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Energy & Income Advisor February 2020 Live Chat
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AvatarRoger Conrad
6:51
Q. HI FOLKS, I AM WRITING TWO DAYS EARLY BECAUSE I WON'T BE ABLE TO ATTEND CHAT. AS OF TODAY, ANTERO MIDSTREAM BONDS OF 9/24 HAVE PLUMMETED. THE SPONSOR'S STOCK IS ALSO CRATERING, BUT IS THE MIDSTREAM REALLY IN DANGER OF GOING BANKRUPT? I ALSO HAVE A QUESTION ABOUT ENABLE. THE EARNINGS CALL GAVE REASSURING GUIDANCE, BUT DID THE COMPANY DID ISSUE A CAVEAT THAT THEIR GUIDANCE, AND PRESUMABLY THEIR DISTRIBUTION, MIGHT NEED TO BE RE-ADJUSTED IF COMMODITY PRICES DID NOT IMPROVE. THAT WAS BEFORE THE VIRUS SCARE SENT THINGS TUMBLING. DO YOU STILL FEEL ENABLE'S DISTRIBUTION IS SAFE?  MANY THANKS, JEFFREY H.
A. I believe I’ve answered questions on all of these companies and topics throughout the chat. But as a short answer to your questions, I don’t think Antero Midstream is at this time in danger of going bankrupt, as they still seem to be following guidance set last year. Weak natural gas prices are having an impact on its primary customer Antero Resources, which means additional risk. We continue to rate the shares a hold, mainly because they already reflect a likely worst case. But as for its bonds, I think there are numerous other high yield energy securities to invest in with less risk.
 
As for Enable, as I indicated answering a question earlier in the chat, I think you could interpret what was said by management several ways. But the bottom line is they will respond to what happens to drilling activity in Oklahoma this year. At this point, guidance supports the current payout—and management has said many times it would like to continue increases. But if activity craters, they will pull in their horns unti
6:52
until it improves. I would note, however, that primary owners Centerpoint Energy and OG&E Energy did elect to maintain the dividend in early 2016 with oil prices $20 per barrel less than they are now. And in any case, it’s hard to argue the stock trading at the level it did then isn’t already pricing in a dividend cut
6:56
Q. Gentlemen. Retired...need income. The 10-year chart for XOM is a real mess...anything but wealth creator! Nonetheless, thanks to the virus and other factors “XOM is borrowing money to pay the dividend” alarmists, I can get the stock now at a 10 year low paying a 6% dividend ($58). How irresponsible would I be to add some to my diversified energy portfolio with a long term 10 year time horizon?--David O.
 
A. We think you’d be anything but irresponsible buying ExxonMobil at current levels—actually the dividend now after the past few days selling is right at 7%. What you should be prepared for more volatility in the near-term and quite possibly more downside, though the shares are now lower than they were in early 2016 when oil prices were $20 per barrel less than they closed today. Expect to see more on our outlook for the stock in the upcoming issue of EIA.
 
7:07
Q. You probably read Simon Lack's weekly energy email postings. Three weeks ago he said that pipelines will be the weakest MLPs going forward. His reason was as investors continue to lose interest in MLPs, their ETFs and CEFs have to sell their MLPs to repay their investors, and most of these are pipelines. What do you think about this?—Henry T.

A. Henry, as you’ve probably gathered from our answers in this chat, we believe there are other factors that are at this point far more important setting prices for pipeline companies—one being investor reaction to the spread of COVID-19 and the potential economic fallout from it. Another is what amounts to a sector wide stress test for midstream companies that really began last summer, but which the COVID-19 effect on oil prices has accelerated.
7:08
I do believe that ETFs have changed the structure of the market from what it was just a few years ago, primarily by greatly increasing the impact of buying and selling momentum. Up until this month, we saw the positive impact in the rising stock market. Lately, we’ve seen what can happen in selloffs, with the most heavily indexed and ETF represented stocks taking the biggest hits.

It’s also true that when investors cash in a sector ETF, all holdings must be sold in proportion to how they’re held in the portfolio. And there’s a case to be made that selling of ETFs holding Enterprise Products Partners has had a major near-term impact on its share price. I do think this can and will work in the reverse when the stock market eventually steadies.
One final point, CEFs (closed end funds) do not have to make shareholder redemptions. Managers may decide to sell a holding. But it’s not accurate to say that investors losing interest in MLPs can force CEF managers to sell holdings. If that is what the author is saying I would have some real questions about the rest of the research.
7:16
Q. Elliott and Roger. As a long time XOM holder, I was disconcerted to read an article in Seeking Alpha yesterday by Rida Morwa who feels that Exxon is in such poor shape, that it will have to cut its dividend. Do you disagree, I hope? Thanks—John R.

A. No, we’re not in the camp that believes a company rated Aaa (highest) by Moody’s—and with a balance sheet stronger than most sovereign nations—can be forced to do anything.

I will say asserting such a widely held stock is headed for the scrap heap is guaranteed to get attention, especially when it’s already fallen this far this fast. And even long-term investors are going to question if they should hold on. But that’s always an opportunity for investors who aren’t afraid to think for themselves to capture extreme value. Look for more on ExxonMobil in the upcoming issue of EIA.
Andrew
7:23
One if I can sneak in before you close up. Atlantica Yield - (AY) This is more a CUI than EIA, but if you could:

They seemed to report good numbers, but after hours the stock got hammered (Unlike Clearway, which held up pretty well today considering) Was there something wonky in the numbers I missed. 

Also they did NOT raise the dividend this quarter. I know Roger had thought they would keep raising until they got back to the .43 cents they'd had before their original sponsor went bankrupt.  Anything to read into that? Do you see them continuing to raise distributions year over year?
AvatarRoger Conrad
7:23
I'm still looking at what Atlantica reported. But I think what you saw were pretty solid results across the board, with management adding to its new project pipeline at a good price, while reducing its long term cost of capital. We also saw management set unofficial guidance for 8-10% annual dividend growth, though as you point out there was no increase for the current quarter. There's still no resolution apparently of the strategic review and it will be interesting to see what major owner Algonquin Power & Utilities has to say about that. But I really didn't see anything to worry about in the numbers or what management said in the earnings call.
AvatarRoger Conrad
7:26
What I would say, however, is Atlantica after recent gains has been trading above the price where I've recommended investors take some money off the table. My feeling has been that after trading at a very undervalued level for literally years, Atlantica caught momentum from investors' desire to own anything to do with renewable energy. And as a result, it's run to levels not justified by where it stands in terms of its own growth. It's a bit off the highs but in fact still at a level where taking some money off the table is a good idea. That number is $30 by the way.
Well that's all we have in the queue for this month, as well as what we received via email.
7:27
Before I close th
7:31
Before I close the chat, however, a brief comment on Pembina Pipeline's Q4, which some of you asked about. The Canadian midstream posted a 3.7% increase in Q4 cash flow from operating activities, covering the dividend by a 1.85-to-1 margin. EBITDA was up 10.1% excluding items and system volumes were up 3.6%. All together the picture of a company that's successfully executing its capital program. It's still a buy at 38 or lower.
7:32
Now I will close the chat. Thanks again everyone for participating. If for some reason you don't feel your question was answered, please write us at
service@capitalisttimes.com
Thanks again everyone. Have a great evening and rest of the week. And look for the link to the full chat transcript in the near future.
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