They argued unrecognized costs of put contracts Linn Energy has put on to hedge its natural gas production at $5 per mcf undermine the company's ability to fund its dividend. Barron's and Hedgeye both questioned whether the costs of those put contracts, a weak quarter of energy production at Linn Energy and its capital expenditure even put the company at risk of lowering its dividend.
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Cooperman argued Linn Energy has capitalized the costs of its energy hedges in accordance with Generally Accepted Accounting Practices (GAAP). Non-GAAP metrics such as earnings before interest, taxes, depreciation and amortization (EBITDA) that are often cited by Linn Energy and investors, by definition, would not include the capital expense of put contracts, Cooperman's letter stated.
Finally, Cooperman highlighted that independent third parties Citigroup and Credit Suisse have valued LinnCo (LNCO_), a subsidiary Linn Energy is using to acquire Berry Petroleum, at $35.92 a share and $39.64 a share. Those valuations are well above Linn Energy's current share prices and, according to Cooperman, take into account any tax liability the company would face in its proposed acquisition.
"[We] are of the view that the shares are undervalued and offer an attractive total return proposition -- dividend plus change in capital," Cooperman wrote in a follow up e-mail to TheStreet.
Currently, Linn Energy is a battleground stock in an energy sector filled with activist investor dramas, CEO change and corporate breakups.
At issue is whether Linn Energy can maintain or even expand its high-yielding quarterly dividend payout of 72 cents a share and whether a potential drop in the dividend would chip at the company's valuation.
Barron's and independent research firm Hedgeye Risk Management both argued that Linn Energy isn't properly expensing its costs to put on energy price hedges, which have so far helped the company either maintain or grow its dividend for 29 consecutive quarters.
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Cooperman's Omega Advisors Is 'Comfortable' With Linn Enegy
BY Antoine Gara | 06/18/13 - 02:23 PM EDT
Updated from 11:45 a.m. ET to clarify of Linn Energy's hedging activities and include afternoon share prices.
NEW YORK (TheStreet) -- Leon Cooperman of hedge fund Omega Advisors is comfortable with his investment in Linn Energy (LINE_), amid analysis from major media and independent research firms that the oil and gas driller may be unable to support a high-yielding dividend and is only worth 50% of its current share price.
"Omega Advisors, Inc. is comfortable with our investment in Linn Energy, we are convinced of the professionalism and integrity of the company's management, we are optimistic about the company's future growth and financial performance," Cooperman wrote in a June 17 letter addressing Omega's investment in Linn Energy.
In his letter, Cooperman pointed out that Linn Energy has mostly hedged its energy production with costless swaps contracts, potentially undermining claims that the company is under-reporting costs incurred to hedge its energy risk. Such costs, Barron's argued, could mean Linn Energy is unable to maintain its dividend payout.
Omega Advisors is Linn Energy's largest outside investor, with a 3.05% holding in the company's shares worth more than $200 million, according to March 31 Securities and Exchange Commission filings compiled by Bloomberg.
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Oppenheimer increased its price target on Occidental after meeting with the company's CEO. The CEO stated that the company could announce plans within three months to spin off its international operations and use the $20B estimated proceeds from selling a large stake in the new company to repurchase 25% of its shares outstanding, the firm reported. The company also believes that its California and Permian assets could be spun off into two separate companies, added the firm, which keeps an Outperform rating on the stock.
Rgchjr, you may or may not be correct when you post, "My assessment of COP is that it was poorly run." It doesn't matter to me. I bought COP when they announced the spinoff of PSX. After the spinoff, shares of COP were paying dividends in excess of 5%. That rate has decreased, not because COP decreased it's divvies, but because the pps of COP has jumped higher. Furthermore, the shares of PSX have almost doubled in value since the spinoff.
Rgchjjr, why are you being so critical of a spinoff that made so much money for it's shareholders?
Pham, I'd never consider selling my OXY shares. I plan on leaving them to my heirs. I began investing in OXY in the early 1990's and invested about $20k in the shares, for about 1,200 shares. The shares split once to become 2,400. Their current value is around $217k. And during the time I have owned these shares, the dividends have more than paid off the cost basis for my investment so, in a way, I really got the shares for free. This year, OXY will pay me $6.1k in dividends, $500 a month.
And there's one hidden advantage to never selling my OXY and leaving the shares to my heirs. Despite the value of my shares multiplying 10 fold, when I leave them to my heirs they will be tax free. The state and federal governments won't get their 30% tax cut of the profits. All the money will stay in the family and that's important in this era of economic uncertainty.
All of us OXY shareholders would like to know more about Chazen's plans to increase shareholder value. The pps has been stagnant for quite some time. But it's early, give Chazen a chance to formulate his plans and then we'll see. And of course, while we're waiting, we have the dividend income to rely on.
Besides owning OXY shares, I also own shares of COP. COP recently completed a spinoff of PSX and sold other assets to increase shareholder value. And COP's plan did substantially increase shareholder value.
Lionelman, the credit is limited to $300 for a single taxpayer and to $$600 for married. These are figures that are too small to consider when investing in ERF on a large scale. Lionelman, either you don't know what you're talking about or you are trying to save face with your wrong information about double taxation of ERF divvies.
Lionelman, I believe that your answer is wrong. If a U.S. shareholder owns shares of ERF, outside of a tax-deferred retirement account, then Canada will tax any dividends at a minimum rate of 15%. Then the U.S. can also tax the dividends at either an ordinary or qualified gains rate, depending upon how long you've owned the shares.
The U.S. shareholder of ERF can get back some of the taxes, they pay to Canada, by claiming a 'foreign tax credit' when they file their federal returns ($300 max for singles and $600 max for marrieds).
But It's definitely double taxation on the divvies, by Canada and the U.S.. And this double taxation definitely reduces the value of the dividends.
There has been no fanfare in CSX's pps climb over the last six months. But six months ago, on Nov 16, the pps of CSX hit a low of $18.88. Today, on May 15, the pps touched $26 a share. That's a gain of $7.12 and represents a percentage gain of 37% since it hit it's low.
LNCO Announced that it's Dividend payments will be made monthly and not quarterly. Also, the monthly payments will increase from $.2416 (annualized = $2.90) to $.2566 (annualized = $3.08). The increase in payments will begin following the closing of the Berry merger.
HOUSTON, April 25, 2013 (GLOBE NEWSWIRE) -- LINN Energy, LLC (LINE) and LinnCo, LLC (LNCO) announced today that both Boards of Directors have approved a change in their distribution and dividend policies from payment quarterly to payment monthly beginning in the second quarter of 2013. The payments of monthly distributions and dividends are expected to commence in July 2013.
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Panelists said containers most likely to be shipped through the new Panama Canal would be filled with so-called discretionary cargo - material bound for U.S. markets outside the Southwest. For now, much of that cargo flows through the Ports of Los Angeles and Long Beach and then onto rail cars traveling eastward. In the future, it is possible some of that cargo could flow through the canal and then be unloaded from ships in eastern ports like Houston, Texas and Savannah, Ga.
"This is an incredibly complex matter," O'Connell said. "We can anticipate some diversion but the true extent of it? It's still up in the air. Ferdinando Guerra, associate economist at the Los Angeles County Economic Development Corp., told the committee the state also must prepare for increased competition from ports in Canada and Mexico, in addition to East Coast ports. Guerra said. "This is a very complex issue that involves many critical related factors that will ultimately determine how much of our market share is lost. It's not a matter of if. It's a question of how much market share we will lose."
According to materials distributed at the hearing, 40 percent of total containerized cargo entering the United States arrives at California ports. Less
And they have a right to be scared. The Canal Expansion is due to be completed in two years and the expansion definitely means more business for Eastern Railroads. Here is an article that looks at California's concern about the expansion:
Panama Canal expansion impact on ports discussed at California Senate panel session:
By Brian Sumers Staff Writer
Posted: 02/22/2013 07:13:42 PM PST
While it's too early to know how global trade routes will be affected by the Panama Canal expansion scheduled for competition by 2015, California ports and state leaders should prepare for increased competition, business and labor experts told a state Senate panel on Friday.
Widening the canal will allow even larger ships leaving Asia to sail directly to the East Coast without stopping in California. Because of concerns that the project could negatively affect the state's economy, Sen. Curren D. Price, Jr. convened a hearing of the Senate Committee on Business, Professions and Economic Development at Los Angeles City Hall.
"What if the biggest of the ships go through the Panama Canal?" the Los Angeles Democrat asked. "What does that mean for us? We need to hear what we are up against, who might be impacted and what we can do on the state level to be prepared."
The panelists generally commended Price for considering the issue, and said California must ensure the state's ports remain competitive - especially the San Pedro Bay complex of the ports of Los Angeles and Long Beach, the nation's two busiest ports. But they cautioned the global shipping industry is complex, with many different factors affecting what goods are shipped where.
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Stockminder, I invest in other companies besides utilities. But there a couple of really neat things about investing in companies like Xel. Firstly, if you let the dividends reinvest themselves, then your total cost basis is covered in the space of about 10 years. Secondly, if the utility is a good company, the pps will also rise over time. Thirdly, after 10 years of reinvesting your dividends, you may decide to use your dividends to pay your utility bills.
My experience in 'long term' investing in Xel, and reinvesting the dividends, has been nothing but good news for me. It was if I'd made Xel a loan of $10k and they paid back the loan five fold, with divvies and pps gains. I still choose to reinvest my dividends but, if I needed the money, I could use the divvy payouts to pay my Xel utility bills for the rest of my life, without decreasing the value of my shares. Win-win situation for the long term investor. But you must be steady and patient, plenty of ups and downs over a long term investment period. But the divvy reinvestment takes away the worry.
Good luck to all Xcel long investors, no guarantee of success but they sure did alright by me.
Actually, the pps for Xel dropped to below $6 a share in the 2002 timeframe, about 4 months before I invested at $10 a share. Xel overextended their debt by gambling on a large internet play and lost. There were questions as to whether or not Xel would go belly up. Obviously they didn't and obviously I wish that I'd bought more shares at $10, but I didn't. Hindsight is always 20/20. But I'm satisfied with my Xel returns and absolutely refuse to look back and wish that I could have made more, don't be greedy.
As an NSC long term shareholder, I can live with that. Summary of quarterly report:
NORFOLK, Va. (AP) -- Norfolk Southern says its first-quarter profit improved 10 percent as an increase in railroad shipping volume and a land sale helped offset continued weak coal demand.
The Norfolk, Va.,-based railroad said Tuesday that it generated $450 million net income, or $1.41 per share, on $2.74 billion revenue. That's up from $410 million, or $1.23 per share, a year ago.
The railroad beat Wall Street expectations, even without a one-time profit of $60 million on the sale of land to Michigan that added 19 cents per share to Norfolk Southern's earnings.
Analysts surveyed by FactSet expected Norfolk Southern to report earnings of $1.17 per share on $2.78 billion in revenue.
On this board there seems to be general confusion as to whether the LNCO 1099 dividend payouts should be treated as ROC or as dividends. I went to LNCO's home page and LNCO makes it quite clear that the dividend payouts are not ROC. The dividend payouts are taxed at the dividend rates. Here is the info from LNCO's home page:
• Cash distributions from LinnCo treated as dividends to the extent that LinnCo has earnings and profits ◦Taxed at dividend tax rate
I bought 1,000 shares of Xcel when they were in financial trouble in 2002. My cost basis was between $10-$11 pps, for a little over $10,000. Over the last eleven years I have let the dividends reinvest themselves into more Xcel shares, so now I own 1770 shares. At today's current pps of $31, that makes my shares worth over $54,000. Plus, Xcel currently pays me over $1,900 annually in dividends, which I continue to reinvest. This annual divvy payout represents about 19% of my original cost basis. I continue to reinvest the divvys into Xcel and will leave the shares for my heirs.
I believe that's what they mean by long term buy and hold investing in conservative utility stocks.
Pshonore, since there is question on this board as to whether LNCO's dividends are treated as taxable dividends or ROC, I went to the company's home page for the answer. LNCO's dividends are definitely treated as dividends and not ROC for tax purposes. Here is the information from LNCO's home page:
• Cash distributions from LinnCo treated as dividends to the extent that LinnCo has earnings and profits ◦Taxed at dividend tax rate