Energy 2019 Roundtable
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
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
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.
Endangered Dividends List
Altagas Ltd (TSX: ALA, OTC: ATGFF) cut its monthly dividend to 8 cents Canadian from the previous 18.25 cents, starting with the January 15 payment. We highlight the move as part of a strategic reset by management in the December 13 Alert “Altagas Resets for a Hostile Capital Market.” Kinder Morgan Canada (TSX: KML, OTC: KMLGF) announced its 2019 financial projections, which reflect the now closed sale of the Trans Mountain pipeline system to the Canadian government.
Focus on MLPs: Questions and Answers
How have MLPs recommended in Energy and Income Advisor fared year-to-date? Is there any reason to expect a better performance in 2019?
The table “EIA Energy MLP Performance” highlights master limited partnerships recommended in three places: Our Actively Managed Portfolio, the Focus List and the “legacy” portfolios that we continue to track on the EIA website.
Endangered Dividends List
The latest two EDL members to announce dividend reductions are Bonterra Energy (TSX: BNE, OTC: BNEFF) and Sanchez Midstream Partners (NYSE: SNMP).
Canadian oil and gas producer Bonterra is slashing its monthly payout from 10 cents Canadian to just a penny a share. That’s a direct consequence of a decline in its realized selling price for oil to just CAD21.50 per barrel from CAD77.20 since the end of the third quarter.
Round Table: Our Take on Q3 Earnings So Far
Are you concerned by the large number of energy company dividend cuts we seem to be seeing this earnings season? – Roger Conrad: Let’s get one thing straight right up front. There’s no such thing as a “good” dividend cut. When a company reduces its payout, investors lose income and share prices typically fall to reflect the lower amount. That’s why we want to avoid stocks at risk of dividend cuts and it’s the reason we have an Endangered Dividends List.
Endangered Dividends List
Buckeye Partners (NYSE: BPL) is cutting its quarterly distribution for the first time in its 30-year plus history, from $1.2625 to 75 cents per unit. That’s a -40.6 percent reduction starting with this month’s payment, an amount right in line with our expectation.
Roundtable: Energy and the Stock Market
Roger Conrad: A month ago, we talked about the super majors as really a breed apart in the energy business, particularly for anything to do with long-term business resiliency. A lot of that has to do with balance sheets.
I mean there are plenty of sovereign governments that can’t match the Aaa credit rating ExxonMobil (NYSE: XOM) draws from Moody’s.
Endangered Dividends List
Endangered Dividends List companies are vulnerable for different reasons like cash flow, elevated debt levels, revenue pressure etc. This edition of the EDL table is expanded by five names since the previous issue of EIA.
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Live Chat with
Elliott and Roger on Jan. 29, 2019
Portfolios & Ratings
Model Portfolios
Balanced portfolios of energy stocks for aggressive and conservative investors.
Coverage Universe
Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.
MLP Ratings
Our assessment of every energy-related master limited partnership.
International Coverage Universe
Roger Conrad’s coverage of more than 70 dividend-paying energy names.
Experts
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Elliott H. Gue
Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor
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Roger S. Conrad
Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor