You are viewing the chat in desktop mode. Click here to switch to mobile view.
X
Return toEnergy & Income Advisor
8/13/20 Conrad's Utility Investor Live Chat
powered byJotCast
Prev Page View Full Chat
AvatarRoger Conrad
8:05
I don't think so Andy for the reasons I've elaborated on answering several politics related questions in the chat. In any case, Pembina is almost all in Canada, so what we do here shouldn't really affect it much.
barry
8:09
What is the deal with AGLXY's future after its precipitous drop today?
AvatarRoger Conrad
8:09
Barry, I did answer several questions earlier in the chat about AGL Energy and it's one of five stocks I'll be updating in a Utility Roundup tomorrow.

I think the selling is in response to what management said will be a difficult year for FY2021 (end June 30). But I think it will prove short sighted and that  today's hit will likely be reversed in the next few weeks. That's because the company is clearly navigating the environment as a business by defending its balance sheet and keeping long-term plans on track, and it's also defending its dividend by paying out a larger share of underlying earnings. In retrospect, I wish I'd lightened up on it when there were first signs of hostility from the Australian government and locked in what was then a pretty huge gain. But I'm comfortable holding this company--which if anything has become even more dominant the past few years.
Guest
8:15
Roger, do you ever wonder whether there is really light at the end of the long tunnel of market sentiment for the energy/midstream sector?  I know it is a huge piece of the economy, and the best-in-class companies are strong, but is there good reason to be optimistic about eventual recovery of valuations in this accelerating social /political movement to replace fossil fuels with renewables?
AvatarRoger Conrad
8:15
Let me make two things clear. First, there are far too many US owners of energy midstream assets and the vast majority of them aren't going to survive in their current form. There have been 69 dividend cuts in our various coverage universes in Energy and Income Advisor since the beginning of March and there's more pain to come. The group I'm talking about is roughly 11 midstream companies that matter because of their size and financial strength.

Second, we don't need a recovery to 2014 levels to make a great deal of money in these stocks--from their well covered dividends alone. As I've said, we believe it's now pretty clear North American energy is a mature business. And that means weaker fare will fall by the wayside and barriers of entry will become ever steeper. But again we're talking about a handful of companies that have been demonstrating resilience and even with renewable energy usage growing, their assets are going to be used and useful for a long time to come.
Guest
8:24
https://www.forbes.com/sites/edhirs/2020/08/02/court-ruling-clears-way...

A federal appeals court has cleared the way for large-scale energy storage projects to have similar access to the power grid as electric generators do....

 The July decision is a big win for independent, merchant battery companies and renewable energy proponents, and a blow to entrenched legacy generators that have worked to stall independent battery stations by complaining that these are not generation facilities
AvatarRoger Conrad
8:24
It's certainly looks like this decision should be another boost for grid level storage systems. But I'm not sure it's really a potential disruptive event in this business. Mainly, utilities are working with companies like AES Corp--one of the two companies named in the Forbes article--to build grid level storage projects that will theoretically allow them to absorb a greater percentage of intermittent sources of energy like wind and solar. AES is also a utility and a contract power generator.

You could make the argument that this further undercuts merchant generation companies that compete in wholesale electricity markets--since giant storage projects if successful would drive down costs and therefore selling prices for electricity. But companies like Vistra Energy and NRG Energy are also developing them. And storage systems are also increasingly being deployed alongside renewable energy facilities to store generation to even their output.

Bottom line is this is win for investment in the energy transition
AvatarRoger Conrad
8:25
mainly investment that will flow into rate base for utilities and for merchant generators like Vistra from contracts.
Jeff
8:27
Hi Roger,  What's your opinion AEP and AEP/B?
AvatarRoger Conrad
8:27
I think American Electric Power is a high quality utility that's trading a bit over my buy price of 80 or lower but would be a good add on a dip below that. Q2 results were solid as you can see from my Utility Report Card comments this month.
Stan
8:28
What is your view on NiSource (NI)?
AvatarRoger Conrad
8:28
Takeover target at the right price. The big event will be completing the sale of the Massachusetts natural gas distribution utility to Eversource this fall. But risks are low and the dividend looks safe.
Ed
8:32
What are your thoughts on ENBL and IENVF?
AvatarRoger Conrad
8:32
I track IENOVA in Utility Report Card. I thought Q2 results were strong and the company's investment plan with parent Sempra Energy in Mexican midstream and renewable energy infrastructure is still on track. I think the shares have taken on water in US dollar terms mainly because of weakness in the Peso and concerns about the country's regulation and economy in the pandemic. But this is a resilient business model and I'm expecting a mid single digit dividend increase in the annual payout in November.

Enable had surprisingly solid Q2 numbers. We track it in Energy and Income Advisor. It's primarily interesting for us in CUI as an affiliate of Centerpoint Energy, which intends to eventually sell its 50% GP and 53.7% stake in LP interest. We think that will happen probably at a price in upper single digits or higher possibly linking this company with a stronger midstream company. We have this a buy up to 6 for aggressive investors.
RBB
8:35
Regarding the recent Supreme Court decision in Sharp v Murphy, at this time are investors of business operations located in the large swath of eastern Oklahoma NOT ADVERSELY AFFECTED since the court decision solely focussed upon the Major Crimes Act ? . . . As always, thanks in advance / Take care.
AvatarRoger Conrad
8:35
I hope that means you're in the clear personally on this. I'm really not 100% what the decision means going forward. I suspect a lot less than some people think as First Nations have economies too. In any case, energy companies certainly have other things to worry about at this point.
Kevin C
8:40
Any thoughts on Min and vim?
AvatarRoger Conrad
8:40
The Invesco Van Kampen municipal trust was bought out and now trades as VMO or Invesco Municipal Opportunity Trust. I prefer the open end Vanguard Intermediate Term Tax Exempt (VWITX) in that sector. Same applies to the MFS Intermediate Income Trust. Like the open end funds, the trajectory for yields and distributions is down as interest rates have fallen.

There's also credit risk from financial stress on state and local governments--getting worse the longer the federal government imposes new burdens like an additional 25% of unemployment benefits and won't provide direct aid. Add to that the opaqueness of CEFs in general as I discussed earlier and that's a lot of risk for the higher yield.
Guest
8:42
Why does PPL trade at a price that provides a pretty high dividend yield?
AvatarRoger Conrad
8:42
It's the risk from its UK exposure primarily. That's one reason PPL is considered a potential takeover target for Iberdrola in particular as it has complementary assets. I think we want to stick with it as these challenges are worked through--less than 12X expected 2020 earnings with a protected dividend of nearly 6% is a value. PPL is actually on my watchlist for possibly adding to the Portfolio in fact.
Guest
8:44
A lot of the 5 ticker stocks (eg APAJF) have pretty high fees that show up when they pay dividends.  Is there a way to side step these fees?
AvatarRoger Conrad
8:44
The best way would be to just buy APA Group on its home Australian Stock Exchange, which you can do under the symbol "APA" through a broker with a platform like interactivebrokers.com. Sorry you're encountering elevated fees. That sounds like a broker driven policy, though I usually do try to avoid recommending five letter symbols ending in F in portfolios.
Jim D
8:45 
What are your thoughts on "structured ETF"s built using options to mitigate downside while facilitating upside gains with reasonable upside limits/tradeoffs.
HNDL 7 Handle by Nasdaq Dorsey Wright is not too bad.    
DRSK	Aptus Defined Risk ETF is pretty good IMHO.
I value your opinion.
AvatarRoger Conrad
8:45
I think they're even more a black box than many CEFs. They may work but I kind of live by the maxim that the greater the level of complexity, the greater the chance for something to go wrong. And the leverage of options is very much a double-edged sword to be handled carefully.
Alex M.
8:47
Would you put MMP in the same class as EPD in terms of overall quality?  Thanks.
AvatarRoger Conrad
8:47
I think so, though Magellan is a great deal smaller at less than a $10 bil market cap. The main reason is conservative management, strong customers and assets and a highly rated balance sheet. That makes it one of the 11 midstreams that matter I've identified in Energy and Income Advisor.
Alex M.
8:55
Not sure if someone else has asked about this yet, but what are your thoughts on PPL's plan to sell its UK unit?  Do you think a dividend cut is likely to follow due to the expected decline in earnings?  Thanks.
AvatarRoger Conrad
8:55
Thanks for that question as it has not been asked yet. What the company does with its dividend really depends on how much it gets and what management plans to do with the money. It looks like from what management has said that the primary use of the proceeds will be to cut debt. Obviously, selling also means losing earnings from the UK operations. Those could be replaced if management is successful making another acquisition as it actually alluded to as a goal during the earnings call announcing the sale. The company could also buy back enough stock to bring up earnings per share to support the dividend.

During the call, management said there would be no change in the payout until a transaction was announced. That could conceivably also include an offer for the whole company. In any case, there are a lot of unknowns here and that fact is reflected in PPL's low share price--and as I said the stock is on my watchlist as a possible portfolio addition. I do think a US only company will be more attractive.
Arthur
9:02
CSCO took a big hit today(down5.38). Any thoughts?
AvatarRoger Conrad
9:02
I think today's drop--which basically was all at the open--is an over reaction to guidance that enterprise spending is likely to be weak in second half 2020. It's hard to believe anyone really found that to be a revelation in this economy. And perhaps the fact enough did to crash the stock in a few minutes trading should make us all a lot more cautious about the sentiment in this stock market, especially for technology stocks.

The company said product revenue was -13% lower in FYQ4 (end July 25), and that took down overall sales by -9%. That however was actauly on the low end of the guidance range management had set earlier of an -8.5% to -11.5% decline. And earnings per share of 80 cents were well above the guidance given of 72 to 74 cents. There were also some real green shoots, such as the 10 percent lift in cybersecurity revenue.

As for the FYQ1 (end October 31), the company set guidance for a year over year sales decline of -9-11% and 69 to 71 cents per share earnings, both of which were slightly
AvatarRoger Conrad
9:04
behind apparent Street projections--but which likely set the company up for another beat in a few months. The company also affirmed its on track to cut costs $1 billion the next few quarters and painted a solid picture for the future, focusing on software and services to digitize customers' operations.
9:05
Bottom line is I'm disappointed the stock is down this much today. But the dividend is safe, the balance sheet is protected with a AA- rating and stable outlook from S&P. And the stock is even cheaper at less than 14 times expected next fiscal year earnings.
9:07
Well that looks like all we have for the chat, both in the queue and from emails we received earlier. Thanks again to everyone who participated today and especially for being a Conrad's Utility Investor member!
If for some reason your question did not get answered, please feel free to drop us a line at service@capitalisttimes.com
9:10
As I said before, this chat marks the 7th anniversary of the first issue of Conrad's Utility Investor. I've truly enjoyed serving as your editor and appreciate you being a customer. Here's to a great rest of the summer--and hopefully at some point a World Series!
Connecting…