TEP

Taxes and the Distressed MLP Investor

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Image show above: Performance of the Alerian MLP ETF. “Perhaps the worst thing about MLPs is that investors can spend more time doing and thinking about tax-related items than actually evaluating the businesses of the underlying entities. This could result in poor investment decisions.” – Brian Nelson, CFA By Brian Nelson, CFA What a sensitive topic for many… Our team presented at the Chicago chapter of the American Association of Individual Investors (AAII) last weekend. It is always an honor and a privilege to have the opportunity to present to such wonderful people! They ask so many great questions. (By the way, I’m working on my schedule for 2017, so if you’d like our team to speak on a topic … Read more

Dividend Increases/Decreases for the Week Ending October 7

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Below we provide a list of firms that raised/lowered their dividends during the week ending October 7. 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 American Financial (AFG): now $0.3125 per share quarterly dividend, was $0.28. Bank of the Ozarks (OZRK): now $0.165 per share quarterly dividend, was $0.16. Enterprise Products (EPD): now $0.405 per share quarterly dividend, was $0.40. FNB Bancorp (FNBG): now $0.16 per share quarterly dividend, was $0.15. Genesis Energy (GEL): now $0.70 per share quarterly dividend, was $0.69. Ingersoll-Rand (IR): now $0.40 per share quarterly dividend, was … Read more

Distributing Truth on MLPs

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By Kris Rosemann The recent merger break-up fiasco at Energy Transfer Equity (ETE) and Williams Companies (WMB) has put the master limited partnership (MLP) conversation back into the spotlight, after the two entities were unable to finalize a merger that had been announced in fall 2015 and would have created the largest pipeline company in the US. The deal between Energy Transfer Equity and Williams was officially terminated by Energy Transfer Equity June 29 after a court ruled that the firm was legally able to walk away from the agreement when it was unable to deliver an opinion on the tax treatment of the transaction that was required by June 28. Williams has since stated that it will seek monetary … Read more

Dividend Increases/Decreases for the Week Ending January 8

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Below we provide a list of firms that raised/lowered their dividends during the week ending January 8. 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 $0.09 per share quarterly dividend, was $0.08. Bank of the Ozarks (OZRK): now $0.15 per share quarterly dividend, was $0.145. DDR (DDR): now $0.19 per share quarterly dividend, was $0.1725. Enterprise Products Partners L.P. (EPD): now $0.39 per share quarterly dividend, was $0.385. Formula Systems (FORTY): now $0.34 per share semi-annual dividend, was $0.23. Genesis Energy (GEL): now $0.655 per share quarterly dividend, … Read more

Correction: Understanding the MLP Valuation Conversation

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A correction was performed to the table in this article October 29, 2015, at 7:20pm. How to interpret the changes: In this illustrative example that includes both growth capital spending and a marginal cost of capital of 10%, holders of MLPs will have to wait years before the intrinsic value of the security catches up to the present market price (comparison shown in orange). Said differently, units in this example are significantly overpriced in today’s market. 

Dividend Increases for the Week Ending October 9

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Below we provide a list of firms that raised their dividends during the week ending October 9. 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 Ameren (AEE): now $0.425 per share quarterly dividend, was $0.41. Diversified Royalty (BEVFF): now C$0.01854 per share monthly dividend, was C$0.01667. Genesis Energy (GEL): now $0.64 per share quarterly dividend, was $0.625. Goodyear Tire & Rubber (GT): now $0.07 per share quarterly dividend, was $0.06. InfraCap MLP ETF (AMZA): now $0.515 per share quarterly dividend, was $0.51. MV Oil Trust (MVO): now $0.21 per share quarterly … Read more

Thank You for the Victory Lap Barron’s!

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For those that saw the reference to our recent article in Barron’s and the unfortunate, derogatory counter-punch by another author, we appreciate the support and congratulations! The Barron’s article highlighting our work was a victory lap on our call on Kinder Morgan, or we think most should have interpreted it as such. The recognition was well-received by existing members and interested new members alike! How to interpret our call on Kinder Morgan >> As many of you know, however, the call on Kinder Morgan has been off the table for some time now. We had recently moved to “neutral” on Kinder Morgan (see here), after shares collapsed from $40 to $29, which is our current fair value estimate of the firm … Read more

Understanding Your MLP’s Financially-Engineered Equity Value

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For background on this topic, please read “5 Reasons Why Kinder Morgan Will Collapse,” and “5 More Reasons Why Kinder Morgan Will Collapse.” In this article, we will synthetically create the equivalent of a master limited partnership (MLP), called iNewCorp with Kinder Morgan’s financial profile, from scratch with effectively no capital at all, with only a strong credit rating. In such an example, we’ll also explain how valuation techniques cannot ignore growth capital in the valuation equation of MLPs or other midstream corporates by pricing them on a multiple of “distributable cash flow” or on the dividend/distribution that follows it. We’ll do so by contemplating the value of a company that has a “distributable cash flow” stream requiring maintenance (and/or … Read more

FAQ: Regarding your article, “Warning: The Master Limited Partnership Business Model May Not Survive…”

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Q: Regarding your article, “Warning: The Master Limited Partnership Business Model May Not Survive,” – what are you basing your comments on financial engineering the dividend on? It seems to me that Energy Transfer Equity has enough free cash flow to cover its dividend with a 1.2x coverage ratio. Am I missing something? A: Thank you for your question. Most master limited partnerships and midstream corporates do not cover their distributions and dividends, respectively, on a traditional free cash flow basis, as measured by cash flow from operations less all capital spending. That means that such payouts are being financed in part, some more than others, from the cash flow from financing section of the cash flow statement, hence the term financially-engineered. … Read more

3 Anomalies Across Pipeline Equities

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Kinder Morgan’s Credit Should Be Junk Status The corporate’s investment-grade credit rating does not add up. On a reported basis, adjusted for impairments, our estimate for Kinder Morgan’s (KMI) leverage is 7 times annualized first-half EBITDA, nearly a half turn greater than that of perhaps its closest peer Energy Transfer Equity (ETE), which is rated Ba2/BB/BB (Stable) by the credit rating agencies. That’s two full notches below the lowest level of investment grade and Kinder Morgan’s credit rating, despite Kinder Morgan’s dividend obligations being $350 million more during the first half of this year alone (~$750 million annualized) relative to Energy Transfer Equity, and its absolute level of debt standing above any other on this list. Kinder Morgan’s plans to … Read more