KMI

Valuentum: Time to Load Up on Kinder Morgan?

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On January 20, Kinder Morgan (KMI) reported fourth-quarter results, and absent 1) a large goodwill impairment charge related to its core midstream natural gas assets, 2) a reduction to its estimate for backlog of future potential business, and 3) warning that further goodwill impairments are around the corner if energy resource pricing remains depressed, quarterly performance wasn’t all that bad (or at least not as bad as some had been expecting). Kinder Morgan had previously announced a 75% dividend cut and a very costly preferred equity issuance just a few weeks ago as it continues to work to get its financial house in order. Our $20 per share fair value estimate is unchanged at this time. We’re starting to like what we’re … Read more

Breaking: Markets in Free Fall

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By Brian Nelson, CFA I was up late last night watching the 10-year Treasury fall below 2%, crude oil drop below $28 (and now below $27) per barrel, and the Dow futures collapse more than 500 points. Asset correlations are going to 1 — so much for modern portfolio theory, right? The benefits of diversification are sometimes absent at the very time you need them the most. If market observers didn’t learn this during the Great Depression, certainly they must have learned it during the Financial Crisis of 2008-2009. That’s why we like cash so much at times. We have a 35%+ cash weighting in both newsletter portfolios. The Dow Jones Industrial Average (DIA) is now down ~400 points (-2.5%), … Read more

ETP’s Distribution Financially Engineered? Debt Junk-Rated?

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The term “financially-engineered distribution” has increased in prominence as of late, as investors face an unprecedented swoon in the prices of master limited partnerships (AMLP). But what is a financially-engineered distribution and how does it differ from an organically-derived dividend, paid by Microsoft (MSFT) or Apple (AAPL), for example? We’ll cover this, and we’ll also talk about why we think Energy Transfer Partners’ debt is “junk.” We have to look at the SEC filings to help explain. Let’s first start with our definition of a financially-engineered payout. Based on generally accepted accounting principles (GAAP), the cash flow statement breaks down into three distinct components: cash flow from operations, cash flow from investing and cash flow from financing activities. Bear with … Read more

Valuentum: A Beacon For Good

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Image Source: US Embassy “Any man who may be asked in this century what he did to make his life worthwhile, I think, can respond with a good deal of pride and satisfaction: ‘I served in the United States Navy.’” – John F. Kennedy I felt inspired today. Maybe it was President Barack Obama’s reference to a new “war on cancer” in this week’s State of the Union speech, akin to that of John F. Kennedy’s mission to “go to the moon,” or maybe it was something else, but I was reminded of the great Jack Kennedy and the second quote above: what a man does to make his life worthwhile. If I were asked what I did to make … Read more

The Markets Swoon Again

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The broader US markets (SPY) swooned again January 7 as fears of a slowdown in China (FXI), or worse, a dislocation in Asia’s currency markets, and ongoing concerns about the sustainability of some of the most leveraged “players” in the energy complex took the spotlight again. None of this should be surprising. As we’ve done many a time before with the mortgage REITs, namely American Capital (AGNC) and Annaly (NLY), SeaDrill (SDRL) and the latest with Kinder Morgan (KMI), our members are far ahead of developments. That’s our job – we’re not reporters. We strive to get the right information to our members before it becomes “information,” and using the newsletter portfolios as an indication of our views on capital … Read more

Cash Is King: Microsoft Leading the Charge!

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It’s sometimes difficult for companies to overcome a tarnished reputation, particularly when it comes to a spotty dividend track record, but also as it relates to equity performance. The stock market is often unforgiving at times. Microsoft (MSFT) had long been viewed as “dead money,” or a term that describes an equity that languishes in a small trading range for years. For example, from 2010 to the beginning of 2013 (at the time it was added to the Dividend Growth Newsletter portfolio), Microsoft had bounced around in the mid-$20s per share. But as the chart below shows, overcoming a tarnished reputation is not impossible; in fact, Microsoft has put its “dead money” reputation behind it, powering past levels even witnessed … Read more

Focus on ETE, Not ETP; Strive for Balance and Stick to the SEC Filings

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We continue to be grateful for the favorable reception of our research and analysis. Our mission to help investors of all types remains our core focus and a cause buttressed by our independence and analytical integrity. You can read more here about Valuentum and its President of Equity Research Brian Nelson, CFA. It appears there continues to be a significant amount of confusion about the securities associated with the Energy Transfer companies, a collection of assets that includes the corporate parent Energy Transfer Equity (ETE) as well its consolidated subsidiaries: “Energy Transfer Partners (ETP), ETP GP, ETP LLC, Regency, Regency GP, Regency LLC, Panhandle, Sunoco, Inc., Sunoco Logistics (SXL), Sunoco LP (SUN), Susser and ETP Holdco (per Energy Transfer Equity, L.P, … Read more

Is the Worst Behind Us? Not Likely

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By Brian Nelson, CFA US natural gas prices (NGAS) recently dropped to the lowest level in nearly 14 years. Unseasonably warm weather may be to blame for the near-term drop, but we point to more structural concerns that may keep natural gas prices low for some time. Including both unconventional and conventional global natural gas resources, for example, there are more than 200+ years’ of supply based on the current trajectory of demand, and that doesn’t account for technology advances that will inevitably be made in the coming decades. Can you believe it? The situation with crude oil prices is not much better. West Texas crude oil prices (USO) dipped below $35 per barrel recently, still the high end of … Read more

FAQ: Help Me Understand Your Research on MLPs

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FAQ: It looks like your fair value estimates and your adjusted Dividend Cushion ratios aren’t bad. What gives? A: Thank you for your question. The Valuentum process rests on uncovering undervalued companies that are trading at a discount to intrinsic value, but also ones that are supported by the market via strong technical and momentum indicators. The latter consideration is absent from most, if not all of the energy sector, including MLPs. MLPs themselves, however, have a nuanced valuation adjustment in our process that leads us to have significantly less conviction than in other areas. Pasted below is a slide deck that mentions that adjustment (i.e. we exclude growth capex, even though we feel that it is an integral part of … Read more

The Dividend Cushion Ratio Catches More Dividend Cuts

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Retirees know that a dividend cut could be disastrous to their income portfolio, as future income is not only reduced but it is also very likely that capital is permanently impaired. The Dividend Cushion ratio, an integrated leverage and liquidity metric, is designed to provide the income investor with a trusted and independent opinion of the safety and future growth potential of a firm’s dividend. It not only has shown to predict dividend cuts, but the ‘cushion’ behind the Dividend Cushion reveals just how much capacity a firm has to continue growing its dividend into the future. Technically speaking, the Dividend Cushion ratio considers the firm’s net cash on its balance sheet (cash less debt) and adds that to its … Read more