JotCast | 5/14/20 Conrad's Utility Investor Live Chat

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5/14/20 Conrad's Utility Investor Live Chat

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Howard F

6:11

Thank you always for your imformed chats..What do you think about CXO and SLB and SNV

Roger Conrad

6:11

You're welcome. We're still holding Concho and Schlumberger in our Energy and Income Advisor Model Portfolio as best in class producers and service companies, respectively. Both have taken hits from COVID-19 fallout but are survivors and currently trade well below buy pries. I don't have an opinion for you on Synovus Financial at this time--though that is a very high yield for the financial sector and I think you have to consider the risk of a big cut in June.

Ann Rice

6:15

Thanks Roger - Speaking of Canada and Pembina, any thoughts on CDPYF? I've held it for a long time as well as

Roger Conrad

6:15

Canadian Apartment Properties is a different kettle of fish completely--they announce Q1 results on Friday but based on guidance (98.2%) there aren't going to be negative surprises.

I actually do track that one in our quarterly "REIT Sheet" along with 70 or so other Canadian and US REITs. If anyone is interested in the REIT Sheet, please give Sherry a call at 877-302-0749, Monday through Friday, 9-5 ET.

As for Canadian Apartment, I still think it's a keeper.

Ann Rice

6:15

Pembina.

Roger Conrad

6:15

Like it. It's high quality and cheap as I've said throughout this chat.

Hans

6:22

Roger, any comment on CHL

Roger Conrad

6:22

I think China Mobile has been through the worst of COVID-19 in China and sales are returning to the upside as it rolls out nationwide coverage of 5G. The dividend bump for the July twice annual payment was a major vote of confidence as well. I like this one all the way up to 50.

Incidentally, there's been some news recently that the White House is pressuring a major federal pension fund not to switch a primary stock index it uses that covers 60% of the world's equities for one that includes close to 100%--on the grounds that it holds Chinese stocks as well. That's too bad for the affected investors and the precedent is certainly disturbing. It's frankly another good reason to use self-directed retirement plans whenever they're available. But even if that's what happens, it's not going to have much if any impact on CHL or any other Hong Kong listed stock.

Bill

6:25

Thoughts on CPLP @ 7.21?

Roger Conrad

6:25

As I answered in another question on tankers, this is a very tough business now, though one we always keep an eye on in Energy and Income Advisor for yield if nothing else. CPLP along with NNA and few others are on our list of what we watch. But we're not yet ready to get bullish with so many rivals slashing dividends as contracts expire and are rolled over at even lower rates.

Guest

6:31

Can you comment on the prospects for CWEN longer term. You have predicted a possible dividend hike after PCG resolves its bankrupcy. Longer term, I am trying to get a handle on the value for the business. How much do their assets really depreciate over time. They seem to have about a 10 year payoff plan for their existing debt, but will there be any useful life left in their assets longer term. Where do you see the dividend 10 years down the road?

Roger Conrad

6:31

The big date for Clearway--formerly NRG Yield--is still tomorrow, May 15 when all the votes are supposed to be on PG&E's bankruptcy plan. If that gets a thumbs up, PG&E will only need California regulators' OK to exit Chapter 11--which will free up the $140 mil plus held at the power plant level for CWEN to spend. And cash flow should enable them to restore the old 33.1 cents per share quarterly dividend last paid in December 2018 before PG&E filed Chapter 11.

What's CWEN worth at that higher dividend? My view is the higher level coupled with the stronger balance sheet and management's plan for what appears to be a mid-single digit dividend growth rate should earn CWEN a mid-20s price. And until we see that, my view will be that the shares are undervalued and I'll want to hang on.

The broader question you have about what CWEN is worth after that is a good one. One way to look at it is through the life of contracts. Another is the useful life of power plant assets, which is measured in decades. But probably

Roger Conrad

6:35

the most important is how many more contracted power facilities CWEN can accumulate in coming years on an accretive basis. My view is all bets are basically off until we see PG&E exit bankruptcy, CWEN gets it cash and we get more color on management's next steps. If I had to guess now, I would say, given California's obvious need for more renewable energy--and similar needs in other states to meet mandates--there's not going to be any shortage of new project opportunities. The market will wax and wane and management will have to play it smart. But it does have a good general partner with a lot of firepower. And if it can grow cash flow and the payout 5% a year through 2030, this is probably at least a 35-40 stock. But again, we need to see a PG&E resolution before any longer term forecast will make any sense.

Jon B

6:39

Hi, in your extensive research on utilities and energy, have you ever considered a company like Quanta (PWR) that services the essential service companies? Any reasons for liking or not liking their business?

Roger Conrad

6:39

I do cover a handful of what I call utility technology companies in the Utility Report Card coverage universe. Quanta is one I've looked at off and on over the years--at one time a utility actually attempted to acquire it. I don't have a recommendation for you at this time. I see they expect to take a Q2 hit from COVID-19 fallout. But I think this is one variety of contracting that should be able to hold up and weather this crisis--and I wouldn't rule out adding it to coverage at some point.

Jon B

6:42

After hearing from management, any reason to feel better or worse about Landmark (LMRK)?

Roger Conrad

6:42

I think the dividend cut was long overdue but has now restored a balance between cash intake and outflow. I also believe the underlying business model is still sound that that there should not be a major impact from COVID-19 fallout. I don't really have much to add to what I said in the May Endangered Dividends List and Utility Report Card comments on this company. But it's certainly a much more attractive hold than it was a few months ago borrowing to maintain a dividend that was set too high to grow the business in a healthy way.

richard

6:48

I have read recently that PBA is not covering the dividend. This year FCF is expected to be CA$975MM and dividend CA$1.38MM. Also it has high debt. What is your position on the dividend and maybe cut please?? Will they continue to borrow to pay the dividend until times get better but it maybe a long time before oil price and volumes and tarriffs improve. It doesn't look like a positive situation

Roger Conrad

6:48

Their operating cash flow did not cover the sum of growth CAPEX plus dividends in Q1--which is a very different thing from saying they're not covering their dividends. The fact they borrow to cover a portion of CAPEX is also a red herring--as it's pretty standard practice to cover cost of new assets with a mix of debt and equity, particularly when they're long lived as Pembina's are.

I also disagree with the statement they have "high debt"--high relative to what? They come in at BBB stable at both S&P and DBRS, which puts them in a tiny handful of midstream companies today. They also have zero debt maturities this year. And they have bonds maturing in April 2049 that yield just 4.6% to maturity--again very cheap money that don't seem to have a problem raising, which wouldn't be the case if they really were as badly off as your question implies.

Look, every business has been affected by COVID-19 fallout--energy definitely more than most. But Pembina's Q1 numbers and guidance back its dividend quite well by

Roger Conrad

6:51

any standard. And with a payout ratio of 73% based on fixed fee based revenue alone, they show every reason of doing the same going forward. I'll be looking at Q2 results and anything else we learn in between to make sure that remains true. But I'm not seeing this one at serious risk right now--and apparently neither do 21 of the 23 analysts who cover the stock now.

jim

6:51

Hey Roger - I go back to the early days of Personal Finance as a multi-publication and spinoff publication subscriber.

Roger Conrad

6:51

Thanks for sticking with us for so long Jim. We appreciate it.

Charlie

6:56

Roger, you have mentioned RCS, the Pimco Bond Fund in the past. Do you have any opinions on the stock now? As always, it is trading at a premium to NAV, but at 19% it seems to be at high risk of a dividend cut. I would really appreciate your opinion on RCS and any thoughts on any other Bond fund you might prefer.

Roger Conrad

6:56

I'm a little put off by the high premium to NAV, which is currently over 16%. The reason for that is probably the yield of 11%--which management may not be able to afford but remains an incentive to keep, since on a cut this closed end fund probably goes to a discount like the rest of the CEF sector.

This fund takes risks and always has. I like the fact that the lead manager has been at the helm since May 2005 and has therefore been through the wars. And the fact the the fund's price has come down a bit this year is if anything attractive. That said, the portfolio is a black box and no one should own the fund who isn't at least prepared to see the dividend cut--as in fact it was about a year ago.

BlueJoseph

7:01

New subscriber and trying to get a feel for things. PNW is a quality A, a history of 6% div increases, trading substantially below the buy price on the report card but not in the Conservative portfolio. Can you give your thoughts on PNW and what it takes to make it onto your radar screen? Thanks

Roger Conrad

7:01

I think Pinnacle West is a solid company, as hopefully you can tell from my comments in Utility Report Card. And I do track every company in that table very closely--so it's definitely always on my radar screen. If there's a reason the stock is not officially in the Conservative Portfolio it's probably that there are already a good many names in it already and we can't own them all. But again, I track all the companies in the URC closely and the advice I give is as considered as that for any Portfolio company.

jim

7:04

Hit send too soon. Long time subscriber through many, many years and publications. Recently bought the following stocks at close to dream buy prices. Have more "dry powder" Which do you recommend buyng/nibbling in for additional shares at this time? BPY, CVX, D, EPD, MMP, OKE, PBA, RDS.B, SLB, T, TOT, VZ, XOM . Any I'm missing ? this is a Mad Money taxable side account. Not an IRA, 401k. Old, but still working. Jim D

Roger Conrad

7:04

Of that list, I think the most attractive right now are CVX, D, EPD, MMP, OKE. PBA, SLB, T, VA and XOM. Still trying to make up my mind on BPY's Q1 earnings--it's a hold in CUI Plus currently. I would say that as attractive as I think the best in class energy stocks are now, it makes sense to diversify outside that sector as well.

bob

7:05

what do you think of UTG?

Roger Conrad

7:05

It's a solid closed end fund with strong management and a great long-term track record. I do prefer buying individual stocks--and there is a premium to NAV of nearly 9%.

Bill W

7:09

How much upside do you see for D an DUK if the Supreme Court gives a green light to ACP?

Roger Conrad

7:09

I actually think this is less and less of an issue for both of these companies, especially Dominion, which has shown it has multiple avenues for investing capital in Virginia as that state is mandating a push toward wind and solar.

I think investors are basically expecting the US Supreme Court to uphold the permit for the Atlantic Coast Pipeline--so I'd really be surprised there was that much of a response to an affirmative ruling. It's also not the only regulatory obstacle to getting this project done.

Failing at the Supreme Court in contrast would pretty much doom the project in its current form, and that could have a negative impact on both stocks. But if so, I would use any retreat as a big time buying opportunity for both Dominion and Duke. Again, the key here is that they have places to invest--not so much what they invest in. And in fact, renewables are a much easier sell to investors and regulators now--so the payoff is more sure.

Brian

7:10

Is there a link on your website for CUI+?

Roger Conrad

7:10

Not at this time. It's a separate service, though many of our readers do receive it as well as CUI.

Hans

7:11

Any update on BPY you still have it as a hold!

Roger Conrad

7:11

Still looking at that one. Look for a definitive answer in the next CUI Plus update, which should be out in the next few days. Until then, it's still a hold.

Dan

7:14

Good Morning Roger. With respect to AES and their partnership Fluence. Are they receiving any direct competition from utilities who are building battery storage systems themselves i.e. by-passing the services of an AES/Fluence type organization. Just wondering when I saw VST building the Moss Landing storage project in Oakland. Thanks for insight on AES Battery Storage competition.

Roger Conrad

7:14

Fluence definitely has competition. But it's also a partnership with Siemens AG, so it's getting plenty of business. And other than NextEra Energy installing battery systems at its facilities, I'm not aware many utilities are doing the same. In any case, Fluence is still not a major piece of AES earnings, though management says it expects it to become one in the next several years. In the meantime, as I've said I think there are plenty of other reasons to buy AES at this price.

BlueJoseph

7:18

I'm a new subscriber. What are your thoughts on PNW? From the Utility report card it seems like a candidate for the conservative portfolio but it isn't. Why? and what does it take to make it onto your radar?

Roger Conrad

7:18

As I answered in an earlier question on Pinnacle West, it is a candidate for the Conservative Holdings and is recommended buy. The reason it's not in that Portfolio now is probably that there are already a number of names and I don't make a practice of swapping out in a long-term portfolio unless there's a very good reason. In any case, don't take not being in the Portfolio as not being worthy of being there under the right circumstances.

I also should point out I viewed Pinnacle as very high priced for a long time--really up until it crashed in March below our buy price. Valuation is a very big deal when I make a recommendation.

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