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4/30/24 Capitalist Times Live Chat
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AvatarRoger Conrad
1:50
Hello everyone and welcome to this month’s Capitalist Times live webchat. As always, there is no audio. Just type in your questions and we’ll get to them as soon as we can comprehensively and concisely. We will be sending you a link to the complete Q&A after the conclusion of the chat, which will be when all of the questions in the queue are answered, as well as emails we’ve received prior to the chat.
 
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Let’s get started with some of those:
 
 
Q. Dear Folks, I am a subscriber to several of your advisories, but this question concerns CUI+. I am curious as to why you have not recommended a REIT for its income-generating portfolio, especially now that REIT yields are so high. Surely you must have  one or two picks that meet your criteria for inclusion? Best regards, Jeffrey H
 
A. Hi Jeffrey
 
Thanks for your question. As you might know from reading the REIT Sheet--where we currently track 85 REITs and have a buy list of 18--I believe there's a great deal of long-term value in the REIT sector.
. But as I also note, buyers need to be patient as well as prepared for more downside in the near term. 
 
In contrast to my Recommended List in REIT Sheet, CUI Plus is a managed and weighted portfolio, with cash as an alternative. And at this point, while I see value in REITs, I think we need to be patient as far as adding new positions in dividend stocks at this time.
 
The Federal Reserve's current "higher for longer" interest rate policy is a particular headwind to REITs' earnings and dividend growth, as it's made debt finance prohibitively expensive for many projects. The high irony is "shelter" costs are right now a major driver of inflation--and higher interest rates have caused a big cutback in building, which has to date prevented supply from catching up to bring down prices.
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I do believe the REITs I recommend have learned to live with higher rates as businesses, mainly by keeping a tight rein on capital spending. But it's also true that higher rates have reduced growth since the second half 2023. And the Fed's policy also means money market instruments are yielding north of 5%.
 
I think eventually the Fed will cut interest rates--either after declaring victory over inflation or being forced to by a contracting economy. In the case of a recession, I would expect stocks across the board including REITs to give up more ground.
 
Bottom line: i fully expect to add a REIT or two to the CUI Plus portfolio later this year. But as you've probably already noticed, the only new positions I've added over the past several months have been either to top off stocks we already hold or else special situations like Equitrans Midstream.
And I'm likely going to continue with this conservative approach--and holding a large amount of cash--until there are more obvious upside catalysts for our favorite REITs and I'm more comfortable the bottom is in.
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By the way, for anyone else interested in REITs, please give Sherry a call at 877-302-0749 anytime from Monday through Friday, 9-5 and ask about my publication "The REIT Sheet."
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Q. Thanks in advance for the April 30th chat.. I am looking at 4 stocks to increase my dividends: CQP, WES, KRP and BSM. Your input would be greatly appreciated, both good or negative. Thanks very much.--Jerry J.
 
 
A. Hi Jerry
 
Starting out with Cheniere, as we noted in Energy and Income Advisor last month, management intends to pay total dividends of $3.15 to $3.25 per share in 2024. That compares to the $4.14 annualized rate implied by the most recent payment. The reason for the lowered payout is the need to hold in cash to fund accelerated deployment of new LNG export infrastructure in the US--which is already permitted and not subject to the Biden Administration's moratorium on new permits. Doing so will give the company a big advantage over rivals with stymied projects and I think will boost future returns.
But it means the actual yield on CQP is 6.5%, not 8.5% as popular stock screens now indicate. We recommend CQP as a buy up to 55.
 
Western Midstream Partners' yield is almost 10% after management shifted its payout policy to a much higher payout ratio. We're recommending it as a buy up to 35 for the yield--as well as the possibility of a takeover if Occidental decides to sell its 48.8%. Kimbell Royalty Partners' dividend fluctuates with commodity prices--the payment for March 20 was 43 cents versus 51 cents paid in November 2023--and it will likely go lower this year as natural gas prices have remained depressed. We do look for higher gas prices later this year but continue to favor Black Stone in that space --as it has no debt. I'm not sure what company you're referring to as "BS"--if you mean Black Stone, look for
a writeup in the Energy and Income Advisor issue just posted this week.
 
Q. Utilities of all stripes seem to be moving in the right direction over the past few trading sessions. The positive movement in utes began at nearly the same time that Nvidia took the gas pipe following an earnings report and indeed, nearly all of the "Mag 7" have backed off surreal highs. I don't know how long the ute pop will last but it sure is nice to see. I'd like your take on the recent upswing-is this a move to quality defensive stocks? Or, could it be a realization that the utes will be playing a large role providing a base impetus for huge, power- hungry AI projects going forward? The fact that utes are rising even as interest rates rise (eg, 10 year T is now in the 4.65% range as of today 4/24/2024) is something rare.
 
CUI is to be commended for sticking to its guns on NEE and NEP. The Q1 earnings reports of both were very strong on the earnings side and while revenues may have fallen a bit short of overblown estimates, the
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these businesses are two of the very few that can point to rising residential and commercial demand going forward. Disclosure-I own both but would not have touched either security had not been for CUI pounding the table when NEE fell to the mid $40s and NEP fell to the mid $20s. NEE in particular has been on a run and IMO, NEP may be basing for a run of its own.—James G
 
A. Hi James
 
Glad you were able to take advantage of the advice. When the best in class companies in a sector take hits like NextEra and its NextEra Energy Partners affiliate did last year, i always consider it a huge opportunity to "pound the table." Of course, I always want to know exactly what sellers driving the prices lower are reacting to. But in the case of the NextEras,
it seemed pretty clear that investors were making a lot of doomsday assumptions that were not at all indicated in the actual numbers, let alone management guidance.
 
At this point, I really don't think investors are pricing in much AI-related growth for utility stocks. And that includes NextEra Energy, which I think has the tools to dominate the space--including transmission rights for 180 GW of new generating capacity ensuring against curtailment and being the power provider of choice for data center operators anxious to run at least partly on renewable energy to keep power bills down. What we may be seeing is some acknowledgement that companies like NextEra are going to meet guidance earnings growth rates--conventional wisdom has been that higher for longer interest rates would force cuts.
 
My view at the beginning of 2024 was that utility stocks as a sector would start to switch places this year with technology stocks and become market leaders--as they did explosively in 2000. That hasn't happened yet,
I think mainly because the Federal Reserve has become more or less paralyzed by data--and that's basically drained the conviction out of traders, who now react to almost every indicator of inflation as though the central bank will do something dramatic. 
 
It's hard to see utilities--or really any sector--have a breakout while this is the case. I do think this is a great time for anyone with at least a 2-3 year time horizon to build positions in high quality utility stocks. But the caveat is we're likely going to have to be patient for big gains--the Fed will pivot to lower rates eventually, either by declaring victory against inflation or by being forced to by a sliding economy. When that happens, there will be rotation to best in class utility stocks. But we're going to have to be patient--as well as vigilant that what we own is still strong on the inside.
 
 
Q. I was surprised to read analysis stating distributions at Atlantica Sustainable Infrastructure (NSDQ: AY) are at risk.
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The analyst cites the unscheduled outage at Kaxu, which is likely to affect distributions in 2024. It also mentions Electricity market price volatility in Spain could affect distributions in 2024, to be compensated starting in 2026 according to the regulation. What is your take on this? Best Regards—David F.
 
A. Hi David
 
I think if we did see a dividend cut at Atlantica it would be a capital allocation decision, rather than anything operationally related. 
 
Management mentioned the challenges at Kaxu in its Form 20-F for 2023. The biggest of these is the challenged credit ratings of the chief off-taker Eskom and behind it the Republic of South Africa. Kaxu has also experienced "technical issues," including an extensive repair for an "unscheduled outage" in 2023. The facility restarted operations in February. And while management notes output could be "lower" this year, it would seem the worst effects from the Kaxu outage were in Q4,
for which we've already seen results. Also, regarding the impact of Spanish regulation on returns from Atlantica's facilities there, management has historically allowed the payout ratio to rise--even over 100%--if the view was cash flow shortfalls would eventually be bridged. The company did note a possible negative impact of EUR6 mil on cash available for distribution starting in 2026 for every 100 basis point reduction in allowed returns on assets in Spain--some of which currently earn 7.09% and some earn 7.398%. Obviously, a cut of that magnitude would be fairly dramatic. But even then EUR6 mil would be less than 2.5% of the mid-point of the projected 2024 CAFD range of $220 to $270 mil.
 
Atlantica on the other hand does face some significant capital allocation decisions over the next few years. It's pretty clear Algonquin Power & Utilities (42.16% ownership) does not intend to resume drop downs on terms that would facilitate Atlantica's growth. That means anything the company
attempts must be small scale enough for it to avoid taking on significant debt--and preferably that it can finance at the project level. The company has $3.61 bil of total debt--and all but $400 mil coming due in 2028 is at the project level and amortizes at the project level to be fully paid off when current contracts expire (average life 13 years). Were management to see a significant opportunity for expansion, it's possible they would hold in more cash. 
 
It still seems likely Algonquin will sell its stake in Atlantica eventually--management has said it doesn't want to be in that business and the $1 bil or so in proceeds could extinguish more than 20% of its total debt, buy back more than 23% of its stock, fully fund more than a year of utility capital spending or some combination. But there's also no way of knowing when this will happen. And at least one research house is calculating Algonquin's estimates based on continuing to own Atlantica for the full year 2024.
In any case, I think there's significant value in Atlantica's diversified and fully contracted assets.
 
 
Q. Hello Roger and hope you are doing well. If you have drafted an email reply to concerned Verizon owners can you please send me a copy? As always, thank you.—Steve W.
 
 
A. Hi Steve. Thanks for the well wishes.

I think the selling in Verizon post Q1 results is basically a matter of buy the rumor, sell the news. The expectation before Q1 results was for revenue to swing positive and an improvement in wireless results adjusted for seasonal factors. And that’s basically what we got, along with improved free cash flow as capital spending winds down and higher revenue per user in wireless, as 5G adoption increases.
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I think the longer term factors arguing for a much higher VZ valuation are also in place—declining CAPEX and corresponding improvement in free cash flow, 5G acceleration (though still much slower than in China) and increased broadband market share as the remaining smaller telecoms shrink. I don’t ever recommend anyone really load up on a single stock. But VZ looks very steady after these results.
 
Q. Hi Roger.
 
Do you have any advice for those of us who are Crown Castle shareholders about the contest between the current board and one of the founders? I haven't seen any explanation of the dispute in plain English so I can make a good judgement about voting and also decide (when the issue is over) whether or not to sell? Thank you--Teresa P.
 
A Hi Teresa
 
I think it more or less comes down to Crown Castle selling its fiber broadband operations or not, and if so on what terms.
Elliott Management the activist investment firm basically tried to push through a sale of the fiber, which is what induced Ted Miller the co-founder to propose his own board members to oppose management's slate.
 
Truthfully, this is a company that's 96.2% owned by major institutions. So what small investors like us vote for probably has limited impact. Nonetheless, I'd be inclined to support the Boots Capital (Miller's) slate of directors. The new CEO Moskowitz seems to have the kind of expertise the company needs going forward. But the Boots capital slate appears to be pretty focused on what's best for the long-term prospects of the company, rather than trying to engineer a boost in the share price this year as is Elliott's clear intent. This year is likely to be a low point for the business as it adjusts to loss of revenue from T-Mobile US due to the Sprint consolidation, and DISH/Echostar largely disappoints on network spending
as it struggles to survive. 
 
 
Q. I know not what's going on with BEPC am puzzled why it continues to drop. I'm adding small lots as it does, now have nice position with average cost $23.18. With over 6% dividend yield, seems an absolute steal! RSI = 33.--Joe
 
Hi Joe.
 
I'm sticking with Brookfield Renewable. Q1 results and guidance aren't until early May. But there's every sign the underlying business is still strong. The stock's out of favor as are most "green" stocks. And “higher for longer” interest rates continue to undermine interest in dividend stocks. The Canadian dollar has dropped to just a little more than 70 US cents. And the Canadian stock market has turned lower despite strength in energy.
 
 
I don't ever recommend anyone really load up on any one stock. But I agree it looks quite cheap. And most important the underlying business is solid.
 
 
Q. There seem to be many different measurements of inflation in the US economy. Some of them are consumer-facing-CPI-U, CPI-W, CPI non-core, CPI core, PCE, etc. We also have CPI-Wholesale and PPI (Producer Price Index), I understand the Fed follows PCE numbers closely, and it does seem that PCE consistently runs a bit cooler than some other measures. My question is this: does Capitalist Times think any of the inflation measurements noted are credible? Is there any index CT favors re: inflation measurement?
 
IMO, interest rates seem primed to stay higher for longer. I would be surprised if the Fed cuts its rate even once this year, unless the economy sees a downdraft in commodity prices and consumer services pricing. There are many utes that have large capex plans going forward. Are there utes that are
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are better positioned to weather higher for longer rates to finance future capex? Pls throw into the mailbag for the next Chat. Thanks. –James G.
 
 
A. Hi James
 
I think the important thing to remember here is that the current Federal Reserve is essentially reactive. They claim to be making "data driven" decisions. And the gist of FOMC member comments is they believe in a cause and effect relationship between interest rates/borrowing costs and the level of inflation. But essentially, the Fed are market watchers, which in my opinion means they're looking at how investors react to news rather than really focusing on one specific measure of inflation. And that in turn has confused investors, who now seem to react to almost every new data point as though it could signal a Fed move to lower or raise the Fed Funds rate.
 
As for what's the "best" measure of inflation, I honestly don't think there is one. Rather, they measure different things. And the answer of which is best
depends on what business you're in and what your spending habits/needs are. 
 
In the utility business, borrowing costs obviously are very important, given the huge role of debt in funding CAPEX. But this time around there are several factors pushing sector disinflation as well--as operations have become more data driven and less labor and resource intensive. As I've pointed out in my CUI comments, companies have increasingly offset higher year over year interest expense with lower operating/maintenance costs. We've also seen consistent downward pressure on commodity costs--mainly power plant fuel--in part because of adoption of power sources that don't require fossil fuels to run. And unlike in the 1970s and 80s, utility CAPEX is now almost exclusively on projects that can be planned, sited, permitted, funded and built within 12-18 months--so despite the large amounts of total CAPEX, companies are able to control costs and win regulatory pre-approval for investment returns.
 
My view is still the Fed will
pivot to cutting interest this year. And I'm still hopeful that will occur after the central bank declares victory over inflation, once at least some measure justifies it. At that point, I expect to see a change in stock market leadership to dividend paying stocks. There is, however, a risk that "higher for longer borrowing costs" will start to push some sectors of the economy into recession--and that will cause the stock market as a whole to move lower. And for that reason, I think it makes sense to hold onto some cash to deploy on another downturn. 
 
 
Q. Roger & Elliot:
 
As a long time subscriber to your publications over the past 10 years +, I want to thank you both not only for your excellent financial advise, but also for your explanations of the economy and how it relates to those investments. I do have a specific question however. I have been trading MLPs in my IRAs for years and am learning about UBTI taxation on capital gains when these are sold within an IRA. I will continue to do so. To
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understand this subject better, I have read articles, talked to my fiduciary (Schwab), talked to the K-1 hot-line and even called EPD for info. They are not very helpful.
 
I am trying to find out the 'debt ratio' of a few MLPs to predict tax consequences of future sales of these MLPs, including EPD, ET, PAGP & MPLX. Can you recommend someone or a firm who is knowledgeable about this that I could contact to discuss. I am happy to reimburse them for their services. Thanks so much.--Denis H.
 
 
A. Hi Denis
 
The primary tax implications of holding an MLP in an IRA or other tax deferred account concern UBTI (unrelated business taxable income) earned in a given year. The rule of thumb is if the total UBTI across the entire account is less than $1,000, no tax is owed. If it's greater than that amount, there will be tax. But in practice, you have to own a lot of MLPs that have positive UBTI (Enterprise often has negative UBTI) in order to reach that threshold.
 
 
As for sales within the IRA, the rule of thumb is there's no capital gains tax for MLPs, just as there isn't for anything else you owe. I realize the K-1s received are complex documents. And any professional you talk to is going to be hesitant to tell you anything on the record, precisely because of the complexity and obvious gray area. That's one reason many investors choose to steer clear of MLPs in taxable or tax-deferred accounts. And there are several high yielding midstream companies that are C-Corps if that's your preference, including Kinder Morgan Inc, Hess Midstream, Pembina Pipeline and TC Energy in the EIA portfolio and Williams Companies outside of it. 
 
As far as a tax professional, I'm sorry I don't have anyone to recommend to you. I suggest developing a relationship with someone who knows your situation well and has command of the details of the tax code.
 
 
 
Q. Just a question, in CUI+ you suggested NEM. It is at $36.00 and pays 2.79% or $.25 dividend I was looking at RIO TINTO at $64.27
a dividend of $2.58 every six months. If I remember right you suggested it a few years back could I get your update.—Nolan C.
 
 
A. Hi Nolan
 
I would consider Rio Tinto more of a substitute stock for BHP Group. Both are diversified mining companies that are well-run and have strong balance sheets. And both pay big dividends that are closely tied to profitability, meaning commodity prices--which I think will be a big plus going forward. I've chosen BHP for its greater resource concentration. But Rio would do just as well.
 
Newmont on the other hand is the world's largest gold mining stock. And its profitability as well as ability to return capital to shareholders is tied closely to the price of gold. The company is going through something of a transition year, as it digests its merger with the former Newcrest--and cuts cost and reduces debt. That's more or less tripped up the stock lately.
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But with gold prices hitting new all-time highs, I think it's only a matter of time before we start seeing higher profits and dividends and stepped up share buybacks--pushing this stock towards my ultimate upside target of $100 or higher.
 
Bottom line is I still see Newmont as an excellent bedrock stock for this income focused portfolio, despite being in the red with it so far.
 
 
Q. Roger, in your live chat earlier you made mention of TLTW. I've not heard you mention this before in previous live chats or in your monthly investment recommendations. As an income investor I'm currently invested in many of your MLP and Utility recommendations and they are doing well. I'm looking to put more money to work and am considering TLTW. Is this a place at this time you would recommend an income/conservative investor to put money? Based on trends the price looks attractive at this point
 
 
I appreciate your chats as they add additional value to your monthly recommendations. Thanks for your response.—Dwayne E.
 
 
A. Hi Dwayne
 
I would consider TLTW--the iShares 20+ Bond Buywrite--as more of an aggressive bet on the direction of interest rates than an income investment. Case in point is the extremely variable monthly dividend--which has ranged from 74.6 cents per unit for January to just 21.2 cents for February and 23.5 cents in April. The overall cash flow tends to be high but you can't depend on the amount from month to month, which is the basic hallmark of an income investment. Principal has also been volatile and generally downtrending as well, dropping by -24.6% over the last 12 months. That's also not something I think is appropriate for an income portfolio, where
where stability of principal is also important. Glad you like the chats.
 
 
Q. Hello. I just finished doing my taxes and noted for the second year in a row (2022 and 2023) that CMS Energy paid its dividends as a return of capital. Has something deteriorated financially with the company? I expect returns of capital for MLP distributions, but generally not from a company that has historically paid quarterly qualified dividends. What are your thoughts on CMS?  Thank you--Eric D.
 
A. Hi Eric. As I indicated in the April issue of Conrad’s Utility Investor, CMS Energy is very much in the pink of health—coming off a solid earnings performance in 2023 and raising its estimates for 2024. The company is benefiting from Michigan’s new energy law, which provides significant support for utility CAPEX. Regulators also approved a 9.9% ROE in last month’s rate decision, also very supportive of target 6-8% annual earnings growth now anticipated through 2028. 
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Dividends are declared as return of capital for many reasons. But in CMS’ case this is not a reason for concern. The company is healthy and growing its dividend. Q1 adjusted earnings per share increased by 38.6% and management has reaffirmed 2024 guidance of $3.29 to $3.35 per share for 2024, as well as its long-term growth rate of 6 to 8 percent fueled by utility capital spending.
 
Results were particularly impressive in light of a warmer than normal winter that depressed heating demand. And they demonstrate weather normalized demand growth and cost control—operating costs -10.5% from the year ago period with a favorable impact on the bottom line that was 7 times the negative impact of higher interest expense. The stock is a buy up to 68.
 
 
 
Q. Hi Roger & Elliott. If I may ask one more question – answer when you get a chance. It has to do with PXD. I have a nice gain in my Roth account from this stock. I read Elliot’s suggestion to hold through the XOM buyout period and then have XOM shares. I like X
XOM and own that stock too. But with the PXD price at $271 & continuing to march higher than the XOM buyout price would I be better off to sell PXD at a premium to the XOM offer price in my tax free Roth and just buy XOM shares when I see fit or diversify into something else like Occidental? Thank you – Joe T.
 
A. Hi Joe. ExxonMobil's ongoing offer for Pioneer is wholly in stock—at a ratio of 2.3234 shares of XOM per PXD. At the time of the merger announcement, the value of that many XOM shares was around $250, which is the number the investment media picked up on. But the reality is the value of this deal rises and falls with the price of XOM. And with XOM hitting an all-time of $122 and change today, the value of the merger per PXD share is now $280 and change--or about $9 per share above PXD's current price. 
 
The slight discount is likely due to the fact that the Biden Administration is still reviewing the merger on antitrust grounds. It's still unclear if they will attempt to challenge this deal in
court. But we continue to believe it's more likely they'll try to impose some limited conditions, since given the size of the global oil and gas market it's hard to make the argument that combining would have any real impact on energy prices. And even in the Permian Basin, the pair will have less than 20% of regional production. This deal as we've said is about pushing down production costs for the merged company.
 
We still expect a close later this year—ExxonMobil’s CEO said during the guidance call they expect to get it done by the end of Q2. And for Energy and Income Advisor portfolio accounting purposes, we still intend to take the additional shares of XOM to add to our position in this extraordinarily strong energy company.
 
 
Q. Roger:
 
AQNU conversion approaches, and I have another question, prompted by a notice from the Corporate Actions dept at Fidelity.
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In connection with the approaching conversion date, Fidelity sent a notice which has no info at all about the conversion itself, but which instead talks about "remarketing" the 1.18% Senior Notes associated with AQNU. Do you have any idea what this 'remarketing' is and why they would do it? Thanks.—Bur D.
 
 
A. Hi Bur
 
Thanks for writing. It's already happened--an agreement dated February 29 and closed March 26, 2024. The notes bear interest at 5.365% and mature June 15, 2026. The remarketing is part of the process of converting the preferred AQNU into common shares of Algonquin on June 15, 2024. That exchange will be 3.333 AQN per AQNU--barring an increase in AQN's share price to $15 or higher by that time. The remarketing does not affect the exchange, or the final dividend to be paid June 17 to shareholders of record May 31.
There was, however, a special cash dividend of .000686 per AQNU unit paid April 11 to shareholders of record March 28 as part of this transaction.
 
Hope this answers your question. It does not affect my recommendation to hold AQNU through the conversion to collect AQN shares. AQNU's current price of $21.17 is 77 cents above its current conversion value, which reflects the value of holding to the final dividend. I had thought AQN and by extension AQNU would be at higher prices by this time. But my conviction is still that Algonquin will return to a double-digit share price in the next 18 to 24 months, as its recovery continues to unfold.
 
 
Dave S.
2:08
Roger:

You gave a good summary of NEE and NEP on Oct 5, 2023.
I have a position in both, But should Increase my holdings?

Could you please give us an update on both as of now?
Thanks
AvatarRoger Conrad
2:08
Since then, the NextEras have released earnings twice, most recently about a week ago. the gist of the numbers is both NEP and NEE are on track to meet both 2024 and longer-term growth guidance. The regulated Florida P&L utility continues to drive rate base growth with solar installation while driving down O&M and fuel costs and therefore customer rates. the unregulated solar, wind and storage unit continues to see record bookings--increasingly from corporate customers. And the company is making progress arranging longer-term financing for NEP.

The question of increasing holdings really depends on your own situation--including how much you already own. But I rate both NEE and NEP buys at current prices.
Sohel
2:12
Hi Elliot, Re. SLB ... are the international sales holding up?  We keeping hearing about cut backs in Saudi and other production. What are your prospects should we add to this position at this time?
AvatarElliott Gue
2:12
International is showing steady growth at SLB, HAL too. Saudi has delayed some oil capacity expansions mainly at their Safaniya offshore field, but those projects hadn't started up and won't have any impact on revenues until after 2026 or so. At the same time, Saudi has reallocated some additional CAPEX to their natgas production projects. SLB is exposed to those gas projects so the Saudi CAPEX reshuffle is likely more of a non-event or even a slight positive for them. Right now, its the upstream names and some refiners that are seeing the strongest performance, which is why we recently added OVV to the model. We already have a sizable position in the model and we're not adding to SLB in there at this time, but we still like it and I think they'll get more credit for their growth prospects at some point this year.
Jeffrey H
2:13
Dear folks, I just read Roger's recent substack on new government regulations about coal and utilities. Are you suggesting that it is now a good time to leave ARLP? Many thanx for your input
AvatarRoger Conrad
2:13
Hi Jeffrey. No that's not what I'm suggesting. You're not buying Alliance Resource Partners--the coal and natural gas royalties company--for US coal sales, which as I noted in the article have been dropping long before the EPA announced the latest round of rules. Rather, it's the company's ability to keep paying a very high dividend by cutting costs, drastically reducing debt and finding markets overseas for its coal.The shares are above our highest recommended entry point of 22. But we were comfortable with what they reported for Q1 yesterday as well as management's ability to affirm guidance. ARLP is not a conservative recommendation and investors should be prepared for the dividend to be volatile and possibly cut from this level. But we're happy with the entry point and look for solid income returns going forward.
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