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Roger Conrad

5:13

EQM's general partner also ended its incentive distribution rights and the Mountain Valley Pipeline stayed on track to open in Q4 despite some remaining permitting issues. Management also affirmed 1.2 times distribution coverage and 3.5 to 4 times EBITDA coverage targets, as well a 6% target annual distribution growth. MVP staying on track is an important issue here, just as the strategic review is at APU. But at this point, I think you have to view each of these high yielding companies' situations individually. Just because CTL did something doesn't mean they all will. And if you hold these stocks in a diversified portfolio, you'll still be whole even if things don't work out as well as we believe the odds favor at this point.

Bill

5:13

What are your favorite six Canadian dividend stocks ?

Roger Conrad

5:20

I think Pembina Pipeline is still a good buy on a dip to 35 and I may raise the target again after they report on the 21st. TransCanada Corp--soon to be TC Energy--had a very strong Q4 (announced today) though I haven't had time to fully digest the report. I think it's a strong buy up to 50. As I wrote this issue, BCE is a strong value in telecom and like TRP is still trading not too far above our Dream Buy prices. I don't think Algonquin Power & Utilities is really a Canadian utility anymore but it's definitely a value trading under 11 for growth and income. Brookfield Renewable Partners is also basically global but I think is primarily cheap because it's still priced in Canadian dollars. Finally, if you want to go a little further out on the risk spectrum I think Vermilion Energy (NYSE: VET) and its global oil and gas portfolio are a unique value--they announced on Feb 28 if you want confirmation first. I also like Telus as another low risk telecom play. Come to think of it, it may be time to do a feature.

Max

5:20

Enlighten me on

Roger Conrad

5:20

Oops, looks like that question was cut off. I hope you reposted.

andy

5:20

hope you're feeling better. In the renewable space if NEP is a conservative solid standard and you wanted a second would AY or BEP fit that model in a retirement portfolio

Roger Conrad

5:24

Yes I think either one would be good. I note that Atlantica announced today it was forming a strategic review committee to consider its options to "improve returns to shareholders." The initial market reaction to that was favorable. We'll see what they come up with--may this is the first step to selling itself to Algonquin, which already owns 41.5% and has expressed desire to own up to 50%. It could also be something less dramatic. I still think there's value here. But in light of this announcement, I might favor Brookfield as a conservative investor--the yield is similar and the business has a great deal more scale.

Steve

5:24

Do you have concerns about ATT as they continue to lose Direct TV subscribers. Should it still be a core holding for the next 5 years

Roger Conrad

5:30

I really don't view US subscriber trends at DirecTV as that integral to AT&T's business, not now and certainly not 5 years from now. I think the value of this asset is what it added globally for the company and perhaps what the company picked up in terms of expertise of utilizing a different medium and for what's now the critical task of leveraging content assets (Time Warner) with the emerging 5-G network. If AT&T can do this half as well as Comcast has, this stock is an extreme value at just 8 times expected 2019 earnings. I really think that valuation represents just far too much pessimism. it would be one thing if AT&T were really shedding revenue as a company and rolling up debt. But it's gaining revenue and the $52 billion in free cash flow after industry leading CAPEX expected in 2019-2020 leaves $26 billion plus after dividends to reduce debt. I know this is not a popular stock right now--Street opinion has actually turned slightly positive at 17 buys, 16 holds and 2 sells.

5:32

But you don't have to look far to find someone who's forecasting doom. I actually think that's a very good sign of much better times ahead for stockholders, again so long as we keep seeing those big cash flow numbers and revenue is growing. Far too many people in my view are mono-focusing on a number here a number there and not the big picture, which again is getting to 5-G with content while generating a tidal wave of free cash flow.

Bill

5:32

What are your 6 best Canadian income stocks ? What are your 5 best Australian income stocks, (without being "extreamly spectulative.") Thanks.

Roger Conrad

5:38

Since I just answered the Canada question, I'll focus on Australia. My favorite stock down under for income and growth is still AGL Energy, and now is an especially good time to buy because so many are focused on the adversarial relationship they have with the ruling Liberal/National coalition, and are fearful of what a now likely Labour Party victory will bring for Australian business in general--despite the fact that AGL's long-term strategy is all about renewables, distributed energy and decarbonization. Anyway, they also pay north of 7%. APA Group is another good one with its pipeline reach across the country. TransUrban (TRAUF) is an owner of toll roads that actually belongs more in the Conrad''s Utility Investor Utility Report Card than in Energy and Income Advisor International Coverage Universe. I'm not now a big fan of Telstra but I do think Singapore Telecom is a strong value through its Optus unit, and you also get exposure to the rest of southeast Asia in including India.

5:40

For number five, I like Ausnet Services--which is a power grid operator in Victoria state. It yields nearly 6 percent now, though it may be more difficult than the others to buy under its OTC symbol SAUNF--if you can buy in Australia, try AST. These are all stocks covered in Utility Report Card by the way, except for the moment TransUrban.

Max

5:40

Enlighten me on Dominion's Cove Point export facility. If 100% of its capacity is spoken for under a 20 year fixed rate contract, won't Dominion be receiving the same dollar amount in 15 years that they are receiving today?

Roger Conrad

5:48

That's a good question that I don't know the exact answer to. My understanding is the contract allows for some sort of stepping up. They have not yet filed their form 10-K for this year, which will have that information. I will say that as of the previous 10-K, there were multiple contracts, which means cash flow is not dependent on a single customer. There's also capacity on site for imports, for which contracts are gradually rolling off but ultimately may be valuable for arbitrage. Bottom line is so long as Cove Point is running well operationally, it's going to make a lot of money for Dominion--though again plan A was to drop this asset down to the now absorbed Dominion Midstream.

andy

5:48

i purchased BPR understanding the returm to be identical to BPY, but can that be possible given the difference in assets managed

Roger Conrad

5:53

What these companies have in common is both are backed by Brookfield Asset Management, which means they're basically backstopped on whatever they want to do. Returns are not identical, however, nor should they be given the different objectives and portfolios. BPY is decidedly a global operation, for example, while BPR is entirely within the US. BPR's 12-month total return as of today was -0.7%, BPY's is 3%. They are pretty close this year at roughly 24% including dividends. But I think that's basically a coincidence. BPY is the one I've talked about. I haven't really looked that closely at BPR I confess. But from I can see at a cursory glance it's once I should examine. Thanks.

Rob

5:53

Roger, Thank you for the alert on CTL & CWEN prior to this chat.

Roger Conrad

5:54

Thank you. I'm sorry neither has worked out exactly how I'd like. But I think we're very much still in the game with CWEN at least.

Rob

5:54

Additionally, could you provide some insight on the comments I saw this morning regarding AY seeking strategic alternatives and what that could cover for its prospects. Thank you.

Roger Conrad

6:00

Good question. I was a little surprised at how well the market responded to the announcement as it seemed to say that management is not happy with the share price, and therefore its ability to issue equity capital. There was also a statement from Algonquin Power & Utilities' CEO in recent days that if the market failed to respond to the story of great assets being dropped down to Atlantica it might have to reconsider strategy. I do think Algonquin is basically in the same boat with shareholders here--as it's invested a great deal of capital in AY shares, so I think what does come out of this won't be negative for common unitholders. It may be this yieldco gets rolled up. I think we'll get a clue of what's going to happen on February 19, which is when the next dividend is announced. The consensus forecast is a 2 cents per share boost, which will leave the dividend 5 cents lower than it was in December 2015. If that doesn't happen, we may be looking at a rollup.

But again, I think there's a general understanding what's inside this thing deserves a higher share price. And I think we'll see that one way or the other in the next year.

Hans

6:01

Is consolidated Communications still a hold

Roger Conrad

6:07

CNSL, TDS, VZ, T and CMCSA are now the only companies in the US communications sector not to cut dividends in the last decade. The reason Consolidated is still a hold is that it's pricing in a cut at a yield north of 15%, which should limit the downside if there is one. I don't have any reason to expect management will announce a cut on February 21 when it releases Q4 results. But the fact that it's a possibility is why the stock is on our Endangered Dividends List. As we saw with CenturyLink today, there is still going to be selling when a company cuts it payout by a large enough margin. But with enterprise value of 6.7 times EBITDA, this is a very cheap stock on a standard valuation basis. The big challenge of course for all of these companies is revenues and Consolidated has yet to turn the corner to positive growth. Until that happens, I think the assumption should be a dividend cut is an eventuality.

Hans

6:07

PEGI was by several investment companies lowered to underperform from neutral. Roger ,any further news on this.

Roger Conrad

6:15

I saw that but I also saw the stock rallied pretty strongly today in spite of that. And in any case, Pattern is still trading above my buy target of 20. Firms buy and sell companies for a lot of different reasons. The Macquarie analyst today basically cited the company's need for equity as their reason for cutting to underperform. I agree it's harder to raise it from a yield of 8%. But it's certainly not impossible as the company has proved and the charge that Pattern doesn't have a strong sponsor is I believe wrong--as the company is backed by two major Canadian pension firms. Also noteworthy is the fact that only 3% of cash flow is potentially at risk to abrogation of renewable energy contracts, an amount management says is immaterial to its growth and dividend plans. Finally, the concern that Ontario may attack renewable energy contracts is an old one and again, the analyst is I believe overstating the risk to PEGI--as Hydro One is not bankrupt and the government can't simply tear up legal contracts.

6:18

This is also a function of debate between Goldman--which has said PEGI's contracts are not on the government's wish list for project cancels. This was back in July. And the Goldman analyst retains a buy rating, while Macquarie has a sell as it did then. BTW, Goldman's return on the stock is 10 times Macquarie's over the past 12 months.

6:19

Bottom line is we're going to see earnings on February 28, which should give us a good update. But for now this stock trades above our buy target.

chris

6:24

Hi Roger,Amerigas What are the "strategic review" options they may be considering?

Roger Conrad

6:29

At the Investor Day during which parent UGI Corp introduced the concept, management seemed to hint at something involving a roll back of IDRs. But with so many MLPs getting rolled up by GPs these days, the assumption has grown that we might be looking at something similar here, with APU units getting swapped for UGI shares at a premium to the current price but with some sort of implicit distribution cut. APU is the only independently traded piece of UGI and the trend has been to consolidate. Another possibility is that APU distributions might be cut in order to step up capital spending on growth. That would seem to me the option that makes the least amount of sense, for one thing it would have a material impact on UGI earnings. We could also see a plan to sell the unit from UGI (also unlikely) or a merger with a large rival (more likely). In any case, APU has proven it has a strong business model and the last 15 months it has been basically self financing all of its CAPEX.

6:31

I think fear of what they might do is hanging like a dark cloud over APU. I think these concerns are overblown given that UGI has proven itself to be a rational player over the years as well as a patient supporter of the MLP model. But until there's a result, I look for APU units to lag.

Don

6:45

Looking to deploy new capital. Don't yet own suez- thoughts on that one as it is nearing its 52 week low. Same question on MMP. And did the recent report on APU change your outlook?

Roger Conrad

6:50

Starting with Amerigas, before the FYQ1 report I was concerned about whether they would hit EBITDA guidance, given the extremely volatile weather that really flattened Suburban Propane's margins. As it turned out, they beat those targets, primarily because they were able to get product to market when there was demand without blowing a hole in costs. That's helped by scale as well as by the growth of National Accounts. The results convinced me to hold on through whatever strategic review is announced. Magellan Midstream I think disappointed on its future distribution growth outlook, which prevented a more positive reaction to what were basically solid Q4 numbers. We still see this one as high quality but management is clearly looking to hold in more capital and do more self financing--it's also become more conservative on new projects. All of this is good for sustainability but means slower growth. Finally with Suez, it's a different animal entirely. I think the results Feb 27 will show continue revenue

6:52

and EBITDA growth, but the main appeal is a foreign blue chip trading at a low valuation. It's the only one of the three that hasn't reported. And like I wrote in the February CUI issue, it's going to have to put up the Q4 numbers to stay in the Portfolio, regardless of its low price.

Hans

6:52

Roger, I still have Taho is there any update on that company.

Roger Conrad

6:57

To be honest, we haven't really focused on it lately. The story is that it's being acquired by Pan American Silver corp, with a close expected Feb 26. We'd have no reason to oppose this deal, which should create a company with better scale and therefore access to capital. All of these stocks are of course going to move with resource prices. But traded under PAAS, we probably have more upside than we did as TAHO. The actual deal terms are $3.40 per share in cash or 0.2403 share of PAAS (subject to proration), with total possible consideration of $4.10 contingent on performance of certain assets. If you want to keep betting minerals, we'd take as much stock as they offer.

TXPipeliner

6:57

My CPA keeps telling me that MLP's are a thing of the past, and there seems to be a trend of MLP's getting rolled up. A couple diehards who had a chance to change have stayed with it, ET, NS and WES. Wonder who's next to roll up their partnerships?

Roger Conrad

7:02

Well there are still more than 80 MLPs in our Energy and Income Advisor coverage universe, so I think we're a long way from MLPs being consigned to oblivion. Nor do I think it's fair to say we're down to a handful of diehards--this model still works for a lot of companies. What I would say is what we said to our EIA readers back in 2014: Many of the companies going MLP at the top had no business doing so. And those who bought them on the promise of big yields and growth have some to regret that decision for the most part. I would also say there's a real desire for companies to self fund capital spending, and that has had a real impact on distribution policies for MLPs and in some cases has triggered roll up mergers. But there still a lot of MLPs out there--not necessarily MLPs you want to own, but plenty making a go of it despite trading at bottom of the cycle prices that have fenced them out of capital markets for now.

7:05

I think there will be more rollups and we do try to identify them. They're not necessarily a bad thing if the buyer pays a premium and the owners get a good stock--as Dominion Midstream owners are with Dominion Energy. Of the handful of MLPs we track in the Utility Report Card, Amerigas is a potential as I pointed out answering an earlier question. But Energy Transfer, Enterprise, Magellan Midstream, NuStar and even Buckeye won't be among them. This is actually the kind of talk you always hear at a sector bottom. I certainly remember it when utilities tanked in the early '00s and a lot of people thought I was crazy for saying so. But we sure made a lot of money betting there was still life in that sector.

Hans

7:06

AY with a dividend of 8% any possibility of them lowering their dividend.

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