Investment idea No. 1: LINN Energy (NASDAQ: LINE ) or LinnCo (NASDAQ: LNCO )
For those who are not familiar with these income machines, LINN is structured like an MLP, meaning investors will receive a K1 come tax time. Linn#$%$ the other hand is structured like a normal C-Corp meaning investors will receive a Form 1099 each year. Because LinnCo's sole assets are units of LINN you can invest in either company depending on your tax preference.
Lately the pair have been under a lot of pressure after a series of negative attacks on LINN's business model. The attacks have brought the respective yields to around 9% for LINN and 8.5% for LinnCo when you take into consideration the soon to be rising payout after the Berry Petroleum (NYSE: BRY ) acquisition closes. Berry adds significant oil assets to the combined company and the deal significantly improves the reserves, credit metrics, distributable cash flow ratio, and production. The bottom line here is that investors can lock in significant monthly income by investing in either company.
Embattled oil and natural gas producer
Formerly regarded as a safe haven for income investors, shares of Linn Energy (NASDAQ: LINE) have taken a nose dive in recent weeks as questions have arisen regarding the company’s accounting methods and overall profitability.
Shares began their precipitous drop in early May following a feature Barron’s Magazine article which argued that company fundamentals are deteriorating. Energy production at Linn Energy has stalled in 2013, leading to inadequate cash flow generation in order to meet the $2.90 annual payout for investors.
Oil and gas production fell to 796 million ft³/day during the first quarter, below prior guidance of 827 million ft³/day. The company also restricted itself by stating it reviews cash distributions on an annual basis, rather than a quarterly one. This rigid policy makes a perceived financial shortfall more apparent.
LinnCO (NASDAQ: LNCO) board member Terrence Jacobs stepped in on May 30 and purchased 15,000 shares of Linn Energy for $34.20 per share. The total transaction value amounted to $513,000 when the stock was purchased.
Jacobs failed to catch a falling knife and restore confidence in Linn Energy’s flailing share price, as shares have fallen 15% further since the time of purchase. All in all, investor confidence in Linn Energy appears to be waning.