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Roger Conrad

4:56

That would be Energy and Income Advisor. Black Stone is an MLP we became familiar with attending the MLPA conferences, where we've had the opportunity to meet with and query CEOs of dozens of MLPs. This one produces oil and gas on some of the most valuable shale properties in the southwest and has had good fortune growing its portfolio. That said, the business is very much also exposed to commodity price volatility and therefore the distribution should not be considered "safe," but as a high yield energy play. We're bullish on oil and gas, which should be favorable though BSM is basically flat over the past 12 months including distributions.

Dan

4:56

Hi Roger, earlier this week I had a chance to tender so old Quest Communication bonds (now CentryLink). Thanks to your advise on CentryLink, I didn't have to think to long about that.

Roger Conrad

5:01

Yeah, that was a tough one but unfortunately I think there could be more pain ahead. It's bad enough this company lost more than 5% of its revenue from a year ago. But every single business unit shed sales and customers. Cutting the dividend this year did free up cash and management appears to be using it to cut debt as promised. But the fact that the dividend yield is still nearly 10% should be a pretty clear warning to everyone that it's not safe. Anyway, the move did benefit the bonds we recommended, which have gone from a steep discount to a premium over the past six months. I'm glad you were able to tender at such a good price!

Dan

5:01

Thanks for your great insight on the securities covered in the portfolios

Roger Conrad

5:02

Thank you for reading. I appreciate it.

Dave

5:02

Roger: I rarely see you recommend any preferred issues. I recently purchased some DUK-A and,although most preferreds seem overpriced right now,I was wondering if you had any to recommend. Thanks.

Roger Conrad

5:04

As I indicated earlier in the chat, I see now as a tough time to buy preferreds generally, with interest rates at generation lows and the economy still growing. Because they're essentially perpetuities (unless called by the issuer), prices are vulnerable both to a slowing economy and rising rates. Yields at this point reflect a goldilocks situation where neither is a problem, so you're not really compensated for these risks. I have recommended preferreds in the past and I fully expect to do so again in the future. Right now, however, the fixed income I prefer is short dated bonds of companies that are getting stronger as credits. That's what's in the CUI fixed income portfolio I'll be looking at in the coming days.

Andrew

5:05

Hi Roger,
Thanks as always for these chats. Can I ask about AT&T. I read one analyst opine that the DirectTV division is going to be a drag going forward and because of that it will mute or at best seriously dilute the benefits AT&T will get from the 5G upgrades. I know you've said repeatedly that T is price for the worst, but is there really any realistic hope this is going to show capital appreciate, (1-2% growth is all that is forecasted right now) or is it really a 6%+ yield I get to reinvest?

thanks again for answering questions.

Roger Conrad

5:10

You're certainly welcome and thanks for participating today. One thing we do know about DirecTV is the US portion has been a disappointment so far and that subscribers are leaving the technology as well as subscription model, while mostly taking a pass on the company's streaming offering. On the other hand, we also know that DirecTV is a far less important part of the business than it was before the Time Warner Inc merger. We also know that buying that unit gave AT&T a huge presence in Mexico and South America, where it is growing its business rapidly. And we can also see the Time Warner merger is paying off already, if the huge success of HBO's Game of Thrones final season is any indication. And we know that if Sprint and T-Mobile USA do actually merge, it will be very positive for AT&T as the number of national players is cut from 4 to 3 in the US, and TMUS/S focuses at least initially on integration and debt reduction.

5:14

My take on AT&T since the Time Warner merger was announced was that the company had a real chance to follow the successful path of Comcast (NSDQ: CMSCA), integrating superior network with popular content. They certainly have the latter. Now I think we'll see the impact of that $43 billion of so of capital spending the past two years in creating a superior network. Only Verizon (NYSE: VZ) at $34 billion came anywhere close. I think the result is going to be improving profitability and a better valuation than the current less than 9 times earnings. I like the yield certainly but it's growth plus valuation that are the heart of this company's value proposition and I think it's going to be huge.

Andrew

5:14

I know you and Elliott are bullish on OXY right now at this price, but do you see it doing much in the near term? In other words is there any catalyst you can see in the near term that would get OXY to break out to the upside or can we set limit orders to bottom fish at prices a bit below these levels?

Roger Conrad

5:20

I think if you get some kind of resolution of the US/China trade dispute, it will be good for the whole market, and especially for sectors more leveraged to the economy like energy. That would be bullish for Occidental. We also think investors are waiting to see if this deal closes, how well asset integration will proceed and if the new company can improve efficiency and balance sheet to make the high price tag worthwhile. What's not in dispute is these are good assets or that OXY has done a good job financing and streamlining what it will ultimately wind up with. Also, this stock trades at less than 13 times expected 2019 earnings, which indicates a low bar of expectations. We see that as very cheap and a good entry point. It's also well below the early 2016 low and what the stock sold for back in 2009. It's certainly possible OXY would break lower if say oil broke down. But this is actually pretty much a Dream Buy level for OXY. Anyone serious about buying shouldn't wait too long.

Andrew

5:21

Another on if there is time Algonquin (AQN.) AQN has been stagnant for the most part until they recently started to break out above 11. Do you see them finally getting credit for executing on their promise of 10% growth and 10% dividend? Also, given how well Atlantica (AY) has been doing lately (52 week high today) You'd think they get more credit for owning a big chunk of AY. Thoughts?

Roger Conrad

5:26

Good question. When I first added Algonquin to the Portfolio in November 2016, I saw the planned future NYSE listing as a major potential upside catalyst for what had been a mostly unknown company. That proved to be the case. The stock trended lower in early 2018 then recovered and hit an all-time high in US dollar terms today. It's actually up about 25 percent over the last 12 months, beating the Dow Jones Utility Average.

5:32

That's a good performance by any standard. Nonetheless, the yield is still 1.7 percentage points higher than the DJUA, despite a growth rate that's twice as fast. I think the discount is due to several reasons. First, Algonquin is still not a very widely known stock. It's tracked by 14 analysts including Canadian houses but NextEra by comparison is tracked by 20. It's also not a very big piece of indexes or ETFs that attract momentum money. It's not a plain vanilla utility, which means investors may no fully appreciate the fact it has multiple growth drivers. And in this environment, investors clearly aren't valuing dividend growth. That said, so long as Algonquin stays strong on the inside, it will continue to execute and I would expect to see more gains like we saw the past 12 months. In fact, as I pointed out in the May Focus Stock section of CUI, it's a rare pocket of value in the electric sector now.

Andy

5:32

Hello Roger, earlier you mentioned BPY in the CUI plus portfolio. How does one find that on the CUI website ?

Roger Conrad

5:33

If you could call Sherry anytime Monday through Friday, 9-5 pm at 1-877-302-0749, she will be happy to fill you in on this service. Thanks for asking!

Andy

5:33

I’ve watched as you have reintroduced ET as a portfolio recommendation. Do you feel it’s debt/ebitda is now stable and is it (and KMI for that matter) in the same self funding mode as EPD?

Roger Conrad

5:46

First off, just to clarify, you're talking about Energy and Income Advisor, where we've just created a High Yield Energy list. We do cover Energy Transfer LP (NYSE: ET) in the Utility Report Card and rate it a buy there. The basis of the recommendation is the distribution though still generous is now low enough for left over cash to make a meaningful dent on debt. Q1 results were very encouraging as I pointed out in the most recent EIA issue, including distributable cash flow up 39%, a 2.07 times coverage ratio and debt to EBITDA of 3.82 times. They're self funding just as KMI and EPD are, which I think will generate strong returns over time.

Len

5:47

Your thoughts on TRGP, please.

Roger Conrad

5:50

We currently rate Targa Resources Corp as a hold. The yield is attractive but distribution coverage is very thin at around 1 times and cash flows are exposed to natural gas liquids prices, so the distribution should not be considered safe.

Fred

5:50

Do you have an opinion on Orsted The Old Danish Oil and Gas? It's difficult to purchase here? Also, in the same category EQNR formerly Statoil? Thanks

Roger Conrad

5:54

It's not one I've looked at myself and it's a bit out of the purview of CUI. We will take a look at it for EIA. I notice shares hit a new high today. The shares trade over the counter in the US under the five-letter ADR symbol DNNGY, so they shouldn't be too difficult to buy. I tend to prefer other super majors, however, like Chevron and Total SA.

MartyR

5:54

what is the future of WPX?

Roger Conrad

6:00

We continue to rate the stock a buy up to 19 in our Actively Managed Portfolio in Energy and Income Advisor. The stock It's highly leveraged but we like the assets in the Permian Basin. By the way, the EIA monthly chat is on May 30 at 2 pm. I hope to chat there.

BKNC

6:00

HI Roger, The utilities are kind of high right now, so been holding off on adding to positions. T, VZ and CMCSA all look to be good. I was curious as to your feelings about these. I just joined the call so my apologies if you already touched this.

Roger Conrad

6:08

AT&T (38) is well below our buy target, Verizon (57) and Comcast (45) are somewhat above. All three I think are great long-term holdings from those entry points. They're able to outspend rivals on network by multiples. The merger of Sprint and T-Mobile USA will reduce the number of meaningful competitors, which should improve industry margins the next few years if it closes as now appears likely. And all three are in good shape to garner new revenues to the extent 5-G is a commercial success. They're great long term holdings.

Thanks for coming to the chat by the way.

RBB

6:09

Haven't really heard much in regards to ARESF in awhile. You have any 'feelings' one way or another at this time ? Thanks for being there and providing substantive information. Take care.

Roger Conrad

6:13

I was a little disappointed when Artis cut its monthly distribution late last year. But their restructuring appears to be moving ahead with Q1 results reflecting some successful asset sales and a 5.1% boost in same property net operating income. The Calgary office portfolio is now down to 6.1% of NOI, which has minimized exposure to the depression in Canada's energy patch. All that's positive and I do cover this company in our quarterly "REIT Sheet" for Deep Dive Investing, which we're considering offering separately. I rate Artis a hold at current prices.

6:16

Q. Hi Roger. I hope you are well. Spire is offering a new 5.9% preferred. I see you have the stock rated A and fully valued. I am looking for safe income and was considering this preferred if I can get it at or under par. Would you have an opinion on the safety of this company? Regards.--Jeff B.
A. From a credit quality standpoint, I believe Spire preferred is a suitable holding. As I’ve indicated earlier in this chat, however, I don’t view now as a great time to buy preferred stocks in general—as most aren’t priced for an increase in credit or interest rate risk to the economy. I think we’ll get better prices.

6:21

Q. Roger. Why have Magellan (NYSE: MMP) and Enable (NYSE: ENBL) remained down and not participated in MLP uptrend?

A. First off , while one is certainly overdue in my view, we haven’t really seen an MLP uptrend recently. In fact, the Alerian MLP Index is basically flat from where it was a year ago. So far as underperformance goes, I think Magellan is a former favorite that some have cut back on as it has reduced long-term projected distribution growth and become more conservative with spending. It’s still one of the highest quality MLPs, demonstrated by a BBB+ credit rating.

As for Enable, I attribute whatever lag there is to lingering uncertainty about what Centerpoint Energy (NYSE: CNP) is going to do with its 50% general partner and 53.74% limited partner ownership interest. Q1 results were very solid and would support a distribution increase. It’s now on our High Yield Energy list in Energy and Income Advisor.

6:24

Q. Good Morning Roger. Certain things catch my eye and yesterday’s announcement of open market purchases of AES by a director and the CEO gave me pause – my brain thinks they have to know something and 6-9 months down the road, could AES be a takeover target? Just curious as to your thoughts – fully aware that we will never really know the reason for the purchases but the director’s buy of $41.6 million is less than subtle. Best regards.--Frank L.

A. A takeover could be hard given AES has such far flung operations. But I definitely think this stock is attractive at less than 12 times expected 2019 earnings, a credit rating about to become investment grade and multiple growth drivers, including contract solar energy and storage. The shares are back under my buy target of 17 and I think ripe for purchase. I look for a mid-20s price in the next 18 to 24 months with or without a takeover offer.

6:26

Q. Hi, Roger. If you could pick just one stock each from your Conservative and Aggressive portfolios for the current times, what would they be? Thanks for you hard work and stock selection excellence over the years.—Lou E.
A. Thanks Lou. Much appreciated. I would suggest starting with the two I just mentioned in the May issue as focus stocks. I talked about the Conservative Holding Algonquin earlier in the chat. The Aggressive pick is even cheaper Suez (Paris: SEV, OTC: SZEVY). I would also suggest taking a look at Atlantica Yield (NSDQ: AY), which today hit a new 52-week high but is still below our buy target of 24.

6:29

Q. Hi Roger. In the past Capitalist Times publication, you have been favorable to the Canadian ARTIS REIT, (ARESF) and a few closed end bond funds - symbols: VGM, NCA, & MIN. What are your current views and do you still cover these in any of your publications? Thanks—Kevin C.

A. We now cover these areas in our Deep Dive Investing, with the real estate investment trusts in a new feature called “The REIT Sheet”. As I mentioned above, I’m rating Artis REIT a hold as it works through a recovery plan. The closed-end bond funds are due for a review. I have to say I’m not too excited about most fixed income with interest rates this low and the economy growing. As I said, I’ll be reviewing our CUI fixed income selections later this month, also with a cautious eye.

6:37

Q. Dear Roger, Would you kindly give an update on Transalta Renewables (TRSWF)? I've been a patient holder for a few years now. Also I'd like to sneak in a question about Western Midstream --WES (pipelines are sort of utilities, right?) There has been talk about "consolidation" after Occidental (OXY) takes over Anadarko (APC). What do you think will happen with WES? Will it get taken under cheap? Might it get dismembered/sold? Any chance of it going back to $35 (it briefly hit $35 after the Chevron acquisition of APC was announced). Many thanks--Jeffrey H.

A. I’ve already fielded a question about WES earlier in the chat. I think a sale of OXY’s interest is certainly possible. I think it’s much less likely they would dismember or try to absorb it, given their need to devote capital to making such a large merger (Anadarko) worth it. It could certainly go back under 30 again just on rumor. But from the Q1 results, it looks like operations are running well, so we would consider such a dip as possible opportun

6:38

As for TransAlta Renewables, we moved coverage from EIA to CUI as it fits that universe more closely. I’m currently rating it a hold in the Utility Report Card. The May issue came out before the company announced Q1 results but these were generally solid with key metrics meeting guidance, though distributable cash flow dropped by 4% from a year ago on the drop in the Australian dollar. Other than that, the portfolio ran well and the dividend was well covered. My main concern at a price over $10 is that we haven’t seen a dividend boost for a while and until we do that seems like a rich level. But conversely the current payout looks secure and looking out over the next 3 to 5 years there’s a lot of opportunity to invest in clean energy, with the Brookfield investment in the TransAlta family makes a good deal more likely to be executed. A hold for now but a candidate for a buy later this year.

6:40

Q. Are additions planned for either the aggressive or conservative portfolios? Thanks, John R

A. I’m always on the lookout for new additions from our coverage universe, especially when a high quality stock moves to an attractive valuation. At this point in the cycle with so much trading at high valuations, however, most of the changes are likely to be replacing one pick with a better one, as we did swapping Amerigas Partners for Suburban Propane Partners LP (NYSE: SPH) back in April.

Jimmy

6:44

Looking to take your advice and lighten up on preferred while their prices are elevated although it would cost a lot of quarterly income. Two of my holdings, CMS-B and DD-B have very strong premiums if they are called. Since they have not been called in this low interest environment of the past years it looks unlikely it will happen. Any suggestion on whether to cash them in and where to deploy the cash for similar dividends (other than in stocks where I am heavy at this time). Thanks

Roger Conrad

6:44

Q. Roger. What do you think of CORR? (Understand this is the same Richard Green from Aquila.) A REIT approach to infrastructure seems to be a good alternative to limited partnerships or corporate solutions - although the REIT requirement for distributions may hamstring managements.—Dave P.

A. I’ve followed it in the past though not much lately. They’ve managed to pay the same dividend since early 2015, despite the default of major customers due to the drop in energy prices. They appear to be covering their distribution now with available cash flow (1.5 times using adjusted funds from operations). I still think they’re a small fish playing in a very big pond with much better capitalized and better positioned competitors. I would not view the distribution as particularly safe. And I definitely prefer the likes of EPD, ET and the other big MLPs we track in the Utility Report Card that I’ve talked about in this chat.

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