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Focus on Dividends

By  Roger S. Conrad
Issue No.141 . Jan. 30, 2019

Dividend investors can certainly be forgiven for distrusting energy companies’ dividends.

We launched the Energy and Income Advisor Endangered Dividends List on June 30. Of the original list of 16 names, only four have managed to avoid a dividend cut since. Of the dozen or so we’ve added to the list more recently, fewer than half have managed to hold up. And all 15 companies currently on the EDL are at high risk of making reductions sometime in the next 6 to 9 months, if not eliminating distributions entirely.

All of these cuts are, of course, on top of dozens more through the first half of 2018, dating back to when oil prices first broke under $100 a barrel back in 2014. And it doesn’t help that the latest round has come with benchmark West Texas Intermediate Crude oil prices still nearly twice their early 2016 lows.

The carnage has understandably made many skeptical that any energy company’s dividend is secure, no matter how good numbers and guidance get. Kinder Morgan Inc (NYSE: KMI), for example, earlier this month announced strong fourth quarter operating numbers, raised guidance and affirmed a 25 percent dividend increase for April. Its shares, however, managed only a small surge, which they’ve since given up.

Skepticism is even more clearly etched in prices of the three dozen or so master limited partnerships we track that currently yield 10 percent or more. Sure, some of them are headed for dividend cuts, with EDL companies at the greatest risk. But other high yield companies appear to have fallen despite all indications they’re still strong on the inside.

This issue, we highlight high yielders still likely to hold their payouts this year and recover their lost ground. Timing will depend squarely on what happens to oil and natural gas prices. The Alerian Index, for example, has closely followed oil prices, though recently outperforming the commodity.

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  • High Yield Values

    By Roger S. Conrad on Jan. 30, 2019

    Where there’s smoke there’s fire is the old saying. And in light of the rash of dividend cuts and severe selloff of higher yielding energy companies in the second half of 2018, it’s easy to conclude as many investors have that the entire sector is finished as an income source.

  • Endangered Dividends List

    By Roger S. Conrad on Jan. 30, 2019

    This dividend declaration season, five companies announced dividend distribution cuts. All operate in more leveraged sectors of the energy industry. The chief catalyst was the autumn retreat in benchmark oil prices, coupled with some extremely wide differences in regional pricing.

  • Energy 2019 Roundtable

    By Elliott H. Gue on Jan. 9, 2019

    Q: Why will the energy sector outperform in 2019? Will it matter if the overall market has a bad year? Roger Conrad (RC): In my experience, no sector can wholly withstand an overall market meltdown, particularly if it brings a recession with it. And as if we needed a reminder, the last four plus years have shown quite clearly that energy is a cyclical business. That said, the economy’s still growing by any useful measuring stick. This remains one of the slowest tightening cycles for the Federal Reserve I know of.

  • Endangered Dividends List

    By Roger S. Conrad on Jan. 9, 2019

    American Midstream Partners (NYSE: AMID) will eliminate its distribution this month. That follows a 75 percent cut announced in July, which was preceded by a more modest 12.7 percent trimming two years earlier. The immediate catalyst is a restated credit agreement, which based on expected fourth quarter financials would preclude management’s ability to pay a distribution.

  • Our Deep-Dive Outlook for Oil

    By Elliott H. Gue on Dec. 19, 2018

    Since the end of September, WTI and Brent oil prices have experienced one of the most violent and rapid sell-offs in history. Over the short term, energy stocks typically follow commodity prices particularly on the downside. Thus, the S&P 500 Energy Index is off 19.6% this quarter, the Alerian MLP Index is down about 12.8%, the SPDR Oil & Gas ETF (NYSE: XOP) is down 34.8% and the Philadelphia Oil Services Index (OSX) has plummeted over 40% led on the downside by the deepwater and onshore contract drillers.
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    Elliott and Roger on Jan. 29, 2019

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      Our assessment of every energy-related master limited partnership.

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    Experts

    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor