decline is beyond me but the sinking tide will take all ships with it
MLPs need to maintain a growth in their dist growth rate or they begin to stagnate... when 2-3 years go by with the dist increasing by a set amount, the rate of increase begins to decline to where the units are not attractive vs their peers... and EPD has the cash to distribute more of the partners cash to the partners...EPD has become a laggard after being a leader for so long
If you're happy with the 1 cent total dist growth over the past 6 months vs the approx. $10 unit decline you're nuts... the perception of more cash being distributed to partners will attract new partner interest... and Like I pointed out when you are retaining $250-$300 million per quarter of the partners money... paying a whopping 1-2% total of the retained cash to the partners to defend the equity is a drop in the bucket when it comes to using the retained cash for organic growth
Look at it this way.... the 25% decline in unit value means that IF EPD wants to do a $250 mil secondary for organic growth... they have to issue 8.1 mil units @ $31... IF they defend the unit value at $41 they only have to issue 6.1 million shares so that's 2 mil shares of added dilution that actually cost $3 mil in additional distributions on the additional required shares.... So the end result is the mkt cap has taken a $20 billion needless hit and the company would be paying out just as much additional cash after the secondary which we all know will eventually come... also... stronger unit value/less dilution equates to a lower cost of capital moving forward
One needs to go back to November of 2013 for the units to be this low.... that's 19 months of unit appreciation down the toilet while the S&P remains within 1.5% of its all time highs.... the market is not giving EPD the same vote of confidence that the longs here give... IF EPD was as strong as some believe this would be 7-10% off its highs at most
Something has to give so you the unit holder are pocketing more cash and your equity is worth 33% mor
nonsense... The dist is growing @ 5 cents year on $1.50.. that's 3.3% show me where that math is incorrect
IF you can show me where my distribution grew by 12% I'll eat my hat
I understand the 5.6% metric but its not a realistic one because IF I want to buy EPD today the trailing yrs Q is irrelevant to the new money which drives the unit price
The only thing that is relevant is what will I be paid over the next year... so when the stated distribution today is $1.50 (based on $0.375 Q) and IF I hold and collect the next 4 pmts I will collect $1.55 with the compounded 1/2 cent increases which is a 3.3% increase and that rate of growth is not enough to attract new money (the stated annualized rate at that time will be $1.58)
I've made this argument many times before and while the stock was a leader the argument appeared to be empty... but now with the equity 25% off its highs its hitting home how saving DCF for growth can be a huge negative when one considers doing a secondary with a beat up unit price
I used a speculative $250 million secondary in my previous post but the reality is EPD does secondary's far in excess of that... a $1 Billion secondary costs $12 million more per Q doing a secondary at $31 than it costs doing a Billion$ at $41
That's cash that could be in partners pockets via higher yields/growth rates which result in stronger equity and lower cost of capital for growth projects
Increasing the dist growth rate is a win win for partners because we get more net cash and higher equity
The market has despised the last two "prudent acquisitions" as the equity reacted to both in an extremely negative fashion... that would indicate that those who are way smarter than you or me feel that EPD over paid for those acquisitions
25% to the downside is not a short term price movement... it is in fact a sign that there is something else going on... whether that be overpaying for acquisitions... too small of the dist growth rate... or even an inclusion of the fear of the Fed
No matter how you stack it up when a company is off 25% of its highs it can no longer even be in the discussion for the best run company in its space
All unit holders deserve the unit value to be defended because we are all beset with different situations in life.... an emergency here... a tragedy there.... which may require liquidation of all or part of their holding.... how they cash out or profit should not be "at the whim of the market"... the company needs to protect the equity of all holders at all times... and one should not dismiss a 25% decline because the reality is that the "market" is generally efficient..... and we could argue that inefficiencies in the market are abundant with the S&P within 2% of record highs... but that makes EPDs situation that much worse because IF it is such a market leader why is it at lows while the my is at highs.... in well over a decade of owning EPD I cannot remember a time where EPD trailed the mkt performance by in excess of 20%
These are valid point that management needs to addess
Just explain then what relevance your adjusted cost has to new money coming to the company that is necessary to recapture the "short term' losses... I'm surprised you didn't stun us all with your personal adjusted yield on the $ invested
This has become a laggard of the sector.... and all arguments that its a leader are past history... EPD can only be judged by its present
Don't lecture... you make plenty of mistakes in your posts/opinions... like when you said late last year/early this year that Cushing was drawing down when it was in fact filling at record rates..
Your's is an opinion just like mine... mine is more than valid... don't give me that "OK" tone like a know it all
The market currently disfavors EPD...., an opinion on why that is helps here... an opinion on why the market sold off the last 2 acquisitions helps here... faith is for church... management teams need their feet held to the fire and IF 25% down after 2 acquisitions isn't the time to do there never is a time to do so
This space is for discussion of EPD pro and con.... no one determines what is relevant... I don't care that EPD stated that July/Aug is when they determine when to act... IF they don't think the natives are getting restless with their inaction they will not act... I'll bet that IF they don't act in July/ Aug of this year with a an increase in the rate we will see another selloff in excess of 10%... would that be the time to question them.... after the fact
I'll apologize.... I'm sorry... I'm sorry that I have questions and want answers why my 20K shares have lost $200K in value... and the reality is anyone who owns 100 shares has the same legitimate right for answers why their shares lost $1000
This board will not influence the share price... but what it can do is let management get a feel for their investors sentiment.... the sentiment that its OK for a company to be down 25% when a market is at highs is insane...
well this meltdown started on Oct with the oil tanking acquisition... so we are 8 months in... My wager is that without some form of defensive move by the company this goes lower still and will be below current levels at 12 months out and 18 months out
As for "what kind of defensive measure" can a company take... this is a very rate sensitive MLP... yield and dist growth rates have a direct correlation to valuation... IF we cant agree that that is a standard that MLPs are weighed by then we exist in different universes
IF no steps are taken to defend the equity its a guarantee that the next secondary is done $30 or less... which in a rising rate environment will scalp another 5% from the units value
My response was to say you whine every quarter about the distribution policy
wow... I had not posted on this board since January... which would mean 2 EPS & distribution announcements came and went with out a word from me... the last I mentioned the distribution on this board was on 7/30/14....so that's close to a full year without any mention... and I did not criticize no movement at that time...
Do you have any other keen observations about my whining every quarter about the distribution? Get a life and your facts straight... had EPD given us an eighth last August maybe we wouldn't be off 25%.... and in a situation where 1/8 of a cent wont cut it to defend the equity at this time
I did not say a word as the units went from $39-$31... Yeah... I was screaming in January how things would get rough as a result of US energy policy... how E&Ps would be in deep poo... and it would trickle down to EPD... wow... that whine was way off base... In that time frame I recall 2 points of wisdom from you... that NGLs were holding their own (they were in fact in steep decline)... and that Seaway was at half capacity because Cushing had been drawn down... when in fact it was filling at a record rate
could you provide me with the definition of "almost no secondaries" because I recall quite a few... including one that was announced days after the last time they increased the rate... they continue to average more than 1 a year... so I would like to comprehend what "almost no secondaries" means... because we obviously have a different definition of "no"
In fact I would wager that we are very close to a secondary at these depressed levels.... I actually believe that they will do the same thing as the last time... give us a bone... watch the stock pop a buck... and then do a $1 billion secondary... so smart money would go short against the box about 4 days after any announcement of an increased dist...
Right now EPD does not care much about short term price moves in the unit price. Less
This is in fact another beaut... its public... they have what is called a fiduciary responsibility to the unitholders to care about the unit price each and every day... and anyone who thinks 25% over 8 months is a short term move needs to provide the definition of "short term"
and... the trend line is down... they had better get concerned with the near term movement because the market affects on EPD are only going to become even more difficult
Learn to pay closer attention... my actual "unit" count is 21,000.... I would usually just refer to it as 20K but next thing you know someone will say I posted misinfo
And I'm sorry to inform you but officers and directors do have a fiduciary to properly shepherd and protect the value of an equity... otherwise it would be legal for them to run it into the ground and offer to take it private.... just as it is a violation for them to allow market forces to depress value when they could take corrective action.... Its the actual reason the BOD exists and has control over the officers..... but what the hey... why let facts get in the way of the discussion
Oh yeah... and its that BOD that actually sets the distribution policy.... hmmmmm.... no fiduciary responsibility on the part of the BOD... that has to be one of the biggest crocks of poo ever posted
Ohhh... I know... you will say their is no fiduciary to protect the unit value.... what then does the elected Board of a public company exist for then?... Its exactly why activist investors like Icahn go after the board when they feel the company has been mis-run and that there is value to be unlocked.... but what does a multi billionaire like Icahn know
They are in the process overseeing a decline that could rival the 08-09 debacle that was beyond anyone's control
When the market takes its correction we are now all but guaranteed to see sub $25
I'm starting to believe this could trade down to a 7% yield
The fact that they had bullets to fire and did not act is reason for their jobs
I just took a look at 08-09, EPD traded approx. 30% off its highs
EPD was about 28% off its highs this morning so when I said rival 08-09 I hit the nail on the head
Its currently shaping up to be worse than 08-09.... while management sits around with their thumbs up their you know whats
Denial of this fact set is a terrible form of complacency
The world was in financial meltdown back then... today the cheerleaders call this short term trading... well in my humble opinion an event that is well on its way to being a bigger correction than 08-09 is an issue that needs direct attention
But that would be an interesting area to bottom fish AFTER the upward rate cycle begins...Its about 45% off its highs ( where he hyped it) and has about a 13% yield currently
I'll probably buy some after the 1st hike.... it has the most to gain
and after all... you buy low and sell high.... just something for open minded guys who want a killing to think about.... when EPD rebounds.... MLPL will do at a far greater rate
I have owned MLPs for decades through many a rate cycle and market correction....
EPD will be back... but it will take a while... not as long as you suggest
EPD will find support in the 6% yield range... $25... that will beat anything you can do with new money at that time other than something like AMLP (higher yield) or the leveraged MLPL (greater appreciation & yield)
Have some real fun.... click my posts and see if what I was "ranting" about came to fruition...
Then consider my current opinion... along with my conviction that EPD needs to bump the growth to at least 5/8s of a cent.... but 3/4 at this time would be far better... I don't like the "1 cent special" bumps
It will offer some minimal equity support a it trades to that 6% yield especially another 6 months to a year out
And I remain convinced that had EPD moved to 5/8s of a cent 18 months ago this would currently trade in the mid $30s and their gun would still have a bullet or two to fire to protect the equity
10 years at 10%???????????????????????????????
I would love to see just 1 year where the distribution increased by 10% annual
It has never increased by 10%... back up that statement with a fact set that supports it!
Currently it increases by 5 cents a year.... thats 3.3% on the current $1.50
as I have pointed out... increases based on the prior years same Q are a skewed metric... the only thing that matters is if I buy today what will I collect over the next year... and that is $1.55.... 5 cents more than the current $1.50
Please give us all the performance that EPD has given over the past year.... or the performance since $41.38... or the performance since the split
I'll shoot them out... past year...-25%....since the $41.38 high...-29%.... since the split... again -25%
The previous Q EPD retained $300 million of the partners money..... thats $300 million.... which is $1.2 Billion annually
What do we have for that retention.... -29% over the past 12 months.... one of the biggest laggards of the MLP sector
had they given the partners just 1/8 of a cent over the past year they would have given us a whopping $25 million total.... that's out of the average retention of in excess of $1 billion.... less than 2.5% of the retained cash given to the partners that is the partners cash... $25 mil of the partners cash used to support the equity
Obviously the current strategy of all that reinvestment is NOT working at this point in time... any argument that it is is a fools argument because every MLP that has a higher dist growth rate is not off 30%.... and all those MLPs do not have an excess of $1.2 billion of retained cash
When the next secondary comes around this equity slaughter will cost the current EPD partners excess dilution that could have been paid to partners in cash
Its all about NGLs...
and while the upcoming Q will not be stellar.... its not as bad as some would have it....
Gut tells me it is slightly better than Q1....
It is no where near as simple as you suggest when a large % of the proceeds will be taxed at regular income rates
Far better to be selling calls and or buying puts.... not a bad idea to go short against the box.... For all my criticism of EPD it will be back in the long term... it is the near term that is the issue....
While oil and gas prices are the primary driver of this selloff Fed action continues to loom large... that can cause the selloff to accelerate.... or out of the blue... while the Fed is raising rates... energy could rally... completely negating the affect of a rate hike or we could see strength in the equity despite a rate hike
It is impossible to read right now... but IF energy does not rally before a September hike in rates the pain will be much worse than it already is... there is also the factor that when rates rise the dollar will strengthen so oil will probably take a hit IF we don't see a shift in the supply demand issues
I have been short against the box for some time... which is why its easier to swallow this... I will cover prior to ex-div and then decide what I want to do again there after
Well to start they could hit Saudi Arabia with a tarrif of 2Xswhat they discount Brent for when they sell it into the US market
They are still selling at approx a $4 discount.... And since US refineries are set up to refine Heavier Brent it is cheaper to refine than WTI and LLS so the refineries jump at it with the discount vs the US crudes
DC could suspend the crude export ban and export to Europe where there are refineries set to refine Lighter oils.... Send the POS Saudis a message.... Because IF we export light US grades to Europe the Saudis would be forced to discount to the WTI price.... See how the like selling at a discount to $45 instead of a discount to $52... Fight fire with fire
But you would need an administration in power that is respected by the Saudis.... One that negotiates from a position of strenght.... Opps.... Really didnt want to reference Iran