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3/26/25 Capitalist Times Live Chat

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Roger Conrad

3:00

Bottom line is we have to watch and wait. But I think the risk/reward equation is clearly in our favor. And anything but the worst case will likely see this stock back in the 80s by the end of the year.

Bonnie Beth

3:09

Hi Roger, thanks for doing this chat today. What are your thoughts on HTGC (Hercules Capital Inc.) as a dividend stock for 2025 and going forward. It has a high yield and they offer a supplemental dividend as well. Thank you!

Roger Conrad

3:09

Hi Bonnie Beth. I think you have to consider a company like Hercules in more or less the same sector as other specialty finance companies--such as HA Sustainable Infrastructure (NYSEL: HASI) that I've recommended in CUI for a while. Earnings and what the company can distribute as dividends is basically the return on investments (for Hercules mainly loans) less the cost of capital. Hercules like HA is investment grade, so cost of capital is lower than for most rivals.

I've favored HA in the space because it has a dominant niche in a fast growing area of finance--energy efficiency. That focus means they're generally taking less risk as well. Hercules bills itself as the largest of its class. And it has a great record of sustaining dividends. But I think it would be more exposed to an economic downturn. Also keep in mind that much of the dividend yield you see published includes special payments. The yield on the base dividend is around 8%, rather than close to 10%.

Dudley

3:15

Hi guys. BKR can’t seem to push through 45. Your thoughts on price potential over next 18 months ? Thanks

Elliott Gue

3:15

BKR has the most direct exposure to the LNG growth story of any of the major services names.

While energy stocks are leveraged to unique fundamentals compared to the broader S&P 500, they're still stocks. So, I suspect some of the volatility you're seeing in energy names of late is tied to the broader market -- when money comes of stocks, or US stocks, that can pressure energy tocks as well short term.

That's one reason I like to look at price performance on both an absolute and relative basis. In that regard, BKR looks solid as it's been steadily outperforming the S&P 500 and the S&P 500 Energy Index since last summer.

Last time we did a valuation target for BKR we saw around 20% of upside potential there from the current quote.

Frank

3:15

Hi Roger and Elliott - greatly appreciate your having these sessions. If you had to choose between SOBO and PAGP for next 18-36 months, which one would get your nod for dividend solidity and appreciation potential?

Roger Conrad

3:15

Hi Frank. I don't think dividend safety is really an issue for either midstream company. Plains still covers its dividend by 1.7X with distributable cash flow and by free cash flow as well--after increasing the payout by nearly 20% this year. And the payout is still only about half what it paid at the peak of the last energy upcycle (2014-15). I think they'll increase again next year and post solid growth from Permian Basin volumes as well as at least one more acquisition--unless it gets taken over itself.

South Bow has a more limited earnings history since last year's spinoff from TC Energy. But the dividend is well covered with cash flow, which in turn is locked in with long-term, capacity based contracts. I think the company is likely to be bought. But low single digit percentage dividend growth looks set.

I think both will do well this year--SOBO is already up 12% plus, PAGP almost 20%. And we continue to recommend both stocks.

Bonnie Beth

3:22

Hi Roger, on your Reit Sheet Rater, what is the difference between "speculative" and "aggressive?" Also, when looking at your REIT Sheet Rater there are quite a few REITS that are not listed in your "First Rate REITS." Some are listed as buys even though they do not appear on First Rate REITS. Can you clarify this for us, because we are looking at companies like CRR-U, EQR, an HR-U. As always, thanks for your insights.

Roger Conrad

3:22

The recommendations in the First Rate REITs table are my top picks. I also highlight two best fresh money buys every month--which would be my top choices for new investment.

I do currently have a coverage universe of 83 names to choose from. I believe the property sector is very bargain priced right now overall, with multiple upside catalysts. So some of the REITs that don't make the top picks list are nonetheless priced low enough relative to prospects to rate buys. And I do occasionally swap out REITs on the recommended list--as I did this month in the self storage space.

But generally speaking, the fresh money picks are where I'd recommended putting new money first, then the REITs selling for less than Dream Buy prices on the list (there are still 3 this month) and then the stocks rated buy in the broader coverage universe. All of the buy rated stocks, though, do have a favorable combination of prospective return and risk.

The last section of REIT Sheet highlights each column of the REIT Sheet Rater.

Roger Conrad

3:24

The biggest difference between conservative, aggressive and speculative is relative risk. Conservative means even the most risk averse can own. Aggressive means less safety and more return. And Speculative is really not for anyone depending on income--most are actually too risky for anyone to own in an environment of uncertainty for the economy.

das555

3:29

Is EXE still a favorite among producers?

Elliott Gue

3:29

Yes, no changes to our top-ranked gas producers -- EXE and EQT. EXE is our (slight) favorite of the two. OVV is a mixed oil-natgas producer, which also benefits from the LNG Canada start-up.

Dave

3:31

Hi Roger, I have a question on Enbridge (ENB) -- from looking at the financial statements, should there be any concern that the dividend exceeded earnings, and also exceeded free cash flow in 2024? So they've borrowed to fund at least part of those payments and debt on the balance sheet is almost 1.5x equity. It reminds me a bit of KMI from a few years back when they ended up cutting the dividend. Thanks very much for your help.

Roger Conrad

3:31

Hi Dave. I don't think there's a great deal of risk buying Enbridge at this time, though overall I favor TC Energy by comparison. Enbridge's payout ratio based on the relevant measure of earnings is only about 66%. And the assets are primarily long-term contracted midstream and natural gas utilities--so there's not a lot of risk to cash flow either. There's the Line 5 pipeline re-routing--in which the company appears to be successfully navigating state government hostility in Michigan. But generally speaking they don't have a lot of regulatory risk at this time, especially now that Carney has replaced Trudeau as PM in Canada. And cross border assets are also protected from tariffs and trade barriers by long-term capacity based contracts--they get paid regardless of price or volumes.

As for the balance sheet, Enbridge is BBB+ from Fitch, so no problem borrowing. And be aware that midstream companies and utilities are building infrastructure that will generate revenue 30-40 years.

Roger Conrad

3:34

US midstream companies have been entirely self-funding CAPEX and dividends in recent years--a conservative legacy of the past decade bust. But funding a portion of CAPEX with debt is standard practice for pipeline companies and utilities, which again can count on assets to produce reliable returns for decades unlike for example a tech company with a product cycle less than a year. Not having free cash flow is actually a sign Enbridge is finding more investment opportunity than it has for a while. That's a sign of strength--not weakness.

John A

3:36

AQN still hold? Thank you.

Roger Conrad

3:36

Hi John. I actually rate Algonquin a buy up to 6 for more aggressive investors who don't already own the stock. As I indicate in CUI Utility Report Card comments, Q4 results and guidance indicate the long recovery is moving ahead--with debt actually slashed ahead of schedule. The challenges now is getting rate increases at regulated utilities. But this one appears to be moving in the right direction for patient investors. Remember no regulated utility that's hit trouble has ever failed to recover--that's a trend that goes back 120 plus years.

John A

3:39

Still like GLPI?

Roger Conrad

3:39

Hi John. My comments in the REIT Sheet Rater highlight Gaming and Leisure Properties' very solid Q4 results and guidance for 2025. The business plan looks on track and I still like the stock for high yield and modest dividend growth--as it adds more triple net leases with casino operators. Its biggest tenant PENN also appears to be getting stronger with rent coverage greatly improving the last 12 months, which is good news for more business.

John A

3:41

Opinion on UTG?

Roger Conrad

3:41

I generally prefer buying individual stocks to funds, even well managed closed-end funds like Reaves. But this is a fund that has a solid track record. And based on the latest portfolio snapshot it looks well positioned for 2025.

I track Reaves in the Utility Report Card of CUI.

Bonnie Beth

3:46

Hi Roger, we have another question! What do you think of CUZ as an alternative to CPT. I know CUZ focuses on office leasing but it is beaten down right now and the price looks good. What I'm reading is that the analyst opinions are positive on it. Thank you so much, and I really love and appreciate these chat meetings.

Roger Conrad

3:46

It's not one I currently cover in the REIT Sheet, but I will put it on the list for consideration.

Comparing to Camden Property Trust is really apples and oranges. Camden is focused on residential properties. That's historically been a very steady sub-sector and recession resistant. Right now, a lot of property started before interest rates started rising is entering the market. But with very little started since 2022, we're rapidly approaching a period where very little new development will come on line. And this batch is being absorbed quickly because at these mortgage rates, the cost of rent is much lower than buying a home.

That means residential is ready for a rebound. Office too has seen some improvement. And Cousins' focus on markets like Atlanta is a plus. But this is still a much less certain area of the market overall--aggressive versus conservative.

4:09

If one was to exercise 1 OXY Warrant, does that mean we will buy 100 shares of OXY at a price of $22 per share?

Elliott Gue

4:09

Warrants are similar to call options. In this case, the OXY WS warrants can be exercised to purchase OXY shares at a price of $22 per share. OXY currently sells for more like $49.75, so these warrants have an intrinsic value of $27.75 ($49.75 minus $22).

In this case, OXY is offering holders of these warrants the option to exercise them at $21.30 instead of $22 (a $0.70 benefit) if you elect to do so by March 31st. So, at the current price of OXY near $49.75 that boosts the intrinsic value to about $28.45.

The offer expires March 31st and you can find the details of how to take advantage on OXY's website here https://www.oxy.com/news/news-releases/occidental-announces-offer-to-e...

A second option would be simply to sell your warrants directly through your broker as it appears to me that they're trading at close to the intrinsic value at the temporarily lowered exercise price.

Generally, we like OXY, but we're not recommending you add to your position at

Elliott Gue

4:09

this time. Note that if you do go ahead with the exchange offer, you need to post the $21.30 per share of OXY you wish to buy and accept delivery of the OXY shares. Then you could, of course, turn around and sell that stock. Each warrant can be converted to a single share of OXY.

4:14

For Creating Wealth, do you plan to recommend more purchases of EU or international stock? Do you believe there is a fundamental shift towards international stocks and away from US stocks? I missed out on EUFN as it rocketed higher and I'm just not comfortable buying it unless it pulls back.

Elliott Gue

4:14

Thanks for the question. We are seeing the largest rotation into international equities and out of US in some time. Given just how overweight active portfolio managers were in US stocks at the end of 2024, I do think this trend could have legs.

And, yes, I would like to add to EUFN and other European names, but I am unlikely to do so until we get a pullback of some sort. I am also eyeing some of the European banks that trade as ADRs here in the US , which offer some really nice yields. However, there too I am likely to recommend adding only on a pullback as the rotation trend into international stocks looks a little overdone to me near term. I'm also looking at other options for adding international exposure, including in Japan, which I believe could play "catch up" in the next few months.

Elliott Gue

4:25

Question: Hi guys, I have been delayed joining you today and apologize if my queries repeat prior points. Question for Elliot re the Smart Bond portfolio: When considering preferreds, do you pick ETFs that emphasize fixed/float securities vs fixed and do you "prefer" actively managed ETFs vs passive one that track indices? Question for Roger re Kraft Heinz: the dividend has remained the same since 2019 slicing that followed relatively consistent increases 2013-2018. Do you see the company returning to growing dividend approach? Lastly, I wanted to put a plug in for Roger's Discord availability for fellow followers wanting to ask questions other than this chat. As always, thank you both for the exceptional services.

Hi and thanks for joining us! I’ll cover the Smart Bonds portion of your question and leave the Kraft piece for Roger.
We have some exposure to both fixed and floating preferreds in the model portfolio. Generally fixed preferreds will do best when rates come down provided the economy holds up reasonably well. However, the variable rate preferred market has continued to perform well, so I believe it’s too early to exit our exposure there. Both preferred ETFs are passive in that they track indices.
I generally prefer passively managed ETFs, because their expense ratios are a bit lower and they give us the cleanest exposure to a particular theme or niche of the bond/preferred markets. However, there are certainly exceptions; for example, our senior loan fund in Smart Bonds is actively managed. Even though there are some passively managed senior loan ETFs out there, it has generally outperformed those through both bull markets and bear markets. So, I opted for the active ETF instead.

When I do opt for an active ETF, I prefer to choose one that’s been around for a long while rather than a newer issue – just gives me more insight into how they manage the ETF.
I’d also be unlikely to recommend an active ETF that tracks a more generic part of the market. For example, no need to go with an active to track intermediate or long-term Treasuries but segments of the market like loans, CLOs and private credit can be a bit more specialized.

Guest

4:28

What are your thoughts on Bell canada and Artis? Both are giving very good dividend and I am holding them for a long time. Artis has recovered well,but still under red, while bell is sinking.

Roger Conrad

4:28

I think both BCE and Artis are cheap at this point. BCE management I think stalled a rally in the shares earlier this year by introducing the possibility of "re-setting" the dividend in order to cut debt more quickly. But the franchise is solid and I think the investment in US fiber broadband adds a faster growing source of revenue than its Canadian fiber was under the current regulatory regime. I had thought a Tory victory in Canadian elections this year could usher in more favorable regulation for Canadian telecoms. That may still happen under the new PM--if Liberals win a majority again (they're currently the biggest party in coalition government), as polls are now forecasting thanks to aversion to Trump. But the bottom line is this is a company providing an essential service at cyclical low for the business and stock. And while I can't rule out a dividend cut entirely, it would be by management's choice--rather than forced by business weakness.

Artis is really a portfolio of properties that management

Roger Conrad

4:29

is engaged in buying and selling. I think there are better REITs to buy on both sides of the border at this time.

Guest

4:35

Thanks for your years of expert advice. Am planning to add to investments in NEE, AES, BEPC. Would appreciate your latest assessments. Plus getting concerned with holding onto CHRD. Thanks. Jim T.

Roger Conrad

4:35

Hi Jim. I think all three of those stocks are cheaply priced and the companies' growth and investment plans are on track. All three posted very encouraging Q4 results and guidance and there's every reason to expect more of the same when they report Q1 and update guidance again--expected dates April 23 for NEE, May 2 for AES and May 2 for BEP/BEPC. I think all three stocks are under a cloud due to uncertainty about what Trump Administration policies will wind up meaning for growth and investment plans. And I expect a favorable surprise for two reasons--all three can benefit from the US government favoring natural gas nuclear, and their wind/solar/storage investment is out of reach of what the administration can do. And I think once that become more clear, we'll see these stocks rally from current very low levels. I like them for the long term and own them in my own portfolio.

Chord has bounced up since early March but shares are basically following oil prices, as are many stocks in the sector.

Roger Conrad

4:38

I recommended Chord as an alternative to Blackstone Minerals LP for CUI Plus readers who don't want to file a K-1. I do favor Blackstone for a higher tax advantaged yield and leverage to natural gas. But Chord had solid Q4 results and I do expect to them pay more than the recently raised base dividend this year.

Tommy

4:43

Dividends are very important to most of your subscribers. What is your prediction about ute's increasing dividends this year, specifically, DUK, SO, XEL, ES, WEC?

Roger Conrad

4:43

Hi Tommy. I agree about the importance of dividends--and analyzing safety is a major part of my process in all of our advisories.

That said, all five of these utilities affirmed their long-term growth guidance when they released Q4 and full year 2024 results--which universally met or beat management's previous guidance. That's the surest sign they'll continue increasing dividends in 2025 and beyond at the pace they have in the past. These earnings forecasts are extremely reliable because they rely on regulator approved investment--with recovery largely pre-approved in rate riders that automatically add investment to rate base. For all of them it should be a mid-single digit percentage increase or better. WEC has already declared a 6.8% boost for 2025, with XEL a 4.2% increase, ES 5.2%--and DUK and SO will declare later this year.

Pesi D

4:47

Hello Roger, What are your thoughts on AX UN and BCE ? Artis has come up a long way while Bell is sinking. Both have great dividend. I am holding both for a long time. Do you prefer Preferred on these items? Thank you.

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