JotCast | 9/27/22 Capitalist Times Live Chat

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9/27/22 Capitalist Times Live Chat

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Guest

6:27

Are there European companies focussed on renewable resources that you believe aer promising?

Roger Conrad

6:27

I track several in the Conrad's Utility Investor coverage universe. One that looks very cheap right now is Enel SpA (Italy: ENEL, OTC: ENLAY). The company continues to successfully deploy solar and storage throughout South America and Southern Europe and recently affirmed 2022 guidance, despite headwinds from Europe's energy crisis. It's minimally exposed to Russia or Russian natural gas and despite the rising cost of debt capital continues to be successful raising needed funds to grow the business.The twice annual dividend is now close to 9% with a consistent mid to upper single digit percentage growth rate.

Alex M

6:30

Hi Roger. I know you have some concerns about fixed income given the rising rate environment, but what is your opinion on fixed/float preferred stocks where the dividend payout adjusts depending on interest rates? Some of the mortgage REITs offer this. Thanks.

Roger Conrad

6:30

I think the main concern is credit quality. The financial/mortgage REIT sector is under enormous pressure from rising interest rates, which is likely to be compounded by credit risk as the economy enters a recession. Several M-REITs in our coverage universe reported year-over-year book value declines of greater than 10% for Q2--and are likely to repeat that performance in Q3. And some also had negative distributable earnings on top of that. The preferred stocks would have to get paid before common dividends--and we've yet to see a M-REIT cut dividends this cycle (or any REIT for that matter). But it's certainly looking like some are possible. Bottom line, I would look for yield somewhere else.

ron

6:32

Sorry didn't finish the question. Considering the bearish outlook would it be prudent to sell some energy stocks at this time?

Roger Conrad

6:32

We were recommending taking partial profits on several producer stocks earlier this year at much higher prices. And there are a number of sell-rated stocks in our Energy and Income Advisor coverage universe at this time--as the updated tables on the website will attest. We aren't recommending taking money off the table in our recommendations at this time, however.

Guest

6:38

I realize it is late. so feel free to ignore this: Do ou have an opinion on Iberdola.

Roger Conrad

6:38

Highest recommended entry point on Iberdrola ADRs (IBDRY) is 55, per the latest issue of CUI. As is the case with Enel SpA, my view is investors have sold the stock off overmuch on fears about Europe's energy crisis, and therefore ignored the fact the company has no real exposure to Russia or Russian gas, and is successfully deploying renewable energy in Europe as well as the Americas very successfully. I recommend Avangrid (NYSE: AGR), which is the company's 81% owned US unit, as a buy up to 52. That company has multiple upside catalysts the next 12 months, starting with the potential close of its merger with PNM Resources (and likely resulting dividend increase), progress completing the Vineyard offshore wind plant in Massachusetts on time and budget and restarting construction of a powerline in Maine.

Lee B

6:44

Thanks again for this informative forum, Roger and Elliott. Re: PXD, DVN, et al who now pay variable dividends. Is there a reasonable way to correlate their expected dividend adjusted for lower WTI?

Roger Conrad

6:44

Hi Lee. That's a tough one, since all of these companies hedge pricing to some extent and there's a cost side and output side to determining cash available for distribution as well. There's also the fact that variable dividend companies also have a "fixed" portion of the payout--and these levels for most are generally stress tested for as low as $40 oil. And finally, what's important regarding prices is the average realized selling price for the quarter in question--not the highs and lows. That said, the current market price of Pioneer shares, for example, looks like it's reflecting a dividend cut of a much as 75% at a yield of 16.6%. That seems highly unlikely for the payment to be declared in November--not a high bar to beat.

6:47

Any companies at or near their dream prices. Is this a good time to put new money to work or do you think the opportunity will be greater in the future.

Roger Conrad

6:47

As we've indicated during the chat, we think it's likely we'll see a recession and lower prices. But the Dream Buy prices are set at levels that should only be reached under extraordinary conditions--and provided the underlying companies stay solid, buying there has historically produced windfall gains. We publish lists of Dream Buy prices regularly in CUI and EIA--and we've identified them in our other advisories as well, including the REIT Sheet that posted earlier this week.

Guest

6:53

Thank you for your equitypoise. EQNR and ENPH have had positive commentary, what are your thoughts on them?

Roger Conrad

6:53

Equinor is doing well in Europe's energy crisis, both from oil and gas production and sales and deploying renewable energy. We expect to see more growth there and they also pay a variable dividend, which should be a long-term positive. We currently have a hold rating on Equinor--tracked in our Exploration & Production coverage universe on the EIA website--though we could raise that on a further decline in the shares.

Enphase is a stock that's received a great deal of hype. It's a real company that manufactures components in demand. But at a price of nearly 65x expected next 12 months earnings, it's the kind of technology/manufacturer stock that could take a major hit if the bear market deepens and the economy slides into recession.

Rich Lawson

6:55

I'm a Canadian and ZRP yeilds 5.7% dividends. Should I substitute IEF for ZRP in my portfolio?

Roger Conrad

6:55

Hi Rich. Not familiar with ZRP. It's also a hard time for bond ETFs, but we definitely prefer high yielding stocks--as good companies will raise dividends over time and beat inflation.

Jeff

6:57

Are there any oil and gas or utility bonds worth buying at this time? Thanks

Roger Conrad

6:57

We think you're going to be better off with stocks. The most I would go out on the maturity spectrum is a couple years in this environment. And you're not going to want to have your cash locked up in any case with the opportunity we're likely to eventually see in stocks--especially energy and utility companies given the level of investment demanded for both sectors.

Roger Conrad

7:01

Q. Hello Roger. I’ve long held moderate positions in Canadian Apartment (TSX: CAR-U, OTC: CDPYF) and RioCan REIT (TSX: REI-U, OTC: RIOCF). Despite their falling prices, as a long-term investor, and from my basic research, I see no reason to sell either. I like the dividends and I don’t need to sell to use the proceeds for later investing elsewhere. Is there anything you know that I don’t know that would change my mind? Thanks for your good advice over the years--Lani T.

A. I don’t think so Lani. If you’ve had time to check out the individual company comments in the REIT Sheet we posted this week, both of these REITs have solid business momentum and dividends are safe and rising. Their US dollar value has been hurt by the rising US dollar against the Canadian loonie. But these are positions I think we want to continue holding at these levels.

7:07

Q. Hi Roger. I’m a 25 year +- subscriber now 76 y.o. and retired. Following your advice has been the best investment advice I’ve ever received. Many years ago you recommended UTG, which I bought and continued to buy even after you sold it. It represents 4.8% of our taxable portfolio. I don’t mind going to even 6% because of the dividend, which I’ve always considered secure. I consider it the “bond” portion of my portfolio along with ibonds, some of which we’ve owned for 20 years and are now earning 9%!! Anyway, my question is: UTG ($29.52) is nearing it’s 24 month low ($29.40) but not near it’s low of March, 2020 ($22.28). What are your thoughts about buying additional shares at current price vs. waiting to see if it goes even lower? Thanks very much.--Michael A.

A. Thank you so much for being with us so long Michael. It makes me very happy to hear about your success and that we’ve been of some assistance.

Though I always prefer investing in individual stocks to funds, the closed-end Reaves Utility Income Fund (NYSE: UTG) has been a consistent performer in all markets. The decision to hold the monthly dividend at 19 cents a share for the most recent quarter was I think conservative but also the right call for the current environment—and it makes me a little less concerned about the fund’s leverage as well. This is basically a very solid portfolio of companies—all of the top 10 have raised dividends this year and will do so next. It may take on more water depending on where the stock market winds up. But there’s also recession resilience here and my highest recommended entry point is still 35.

7:11

Q. Being a charter subscriber to CUI, EIA and the REIT sheet, I continue to enjoy/follow your writings and sage advice. I currently have BEP, BEPC, ENB, EPD, ET, KMI, KYN and PBA, and I have a question re PSX; I note it's down to its lowest levels since July and wonder if it presents a good buying opportunity at this time? I try to stick to your recommended lists but am curious about your thoughts of PSX. Thank you for your insight.--Chuck B.

A. Phillips 66 is definitely looking interesting at its current level. I think the comments we’ve made regarding other energy stocks definitely apply—it’s likely to give more ground if stocks continue to retreat and in a prospective recession. But it’s a solid, large and diversified company. And in fact a stock we will consider adding to coverage.

By the way, thanks Chuck for those kind words. And that looks like a pretty good list of stocks to stick with in the energy sector for long-term growth and income!

7:16

Q. How do you recommend starting to follow your portfolio? Wait and buy things as you recommend them? Or start to buy things that are already in the portfolio? Maybe buy the ones with prices below your entry price?--Eric F

A. Eric, it really depends on what your need is. Our Creating Wealth and CUI Plus portfolios are diversified and recommend weightings as well—the number of shares for the model. So if you really want to follow along in tandem that’s an option.

Most people like to pick and choose among our various recommendations and across the advisories they’re interested in. The key is to diversify over at least 12 to 15 stocks and balance periodically, so one or two stocks don’t disproportionately affect overall performance. We never recommend paying more than our highest recommended entry points—though we may have an opportunity to buy a large number below Dream Buy levels in the next few months.

7:20

Q. Roger. We've received a letter about a class action lawsuit involving UGI Corp (NYSE: UGI). Is this cause for concern for shareholders? Thanks—Wendy L.

A. Not really. Shareholder suits like this one are usually fishing expeditions by major lawfirms. This one concerns UGI’s purchase of its former Amerigas LP affiliate and alleges management behavior was not in shareholders’ interest. If the court finds in favor of the plaintiff, you’ll be entitled to a share of the settlement. If not—which is usually the case in this type of action—you won’t be out anything.

7:24

Q. In general, where do you see oil producer stocks going in the next several months (XOM, PXD, EOG, etc.) and into the new year, if interest rates keep rising? Do you recommend taking some money off the table? Which ones? What I've been doing is selling out -of-the-money covered calls. Your thoughts? Is there any energy related stock you would recommend buying in this environment? Thanks--Jack A.

A. Hi Jack. As indicated in our answers during now quite lengthy chat, we see the probability of a recession as real and believe we could see more downside in energy stocks. On the other hand, our long-term view of a still emerging energy upcycle is still very much intact. So while we did recommend taking money off the table in several then high flying stocks, we don’t see a lot of use in moving out now. Selling out of the money covered calls is one way to make money when you have stocks you don’t want to sell outright and think will give ground in the near-term. As for energy stocks to buy, anything at a Dream

7:25

Price would be a good place to look.

7:29

Q. Hi Roger and Elliott. I write about Magellan Midstream Partners (NYSE: MMP). I have never seen it as rated on the EIA High Yield Energy List despite the fact that its yield has been running above that of Enterprise Product Partners. Moreover, in the Utility Report Card it has been graded as a B; while I generally agree with your grades, this one puzzles me as Magellan is typically viewed in the same elite category as Enterprise in any number of categories such as capital allocation, alignment with limited partner interests, payout ratio, debt-to-EBIDTA, etc. I would like to understand the rationale for both the EIA and Utility Investor treatment. Thanks. Your long-time client—John A.

A. Hi John. Magellan is in both the Model Portfolio and the High Yield Energy List. We continue to rate it a buy up to 55.

I think there are several big differences between Magellan and Enterprise from a safety point of view. One is distribution coverage, which is much thicker at Enterprise. Another is simply business

7:30

business diversification—Enterprise is considerably larger and in my view better able to deal with shocks. And Magellan is also more sensitive to changes in volumes. Again, we like both of them and there are multiple similarities. But these differences are basically why MMP consistently trades with a higher yield than EPD.

Guest

7:31

Elliott/ Roger thanks so much for your chats. In my case, there are many concerns of the investments I have in best in class companies. With all your answers, it just reassures me that we still are on track of safe growth and income with 'A LOT' of stressed patience and to know these companies have true value. Thanks Robert P. Have not made reservations to Money Show Florida yet, but after today, hoping to make reservations soon.

Elliott Gue

7:31

Thanks for joining us on the chat and for being a subscriber. We look forward to the show at the end of October -- hope to see many of you there in Orlando.

Roger Conrad

7:31

Q. What is your take on EPD at current levels:--John R.

A. We like it a lot. A yield now over 8% that’s growing at a mid-single digit percentage rate—this is one to buy if you don’t already own it.

7:36

Q. Hi Roger. In watching the stocks in the REIT Sheet, there are a couple of conservative picks I don’t have in my portfolio that are getting close to your buy targets, Armada Hoffler (NYSE: AHH) and Centerspace (NYSE: CSR). Would you be prone to buying if they reach the targets, or waiting to see how low they might go? I know you don’t give specific investment advice, I’m simply asking what your feel for the REIT markets is at the moment. Thanks--Cuper

A. Hi Cuper. The short answer is I like both of them for the reasons laid out in the REIT Sheet individual company comments. I do think, however, that we’re likely to see more downside in the REIT sector—even though the S&P REIT sub index is already off more than 30% this year. Time is on our side so far as new purchases go—though the best way to build positions is I think to take the emotion out of it. One way to do that is to invest in increments.

Jeff

7:37

Roger / Elliott when you are making your suggestions for various stocks is there an age group you are targeting. I'm close to 70 and would much prefer solid income over stock appreciation / depreciation. I have no interest in going back to work. I have been with you for about 14. My views were a bit different at 54 than at 68.

Elliott Gue

7:37

We try to give an idea of the risk level for recommendations we make -- i.e. aggressive or conservative -- as we do realize there are readers looking for all sorts of risk profiles and with different investment time horizons. Of course, Roger is our income "guru." But even in the model portfolios I manage with more of a "total return" focus, something like 80% of the recommendations I've made over the past year pay dividends higher than the S&P 500. My focus through this bear cycle, in particular, has been on capital preservation/risk management first.

Roger Conrad

7:39

Q. Dear Roger, I would appreciate it if you would share your thoughts about UGIC. It's trading near a 15% discount to par with quite a nice dividend. I already hold AQNU and AESC, which I bought well below par and am happy to hold until conversion. I understand that UGIC is quite illiquid but do you think it is a promising investment, or is the fate of UGI too uncertain?

A. I think UGI Corp (NYSE: UGI) is definitely being challenged at its fuels distribution business in Europe, for obvious reasons. That said, I think there are enough earnings from other operations to keep increasing the dividend and to support the balance sheet. I think we’re going to have to be patient with the stock—and by extension the convertible preferred. And there could well be more downside. I feel a good deal more confident in Algonquin and AES.

7:40

Q. Thank you very much for your advice over the years. I am 78 years old, and your various letters have contributed greatly to the comfort of my retirement. Amazingly, my portfolio is still 20% above the S&P 500 for this year, although I suspect that may not last much longer. Best regards, Jeffrey H.

A. Thanks Jeffrey. And thanks for participating today.

7:46

Q. Hi Roger. I hope all is well. I had a recent discussion with a friend from Nevada about the water shortages out west and became curious about possible desalinization plays. Veolia (Paris: VIE, OTC: VEOEY) is one of the larger desalinization companies that caught my eye, and you cover the company. Any new insights on how the acquisition of Suez is going since your last Utility Report card? Am I missing something? Given the current stock price and 5.15% dividend yield and what I can tell from the fundamentals (though the P/E ratio seems high), it appears that Veolia would be a reasonable longer-term play. Any thoughts? Also, if you and Elliot have the time and inclination, I would appreciate a list of your suggestions for solid buy & hold plays, especially with decent dividends, in the current market. I suspect other subscribers would be interested too. It seems some companies have taken an outsize hit compared to their peers without clear justification.

7:47

Thank you—Arthur

A. Thanks Arthur. From all accounts, Veolia continues to successfully execute the absorption of Suez. That now includes the sale of waste assets in the UK that was a requirement of regulatory approval in that country. The big drop in the Euro has hit the US dollar value of the ADR—the Euro is now less than 96 US cents! And European markets have also been weak. But the company itself looks very solid. Shares I think are likely to slip further this year. But it’s already a value for patient investors.

Robert

7:49

Thanks for an informative afternoon. May the torrential rains dissipate prior to passing by. Take care.

Roger Conrad

7:49

Thanks Robert, we do appreciate your business. Thanks everyone for attending today. As Elliott said, we hope many of you will join us October 31 at the Orlando MoneyShow, where we'll both be presenting as well as on hand to discuss anything on your mind at length.

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