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Jubak Dividend Income – Sells


Company Symbol Date Sold Sell Price Price Now Today's Change Gain/Loss Since Sale
Holly Energy Partners HEP 07/02/2015 $34.50

I’m going to sell my position in Holly Energy Partners (HEP) out of my Dividend Income portfolio tomorrow July 2.

The master limited partnership has been a steady distributor of cash... more

Ensco ESV 05/12/2015 $26.79

On May 11 I posted that I would sell Ensco (ESV) out of my Dividend Portfolio on May 12. I’ve been slow in posting the actual sell, however, and the... more

Pfizer PFE 07/18/2014 $30.73

I’m going to use today’s (July 18) rather surprising upward move in US stocks-despite a big upswing in market nervousness yesterday-to sell Pfizer (PFE) out of my Dividend Income portfolio http://jubakam.com/portfolios/jubak-dividend-income/.... more

Kinder Morgan Energy Partners KMP 08/13/2014 $93.35
Update September 17, 2013: The run up in U.S. interest rates and worries in the weeks leading up to tomorrow’s Federal Reserve decision on whether or not to begin reducing the central bank’s monthly... more    Read Jim's Original Sell
TECO Energy TE 05/21/2014 $16.92

Now that I’ve collected my dividend on TECO Energy (TE) I’m going to sell the shares out of my dividend income portfolio http://www.jubakpicks.com/jubak-dividend-income-portfolio/. The stock went ex-dividend on May... more

Sell Holly Energy Partners

July 1st, 2015

I’m going to sell my position in Holly Energy Partners (HEP) out of my Dividend Income portfolio tomorrow July 2.

The master limited partnership has been a steady distributor of cash since I added it to the portfolio on May 31, 2013 with distributions equal to an 11.4% yield on the original purchase price of $35.96 as of the last distribution to holders of record on May 15. And the MLP still yields 6.1%. (The next distribution is likely to come to holders of record at the end of July. The next quarterly earnings report is now scheduled for August 4.)

But with any master limited partnership you want to see a solid stream of new investments that will growth distributable cash flow in the future and that future investment inventory looks thin for Holly Energy Partners right now. That’s a significant weakness in this master limited partnership as we get closer to an initial increase in interest rates from the Federal Reserve sometime as early as September or as late as December 2015.

A major portion of the growth in assets at Holly Energy Partners has come from the drop down of assets from refiner HollyFrontier (HFC), which spun off the MLP in 2004. But that cupboard of drop down assets from HollyFrontier is looking a little bare right now and asset growth at Holly Energy Partners looks like it will have to draw more on acquisitions in the sector at a time when volatility in the U.S. oil and gas sector is increasing raising the risk of these deals. This bare cupboard also comes just as incentive distribution rights kick in that increase the share of distributions flowing to HollyFrontier to 32% in 2018 from 23% in 2013. (HollyFrontier is the general partner in the MLP structure and owns 44% of Holly Energy Partners.)

I don’t think you have to sell Holly Energy Partners here—there is that 6.1% yield—but while the MLP has been on an upward trend since April, the volatility in that trend has been increasing. I’d expect those swings to increase in magnitude as the markets get closer to the first Fed interest rate increase. I wouldn’t mind having a little more cash available in this portfolio as volatility in the income sector increases. There’s always the chance of catching a bargain at a time like this.

As I noted, distributions on this pick equal an 11.4% yield. The price of Holly Frontier was down 4.06% from my purchase date as of the close on July 1. My total return on this position is 7.3%.

Sell Ensco

June 27th, 2015

On May 11 I posted that I would sell Ensco (ESV) out of my Dividend Portfolio on May 12. I’ve been slow in posting the actual sell, however, and the usual recap of my logic. My apologies. Here’s that sell post now. On May 11, the shares closed at $26.13. On May 12, the close and sell price for the shares was $26.79. Today, the shares closed at $25.26. I missed the local high with my May 12 sell by a day. The shares closed at $27.35 on May 13.

The logic of the sell was simple: The rally in the shares of land-based and deep water drillers that went along with the rally in oil prices had gotten ahead of itself. Before a slight retreat on May 11, Ensco had been up 16.6% in the month.

The fundamentals of the deepwater drilling companies look likely to continue to deteriorate into 2016 as oil producers negotiate aggressively to cut their costs and a big back log of new rigs ordered near the market peak is set to hit the water in 2015 and 2016 before the schedule gets much lighter in 2017.

I suggested taking profits here before those fundamentals reasserted themselves in investors thinking.

Ensco’s quarterly earnings report, released on April 30, filled in some of those fundamentals. Ensco shows that 20 rigs (6 floaters and 14 jackups), roughly 30% of the company’s fleet, will roll off contract in 2015. Even if all of those rigs find new work, they’ll find it at lower day rates. Producers are determined to reduce costs by squeezing suppliers so that they can make money at $70 a barrel or lower and don’t need a return to $100 a barrel oil to turn a profit. In addition, drillers face a huge bulge of new construction. Estimates for the sector show 19 new rigs under construction for delivery in 2015 and 14 in 2016 before dropping to 4 in 2017 and 1 in 2018. (These figures don’t include rigs under construction in China.) Some of these will undoubtedly be delayed or even canceled, but their existence will help push down prices. Ensco itself has 3 drill ships and 3 jackup rigs under construction.

Total spend by oil producers on floaters will fall to $34 billion in 2015, down 8% from 2014, according to Credit Suisse with the analyst projections looking for another 10% to 15% drop in 2016 to $30 billion. If that projection turns out of be accurate, then I think we’re looking at capital spending on rigs bottoming in 2016 and a more sustainable rally emerging later in 2015 when that projection gets some confirmation from the data. I’d look to rebuy Ensco on that schedule.

Sell Pfizer

October 24th, 2014

I’m going to use today’s (July 18) rather surprising upward move in US stocks-despite a big upswing in market nervousness yesterday-to sell Pfizer (PFE) out of my Dividend Income portfolio http://jubakam.com/portfolios/jubak-dividend-income/. (The Standard & Poor’s 500 index was up 0.96% as of 3:00 PM New York time.)

After the failure of the big drug company’s efforts to buy AstraZeneca (AZN), Pfizer seems a cash cow without a strategy. Not that the attempt to buy AstraZeneca was birilliantly creative-the deal would have let Pfizer move its tax-jurisdiction to the United Kingdom from the United States for huge savings. But it wouldn’t have done much if anything to fix the combination of ineffective research and expiring patent protections (Celebrex, the company’s $2.9 billion (in 2013 sales) arthritis blockbuster, is scheduled to go off patent in 2015) that are projected to slow sales growth to a crawl. Morningstar projects Pfizer’s sales growth at 1% a year over the next decade; share buybacks will raise earnings per share growth to 3% a year. In its year-by-year earnings per share projections, Credit Suisse calls for earnings per share to grow to $2.24 in 2014 from $2.22 in 2013, and then to $2.30 in 2015, and $2.61 in 2016.

Even with a 3.4% current dividend yield, those projected growth figures don’t add up to much in the way of upside capital appreciation.

If all I was looking for at the moment was safety, however, I’d consider hanging onto Pfizer.

But the combination of rising nervousness-the VIX volatility index climbed by 32% yesterday-and a rise in geopolitical tensions argue that I’d like to have a little cash on hand in case events in the Ukraine or in Gaze over the next few days result in a drop that might give me a buying opportunity in a dividend stock with a higher yield and better prospects for capital gains.

I would also probably hang onto Pfizer if I didn’t have a good replacement up my sleeve-but I do (and I’ll tell you what it is next week) and so it’s time to sell with a small 0.63% loss in share price (made up for by that near 3.5% dividend) since I added these shares to the Dividend Income portfolio back on February 6, 2014.

The stock goes ex-dividend on July 30 in case that income in hand (as opposed to capital locked up in the share price) is important enough to lead you to think about putting off a sale. (Share prices do tend to drop after the payout to match the dividend payout. Otherwise, if you think about it, dividends would create value for investors out of what is actually a distribution of cash that lowers the balance in a company’s treasury and raises it in shareholder wallets).

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I managed, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund shut its doors at the end of May and my personal portfolio is now in cash. I anticipate putting those funds to work in the market over the next few months and when I do I’ll disclose my positions here.

“Sell” recommendation from Hedgeye pushes Kinder Morgan yield to 6.75% and I say “Buy”

September 17, 2013

The run up in U.S. interest rates and worries in the weeks leading up to tomorrow’s Federal Reserve decision on whether or not to begin reducing the central bank’s monthly purchases of $85 billion of Treasuries and mortgage-backed securities hasn’t been kind to dividend stocks, REITs (real estate investment trusts) or MLPs (master limited partnerships.) In fact pretty much anything that trades on yield has tumbled. For example, units of Kinder Morgan Energy Partners (KMP), a member of my dividend income portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ , had fallen from $83.35 on August 28 to $81.32 on September 10. That’s a pull back of about 2.4%. But the damage has gotten a lot worse in the last few days. On September 11 an analyst with Hedgeye Risk Management told Fox Business Network that Kinder Morgan was a house of cards,” that “Kinder Morgan’s issues are very concerning,” and that “there are some very misleading statements with some of the non-GAAP financials.” Investors should sell Kinder Morgan. (The analyst, Kevin Kaiser, seems to have been talking about all the Kinder Morgan companies: Kinder Morgan (KMI,) the general partner; Kinder Morgan Management (KMR), which pays distributions in shares rather than in cash; and Kinder Morgan Energy Partners (KMP), the cash-distributing MLP.) On that blast the units of Kinder Morgan Energy Partners have dropped to $78.17 at the close on September 17, a drop of another 3.9%. Since I was about to recommend buying Kinder Morgan Energy Partners on the drop—since the yield has climbed to 6.75%--I thought it would be a good idea to dig into the report and Kinder Morgan. My conclusion: I’m still recommending that you buy the units at this yield. If I wanted to be really cynical, I’d say the report from Hedgeye is an effort to profit—if you sell short—by playing on general fears of a decline in yield assets in light of the possibility of rising interest rates and that Morgan Kinder Energy Partners in particular and MLPs in general make a good target because relatively few of the retail investors who own MLPs understand all of the ins and outs of this financial instrument. If I wanted to be less cynical, I’d say that the report dredged up “issues” that really aren’t issues to those of us who have followed or owned Kinder Morgan Energy Partners for a long time. (I’ve owned Kinder Morgan Energy Partners off and on in one portfolio or another since 2005.) What kind of issues? Well, how about the charge that there are “some very misleading statements with some of the non-GAAP financials?” If I’m reading the Hedgeye report correctly, this refers to the way that Kinder Morgan Energy Partners reports maintenance capital. The report argues that the MLP is over-distributing cash flow because it under reports maintenance capital. This argument isn’t new—you can argue about what constitutes maintenance capital and growth capital. But importantly for investors Kinder Morgan has been consistent in how it treats this accounting over the years. I don’t see any evidence that the MLP has been shifting accounting treatments year to year in order to pump up cash flow from this source. Nor do I see signs that Kinder Morgan is starving its existing assets of maintenance capital in order to pump up cash flow. The report’s argument gets pretty convoluted here with charges that the company keeps maintenance capital spending low—either in fact or through accounting—to increase the distributions flowing to Kinder Morgan, the general partner, and Richard Kinder, the CEO of Kinder Morgan and cites accidents at Kinder Morgan’s pipelines as evidence of underspending. (The accounting here is interesting—if you’re an accounting geek since maintenance capital spending is deducted from distributable cash flow while growth or expansion capital spending isn’t.) But Kinder Morgan’s accounting practice and accident record seems within industry norms. One of the telltale flaws in the Hedgeye report comes here when the analyst pulls in a comparison with Chevron (CVX) and Exxon Mobil (XON) to argue that Kinder Morgan’s maintenance capital spending should be larger than it is. Kinder Morgan Energy Partners shows way less in capital spending than those oil companies, which, the report argues is a clear sign that something is wrong with Kinder Morgan Energy Partners accounting. Or, it could be, that Chevron and Exxon Mobil are oil companies with huge budgets for finding oil and developing oil fields and Kinder Morgan Energy Partners is mostly a pipeline company. Apples and oranges. If the report knows that, the argument is intentionally deceptive. If it doesn’t, then we don’t need to pay attention to this report. I think the report is aware of this problem because it tries to haul in Kinder Morgan’s energy production revenue—about 30,000 barrels a day right now—so that it can argue that Kinder Morgan Energy Partners is actually like Chevron. And then to bring in the argument that you shouldn’t invest in Kinder Morgan Energy Partners because oil prices could fall and that would endanger cash flow. And the report tries to find something sinister in the MLP’s oil production revenue by arguing that 1) most people don’t know about it, and 2) the company hasn’t disclosed the danger of falling oil prices. I can’t speak to what most people know about Kinder Morgan Energy Partners’ revenue from energy production—it’s pretty clear in its financials—but I do know that management has been upfront about the possibility that oil prices could fall. If Kinder Morgan Energy Partners is a “house of cards” on these grounds, then so is Exxon Mobil. Kinder Morgan management has, in fact, pursued a strategy of investing in natural gas pipelines, in order to reduce its exposure to a possible decline in oil prices and slowing growth in its CO2 unit, once the big growth driver. I think there are important questions to ask about Kinder Morgan Energy Partners before you invest. The key ones in this environment are can the company continue to raise capital to invest in new assets (since that’s what drives growing cash distributions) at a reasonable price and is the company able to find investment opportunities that generate a high return on investment? Historically, Kinder Morgan has been able to do both of these tasks very well and it looks like the company should be able to continue meeting those challenges for the foreseeable future. My only knock on Kinder Morgan Energy Partners is that, as a investor favorite in the pipeline MLP space, the units can get pricy. Thanks to the report from Hedgeye Risk Management that’s not a problem right now, however. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did not own shares of any company mentioned in this post as of the end of June. For a complete list of the fund’s holdings as of the end of June see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

TECO Energy

May 29th, 2014

Now that I’ve collected my dividend on TECO Energy (TE) I’m going to sell the shares out of my dividend income portfolio http://www.jubakpicks.com/jubak-dividend-income-portfolio/. The stock went ex-dividend on May 9.

This has been a good market for most utility stocks with the Dow Jones Utility Average up 9.82% in 2014 through May 21. But TECO Energy has badly lagged the sector with a 1.74% gain for 2014 through May 21. The stock’s 5.19% dividend yield partly makes up for that but I am disappointed that the company has not been able to raise its dividend payout for the last two years. And I worry that the payout ratio of 93% for the trailing 12 months—meaning the company is paying out 93% of earnings as dividends to shareholders—is unsustainably high. A 93% payout ratio is certainly not an indicator of future dividend increases.

The problem for TECO Energy has been the utility’s coal unit. Once the source of about 20% of TECO Energy earnings, in the first quarter, thanks to depressed demand that has lowered volumes and prices, TECO Coal reported a loss of $1.6 million versus $3 million in income during the first quarter of 2013. Sales came to 1.3 million tons of coal at an average selling price of $79 a ton. That was down from 1.4 million tons sold at an average of $90 a ton in the first quarter of 2013. TECO has done a good job of wringing cost out of the unit, but the company is at a major disadvantage in that it is producing coal in higher cost Appalachian fields and then facing higher transportation costs to West Coast ports than miners working in Wyoming’s Powder River Basin. The average cost of production at TECO Coal was $82 a ton in the first quarter. That was down from $88 per ton on average in 2013 but up from $79 a ton in the fourth quarter.

TECO Energy is undoubtedly shopping its coal unit—I’m just not sure that it will find a buyer at a reasonable price in this market for coal assets.

The shares were up 2% from my August 20, 2013 purchase price as of the close on May 21. Add in that 5.19% dividend and the total return isn’t bad. I just think the portfolio can do better and I’d certainly like to find a stock where dividends are headed upward rather than being stagnant (or possibly at risk.)

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund did not own shares of TECO Energy as of the end of March. In preparation for closing the fund at the end of May, as of the end of March I had moved the fund’s holdings almost totally to cash.



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