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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Bill

7:19

EPD still safe for dividend, et al ? Thanks Roger!

Roger Conrad

7:19

Yes, despite the 10% plus yield. This company has multiple levers to pull to stay on top of the game and maintain the payout. I think they may keep it here for a while, however, at least until there's more clarity on what COVID-19 fallout is going to do to energy demand in Q2/Q3.

Jon B

7:23

Can you please comment on New Jersey Resources (NJR). This one and South Jersey (SJI) have been pretty weak recently, not to mention subject to violent swings during the sell off. Seems strange for natgas distributors... Thanks for all the discussion.

Roger Conrad

7:23

They do have some unregulated operations that investors may be treating with trepidation. South Jersey Industries was also depressed heading into this year despite an expected earnings rebound this year. The good news is neither company disappointed in calendar Q1 and they both held their guidance--which for SJI was for a big rebound.

We added SJI to the portfolio and continue to prefer it because of a higher yield and what I thought would be a revaluation upward when it became clear the higher earnings guidance would be reached. I still think that will be the case. But in the meantime, I don't think either company poses much risk now.

Thomas S.

7:28

Last week the Rockefeller Foundation revealed that they have divested most of their carbon based holdings and have focused on industries that look to the future. They believe that the carbon based companies are yesterday's story. They appear to have done very well with this strategy. What is your opinion of their approach?

Roger Conrad

7:28

I think you're going to see more and more institutions follow this course going forward. But I don't think it's going to have much impact on the performance of energy-related stocks going forward--since as I answered earlier in the chat, this money has long since exited energy.

I would say that avoiding energy stocks entirely hasn't been a particularly good strategy this year, since the sector has been far and away a top performer. And I would also say the devil is in the details for this strategy--for example, do you avoid a company that's converting its coal power plants to gas and renewables and taking tons of CO2 out of the air, just because right now it operates a coal power plant?

What we're really talking about here is another good argument for why everyone should buy individual stocks, rather than tie up money in an institution in hopes there's a coherent strategy somewhere. You can decide what works for you.

Ray S

7:30

Oops. My question actually is PPL. I

7:35

Lets try once more. PPL was in your picks and pans a while back with some favorable comments. I own some of the stock and was wondering if it has been rated a C the whole time? Or did it change from a while back?

Roger Conrad

7:35

No it's been on the aggressive end as far as recommendations go. I liked what I heard at an Edison Electric Institute conference and shared that with readers in the report. But the UK utility operations have kept it exposed to Brexit pressure on the British pound. And though Labour was defeated in UK elections, nationalization risk and tough UK regulation are still a fact of life,

That said, there are some great assets here. The yield is actually pretty well protected so long as all of those British pound hedges are in place and the stock is basically back where it was coming out of EEI in 2018. It's still aggressive but I think worth sticking with--and I think the yield at least for now is overstating dividend risk.

Guest

7:35

Hi Roger. Your thoughts on MDU as an investment or a pass? Thanks, Marc.

Roger Conrad

7:35

Hey Marc I think I picked up your question earlier in the chat. Short answer is I like MDU, still a solid Aggressive Holding and the dividend is safe.

Ron

7:39

Do you feel now would be a good entry point for KYN given the large drop in MLP share prices? Also, ALE nearing a 52 week low due due to reduced taconite power needs. Do you feel now may be a buying opportunity given ALE has a water segment?Lastly, your thoughts please on EPD. Thank you.

Roger Conrad

7:39

I prefer individual midstream companies rather than a fund, especially now when the weaker ones are cracking. But the current level is probably OK for KYN--just keep in mind it's not now paying a distribution. It is at a discount to NAV and the top 10 portfolio holdings are all grade A.

I don't have much to add to what I've said about Enterprise Products Partners--probably the safest 10% plus yield I've ever seen. As for Allete, they sold their water management operations. The taconite sector shortfall is a risk other utilities don't have. The yield is nearly 5% which makes it interesting but this company could still get hit harder by COVID-19 fallout.

ron

7:46

Roger, Shares of OKE have a dream price of 50. I used to own it. The stock would seem to very cheap at its current price of 30-31. What is there about this company that will drive the price so much higher?

Roger Conrad

7:46

I think so. If you look at a 5-year price chart of ONEOK you'll see it's made some pretty dramatic round trips before. The last was from mid-2014 to early 2016, where we went from $70 to under $20 then back to $70 over the next couple years. This time, OKE went as high as 80 in February, crashed to 12 a month later and is now around 30.

I think it will break 100 next time for several reasons. First, as its Q1 results show, it's a lot stronger than most rivals so it's going to be that much more dominant when this is over. Second, it's a big and liquid stock that investors will jump into when volumes stabilize in the Bakken. And third, it's a much more valuable company that it was five years ago, having made a series of strong investments---including a number of projects it will bring on stream in 2021-22 provided there is some stabilization and improvement in prices.

It's odd to have a stock trading so far below a Dream Buy price--which makes it looks like I should have set that level lower when the stock

Roger Conrad

7:47

was reaching so much higher. And in retrospect, I did underestimate how much what was going in the energy market would shake investors' perception of ONEOK--and selling of energy stocks in general. But my view is still that recovery is a matter of time for this company. And continue to rate it buy.

7:49

I would like your thoughts on AVA, owned it in the past and sold out during the failed buy out, its has sold off more than the rest of utilities recently. Thanks

Roger Conrad

7:49

They took a hit when Washington regulators gave them a less than appetizing rate decision--which forced the company to reduce the mid-point of 2020 earnings guidance by about 20 cents a share. That's not enough to threaten the dividend--and the company remains generally resilient in the face of COVID-19. But it's enough to keep the stock a hold for now.

7:54

Looking to buy one renewable stock in the next week. Have NEE, what is you next choice.

Roger Conrad

7:54

Check out Clearway Energy--which I recommended in the feature article of the May issue and have discussed at length during this chat. I also like Algonquin Power & Utilities and AES Corp as bets on renewable energy growth--both like NEE have big plans and it's all long-term contracted.

Wendy

7:55

Dear Roger, around what price would you exit SDP?

Roger Conrad

7:55

I don't have a set price at this point. My intent is to sell when I see more utility stocks hitting Dream Buy levels on the next leg down--I would expect that to be around 25.

Guest

7:58

how much risk is there to the dividend at ONEOK?

Roger Conrad

7:58

As I've indicated earlier in the chat, I think ONEOK answered that question pretty well with strong Q1 results and guidance. The key is going to be keeping that going in Q2, and I think they've probably cut most of the CAPEX they can at this point. But I think being affirmed at BBB by S&P is a big deal and I think management is prepared to weather this, though probably not increase the dividend again this year.

Robert P.

8:04

Good afternoon Roger, it's a pleasure to join the webcast with you and all your subscribers. I have a couple of questions for you. Whats the importance of quantity of outstanding shares a company has in your considering to add into one of your portfolios? Reason I am asking, is because I do consider it for how fast upwards or downwards movement a company's shares can move. My second question. Conrad's Utility Investor has several portfolio's in its newsletter. With great respect of your analysis within these portfolios, could one recommend owning perhaps 75% or greater of selected companies within your newsletter as a safe profitable portfolio or would you advise against this? Your advice within your publication seems really conservative and pretty safe. Thanks again

Roger Conrad

8:04

To answer your first question, I think all bets are basically off this year when you're talking about what's normal for share price movement. My approach is based on the fact that over time, share prices will follow dividends higher. And I generally don't swap stocks out. I do have a system whereby I identify portfolio companies where I'll recommend investors take profits and its worked very well the past few years. But as for numbers, I'm probably not going to carry more than 20 in each Portfolio at a time and very likely less.

As for the second question, I think the way to think about the different portfolios is by objective. If what you want to do is just sit back and build wealth, the Top 10 DRIPs are the way to go by reinvesting dividends. If the goal is to harvest dividends in safe stocks that should appreciate over time, look to the Conservative Holdings. And if you take more risk, take a look at the Aggressive Holdings. I've found most readers like the Conservative Holdings as that's what best meets

Roger Conrad

8:06

their objectives. But others will mix and match. As for a portfolio that's 75% stocks from these portfolios, I think that's good for more conservative people who want income. Just stay balanced and diversify--don't buy all water stocks, for example.

Dennis

8:10

First, I will add my thanks to you for your newsletters over the years. Can you refresh my memory regarding what you mean when you say that a stock is a buy for those that don't already own it? I own many of those stocks in the portfolio and at times look to add to existing holdings. Are you saying that when looking to make new purchases, I should avoid those particular stocks if I already own them? Wouldn't that make them a hold?

Roger Conrad

8:10

And I think you for being a loyal customer. Truly appreciated and in fact makes it worth doing.

Basically, what I'm saying is don't overload any one stock--even if it's cheap and appears to be high quality. More or less that's a warning not to double down on a falling stock without very good reason--I've just seen too much money lost that way. Beyond that, what's overloading is really a matter of judgement, risk tolerance and how closely you're willing to pay attention.

Robert P.

8:14

Roger, the more I understand your investment philosophy, the more I only want to own stocks you recommend. Buying all the Blue Chip companies and high flyers, really are not the position an income investor wants with portfolio. Thanks for all your insights and a second note, great webchat you had with your son on investments. Are you grooming him....

Roger Conrad

8:14

Thanks! I really just want Nate to be a better investor, and we have plans to do more when time allows.

I would not disagree with you on conventional blue chips and high flyers as really not being suitable for income investors--or the value of stock picking and what we focus on. Thanks so much for your kind words.

Robert

8:17

Roger: Robert here. I have been a long-time subscriber. Thanks for your great work! I have a question on the mechanics of buying PG&E. Will the shares currently trading be cancelled? Would it be more prudent to buy the shares after they emerge from Chapter 11 in June?

Roger Conrad

8:17

I think what's going to happen is just that a lot more shares are going to be issued. But the current price should now reflect that massive dilution.

Buying right now does still run a slight risk this deal gets derailed, if for example the fire victims wind up voting down the restructuring deal. And that could still tank the stock, which is a reason to maybe wait for the vote to come in. But if the restructuring is successful, these should be the same shares.

Guest

8:21

Roger, how concerned are you about the provision in the Democratic House bill to ban utilities from shutting off customers for non-payment?

Roger Conrad

8:21

I'm not for two reasons. First, this is what utilities across the country are already doing. The challenge is getting states to allow them to set aside COVID-19 related costs for recovery later, and while some like New York have yet to act most are doing so.

Second, there's no chance this legislation clears the Senate even if it did the House. But again, utilities are well ahead of the curve on this one. And while it's still early days on COVID-19 fallout admittedly, the hit's relatively mild so far.

Ray S

8:24

I’ve owned VZ for quite a while. I took some profits a while back around 61. It seems like the stock meets serious resistance around that level. For the last few years it just gets stuck there. Do you think when things around the country/world improve it can finally break out? Thanks.

Roger Conrad

8:24

I think the big driver for earnings and stock the next few years is going to be 5G--how effectively can Verizon deploy it and monetize it. I think expectations are pretty modest right now with the stock at 11 times expected 2020 earnings. By the way it was the only major telecom to actually produce guidance for the year following Q1 results.

As I've pointed out in CUI, telecoms did not monetize the huge uptick in traffic triggered by COVID-19 fallout. But I don't view that as a harbinger of not doing well with 5G. And in any case, Verizon still offers a solid dividend while we wait to find out about its progress.

Guest

8:27

Hello Roger, and I too am a throwback subscriber who still holds quite a few Canadian Stocks such as BIRD; Canadian Property, Riocan Reit, Dream Office, Altagas, Artis Reit, Atlantic Power, IBI, Innergex, and luckily Pembina. So I know this is a lot, but if you could give me your thinking on the REIT sector especially I should be most grateful.

Roger Conrad

8:27

I like the high quality Canadian REITs like RioCan, and am pretty much wary of most US REITs right now. I'm due to do another REIT Sheet next month, at which time I'll be able to provide somewhat more color. But I do think Canadian Apartment, RioCan REIT and Artis are in solid shape. Happy to answer anything specific you have via an email at some point:

service@capitalisttimes.com

Guest

8:27

I enjoyed your Podcast with Nate ... thanks for that. I am sure Nate will have a very productive investment career. How lucky he is to have your guidance ... as are we. Thank you for everything you do.

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