LNCO

The Great Pipeline Cash Flow Deficiency

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A myopic view on the energy sector may lead one to ask the question whether the distributions of energy master limited partnership are safe. A broadminded view would answer that question in two words: absolutely not. Through the first six months of 2015, almost every energy-related MLP has spent more in total capital expenditures and distributions than they generated in cash flow from operations. Business models with financials such as these cannot be sustainable over the long haul without infinite access to capital via the debt or equity markets. We learned that housing prices don’t always go up (and that they can fall on a national scale) during the Financial Crisis, and we’ll eventually learn that debt-infused business models that … Read more

The Game Is Nearing an End for MLPs…

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The game is nearing an end for master limited partnerships (MLPs) in this energy cycle, in our view. We no longer feel comfortable, if we ever did, including any MLP in the Dividend Growth Newsletter portfolio. Linn Energy (LINE, LNCO), of the upstream variety, may have taken on far too much debt as an E&P entity, but its free-cash-flow management during the first half of 2015 has actually been decent…stronger than better-known upstream and midstream operators. Yet, despite Linn’s positive free-cash-flow execution, even after distribution payments, the entity’s bankers appear to be circling like sharks, ready to take a further bite out of its borrowing capacity (due to lower energy resource pricing). Fairly, the company simply can’t afford to take … Read more

LINN Energy and LinnCo to Suspend Dividend

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The Dividend Cushion has foretold another cut! On July 30, along with second-quarter results, LINN Energy (LINE) announced it will recommend the suspension of payment of LINN Energy’s distribution and LinnCo’s dividend at the end of the third quarter of 2015 in order to save ~$450 million in cash from the annualized payouts. LINN Energy reported a net loss in both quarters thus far in 2015, and its yield was near 15%; simply unsustainable. We’ve been warning our readers about the risks associated with LINN Energy and LinnCo (LNCO) and their high-yielding payouts for over two years now, as we did again earlier this month. We rated the entity’s distribution safety as VERY POOR, based on its Dividend Cushion ratio … Read more

Dividend Increases/Decreases for the Two Weeks Ending January 2

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Below we provide a list of firms that raised/lowered their dividends during the two weeks ending January 2. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week Alamo (ALG): now $0.08 per share quarterly dividend, was $0.07. Bank of the Ozarks (OZRK): now $0.13 per share quarterly dividend, was $0.125. FelCor (FCH): now $0.04 per share quarterly dividend, was $0.02. Investar Holding (ISTR): now $0.007 per share quarterly dividend, was $0.006. Teekay LNG (TGP): now $0.70 per share quarterly dividend, was $0.69. TerraForm (TERP): now $0.27 per share quarterly dividend, was $0.225. … Read more

Fantasy Yields Are For Fools

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Brian Nelson, CFA We spend a lot of time talking about the safety of a firm’s dividend. In fact, we were the pioneers of the Dividend Cushion ratio, a comprehensive cash-flow based measure of the health of a firm’s dividend that takes into consideration all aspects of the company’s financial statements – not just the relationship between dividends per share and earnings per share, the payout ratio. As readers have come to learn, if a company’s Dividend Cushion ratio is below 0, there is significant risk to the sustainability of the payout. Most recently, the Dividend Cushion ratio highlighted the substantial risk related to Seadrill’s (SDRL) payout (in advance of the suspension), and the Cushion, as we call it here … Read more

Distribution Coverage Deteriorates at Linn Energy

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Highly controversial oil producer Linn Energy (click ticker for report: ) announced mediocre second quarter results Thursday morning. Distributable cash flow (DCF) per unit declined 7% year-over-year to $0.65, even though net income rose 24% year-over-year to $1.47 per unit. Image Source: LINE 2Q 2013 Slides Among the most important metrics to watch at Linn Energy is its distribution coverage ratio. Not only is the shareholder base of Linn Energy highly interested in distributions, but the health of the firm is dependent on being able to generate cash flows to pay out distributions. If a firm’s cash flow is deteriorating, not only can the distribution be at risk, but the business itself could come under pressure. For its second quarter, … Read more

Linn Energy: SEC Sees Smoke…Is There Fire?

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Controversial independent oil and gas company Linn Energy (click ticker for report: ) announced Tuesday morning that the SEC has launched an informal inquiry into Linn and LinnCo (LNCO). As we previously outlined June 3, we have no interest in adding the company to the portfolio of our Dividend Growth Newsletter given the cloud of questions, poor internally-generated cash flow, and numerous downside risks. We’re retaining the firm on the watch list of our Dividend Growth Newsletter, however, as we continue to monitor developments closely. As always, our best dividend growth ideas are included in our Dividend Growth portfolio. We give credit to Linn’s management team for revealing the explicit details of the inquiry, stating in the press release: “The SEC … Read more

Revisiting the Real Risks of Linn Energy

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In recent months, energy producer Linn Energy (click ticker for report: ) has come under fire from the likes of Barron’s and hedge fund managers. The biggest issue for Linn bears, prior to the merger agreement with Berry Petroleum (BRY) was that the company issued unrealistic measures for distributable cash flow per share and for adjusted EBITDA. Both metrics are non-GAAP figures, which can sometimes raise a red flag—especially when a firm’s management team comes under pressure. Let’s take a look at Linn’s metrics and the issues swirling around the stock. Linn’s Metrics After the attacks on its metrics, Linn went on the offensive, providing a supplemental presentation elaborating on the company’s non-GAAP metrics. Source: Linn “Short Seller Response” The … Read more

Dividend Growth Portfolio Modeling Made Easy!

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Empowering Dividend Growth Investors Do you or your clients have a dividend growth portfolio? If so, this model is indispensable. It’s the best tool out there to account for the quarterly reinvestment of growing dividends after adjusting for future equity price growth in a portfolio setting. This model will allow you to better plan for your and your clients’ retirement needs and has unmatched functionality. Plus, this tool has easy-to-follow instructions and is customized to provide deliverable print outs for you or your clients. Your firm’s logo can be added, too. To purchase Valuentum’s Dividend Growth Retirement Portfolio Model (Calculator), please click here! The model, built by Brian Nelson, CFA, sets out to do much more than what other simple dividend … Read more

Linn Energy Continues to Capture Cash Flow

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Linn Energy (click ticker for report: ) and newly-formed entity LinnCo (LNCO) reported solid third quarter results Thursday morning. Net of non-cash derivative losses, the firm earned $0.45 per unit during the quarter, up a penny from last year, and significantly higher than consensus estimates. More importantly, the firm achieved $1.01 in distributable cash flow per share, achieving a coverage ratio of 1.40x. Perhaps the most meaningful event during the quarter was the IPO of LinnCo, an entity formed to exclusively own shares of Linn Energy. The one caveat is that LinnCo is a traditional corporation, while Linn Energy receives K-1 tax treatment, which can be a long and convoluted process. As a result, Linn hopes to spur institutional and … Read more