JotCast | 2/24/22 Capitalist Times Live Chat

Return to

2/24/22 Capitalist Times Live Chat

Prev Page View Full Chat

Elliott Gue

5:33

LYB has assets in Europe, so they would likely face some headwinds from rising costs/sliding margins due to the extreme increases in natural gas prices there. That said, the also have assets in the US (their largest single market), where they have access to cheap US natgas feedstock, so this would offset some of the EU natgas headwinds.

Jeff

5:37

Elliott, what is your opinion on ET? I read today that the Supreme Court turned down their appeal on the Dakota pipeline. Is the dividend safe and do you see and growth?

Elliott Gue

5:37

I agree with Roger on this one. I still think they're likely to be able to operate this pipeline since shutting it down immediately would represent a sizable disruption to energy flows and would likely push prices higher. Also, it's only about 5% of ET's cash flows so I don't think it's make-or-break for ET or its payout.

Alex M.

5:45

Hi Roger. Sempra Energy has been getting some bad press lately in the San Diego market for having some of the highest electricity rates in the country. Could this portend a more contentious regulatory environment for the company? Thanks.

Roger Conrad

5:45

Contentious regulatory environments are always a risk for regulated utilities. And while California has had a generally amicable relationship with utilities in recent years, that certainly hasn't always been the case. However, Sempra (NYSE: SRE) as well as Edison International (NYSE: EIX) is only a owner and operator of wires and pipes. It actually has very little to do with why electricity rates are so high in San Diego as well as other parts of the state. And any restrictive action taken by regulators on investment returns would cripple the state's ability to reach net zero CO2 emissions, while Sempra would still have ample opportunity to invest its capital at its Texas utility and other operations, such as LNG exports and hydrogen infrastructure.

That doesn't mean it won't happen. But Sempra like Edison is used to energy being political in California. The inability of the state to get a handle still on rooftop solar subsidy is a pretty good recent example.

Alex M.

5:50

Hi Roger. In the casino REIT space, is there a particular reason that you prefer GLPI over VICI? Thank you.

Roger Conrad

5:50

One reason is GLPI is much more likely to be taken over by VICI than the other way round, given it's half the size. The yield is also higher and they're opened their wallet more to pay dividends, including the 24 cents per share special late last year. I do like them both, however, and am covering them both in REIT Sheet.

Peter H

5:58

Could you give us some colors on the reason(s) behind the persistent weakness of EIX price since the beginning of the year? Thanks in advance

Roger Conrad

5:58

Hi Peter. Part of the weakness has to do with what's going on in the broad stock market--the S&P 500 is down around 10% and the Dow Jones Utility Average 7% year to date. That's for Edison 3% underperformance to the S&P and a more significant 6% to the DJUA.

If you're looking for a reason for underperformance, I think the main one is the state's inability to roll back subsidy for rooftop solar, which forces consumers to pay "avoided cost" rates for power rather than much lower wholesale rates. There's no direct impact on Edison's profits, as these costs are passed through automatically. But the worry is it will make it more difficult to grow rate base with investment in electric vehicle charging infrastructure, grid hardening and the like. There's also the worry about future wildfires, though the utility once again avoided major damages this year.

Edison reported Q4 earnings today that were basically flat against year ago levels. And it set 2022 earnings guidance of $4.40 to $4.70 per share,

Roger Conrad

6:01

which was right in line with expectations. Other details included a long-term earnings growth target of 5-7% a year, a 2022 CAPEX target of $6 to $6.2 bil along with $1.2 bil of financing needs and a $1.6 bil reserve for remaining potential fire losses. All of that appears to be in line with management's previous guidance--and 2021 full year results actually beat that guidance, which augurs well for the year ahead. I've been impressed with CEO Pedro Pizzaro's performance in the past and remain so after these results. Doesn't mean the stock will bounce tomorrow. But it does make me comfortable as an analyst and shareholder myself.

Jeff

6:06

Roger, what is you opinion on SRRTF. I have owned it for a while and have done well.

Roger Conrad

6:06

Slate Grocery REIT is a Canadian company operating grocery anchored retail properties primarily in the US--and paying a generous monthly dividend north of 7%. I have not covered it to date but I am adding it my list effective immediately. Thank you for bringing it to my attention.

I definitely want to look it over some more before giving you a full recommendation. But the underlying business looks pretty solid at first glance. Payout coverage is tight (adjusted FFO payout ratio 97.4%), which probably means we shouldn't expect a dividend increase anytime soon. But other metrics are definitely moving in the right direction, including on leverage. It's at least a hold for now.

6:10

I Bonds now pay 7.12% is this a good investment for cash

Roger Conrad

6:10

I think you're talking about mini-bonds, which tend to be priced like preferred stocks with par values around $25 a share. I'm not really a fan of fixed income and haven't been for a while with yields at these levels. But i guess my answer would be it depends on the issuing company. Again a yield north of 7% at a time when 10-year Treasury notes are still priced to yield less than 2% is a pretty big risk premium. Make sure you know why there's one that large before jumping in. This is not an investment with low cash-type risks.

Also remember that there are companies yielding more than 7% that are growing their dividends, especially in the midstream space. That's a far better place to get yield and you have the potential for big capital gains as well.

Dave P

6:15

Hi Roger! Any thoughts on adding EVRG to your portfolios? I’ve been watching them for some time and they’re holding up stubbornly even with todays big drop. You have them rated A in your CUI list. Should I pull the trigger or is there some underlying issue that I haven’t found?

Roger Conrad

6:15

Hi Dave. Evergy is reporting its Q4 earnings tomorrow and as you point out the shares are not high priced now. I don't think we're going to find any major issues in what they report, though there will be no doubt be questions regarding recent deliberations with Missouri regulators on prospective rate based investment in grid modernization. My view is they're still going to have a Quality Grade of A after they report numbers and update us on guidance. I currently rate them a buy at 60 or lower, a level we saw briefly today.

Robert Blum / RBB

6:17

Would like to thank you for an informative afternoon and the fellow subscribers presenting some timely, thoughful questions.

Roger Conrad

6:17

Thanks Robert. We always get a lot of out of these sessions as well. See you next month.

Guest

6:20

Quick question - I thought about 1-2 years ago you recommended that we sell our SJI holdings. Am I confused?

Roger Conrad

6:20

I swapped it in the portfolio for Atmos Energy (NYSE: ATO), which I still believe is the higher quality gas utility. I continued to cover South Jersey Industries (NYSE: SJI) in the Utility Report Card. And after it dropped into the high teens I upgraded it to buy again on a valuation basis, as well as a prospective takeover target.

That's what the other members were referring to.

Jeff

6:26

I bonds are backed by the US Treasury. You are only getting the 7.12% for a 6 month period,then it resets based on inflation. You can't sell for a year and if you sell before 5 years you lose 3 month interest. State tax exempt. You can only buy $10,000 per social security number and another $5000 if you over pay your income taxes by that amount. This is a yearly ceiling. The rate is a bit of a gamble the principal is not. This is how it was explained to me when I bought some. You can go to the website and get the information or e mail them. They got back to me with in 48 hours.

Roger Conrad

6:26

Thanks for the info. I'll check it out. Given the restrictions on exiting, it doesn't sound like a great place to park cash. In fact, it sounds like anyone buying in should plan to hold the full five years. On the other hand, if inflation is persistent in coming years as we expect it could well be, you could wind up earning a pretty massive yield--certainly a lot better than anything else in the bond market the next few years, or any 5-year CD I've seen.

I still have to say I prefer a midstream stock yielding 7% plus like Energy Transfer LP. But you've alerted all of us to an interesting option. Thank you and thank you for participating today.

Jeff

6:32

I agree

Roger Conrad

6:38

Well that's all we have in the queue for this month. If for some reason your question was not fully addressed, please feel free to drop us a line at service@capitalisttimes.com As noted at the outset of the chat, you can expect to receive a link to the complete transcript of all of the Q&A tomorrow. And it will also be posted to our websites.
Thanks again everyone for attending today and sharing your questions, comments and ideas. We do appreciate and value your business very much and look forward to speaking with you next month, if not before. Have a great evening.

Connecting…

Your current subscriptions

None

E-mail Address	Chat Owner	Status	Remove

Enter your email address to be notified when Sherry Roberts hosts a chat