HIGH YIELD INVESTING IN THE TIME OF TRUMP ROGER S CONRAD CAPITALIST TIMES WASHINGTON DC AAII MARCH 2017
IN STOCKS WE TRUST
PICK YOUR OWN STOCKS
WHAT’S IN AN INDEX? COMPANY % OF DJUA NextEra Energy Inc 15.0 Duke Energy Corp 9.3 Edison International 9.0 Consolidated Edison 8.8 Dominion Resources 8.7 American Water Works 8.7 American Electric Power 7.5 PG&E Corp 7.5 Southern Company 5.7 Public Service Enterprise Group 5.1
DIFFERENTIATION MATTERS
WHAT’S IN AN INDEX? MLP % OF ALERIAN INDEX Enterprise Products Partners 18.8 Energy Transfer Partners 9.2 Magellan Midstream Partners 8.9 Plains All-American Pipeline 6.2 Williams Partners LP 5.0 MPLX LP 4.9 Buckeye Partners LP 4.7 ONEOK Partners LP 4.1 Sunoco Logistics Partners LP 3.1 Western Gas Partners LP 2.4
OUR ADVISORIES • www.conradsutilityinvestor.com • www.capitalisttimes.com • www.energyandincomeadvisor.com • Pig Versus Bear • Deep Dive Investing Email: service@capitalisttimes.com CALL SHERRY 877-302-0749
SIX BRIEFING OBJECTIVES • WHO WE ARE • WHY INCOME INVESTING? • BEYOND THE BLUSTER: WHAT TRUMP POLICIES REALLY MEAN FOR INVESTORS • SECTOR BY SECTOR LOOK AT WHERE HIGH YIELD INVESTMENTS STAND • ADAPTING YOUR PORTFOLIO TO TRUMP-A- NOMICS: SOME RECOMMENDATIONS • FOR MORE: REPORTS AND SLIDES
INCOME STILL WORKS • THE BIRD IN THE HAND • GROWING DIVIDENDS BEST INFLATION • LATER IN THIS PRESENTATION: A DIVIDEND STOCK YIELDING OVER 9% THAT WILL GROW ITS PAYOUT 10% THIS YEAR • THE FED: NOT THE HAZARD YOU THINK • TAX RATES MAY FALL AGAIN • DIFFERENTIATION IS CRITICAL
UTILITIES SINCE THE FED ACTED
RISING RATES CAN BE BULLISH
THEY’RE STOCKS, NOT BONDS
DIVIDENDS DAY OF DOOM?
WHAT’S HE SIGNING?
MORE QUESTIONS THAN ANSWERS • TAXES AND HEALTH CARE: CAN THEY PASS? WILL CHANGES HELP OR HURT GROWTH? • INFRASTRUCTURE BILL: SO MUCH FOR THE FIRST 100 DAYS, IS 2018 A PIPE DREAM TOO? • REGULATION ROLLBACK: STATES AND COURTS HAVE A SAY • KEY POSITIONS STILL UNFILLED: FERC • SHRINKING GOVERNMENT: CONTRACTIONARY • THE LAW OF LOFTY EXPECTATIONS AS THE BULL MARKET ENTERS YEAR 9 • FOCUS ON COMPANIES, NOT THE GRANDIOSE
ONE EXAMPLE: UTILITIES
TRUMP AND PIPELINES: BULLISH? • OBAMA FERC STREAMLINED PIPELINE APPROVAL PROCESS = RECORD APPROVALS • NATURAL GAS THE KEY TO CUTTING CO2 WITHOUT SKYROCKETING ELECTRIC RATES • FERC NOW LACKS A QUORUM: PROJECT APPROVALS STALLED UNTIL TRUMP APPOINTS NEW COMMISSIONERS • WILL TRUMP THUMP GAS TO FAVOR COAL? • STATES AND COURTS HAVE THE LAST WORD
WHERE’S THE SLACK?
HIGH YIELDS BY SECTOR • BONDS: LOW QUALITY HAS THE EDGE • UTILITY STOCKS: UNDERVALUED GROWTH • YIELDCOS: BAD RAP MEANS BIG VALUE • ENERGY MLPS: WHO MAKES IT AT $50< OIL? • SUPER OILS: STILL BEDROCK? • REITS: THE REAL VALUE IS SPECIALIZING • BEYOND THE DOLLAR: BIG YIELDS OUTSIDE US
TREASURYS SWIM UPSTREAM
UTILITY JUNK PROSPERS
BONDS: IS THE CORE BUSINESS GETTING STRONGER? • WHY NOT INVESTMENT GRADE? • IS REVENUE SUSTAINABILITY IMPROVING? • REFINANCING RISKS MANAGEABLE? • HOW PROTECTED ARE WE FROM VOLATILITY IN COMMODITY PRICES? ECONOMY? LEGISLATION AND LEGAL TURBULENCE? • ANYTHING LEFT IN A BANKRUPTCY? • KEEP IT SHORT: 5 YEARS OR LESS TO MATURITY
A HIGH PRICED SECTOR…
…WITH MANY GROWTH CATALYSTS • DIVIDEND GROWTH ACCELERATES FROM LOW SINGLE DIGITS TO MID/HIGH SINGLE DIGITS • GROWTH FUELED BY CAPITAL SPENDING ON SMALLER PROJECTS WITH HIGH PROBABILITY OF EARNING A FAIR RETURN • UTILITIES’ TECH CONNECTION • REGULATION IN THE STATES FAVORABLE • REFINANCING RISKS ARE LOW
TECH PREFERENCES
DOD: A MAJOR ENERGY CONSUMER
DOD PRIORITIES • CUT FUEL COSTS • ENSURE RELIABILITY AT THE BASE AND ON THE BATTLEFIELD • SIMPLIFYING LOGISTICS SO PERSONNEL CAN DO THEIR JOBS MORE EFFECTIVELY AND SAFELY • CLIMATE CHANGE CONSIDERED A MAJOR 21 ST CENTURY THREAT • BIG PRESENCE AT ARPA-E ENERGY SUMMIT
DOD GOING GREEN
RENEWABLES ARE FOR REAL
AES CORP (NYSE: AES) — BUY<15 CHEAPEST STOCK IN DJUA: 1. YIELD 4.36%, 9.1% GROWTH LAST 12 MONTHS 2. P/E 10.3X TRAILING 12 MONTHS EARNINGS, DJUA IS 18.6X PRIMARY REASONS: 1. INVESTMENTS IN SEVERAL EMERGING MARKETS 2. SUB-INVESTMENT GRADE RATING OF BB (STABLE) FROM S&P 3. LONG MEMORIES OF 2001-02 MELTDOWN KEY CATALYSTS IN 2017: 1. VISIBLE GUIDANCE OF 8-10% ANNUAL EARNINGS AND DIVIDEND GROWTH THRU 2021 2. GLOBAL FRANCHISE IN OPERATING ENERGY STORAGE 3. S-POWER ACQUISITION
HOW GRID STORAGE WORKS
THE DUCK CHART
AES GAINS MARKET SHARE
ALT ENERGY BASICS • PLANT ECONOMICS INCREASINGLY IMPORTANT WITH TAX CREDITS EXPIRING • COMPONENT COSTS CONTINUE TO PLUNGE • GRID INVESTMENT MUCH EASIER TO RECOVER THAN NEW FACILITIES • REPOWERING FACILITIES ATTRACTIVE • REGULATORY SUPPORT AT STATE LEVEL CRITICAL
SOLAR RADIATION
The U.S. wind resource • • Wind could power more than New technology is reaching higher 13 times U.S. electricity needs winds, making wind energy possible in new regions of the country
FALLING COST OF SOLAR PANELS
COMPONENTS MAKERS SLAMMED
PATTERN ENERGY GROUP (NSDQ: PEGI) — BUY<22 YIELD: 8.5% 12-MONTH DISTRO GROWTH: 8.6% Q4 PAYOUT RATIO: 27.2% DEBT DUE THROUGH 2019: $35 MIL Q4 CAFD GROWTH: 44% KEY GROWTH CATALYSTS: 1. GLOBAL WIND AND SOLAR DEVELOPMENT PIPELINE AND ROFO — PATTERN 2020 2. CLOSING DISCOUNT TO NEP AS ACCOUNTING ISSUES RESOLVED 3. ABILITY TO MEET 15% CAFD GROWTH GUIDANCE 4. POTENTIAL TAKEOVER BY PRIVATE CAPITAL OWNERS IF SHARES REMAIN AT DEPRESSED LEVELS: RIVERSTONE (19.41%), CARLYLE (19.41%, CI INVESTMENTS (12%) 5. ANALYST COUNT: 13B, 3H, 0S
PATTERN’S PORTFOLIO
PATTERN FOR GROWTH
2017 OUTLOOK: CYCLE BASICS
NATURAL GAS: 20-YEARS
NATURAL GAS: A GROWTH STORY
MEXICO GAS PRODUCTION … .
ENERGY TRANSFER’S BILLIONS
PICKING PIPELINE MLPS • WISE SELECTION IS CRITICAL: SECTOR RECOVERY MASKS RISKS • KEY FACTORS: LEVERAGE, ABILITY TO MOVE FORWARD ON KEY PROJECTS, EXPOSURE TO WEAKER BASINS • DISTRIBUTION COVERAGE RATIO IMPORTANT BUT MAY NOT INDICATE SUSTAINABILITY • MERGERS USUALLY POSITIVE BUT NOT ALWAYS — ROLLUPS ARE A TREND
ENABLE MIDSTREAM PARTNERS (NYSE: ENBL) — BUY<19 YIELD: 7.8% NO DISTRIBUTION INCREASES SINCE NOVEMBER 2015 Q4 PAYOUT RATIO: 54.1% Q4 DCF INCREASE: 32% DEBT DUE BY END 2019: $950 MIL KEY CATALYSTS: 1. CONTINUED STRONG GROWTH OF VOLUMES IN SCOOP/STACK 2. RETURN TO DISTRIBUTION GROWTH BY 2018 3. SETTLING THE OWNERSHIP QUESTION: CENTERPOINT TO SELL OR HOLD ITS 41.93% LIMITED PARTNER STAKE AND 50% OF GENERAL PARTNER?
CAPACITY SHORTAGE
ENABLE DEBT
BIG OIL PROS AND CONS PROS CONS • HARD TO REALIZE • GUARANTEED SURVIVORS MEANINGFUL PRODUCTION • RELIABLE DIVIDEND GROWTH GROWTH • MOST TOOK LARGE LOSSES • ACCESS TO LOW COST FROM BETS MADE AT $100 CAPITAL FUELING GROWTH OIL • ACCESS TO DIVERSE • MANY EXPOSED TO MARKETS AND ABILITY TO POLITICAL RISKS • LONG-RUN DO BIG PROJECTS ENVIRONMENTAL • FRIENDLY WHITE HOUSE CONCERNS
CHEVRON: THE LONG VIEW
TOTAL SA (PARIS: FP, NYSE; TOT) — BUY<55 YIELD: 5.24% 12-MO DIVIDEND GROWTH: 1.6% 2016 PAYOUT RATIO: 64.6% MOODY’S CREDIT RATING: Aa3 (Stable Outlook) OWNS LEASES ON LAND UNDER VITAL INFRASTRUCTURE 12-MO PRODUCTION GROWTH: 9% KEY GROWTH CATALYSTS: 1. EXPECTED 4% OUTPUT GROWTH IN 2017 2. DIVIDEND GROWTH AS COMPANY NEARS FREE CASH FLOW POSITIVE AFTER CAPEX DECLINES, OPERATING COST REDUCTION AND CASH FLOW GROWTH 3. DOWNSTREAM OPERATIONS IN SOLAR ENERGY EXPANDING RAPIDLY GLOBALLY 4. FRENCH ELECTION THIS SPRING IS A WILDCARD: USD GAINS ADD TO EARNINGS IN EUROS
REITS ROCKET HIGHER
PICKING REITS • STANDARD PROPERTY OWNERS ARE NOT CHEAP: BBREIT INDEX YIELDS 4.5% • NICHE REITS (DATA STORAGE) HAVE SCORED HUGE GAINS • OVERBUILDING, SECULAR DECLINE OF BRICKS AND MORTAR, HIGHER INTEREST RATES ALL ARE CONCERNS • STILL SOME VALUES
LANDMARK INFRASTRUCTURE PARTNERS (NSDQ: LMRK) — BUY<17 YIELD: 9.1% 12-MO DIVIDEND GROWTH: 7.7% 2017 DIV GR GUIDANCE: 10% Q4 COVERAGE RATIO: 0.81X 2017 COV GUIDANCE: 1.05X Q4 DCF GROWTH: 38% OCCUPANCY 97%, CONTRACTS MEASURED IN DECADES KEY GROWTH CATALYSTS: 1. DISTRIBUTION GROWTH AND IMPROVING COVERAGE RATIO AS EARNS FULL QTR CASH FLOW ON ASSETS DROPPED DOWN IN DEC 2. YIELD AND DISTRO GROWTH 3. GROWTH OF MARKET CAP ($343 MIL), ANALYSTS 6B, 0H, 0S 4. INSIDERS BOOST HOLDINGS BY 51.5% LAST SIX MONTHS
CANADA’S SHALE PLAYS
Recommend
More recommend
