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2/24/22 Capitalist Times Live Chat

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Roger Conrad

4:12

Hi Tom. Vanguard Intermediate-Term Tax Exempt actually has a very good track record navigating inflationary environments--mainly it's never been down more than a couple percentage points in a given year in its entire life. That doesn't mean there might not be better places to have our money, mainly stocks that are growing dividends faster than the rate of inflation. But with over 13,000 bonds, an average A rating and duration of 4 years more or less, I don't have a lot of concern holding it at this time.

As for other places to park cash, the Vanguard Federal Money Market Fund is about as safe as it gets. The tradeoff is there's very little yield, which is the case with most cash/money market funds now. So you're basically guaranteed to lose ground to inflation. I'll use the money fund as a temporary place to hold cash I plan to invest. But for the most part, I think the only place to be is a well chosen portfolio of individual stocks--even with the market in this unsettled state.

Bonnie Beth

4:14

Roger, what is your view on CWYUF (Smart Centers.) It is at the Cusp of your buying price. I like that Walmart is the anchor tenant. Is it still a buy?

Roger Conrad

4:14

Hi Bonnie. Yes my advice is still the same--buy this Canadian REIT when it dips under USD25, which in fact it did today. You have a yield of nearly 6% paid monthly and a very strong Wal-Mart anchored portfolio. I'm still waiting on that first dividend increase since late 2019. But the company is definitely moving into position where it can start bumping up again. And in the meantime, I expect to see some strength in the Canadian dollar on the rally in commodity prices--which will boost the US dollar value of dividends paid in CAD.

Mack

4:22

Question about WMB. Couple of months back you recommended selling this one. I think your point was it had had a good run and there were good companies with higher yields. Is that still your opinion? I'm still holding it due to the financial strength of the company and safety of the div, even if it is lower than some others. I also own KMI, EPD, MMP, MPLX, HESM, PAA, and CEQP. So if I sell WMB, don't know where to look for comparable quality, yield & safety. Thanks...

Roger Conrad

4:22

Hi Mack. Basically, I took it off the "High Yield Energy List" because the shares had risen so much from our March 2020 entry point--and the yield really no longer qualified as "high" at less than 6%. I've actually kept the Buy<30 rating on the stock, which is tracked in our MLPs and Midstream EIA coverage universe. I agree Williams is very strong as a business built around shipping natural gas to utilities. And its Q4 numbers definitely made that clear, including 11% higher EBITDA and dividend coverage of 2.1 times. Like other midstream companies--including all of those you name in your question, its share price performance has been held back in the current environment. But it's becoming more valuable as a business and I think eventually we'll see a return to the previous cycle's highs in the low 60s for the stock. Again, not a super high yielder any more but a great total return play with a lot of upside left.

Bonnie Beth

4:27

I am sorry, I posted the ticker AY in error. Sorry.

Roger Conrad

4:27

Hi Bonnie. AY is the NSDQ symbol for Atlantica Yield. Shares had quite a wild day, hitting a new 52-week low before rebounding back to basically the level they've held all month in the low 30s. But what we really want to watch are Q4 earnings and guidance, which management plans to release on February 28. I'm not expecting much in the way of surprises for the yieldco affiliate of Algonquin Power & Utilities. But we could see another small dividend increase, as the company successfully continues to grow its assets. AY is still a buy with a highest recommended entry point of 38.

Guest

4:32

Hi Roger and Elliot: Thanks for your sage advice for these many years. Question - If we are happy with a secure 8% tax deferred distribution from EPD and an almost 9% tax deferred distribution from MPLX and MMP, then if volumes ever return to pre-Covid levels and then their stock prices rise, isn't that just "icing on the cake"? Or should I be expecting more of an annual return than just the distribution? What, if any, am I missing here? I believe on your CUI+ Model portfolio, your goal is a 10% return.

Roger Conrad

4:32

Thank you for those kind words. I think you've summed up the case pretty well for buying and staying with best in class midstream companies, with one exception: EPD, MPLX, MMP and other leaders have also resumed regular dividend increases. In fact, MPLX declared and paid a 57.5 cents per share special dividend last year and has stated the intent to do the same in 2022. That's the best possible outward sign of business strength and dividend safety, as we wait for the energy cycle to carry midstream stocks higher going forward.

Dan

4:41

Hi Roger, I recently saw some negative outcome press about the Dakota Access Pipeline Project. How do you think that issue will be resolved and if it turns out negative for the pipeline is it serious for the pipelines partners? Thanks for your thoughts and congrats on the SJI call.

Roger Conrad

4:41

Hi Dan. The US Supreme Court upheld the lower court ruling that the US Army Corps permit for the Dakota Access Pipeline is invalid--and that the Corps must complete the new Environmental Impact Statement as previously ordered. That was mildly disappointing, since DAPL's owners had been hoping to get better treatment from the Conservative majority. But it was also not really surprising, since SCOTUS takes only a tiny handful of cases. And it also still leaves intact a ruling from the Court of Appeals that stated the District Court judge went too far in ordering DAPL shut down immediately.

DAPL's ability to stay operating now depends on a favorable ruling from the Corps, which at least provides a path to remediate concerns. I think that's likely for a couple reasons. First, DAPL has been operating since March 2017 and was recently expanded--so ordering it shut it down would be extremely disruptive to energy supplies. And second, oil and gas prices are already soaring and supplies would be tightened even more

Roger Conrad

4:43

should sanctions be imposed on Russian oil. Despite its environmentalist allies' pressure, I just don't see the Biden Administration biting that off in an election year, where votes are almost surely going to be affected by skyrocketing prices at the gas pump.

4:48

But let's assume DAPL is shut down. Ironically, probably the company that would be least hurt is Energy Transfer LP, the lead developer. Even before last year's acquisition of Enable Midstream and the opening of several new pipelines like Mariner East, DAPL contributed less than 5% of company cash flows. And ET's Q4 results show clearly that business is starting to boom in many places, a point further underscored by the 15% dividend increase last month. Bakken oil producers would likely see a sizable discount develop for selling prices compared with North American benchmarks. But they and other midstream companies in the Bakken have now had more than two years to prepare for no DAPL. So again, no catastrophe for industry or investors--but possibly higher energy prices for consumers and businesses.

Jim

4:56

Have read other sources citing OKE as an M&A candidate nearer term by ET, EPD & another with pros & cons for each.

Roger Conrad

4:56

Hi Jim. ONEOK reports Q4 results and updates its guidance on February 28--and what we hear could include the company's first dividend increase since January 2020. The big question will be if business momentum from last year is continuing into 2022, as was indicated by management's decision to pick up the pace on CAPEX by completing some delayed expansion projects.

I also expect the company will be asked about the impact of potential DAPL shutdown, as it has been pretty much in every earnings call the past couple years. And there's still a running narrative that Bakken production is headed into long-term decline as producers re-direct resources to the Permian Basin, which is basically behind the mixed analyst opinion on OKE shares (7 buy, 15 hold, 2 sell from Bloomberg Intelligence).

The idea of an OKE takeover is intriguing. They overlap quite a bit with ET in some regions, less by asset type with EPD. It would almost certainly involve equity, since OKE has $27 bil in market cap--and would have to have

Roger Conrad

4:56

a price of at least $70 to succeed. I'm not holding my breath. But in any case, OKE meets my number one criterion for takeover targets--I don't mind owning it even if there's never a deal.

bobanderson1

5:02

It seems to me that Canadian Oils are very attractive at these oil prices. I own several Canadian Oil Sands stocks and sooner or later this country will wake up to the value in these stocks. What is your outlook for them?

Roger Conrad

5:02

Hi Bob. We do cover quite a few in the EIA Canada and Australia coverage universe, which we update on the website with every new issue. I've rated the two largest Canadian National Resources (TSX: CNQ, NYSE: CNQ) and Suncor (TSX: SU, NYSE: SU) as buys for some time and they've rebounded quite well from cycle lows. Notably, CNQ never cut its dividend during the downturn--putting it in very rare company--and last year actually raised its payout twice by a total of 38.2%. I think there's more in the tank for both companies. I've also become increasingly bullish over the past year in smaller outfits like ARC Resources, Enerplus (which I discussed in an earlier question) and Vermilion Energy (NYSE: VET)--which I think is on the verge of restoring a dividend. They're not oil sands producers but they do have rich reserves that are increasingly being unlocked by new pipelines.

At this point, Line 3 is fully operational bringing Alberta oil to the US Midwest. Over the next couple years, we should see increased oil

Roger Conrad

5:05

flow in the TransMountain system to the Pacific Coast. And Enbridge's purchase of a major US Gulf Coast oil export system is also potentially promising. I would not expect oil sands to attract much ESG money to put it mildly and it's likely to come under more pressure from environmental regulation, even if Canada's opposition Conservatives find some way to take power. But things are looking up and there are a number of companies we cover I think are worth looking at--in addition to the big midstreams we've held in the Portfolio for some time like ENB, PBA and TRP. Look for more in a future EIA.

Bill G.

5:10

Dear Elliott:
I have never been in favor of investments in Canada due to how dividends
are taxed and the small amount one can retrieve when you do your taxes,
but I'm intrigued by CNQ. Is CNQ a good long term investments?
Thanks to you and Roger for hosting these events.

Elliott Gue

5:10

to serve the same level (or more) refined product demand. That spells rising refining margins and, consequently, upside for VLO and other downstreams. I am a little concerned by just how lean US gasoline and diesel inventories are these days and that points to the potential for a "golden age" for the group. Midstreams have less direct leverage to rising commodity prices and refining margins but I believe they will continue to benefit and offer the allure of income generation and slower-but steadier wealth generation. shares of XOM are up 94.5% since the endof 2020 and EPD is "only" up about 31% but keep in mind that the S&P 500 is up just 16.1% and the Nasdaq 100 up just 9%. Midstreamers may niot be as exciting or leveraged to the commodity but that doesn't mean they're a bad investment.

5:11

My view is that you need to be very, very careful with renewable energy plays -- a lot of them are overhyped and will see a reckoning in my view. It was after all, Europe's green energy push that led to the region's complete and toal dependence on Moscow. To put it mildly, that'

Pamela

5:11

Hi Roger, and thank you for all your help over the years. With all the turmoil, I wonder how all this will affect XOM. The stock is down today, but what could the longer term consequences be on Exxon's Russian holdings, and how do you think these might impact the stock?

Roger Conrad

5:11

Hi Pamela. The comments I made earlier in a question regarding TotalEnergies' Russian exposure pretty much hold for ExxonMobil. Mainly, while they and other super majors operate there, even a worst case for sanctions against that country should not have a meaningful impact on profitability. That's the greatest strength of super majors--they're everywhere in the world where there's oil and gas. And when one source is shut off, the rest of what they have becomes that much more valuable.

I think that explains why even today, ExxonMobil shares didn't really take that much of a beating by the end of the day, down less than $1 a share. As for what happens to the company's Russian holdings, even in the worst case that the company is forced to divest them, they do have value. And again, any loss there would be more than made up for elsewhere, as supplies tighten and prices rise.

Elliott Gue

5:11

that's not looking very smart right now. Roger has put together several article of late on renewable energy plays that have more realistic growth prospects...I'd stick with those.

Eric

5:11

At today's prices, taking into account the Ukraine situation, how do you rank the attractiveness of fresh investments in energy sectors between E&P, integrated, midstreams, downstreams and renewable companies?

Elliott Gue

5:11

Our view on oil prices is constructive and we continue to see a multi-year up-cycle for the industry powered by higher for longer commodity prices. The main and most important driver of this view is the collapse in investment in new large-scale oil and gas production projects worldwide over the past 8 years. I don't see Russia-Ukraine having much of an impact on this outlook over the intermediate term; the near-term impact was a quick upside acceleration in oil prices followed by a sell-the-news reaction. Against that backdrop, and consistent with our outlook, I'd say the most advantaged groups will be E&Ps and integrateds (especially integrateds with good production growth profiles like XOM) followed by downstreams like Valero. The downstream story is that oil demand is recovering from coronavirus (Valero said that diesel demand in its US market is actually higher than before the outbreak) yet significant refining capacity has been shuttered in the US, Europe and elsewhere. That means fewer facilities

Alex M.

5:17

Hello gentlemen. May I please get your opinions on Antero Midstream (AM) now that it has reported earnings? Thanks.

Roger Conrad

5:17

Hi Alex. I'm still counting this one on the Endangered Dividends List for a few reasons. First, despite a 5% lift in EBITDA from last year, there's still a free cash flow deficit of $19 mil after all CAPEX and dividends paid. That deficit was $45 mil for the full year and it means Antero is still having to access outside capital to make investments. That's a stark contrast to the midstream energy companies in our Model Portfolio and on the High Yield Energy List--which are generating rising surplus free cash flow after dividends even after stepping up CAPEX a bit. Second, this midstream company is still wholly dependent for revenue on its former parent Antero Resources, which got a reprieve last year from higher Appalachian gas prices but is still very tight on cash itself. And there are multiple scenarios where its cash flow and ability to pay Antero Midstream for services could drop off sharply, including a return to higher levels of cheap associated natural gas production, milder weather than limits demand

Jack A

5:18

Hi

With the invasion of Ukraine, how much should we be worried about our investment in Exxon?........ Do you know what part of its earnings are derived from Russian land?

Thanks

Elliott Gue

5:18

They don't break it out with that level of granularity. That said, it's likely to be immaterial for a company the size of Exxon and my valuation for the stock is mainly based on their much-larger and more important Permian and Guyana plays. These two areas are also slated to make up the lion's share of their free cash flow over the next few years. Also, remember that these companies are savvy and understand the geopolitical risks, so they're unlikely to get "stuck" with significant asset impairment due to this conflict. Conventional wisdom is that BP is most exposed via its stake in Rosneft and I saw a recent pierce from JP Morgan that estimated that only 9% of BP's NAV is exposed to Russia. In short, it could well be that even for BP upside in commodity prices outweighs direct Russian exposure to a significant degree.

Roger Conrad

5:19

Continuing on Antero--and cancellation of the Mountain Valley Pipeline, triggering a scramble to secure long haul transport capacity. AM/AR may survive and even avoid a dividend cut. Buy why own a company with these questions hanging over its head when you can buy top quality companies with yields almost as high?

James

5:27

What are your thoughts on UGI fundamentally and technically? I own it by way of the APU acquisition. UGI has been a poor performer relative to other energy plays, especially after its recent earnings, and I'm looking to unload it for something better. Your thoughts?

Roger Conrad

5:27

Hi James. I think it's a tough time to be in the fuels distribution business--with mild winter weather (particularly this past December) depressing sales and soaring wholesale propane and heating oil prices pressuring margins. Scaling up with acquisitions has helped a handful of companies like Superior Plus of Canada. But the Amerigas acquisition was basically a buy-in of ownership, so there was no such immediate benefit like the earlier Heritage Propane purchase from Energy Transfer had provided. I do think UGI is making the best of a tough environment. Management has been making more acquisitions in areas where earnings are more resilient against weather-related demand volatility, like gas utilities and midstream systems. The dividend looks secure and at a market cap of less than $8 bil there's takeover potential as well. Shares may be taking a pounding from the situation in Europe, where it has a substantial fuels distribution business. But now selling at less than 11x expected next 12 months earnings

Roger Conrad

5:28

UGI looks pretty cheap at this point. Still rating it a buy up to 48--though if yield is your goal I would look at one of the CUI Portfolio stocks instead.

Ted

5:28

OXY announced dividend cut to .11 from .70+-, and a very confusing statement regarding $30 /bbl , trading was halted as a result, do you have any idea what this is about?

Elliott Gue

5:28

OXY halted at about 2:45 PM due to release of its earnings but trading resumed shortly before 3PM. They did NOT cut their dividend -- OXY actually raised their dividend more than expected from $0.01 per quarter to $0.13 per quarter and announced a $3 billion share buyback. Looks like they also announced some additional items regarding planned capital return and the stock closed higher on the day and looks to be trading flat to higher after hours. Since OXY hasn't paid more than $0.70 per share since Q1 2020, my guess is that you may have seen an old press release from roughly two years ago...I'll go through the release in more detyail after the chat tonight, but my first read is that it's a significant beat.

James

5:30

I own ET-C and ET-D (Energy Transfer Fixed-To-Floating Rate). They pay around 7.xx% fixed before 2023 and then switches to 3-month LIBOR plus 4.xxx%. What is your opinion on these? Are they still a good investment?

Roger Conrad

5:30

We've never recommended either. But typically preferred stocks are senior in line to common units. And with Energy Transfer raising its common payout by 15% last month, it's fair to say the dividends on these preferreds is pretty safe. I definitely prefer the common, however, as its payout is over 7% now and management has signaled more increases ahead.

Ray

5:33

Hi, Is LYB affected by the geo political situation going on now? Tks.

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