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August 2023 Capitalist Times Live Chat
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AvatarRoger Conrad
7:37
Hi Barry. Those questions are pretty much tied together at this point. Atlantica Yield (NSDQ: AY) began its life as the yieldco of a Spanish engineering company that went bankrupt. Eventually, its ownership stake was sold to Algonquin Power & Utilities (NYSE: AQN), which has been a solid parent--though not as supportive of growth as had been hoped. Atlantica as a result has grown steadily though slowly. The current low price reflects that fact, as well as Algonquin's announcement it will sell everything it owns that's not a regulated utility--which creates some uncertainty for AY. My view is still that one of two things will happen (1) A larger company will make an offer for Algonquin's shares of AY with the objective of growing the yieldco at a faster rate as a fund raising vehicle or (2) A larger company will make an offer for both AQN's shares and the shares now publicly traded. My preference is option one, as that will mean AY's high yield will increase faster. But either is likely to result in gains.
Guest
7:43
Hi Roger:  In your Wealth Newsletter you advocate MO as a stock to purchase.  Its $3.92 dividend represents an 8.86% yield - awfully impressive!!!  I own the stock for its income stream, but what are your thoughts about it as a company for a long-term hold?  Is that company going to be able to reinvent itself?  Or the real question is "Does it need to reinvent itself?" because there will always be a demand for "sin" products like alcohol and tobacco???  I am trying to buy stocks which will not require my wife to manage on a daily basis after I pass.  Thanks for any of your "long-term" insights or thoughts about Altria.  Barry
AvatarRoger Conrad
7:43
The near term appeal of Altria for me at this point is a high yield, which as you've pointed out they're still growing (4.3% increase earlier this month) and is well backed by earnings and cash flow. Also, the stock trades at a very low valuation of just 8.8X expected next 12 months earnings with what's basically a recession proof franchise, which limits risk to a prospective recession and stock market selloff. I do think the company has longer term staying power--both from dominating the slowly but surely shrinking smokable tobacco market and increasingly smokeless products that are to  a large extent replacing any lost revenue from fewer cigarettes sold. it also has solid pricing power up and down the value chain. Can they fully reinvent themselves? That's unknown. But they do have a lot of time to do that. I think if revenue really started to shrink I might be more bearish. But there are many far riskier places to put money now, even with the idea of say holding another 5 years or so.
Guest
7:49
Roger:  Can you tell us readers of any substantial differences among ET, EPD and MPLX?  We know that you picked ET as your no. 1 pick this year for a midstream MLP.  I am trying to figure out how to allocate "new money" investments among those 3 companies.  Appreciate your thoughts regarding this challenge.  Best, Barry
AvatarRoger Conrad
7:49
MPLX is 64.66% owned by Marathon Petroleum (NYSE: MPC). So it's always a possibility MPC will try to buy in the publicly traded shares it doesn't already own. That hasn't happened yet, mainly because MPC would likely have to pay a pretty rich premium. But it still might. Enterprise never cut its dividend--only increased--during the energy downcycle of 2014-2020, whereas ET did cut. That's because ET had more debt pressure, which it's worked hard since to reduce. But I suspect ET shares are still trading at something of a discount because some investors don't like Chairman Kelcy Warren, whereas Enterprise's ruling Duncan family is frankly revered. ET also owns more controversial assets, including operating control over the Dakota Access Pipeline and is more frequently in conflict with the US government than the other two. Other than that. however, all three quality assets in multiple basins with high quality customers and generate free cash flow in excess of CAPEX and dividends paid. i would allocate equally.
Guest
7:52
Hi Roger: You previously stated that MPLX will have "another increase ahead for November."  Do we know yet what the amount is?  Thanks.  Barry
AvatarRoger Conrad
7:52
They will probably set it at the beginning of November. I'm expecting something in the mid-single digit percentages though. Q2 distribution coverage was 1.7X with DCF, debt was just 3.5X EBITDA and free cash flow coverage was 1.5X with CAPEX projects on track and guidance affirmed--so there's plenty of room for a boost that size. And MPC's interests are aligned with us on this as its ownership is common units.
Sohel
7:59
Hello Roger, What is your view on OXY as a carbon recapture play? Does it current valuation make it attractive vs it's future prospects? It's not much of a dividend stock.
AvatarRoger Conrad
7:59
I think the jury is still very much out on that. What we do know is there are substantial tax credit available for developing effective carbon capture and storage systems. And Occidental looks committed to being a leader in development, given its announcement earlier this month that it would buy Carbon Engineering Ltd for the not inconsiderable sum of $1.1 bil. We should get a good chance to see what the company is doing with its efforts in early November, when it announces Q3 results and updates guidance. It's a fact that previous iterations of carbon capture have not been economic, other than for use as carbon injection to increase yields in oil and gas wells. But there is a lot of money being thrown at this now to bring down costs. And the payoff of being able to offer a decarbonization solution to say natural gas utilities and power producers would be immense--so there's definitely incentive in addition to government tax credits. We did well with OXY in the portfolio but are wary of price now.
AvatarRoger Conrad
8:02
Well that was quite robust. Who says August is the dog days? Thanks again to all of you who participated today. If for some reason your question wasn't answered fully, please feel free to drop us a line at service@capitalisttimes.com and we'll get back to you as soon as we can.
As a reminder, we will be sending you a link  tomorrow to the complete transcript of the Q&A. And it will be posted on our various websites as well.
Have a great Labor Day weekend everyone!
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