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4/22/2024
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Lincoln Financial Group will pause stock buybacks through 2023 as a plan to deal with financial challenges in the wake of a disastrous $2.6 billion third quarter loss, CEO Ellen Cooper said Wednesday at the Goldman Sachs U.S. Financial Services Conference.
During a half-hour presentation, Cooper reiterated that 2022, and especially the third quarter, has been difficult for the Radnor-based life insurer and retirement investment company. In the third quarter, Lincoln (NYSE: LNC) flipped to what amounted to a $15.17 per share loss from a $318 million, or $1.68 per share, profit in the same period of 2021. Revenue declined from $5.2 billion to $4.8 billion in that same span and the company lost a third of its stock value in one day.
In response, Cooper said Lincoln is focused on targeted actions to repair the company’s balance sheet and admitted “it’s going to take some time.”
As mentioned during the third quarter earnings report, those strategic actions include improving capital generation and distributable earnings, reducing the company’s volatility to capital markets and further optimizing its business mix.
Cooper said the company raised $1 billion in preferred equity in recent weeks and put a partial tactical hedge on its existing variable universal life insurance to mitigate potential additional negative impact on its risk-based capital ratio from future equity market declines. She said the company still has more work to do, specifically as it relates to the existing life insurance business.
“I think that the preferred equity issuance really goes to the fact that we have a strong business model, we have strong distribution,” said Cooper, who started as CEO in May. “We’re known for our overall strong product manufacturing. We’ve got a really high quality investment portfolio. We have ways to organically generate capital and do it effectively, and we’re going to continue to do all those things as we focus on the overall repair of balance sheet.”
As for the $1 billion equity raise completed in November, Cooper said she was pleased with overall demand. She said $200 million will be packaged with $300 million already put aside to cover debt maturity coming in the third quarter of 2023.
The remaining $800 million will be pushed into the operating life insurance company, in the process adding 30 points to its risk-based capital ratio.
Cooper said the company raised the equity to be able to provide an additional cushion amid “uncertain macro headwinds” and the potential for even more. She added the company will also be focusing on improving its overall risk based capital and financial leverage ratio.
Proper execution of those initiatives should help Lincoln ultimately restart stock buybacks for shareholders, she said.
In terms of capital generation, Cooper said Lincoln had been generating $2.4 billion in capital annually before 2022. Of that, $1.5 billion had been allocated to new business and the rest for interest payments, common dividends, and buybacks. But in 2022, Cooper said the company is expected to have a negative generation of $1.6 billion, which caused the risk-based capital ratio to decline by 67 points.
Recommended
Drivers of pressure in 2022 included a $550 million statutory charge to the company’s reserves connected to the updated universal life with secondary guarantees lapse assumption. There is also the continuation of Covid-19 claims and a negative distributable earnings profile in the life insurance business.
Cooper, though, noted the company had strong sales across business lines and has allocated $1.4 billion to new business — similar to what it has done in the past.
In 2023, Cooper expects capital generation to improve but still be under a “fair amount of pressure” relative to the pre-2022 number of $2.4 billion. She said that Lincoln believes it can free up between $200 million and $300 million of capital while maintaining strong sales. Higher interest rates could help offset a chunk of the aforementioned $550 million charge. She also said an expense reduction initiative called Spark that began 18 months ago could result in $60 million to $80 million in earnings next year and between $120 million and $150 million by 2024.
After reporting the third quarter loss, Lincoln Financial’s stock price declined from $52.10 on the previous day’s close to $34.83 — a 33% drop. After Cooper’s presentation Wednesday, the stock was trading down by over 4% at $35.71 from Tuesday’s closing price of $37.35.
It has been a tough year for Lincoln Financial, which saw its stock trading as high as $72 in February and over $56 when Cooper took the helm in May.
The company continues to report strong life insurance and annuity sales growth. Lincoln Financial reported annuity income from operations of $449 million in third quarter, up 33% compared to the same period of 2021. Total annuity deposits of $3.3 billion were up 21%.
Saw this earlier. Thought the preferred might drop below my purchase price. They have not. Would look to add if these do go lower.
LUMN started the year at 13 and is now below 6 (5.47 today). The dividend have been eliminated on the common making it easier to pay the preferred. I own some of the preferred CTDD (QWEST 6.75%) at current price of 20.15 that’s about 8.3%
The common market cap is 5.66B. P/E is 2.76. They claim they will buy back 1.5B over two years. That’s a 26% buyback. At 5.47 for LUMN it was worth a small purchase for me.
Loaded with debt, cut the dividend, but are doing buybacks instead. Would have preferred debt reduction. (I am not a fan of buybacks.) Reports are that they are disposing of operations, so I wonder where QWest and its bonds end up. (Long Qwest.) Level 3 is supposedly a crown jewel, but reports are they are disposing of some L3 assets.
Have looked at the LUMN common, but can’t get too excited. In general, I find that Telcos are capital intensive, have boatloads of debt, often have wasting legacy assets, and have mediocre managements that are prone to doing odd things like buying entertainment companies then suffering buyers remorse (T, VZ) while more agile competitors are buying up 5G. At best, the commons in the industry are a hold for me, though I do look at preferreds if the price is right. Just my opinion.
I’m an active twitter user as I follow beat writers for sports and business news. Elon Musk has purchased the site and is torching it’s value. Musk’s collateral for the purchase is his holdings in Tesla (TSLA) and the shares are dropping in value. The vast majority of the folks I follow are migrating to a service called Post which is a product of Google (GOOGL).
I am making money on my bearish bet on Tesla (via vertical call option) and I’m thinking of legging into a small position in Google as the twitter users migrating to Post will help their on-line advertising revenue.
Elon overpaid seems more of a personal mission than a wise investment. He believes in the changes but not acting with fiduciary responsibility. Losing value because of liberals leaving in a huff. Similar to Disney losing value because of conservatives getting insulted. When you have a large diverse customer base it’s not a good idea to antagonize half of them with controversy.
Tesla is mostly unrelated but may suffer if Elon is over-extended.
Elon overpaid for Twitter, he knew that. But he believes strongly in the mission of free speech and he has FU money to back it up.
That said, he is not destroying it’s value. All the important metrics are up. Twitter has never been better in terms of the number of users, mDAU, engagement, and most importantly, free speech. Follow Elon on Twitter and you will learn more. It’s just that the media hates him because they lose power when they can’t control the narrative and they strongly supported censorship of one point of view under the old Twitter regime so they try to gin up negative stories. And have scared some advertisers off temporarily. But if the man can be so successful with electric vehicles and sending rockets into space, I have no doubt he knows what he is doing with a website and will eventually monetize it.
I would not view / worry about Tesla at all in relation to Twitter. You need to value that on its own. They are not financially interconnected. That said, Tesla had been overvalued for a while so it was due to fall back to earth. But any price action there is independent of the transformation taking place at Twitter
Musk sold Tesla shares ( $22B in 2021, $20B so far in 2022) to fund his purchase of Twitter. While he still owns 25% of Tesla, Musk got tremendous value from those timed sales. One could even argue that Musk selling signaled the beginning of the distribution phase of the stock.
Musk also brought along several big equity stake investors when he bought Twitter, including founder Jack Dorsey, the Saudis, Binance, BAMCO and others. While the true value of the now privately held Twitter is unknown, Musk has much less risk exposure than most people think.
I would think the revenue increase if any at Post would be negligible for the parent company.
Schwab’s money market fund SWVXX now has a 7-day yield of 3.7099%, which exceeds the 10-year treasury rate of 3.67%.
Here’s another mouth-watering trade I made today:
Bought 100 shares of ALLY at $25.85 (52% off 52-wk high)
ALLY is a ‘dividend challenger.’
Sold 1/19/24 $25 covered call for $550.
ALLY pays $120/yr in divies (4.67%).
So . . . by 1/19/24 ALLY will have paid out 4 divies (pays 30th; 1,4,7,11).
$120 (divies) plus $550 (premium) = $670
$670/$2585(cost basis) = 25.92% over next 15 mos or 20.74% annualized.
If shares are exercised on 1/19/24 = $670 minus $85 (to 25 strike)/$2585 (cost basis) = 22.63% or 18.10% annualized.
Even if ALLY never paid another dividend: $550(premium)/$2585(cost basis) = 21.28% by 1/19/24, or 17.02% annualized.
FJ, You might be onto something here as Buffett added to Berkshire’s Ally position a few months ago at $33.51. Good luck with the trade.
alpha – thanks.
As an aside, ALLY is up 17% today as I write.
Interesting.
From the BDCREporter – This is a free but interesting article from https://bdcreporter.com/2022/11/bdc-common-stocks-market-update-week-ended-november-4-2022/
BDC Common Stocks Market Update: Week Ended November 4, 2022
BDCs:
BDC COMMON STOCKS
Week 45
Contrasts
For the broader indices, the week ended November 4, 2022 was not one to remember. The S&P 500 – for example – slipped (3.35%) – its worst performance in 6 weeks.
The BDC sector – as measured by the price change of BDCZ, the UBS sponsored Exchange Traded Note which owns most BDC stocks – performed much better. BDCZ was up 1.65% and the S&P BDC index “total return” increased by 2.2%.
Second Time This Year
In fact, the BDC sector has been in what we call “re-rally mode” since September 29, 2022 using – in this case – the S&P BDC index on a price return basis. As of last Friday, that index is up 14.4%. By comparison, the S&P 500 is up only 5.4% in the same stretch of time.
Obvious
Undoubtedly, the catalyst are BDC earnings – now in week two of the IIIQ 2022 results. More on those results – half of which have already been announced – in a minute.
Metrics
Right now, let’s look at some of the week’s regular metrics: 29 BDCs were up in price and 14 were down. (The fact that there was not an almost universal increase of individual BDC prices is a little surprising, but may mean nothing). Of the 29 BDCs in the black, 10 were up 3% or more. That’s far less than the 36 the week before, but still impressive.
In Common
Seeking Alpha: 8 Top % Price Gainers Week Ended November 4, 2022 [chart not copied] Of those 3.0% plus price gainers, the top 8 – as the chart above shows – were all BDCs that reported results this past week. It seems that many investors were in a “show me” mindset, waiting for confirmation that all was well at these BDCs before diving in. In fact, all 8 raised their payouts – even OFS Capital (OFS) which registered the biggest percentage decline in NAV Per Share of any BDC that has reported s far : (6.8%).
No Love
Likewise, investors were ready to punish BDCs that did not perform to expectations. Trinity Capital (TRIN) – which made the mistake of investing in no less than 3 crypto “miners” and saw it’s own NAV Per Share drop (6.0%) – the second worst performer by this metric- fell (8.6%). The newly public venture BDC has seen its stock price drop (20%) since October 26, 202 and has lost nearly half of its market value since the end of March 2022. At this point, TRIN trades at 5.6x its projected 2023 earnings and 20% below net book value per share. In fact, TRIN was the only BDC this week to reach a new 52 week low – most BDCs were headed the other way – of $10.42.
Ever Lower
Also punished by the markets was Great Elm Capital (GECC) – down (6.6%). The BDC kept its dividend unchanged for the IQ 2023 at $0.45 but NAV Per Share dropped (2.2%). The pint sized BDC continues to add new finance companies to its roster – which involves up front costs – but cannot yet show any bottom line benefit from the new strategy. Net Investment Income Per Share – already low in the IIQ 2022 at $0.23 – fell even further in the IIIQ 2022 to $0.14. The analyst consensus for 2023 EPS is $1.40, which makes one wonder how long the BDC can maintain a $1.80 per annum dividend payout pace. GECC trades at 6.7x its 2023 consensus earnings and a (23%) discount to that just reduced net book value per share.
Waiting
Overall, outside of TRIN, there are 10 BDCs trading within 10% of their 52 week lows. Coincidentally or otherwise (we lean to the latter) all 10 have not yet reported IIIQ 2022 results. Again investors may be waiting for confirmation that all is well before buying. Looking down the list of these BDCs (which include BXSL, CGBD, CCAP, PPNt and PFLT) we’d guess that investors may be pleased with what they are shortly to hear.
Historic
The fact of the matter is that the BDC sector is enjoying its greatest quarter over quarter earnings and dividend boom in its history. We track every regular dividend announcement and found that of the 41 players actually paying a distribution (LRFC and PFX do not), 21 have recorded an increase in their payout over the prior period and 20 were unchanged.
More To Come
Nor is this earnings/dividend boon a flash in the pan. At the very least, we might see BDC profits and payouts increase well into 2023 – and possibly beyond. For what it’s worth, the BDC Reporter has projected likely 2023 total distributions (regular + specials) for 20 BDCs so far and compared the payout to the 2022 level. We project 16 – or 80% of the group – will be paying out more to shareholders in 2023 than they have this year. 3 are unchanged and in only 1 case do we foresee a drop. (Yes, we are concerned about GECC).
Out Of Sync
This sort of growth in BDC profitability and distributions is unprecedented and all the more intriguing at a time when analysts are saying S&P 500 earnings are likely to grow not all in 2023 over 2022 levels.
Tough
Moreover – and bad news for Chairman Powell and the fight against inflation – there are no obvious signs in the many BDC IIIQ 2022 filings we’ve seen of slowing economic conditions or financial stress. There are idiosyncratic credit troubles here and there as is always the case, but there is no syrge in underperforming or non performing assets; no swelling up in the number of borrowers seeking covenant dispensation and – apparently – not even any drop in underlying portfolio company EBITDA levels – calculated on average.
Hypothetically Speaking
With this sort of fact set, BDC prices should be at all-time highs. One example will suffice: Ares Capital (ARCC) has historically traded as high as 14.0x its earnings. With 2023 EPS estimated to be $2.21 (and probably a low ball given the analysts proven conservatism), this means ARCC could be trading as high as $30.94. Instead, the market leader and well regarded BDC, closed Friday at $19.39. There’s a 56% price upside if PE multiples still apply.
Asked And Answered
Why are BDC investors holding back – the 14% increase since September 29 notwithstanding ? Clearly, there’s a concern that a recession will come along in 2023 of unknown size and duration and wreak havoc with BDCs book values, earnings and distributions. Very reasonably, given this is one of those phenomena which is unknowable in advance, many BDC investors (but not all) are holding back as a result.
Resilience
In the weeks ahead – and especially when BDC earnings season ends in the next 10 days or so – we’ll see if investor enthusiasm for BDC stocks will be tempered by the fear of recession, or not. As we’ve seen, this week BDC investors forged on as the major indices held back. Historically this has rarely continued for long.
Exception To Rule ?
On the other hand – as has been said – this prospective recession is like no other one we’ve ever seen before. The Fed is using lenders as a cudgel to weaken the financial strength of borrowers, causing higher debt service; lower business spending: increasing unemployment, etc. At the moment BDCs are willing accomplices in squeezing more and more debt service dollars out of their borrowers.
Beware What You Wish For
At some point, though, the Fed and the lenders recruited into this unique experiment will find out if they have been the willing agents of their own destruction as debt service costs become untenable at the same time as revenues and EBITDA start to turn negative. Will that bring inflation down and allow the Fed to begin cutting rates and permit a “soft landing” for the BDCs involved ? Or will the Fed lose control of the economy and drag us all into a recession or depression and – ironically – not even succeed in bringing inflation under control ?
Puzzlement
We don’t know the answer – and more importantly – nor does the investment community. There may be different answers at different times in the months ahead, but we’re coming upon a critical period when these questions will be answered. In terms of a timeline we doubt that the process of bringing inflation back to the Fed’s 2% target will be accomplished before 2024 at the earliest.
Buckle Up
The principal battlefield, though, lies in 2023. Judging by the resilience of the thousands of BDC borrowers we’ve heard from through earnings season, we doubt that any credit strains will show up in 2022 (7 weeks till Christmas !). In fact, the rubber may not hit the road from a credit strain standpoint till the second half of 2023. That’s a long time away and leaves many opportunities for BDC investors to go through many different phases.
Mood
At the moment, we’d characterize the period since September 29 – and especially since ARCC kicked off earnings season – as “muted optimism. Money is flowing into the better BDCs, but remains skeptical about marginal or troubled players. Maybe in the weeks ahead we’ll see a continuing and broader based rally. After all we’re expecting even the smaller and weaker players to see EPS and distributions boosted by higher rates and are still not expecting any rash of credit problems.
Keep The Faith
After a few weeks, though, and once BDC earnings season is in the rear view mirror – will investors be able to maintain their enthusiasm if and when the general economic picture darkens; bankruptcies pick up and headlines become ever grimmer ? We’ll say we don’t expect that will be the case. It seems very unlikely that if there is a recession (and the chance of that occurring is generally regarded as very likely) that BDC investors could hold their nerve because of the current high earnings through thick and through thin.
[Insert Santayana Quote Here]
It’s never happened before. Back in March 2020, when all of us expected a global, pandemic caused, recession was coming BDCZ fell to a price of $9.26. As of Friday, BDCZ was trading at roughly twice that level : $17.23.
Choices
In any case, that’s the question facing BDC investors at a time of record earnings and distributions: is this the beginning of a long Golden Age of BDC profitability or just a brief period before Hurricane Recession undoes all the benefits and more through credit losses and a sharp drop back in the reference rate ? Markets are always looking forward, but sometimes the distance into the future is longer than others and the uncertainties – both positive and negative – are greater. This is one of those times, and neither the IIIQ 2022 BDC results nor even the next couple of quarters will provide clear guidance.
Investors are going to have to do a lot of guessing for a very long time.
CUBI – Could this explain what seemed to be today’s inexplicable decline on CUBI (-4.75%)? “Customers Bancorp agrees to pay Kabbage $58M to settle PPP fee dispute” https://finance.yahoo.com/m/677ceb81-216b-33a2-8e44-013b40bc9cf9/customers-bancorp-agrees-to.html This article came out shortly before yesterday’s close…….. One thing about CUBI common – it remains an unloved, cheap bank when compared to its peers and frequently subject to this kind of downside beat down even though they’ve now exceeded their yearend earnings projections with the last quarter still to be had..
LUMN just killed their dividend.
“Lumen drops 10% amid Q3 miss, moving dividend payouts into buybacks instead” – headline from The Other Website.
This is a proof-of- concept field test for those who believe “returning money to our shareholders” means that buybacks are valued as much by investors as are cash dividends. In early polling tonight, cash dividends are winning the debate with a ~15% after hours drop in LUMN.
Just my opinion.
Here’s juicy one that I just bought:
100 JEPI at $53.88; sold the Apr_23 $54 CC for $180. Given that April is only five months out, we can expect another $180 worth in sequential calls within the next 12 mos (varying on IV, share price, etc).
So . . . JEPI kicks out $600/yr in divies; plus ($180 [prem] x 2) = $960/$5388 cost basis = 17.82%/yr.
Divies are monthly and $180 premium is already credited. I’ll just keep rolling the premium. After the first year I can then reinvest that $960 payout at 10%, and bump the return to 19.60%/yr after the first year.
Secure Long Term Common Stock Play?:
Any way you look at it ENB still below $40 with a 6.7% yield. Don’t forget that ENB has 3.5 MM utility connections too.
Want a better possible entry point on ENB and decent income? on that cash?
Close-in, mid-Dec /$35/ puts at $.50 = 12%+ annualized return on secured cash in six weeks OR an exercise in ENB at 34.50.
May be a better play to watch and possibly sell put AFTER the Nov div when the stock may drop from the div chasers, making the premium a bit richer, esp if market softens along with it?
I’m “piped-out”, and slowly moving div accums and sales into a semblance of high rated bonds now that I am retired and Medicare bound in 2023. I’ll be selling calls on my ENB hoard, to lighten up after the Nov div into next tax year. What could go wrong!? (Humility Prayer and Arrogance Risk disclosure)
Joel, Got a chuckle on that one. Options is something I never learned and I think too late now. If I made a mistake, no time to make it up.
Bonds yes, I am making a effort to learn more about them. Lot of good people and good advice here in regards to them.
Finding out on the $1000 issues it pays to deal with a good broker.
Not going to say it reminds me dealing with a car salesman but it sure seems like it.
My experiences so far with Pershing remind me of haggling with a car dealership. As far as I can tell, I have to call in and talk to a salesperson.
Testing the system,
1st call, the salesman was adamant price he was quoting on ask was firm. Even though I had my TDA account open and it was showing a lower ask by a dollar.
2nd call a week later sales lady admitted there were multiple asks showing and she read them off.
I know from discussions on this board several people have moved IRA accounts to other brokers like TDA as an example that lets clients see and enter their own orders.
Be great, but this is my wife’s account I am managing. Anyone have experience with moving an account? You don’t have to sell positions to move the account do you?
Charles, it is a simple process. You set up similar accounts at new brokerage and then go to that broker’s account and initiate the transfer. Check with your current broker on their rules for fees that may be assessed and see if you can minimize them. If you have fractional shares, some brokerages will liquidate the fraction before the transfer. They did not sell any shares at the old brokerage for fees. If you don’t have sufficient money market funds at the old brokerage to cover the transfer fee, the old broker will collect the transfer fees from your new brokers account. Your share cost basis will also be transferred to the new account.
They will not liquidate shares if you transfer the shares “in kind”.
Charles..No, you do not have to sell the positions. After selecting the broker and having her sign the necessary papers, since it is her account, the broker you are moving to will move everything for her. My only experience with moving one was to Schwab, and I went to a physical branch office to do the paperwork. I use other brokerages as well, But I just set up the accounts, as opposed to moving them. I like to buy bonds on Fidelity or IBKR because for less than 10 bonds at a time, the commission is less than Schwab, I use both for search, however, because the results are not exact duplicates.
Steve you mention fees and said talk to the broker. I suppose for the paperwork involved they have to charge something or their pint of blood.
But any idea what they might be like?
Charles
You can find the transfer fee (ACAT out fee) on the various brokerage sites. I’ve done all of my transfers on line. TDA charges $75 for full account transfer and $0 for a partial. Vanguard and Fidelity charge $0. At TDA you can transfer all of the stock as a partial and then withdraw the money market settlement fund after partial is completed so cost is $0.
One other item, the names, titles and type of account on to/from accounts have to be the same.
The receiving broker will usually reimburse any ACAT fees on request.
My son sent me this – https://www.longtermtrends.net/sp500-price-earnings-shiller-pe-ratio/ It’s charting the S&P PE ratio historically over 100 years and also something called the Shiller PE Ratio. I’ve been trying to guess this type of info on the S&P recently but hadn’t really spent much time trying to find the data…. This seems to give some hope that perhaps from an historical point of view at least, we could be entering a decent range to be thinking about when to get out of the bomb shelter and into the streets.
Some M&A deals, and rumors thereof, are popping up in the energy industry.
– BP made a bid for Archaea LFG, at $26, a ~50% premium
– Exxon is rumored to be looking at Denbury DEN
– Berry BRY reported to be “exploring strategic options”
– Sitio STR and Brigham MNRL last month
Archaea is off 11% YTD, takeover price not yet reflected.
Denbury is up 12% YTD, period includes the rumor.
Berry is up 2% YTD, period includes the rumor.
Sitio STR up 28% YTD, period includes merger announcement
Much of the war premium in energy stock prices is gone, although IMHO corporate earnings Y2Y should remain strong, coming off lower prior year hedges and generally higher commodity prices.
Some energy companies are paying extras that are not reflected in the dividend yields that are published on the big financial sites. E.g., BRY paid 0.62 last quarter (0.06 R + 0.56 X) , but SA shows 0.30 TTM for the whole year and Yahoo shows a 0.24 annual FD.
Even if you bought at or near the top, BRY would have yielded 15 to 20% in cash dividends. On the other hand, BRY trades with a steep “California discount” and has Coney-Island-Roller-Coaster style stock price volatility.
If preferred stocks are your idea of Sleep Well At Night stocks, energy stocks will make your teeth chatter at night. So DYODD and caveat emptor.
Just my opinion.
Disclosure: long energy
Is it time to start $ cost averaging down on AGNC and BXMT?
I wish I knew what to do with AGNC. I hate throwing good money after bad. I am almost tempted to take my loss and look for something more stable. Often averaging down hasn’t worked for me.
Look at a long term chart of any mREIT. It will show flat to down. Having learned that the hard way, now I only hold their preferreds.
Con Ed selling its US renewables business for $6.8 billion to a German company with backing from a Middle Eastern oil producing country. ConEd Clean Energy seems to specialize in solar. With the influx of cash, ED is withdrawing its plan to issue more common stock.
ED yields 3.7%, ED stock is about even on the year.
Some grumbling in Germany that RWE ought to be investing at home instead of doing M&A.
Hoping everyone is having a great, healthy and memorable weekend. I rarely will post about individual securities in my trusts, LLC or retirement accounts at the risk of being self serving. I have owned a relatively large amount of shares of income security (KRP) Kimbell Royalty since December 2018 after they converted from a K1 to a C Corp. I was buying KRP aggressively again this week as I find their short and medium term extremely interesting and attractive.
Some interesting facts:
The company will pay no material amount of federal corporate income taxes from 2021 through 2027 (less than 5% of Kimbell’s estimated pre-tax distributable cash flow for such years)
Substantially all distributions paid to common unitholders from 2021 to 2025 will not be taxable dividend income 🔥
Distributions in excess of the amount taxable as dividend income
Founded on ethics and investment discipline, KRP has grown from a single investment in the Permian Basin to one of the largest owners of minerals and royalties nationwide. KRP’s portfolio includes over 16 million gross acres in 28 states and in every major onshore basin in the continental United States, including ownership in more than 122,000 gross wells with over 46,000 wells in the Permian Basin. We became a publicly-traded company in February 2017, trading on the NYSE under the ticker symbol KRP.
Kimbell converted to a C-Corp for federal income tax purposes in September 2018. Thus, investors in our common units will receive a 1099-DIV rather than a K-1.
I urge EVERYONE to do their own deep due diligence and do not buy this security because someone behind an iPad is highlighting it. I may not have your best “interest” in mind and only you know your time frame, risk tolerance, volatility concerns, income needs and are you able to sleep at night comfortably if you start losing money. This security can and will lose money 🫤 In Latin we say Noli me audire, investigationem tuam amicis meis facere
I’d be glad to answer any questions anyone here might have,
I am Azure
One question: Do you actually walk around speaking Latin?
Yes I’m kidding of course – but you’ve made me look up a few of these! hahaha!
Thank you Azure.
alpha, you truly made me smile 😊 I had to study a language in college and because I was going to law school figured I’d take Latin. It’s an ancient language that few speak or communicate with anymore, but still is important in legal circles. All the very best to you and your family or in Latin Omnia optima tibi et familiae ⭐️
AB,
Another one I have been in and out of, wish I had stayed in is DMLP
Was at one time larger than KRP
DMLP recently started to focus more on NG
I have a short list with Blackstone minerals, Venom and several others on it.
Currently I think if your not already in them Or if you are and re-investing dividends your fine.
You don’t mind if I add that these are going to pay variable rate profit sharing. Based on past quarters profits which are affected by the prices of gas and oil.
With you on this one, but at a lower buy in. I’d put these on a watch list.
azure, truly – that is terrific. thank you for sharing.
Yeah, I own a lot of this, too. But way more of EPD. BTW, Randa owns over 700 million of the common units of EPD in various entities. That’s good enough for my paltry (in comparison) lot.
I am camroc. 😉
JMO
Camroc, I was extremely close with Dan Duncan the founder of EPD and had Dan on my investment radio show a couple times and have incredible stories about and with him. He was one of the finest people I have ever met and I miss him terribly (passed in 2010). I do not own EPD because of it having a K1 and I’ve promised my accountant I wouldn’t buy anymore securities that throw off a K1. Be Well, A
Would you perhaps be the person that strongly recommended I-bonds back in 2000-2001 when they still had a 2-3% fixed rate component? If so, I’d like to say thanks.
AB
I too have been interested in the royalty trust area but have thought that
DMLP had greater flexibility in terms of making additional buys. As such have tended to favor it. In terms of total returns, the San Juan Trust has done very well. I do not understand it that well and there is very little coverage of the sector. Can you suggest any reading on Royalty Trusts which one might do? George Fisher on SA has done a couple of pieces which I found insightful. He thinks highly of DMLP. Thanks again for raising the topic. SC
sc4, thank you for your reply and questions. Like you, I rarely see many analysts do write ups on the royalty trust sector of the market. Sadly, DMLP throws off a K1, so I do it follow it. San Juan Basin Royalty Trust (SJT) is about 1/3 of the size of (KRP) and when I tried to do the research on SJT, found very little information that I could be confined my buying it.
Here is a list of all the K1 reporters https://www.taxpackagesupport.com/ and hopefully that will help you and others.
Wishing you all the very best for profitable investing, A
AB
Thank you for your timely reply and the suggestions which are appreciated.
I use an accountant to do my taxes and generally look at the quality of the firm and their management and if it looks good then I do not worry about the K-l. That is just my approach.
I agree that it is nearly impossible to get much data on the San Juan Trust.As a result, I have a small holding and cross my fingers. It has a high yield and that makes up for it in a way. I looked at the total returns for both KRP and DMLP and overall it looks like DMLP has had slightly better total returns as well as offering a higher yield.As such, I think I will stick with DMLP. Their payout is dependent on oil and gas prices but I tend to think that the increasing world demand for LNG is likely to support DMLP. Mind you the flow of information from DMLP is not anything to write home about.It would be nice if they communicated a bit more .
best
SC
sc4, thank you for your reply and we are hopefully all here to help each other. I will just point you to 2 statements from Kimbell:
1) The company will pay no material amount of federal corporate income taxes from 2021 through 2027 (less than 5% of Kimbell’s estimated pre-tax distributable cash flow for such years)
2) Substantially all distributions paid to common unitholders from 2021 to 2025 will not be taxable dividend income 🔥
In Latin we say, tu es magister vitae tuae
I am Azure
I literally haven’t looked at this space in well over 5 years but back then, I was interested in Canadian ATUSF. It seems to be similar to KRP and DMLP both in market cap and what they do… have you ever looked at it? A quick chart comparison using yahoo indicates ATUSF has well underperformed both KRP and DMLP YTD, but has outperformed KRP on a 5 year chart but not DMLP. Just curious if you know this one.
Azure, you have been reading my mind! I had been planning on doing a post on oil/gas, primarily royalty trusts. The thesis being that the day is coming to add an allocation to them because of upcoming shortages in oil/gas. A bit of background first. We have maintained a small allocation to oil/gas for a long time in many portfolios. For over a decade it was dead money and returned nothing. We looked stupid for owning them. This year, the sector woke from its slumber and has been a good place to be. That said, my primary case is that we will have a worldwide recession which will lower demand AND prices on the sector. If that occurs it would be the best time to re-allocate to the sector as demand will increase when the world comes out of the recession. IMO, stated differently prices in the sector will go lower before they go higher.
I think this year has convinced unbiased observers the world needs more carbon fuel sources BEFORE the big conversion to renewables. Even before the Russia/Ukraine war, oil/gas prices were headed higher. Amazing that when you price oil at NEGATIVE $37/barrel, it discourages producers in the sector. And yes, oil literally traded at that price on April 20, 2020. For a variety of reasons, many now realize there has been underinvestment in the sector for a while and is trying to catch up.
If you buy into this thesis, there are several different ways to play this sector. You can buy “integrated” companies, producers in various sizes, pipelines, royalty trusts etc. The best current independent analyst with recommendation that I know is Dan Steffens @energyprospectus.com, he publishes several different portfolios depending on your goals. The best I analyst I knew on royalty trusts was Kurt Wulff @ McDep.com, but he retired a few years ago. You can still see all of his publications and glean some useful information. Here is his last report on royalty trust that is worthwhile reading IMO if for no other reason to understand his evaluation methodology.
https://www.mcdep.com/ii181121.pdf
For income seekers like most III’ers seem to be, royalty trusts have the highest payout rates but you must understand how they work. In general you are buying a fixed amount of oil/gas in the ground and they are NOT adding additional areas/leases. So the long term value of them is ZERO after they have extracted all of the profitable oil/gas from those leases. They are a depleting asset. The question is how much they will payout BEFORE the assets are gone. Stated differently, you SHOULD not blindly buy any of them without doing more due diligence.
Tex
Thank you for the summery above which is quite helpful. Your point about
the ability to add land once a trust closes is as you suggest very important and separates the wheat from the chaff. DMLP among others is allowed to
add property and has continued to do this. That is one of the reasons that it remains very interesting. George Fisher posting on SA has written several pieces on DMLP and a couple of other trusts. They are all fairly old now but if someone wants to upgrade their understanding, some of his pieces were helpful to me. I don’t mean to promote him but he is a very clear sighted analyst. All the best. SC
Tex, I use to follow and try and communicate with Kurt Wulff @ McDep.com, he would be very hot and cold with me. He was a guest on my old investment radio show (his analysis was amazing) and then sadly he stop answering my emails. I wanted to get him on as a paid guest every month. I believe Kurt was and is brilliant, but sadly he just faded out. Most every oil/gas investment manager and institutional energy investor I knew subscribed to his newsletter.
All the very best, A
Tex, This is how to teach a kid to invest too.
Holding a segment which is beat down and beat down for awhile IS a good bet. Here’s my simpleton approach with maybe a bit of common sense. I developed this idea from wondering why john Templeton was so successful.
– Take your example of Oilys above. It got beat down and hard.
– Everyone still operates on Oil.
– Historically, Oil has been very volatile and responded back, although under varying circumstances like war, underinvestment in supply, embargoes, etc..
– Thought when it was beat down,” If I buy a sliver here and just hold, and as income builds up and it phases down again then I buy another sliver, etc four or five times. Let inevitability catch up with you. John T was no genius, he just use probability. Just look at long term charts and choose where you would have LIKED to get in (a spike bottom), usually there is a waiting period until the chart begins to jump (a heartbeat) AND there is a resting phase to make a decision AFTER a big debacle (a retracement) , wait for the smoke to clear.
-Rationale: I am no genius or an oracle. When will the price go up? I do NOT know, but that produce is still vital to the world (IE: gas and NG)
– IF at some point the price goes up to my average price. I am at breakeven. Maybe I have collected some income/divs.
– I see on the very long term charts that there has been a spike every five years or so, SO my spike is approaching although I do not know when. Patience, ignore media.
– When it goes up I need to make real trading decisions and use rote tools to place phased trailing stops, begin to phase out with sliver sales or manage selling call options to allow the position to work for ME and eventually get called at a profit (MANAGE OPTIONS key phrase).
– Dullards way of choosing stocks and sectors EXACTLY like Templeton did with emerging and global markets. Value has meaning.
-Now that I am retired, it’s harder. I can only do this with a much smaller portion of total, since my INVESTMENTS (not speculations) are my $employee$ making my money. It IS easy when you are in your 20s, 30s and 40s!
-This is so easy and simplistic, every young person should be doing this with small amounts in a ROTH, while they are allowed to. It can be managed on a quarterly basis.
-Right Now?: Is this a consideration with PMs?…sideways to down for three years, Euro div aristocrats? Income securities? Emerging Market bonds? Not anything is REALLY cheap right now (except EMB), so just wait, go fly a kite today.
I remember taking my entire bank account $7,000 and putting it in after the 87 flash crash, I was 29. It felt like a hail-mary.
Signed, Simpleton Templeton Thirdwitt.
I have been an investor in DMLP since 2006. Personally, I prefer the MLP approach to the royalties sector due to the tax advantages and will not hold it in a IRA account. DMLP has expanded its production footprint about 4 times since I started buying, each time through issuing units. Company has no debt, will not take on debt, and does not generate UBTI.
I just found this site and this is my first post. Look forward to reading more
GF
Hello George, I think I learned about DMLP through your articles over on SA.
Welcome to this site
Welcome George–good to see you here!
SJT wold not be my first choice of a royalty trust. Background on it is that it produces about 90% gas. It is rare in that it is legacy deep wells vertical drilled, not the shallow horizontal fracked wells so has a longer production life. ConocoPhillips sold it in 2017 to Hilcorp who took over and continued reworking the wells by fracking them. It is a monthly dividend payout, but the way the trust is written all expenses have to be paid before trustees are paid.
No additional acreage can be added to the trust. It is doing well now with the cost of NG and NG liquids are high.
Any thoughts on IHIT? Term CEF that matures in 14 months. Price on 9/29 = $8.02, NAV about $8.70, and inception NAV $9.82. From CEF Connect, invested primarily in BBB bonds. Maturity breakdown is about 12% in 10-15 yrs and 115% in 20-30 yrs, which I assume are T-Notes yielding about 3+%.
First saw it here about 3 months ago and picked up a small amount. Considering buying more given the 8% discount and the 14 months to maturity. I doubt they will return the inception NAV. They recently dropped their monthly div. to $0.035 (5.2% annual; $0.49 in 14 months), and the NAV has remained fairly flat since June, so they could return the NAV if they continue paying divs for a gain of ($8.70 – $8.02 + $0.49)/$8.02 = 14.5% in 14 months.
Anyone have better estimates? Thanks in advance.
I’m still in IHIT in a small way… What was interesting is how their actual projected maturities on their holdings matched up with the anticipated maturity even though it doesn’t appear to if you only look on cefconnect. Problem is I suspect that their anticipated maturities were based on anticipated prepayment amounts which probably slowed down dramatically with the huge zoom up in interest rates… That probably kills their ability to approach the original target NAV. Still I agree the discount to current NAV still makes IHIT an interesting play…. Dividend reduction is what happens normally with these term target kind of funds as they approach their targett dates, so I doubt that’s any unexpected negative… Also, although I don’t remember exactly, I suppose they have an ability to extend their final liquidation date by 6 months like so many of these do so you have to keep that in mind…. I think we’ll be OK but no home run
G2c,
How can management handle a maturity in 14 mos and then liquidate (and at what price) with 115% in 20-30 year positions, let alone the 10-15 year segment? Seems like a plane crash.
MUST have a BIG hedge or flying on a crystal ball doctrine of there WILL be a huge long term rate reversion to the down side?
Look much deeper, dyodd, at first glance and using your info it disconnects.
I think these funds can extend their maturities (and advisor fees) by vote of the Board? Look around.
Provident + Lakeland. This morning. 7.15 AM
Lakeland, 0.8319 shares of Provident
18% premium
Insurance and re-insurance are likely to be topics of conversation after Hurricane Ian strikes. It’s already been a busy year in Florida P&C. There was talk of ratings downgrades in the early Summer which caused a crisis. By June, several small private carriers were in liquidation, with others cutting back their Florida book. Citizens picked up some of their policies.
(Citizens, publicly chartered, wears a number of hats. It has a large surplus right now and a lot of reinsurance, about $13.4 billion of claims paying ability. It is sometimes called the insurer of last resort. )
There are a lot of moving parts in this industry, even discounting the upcoming storms, If you have a position in the insurers or the re’s, IMHO now’s the time to review you holdings.
Disclosure: long.
Just my opinion.
Updating: Florida regulators want to put another Florida insurer, FedNat, into receivership — the second time for FedNat (the insurance company) and the 6th Florida insurer to fail this year. An earlier rehab effort failed. FedNat( its publicly traded holding company) is off 16 pct today, trading in the pennies. It was a 26 dollar stock three years ago.
I believe they had tried diversifying away from Florida only to catch bad weather events in Texas and Louisiana. A ratings loss in April added to their problems.
From ABC News / Tampa
“The order, dated Sept. 21, states, “FedNat was deemed insolvent on September 14, 2022, because it is unable to pay its debts at they become due in the normal course of business.”
…
“Once a judge signs off on the order, policyholders will have 30 days to find a new insurance company. However, because this is taking place during a named storm, homeowners may have to wait to get a new policy. ”
While the state Insurance Guaranty Association will likely step in to assist the policyholders, it is not a good situation for anyone until the regulators sort it out. FIGA surcharges all policyholders to pay its claims costs.
IMHO, there are more dominoes to fall and Ian may well blow them over.
Just my opinion.
Dividend yield on VZ and DOW now > 6%
Also might want to keep an eye on LYB, yielding c 6.5% at 72 or so. Fwiw, still way too early to enter, just my opinion.
Tenneco gains after report banks slated to start debt sale for Apollo deal next month
https://seekingalpha.com/news/3885320-tenneco-gains-after-report-banks-slated-to-start-debt-sale-for-apollo-deal-next-month?mailingid=29134359&messageid=2900&serial=29134359.594&source=email_2900&utm_campaign=rta-stock-news&utm_content=link-3&utm_medium=email&utm_source=seeking_alpha&utm_term=29134359.594
I wonder whether or not this might actually delay the announced conditional call notice on the two TEN notes due 2024 and 2026 https://finance.yahoo.com/news/tenneco-announces-conditional-redemption-5-203000028.html “If either the Merger Condition or the Financing Condition is not satisfied or waived, Tenneco MAY ELECT to rescind the notice of redemption and terminate the redemption and return any tendered Notes of such series to the holders thereof. If the Redemption Date is extended or the redemption is terminated, the Company will provide notice to holders of the Notes no later than 5:00 p.m. New York time on the business day immediately preceding the Redemption Date (or the new Redemption Date based on any extension).” Hopefully not, however there seems to be incentive for them to do so as the premium call price goes away on 12/15
Those two floats are trading as if they are going to get called. Without that merger, I would imagine discount to par would be much greater.
You don’t mean “floats” do you? I don’t believe either one is a floating rate bond… Yes this one’s now kind of scary to be holding imho, but I am still…. After the acquisition was announced neither one of the bonds reacted in the marketplace for weeks so unlike the stock, you could buy them with no premium to the deal. I chose to buy the ’24 even though the ’26 offered better leverage to a successful buyout… My assumption was that if Apollo had enough input to want to bid twice the going rate for the stock, then they certainly had enough confidence in the company that it could last at least two years even if the merger didn’t happen, especially since they’d collect a windfall of something like $108 Mil if Apollo walked…
Fidelity actually announced the call to holders so that’s a good sign… What’s confusing right now is that Tenneco/Apollo just announced a financing effort for this deal that doesn’t even commence until 4 days after the announced call date for the bonds [https://seekingalpha.com/news/3885320-tenneco-gains-after-report-banks-slated-to-start-debt-sale-for-apollo-deal-next-month?v=1663859822#comment-93418209]. That’s confusing when you read the conditions that could possibly, but not necessarily have them reset the announced conditional call date….. It’s going to be a scary two weeks on this one for sure, especially given the size of the financing they hope to pull off….. This ain’t the best credit issue to be holding in a recession but hopefully it’ll work out one way or another – called or to maturity…… I’ve got a modest but meaningful position.
2whiteroses – Right, floats just in the sense of issue or specific series of bonds not in the sense or connotating a floating rate. I have had Tenneco bonds for a long time now and for some odd reason, out of all the junk I have, never worried too much about them. And ironically you’d have every reason to since they run on super thin margins off gigantic revenues but insane debt to cash ratio etc.
Some years ago now Apollo seemed to be frequently buying all of my junky company/bonds out. Every other month, they were doing a levered buyout. Wow I remember Hexion, Berry Plastics, Rio Tinto and some others. I miss those days profusely. A decade or so ago, Apollo was a beast. I think at one point they had secured loans in the >$10B range and was just scooping up companies left and right. Good times! Some great memories.
In my bachelor days I traded in art. At the time all I could afford was limited addition signed prints. I thought I was buying one of 500 or of a thousand. Around that time it came out as a big scandal that well known artists were releasing limited series in Europe, Japan, and America so instead of 500 it was actually 1500 or 2000 or more. The market collapsed.
I know for major companies like say BP or EXXON there are ADR’s which are backed by shares of stock. But why is a bank like VLYP going overseas to Israel to sell debt?
Charles M. Definitely key to have outside interests and pursuits vs. just markets; that sign prints collection sounds like allot of fun.
This might not add any insight on your question for VLYP but rather the genesis of it in the first place but I do believe at one point VLYP was just gobbling up smaller companies consistently. ((Other than fixed income, I do heavily track and dabble in merger arbs, so VLYP was always showing up on my radar.)) I’m pretty sure quite awhile ago they at some point acquired Bank Leumi USA from Bank Leumi, Israel physically based in Israel for partial cash/stock deal.
Figured I would post this as there is never much common stock chat here.
While I am still being cautious, I have continued to make selective buys and sells. Opportunistic buys in preferreds and started to nibble this past week on a few commons.
Again, nibble is the key word here. Just establishing a small initial position in some beaten down common stocks that pay decent dividends. These include
Insurers
SLF – yielding 5%
MFC – 6.05%
Intel – INTC – 5%
3M – MMM – 5.15%
Stanley Black & Decker – SWK – 3.8%
Watching
Eastman Chemical – EMN – 3.8%
Do your own research. These could fall further with a recession here. And I am just nibbling because I could be too early.
Some of these have their own set of specific issues. But I have always done well buying quality companies when they drop and their dividend yields rise leading to eventual nice capital gains plus the dividends. But patience is required .
In the realm of potentially being too early but also knowing I’ll always be too late to the party and too full of excuses once a rally off the bottom turns into the real thing, what I’ve done on my equity side has been to finally turn on DRIP on most issues after purposely having it turned off when the market was obviously overly frothy…. That will at least accomplish the “nibbling” idea for me anyway…. Holding steady on most of my equity positions has noticeably and painfully hurt my overall performance this year for sure, despite equities being a minor part of my overall..
Mav, is that 6 % Canadian or US on MFC, what type account are you holding?
The 6% is US on MFC. It’s in a rollover IRA so should be no Canadian withholding tax
You would have to account for the withholding in a regular account (but you would get a tax credit for it at tax time)
Maverick
Corning -GLW at ~3.5% is also worth a look.
Greg,
One that entered my mind also, but still too early unless I want a few shares to remind me to keep a watch on it.
Watch the overall cyclicals like WY, WHR, GE, SXYA when they bottom and start to head back up
I like WY but closer to 20, or WHR closer to 120
Charles,
I have a significant position in GLW (I’m originally from upstate NY) and have added on the dip. My cost is about where the price is today.
They are doing lots of good things in multiple market niches and I recommend them.
My list is somewhat different With Microsoft at about 243 today, JPM at about 112 and Taiwan Semiconductor ( which Joe Biden will personally defend in case of attack) at 77…..I still can’t get myself to top off my existing positions in these stocks.
With non-callable CDs now breaching 4% and after today’s rate hike and forward guidance primed to go higher I’m still of two minds about whether equities even have a place in my portfolio anymore over the next 5 year time period.
2Wr, Greg and Richard – thanks.
Yeah to be clear Richard, while these are new positions for me, they are quite small and I sold off some other longer term common stock holdings to buy them. Didn’t want to touch my cash I have built up and increase my common exposure – but instead rotate out of a few other common issues (STOR is one with it’s takeover offer) into these beaten down ones
I’ve been making a few bucks with FREY, rap is it’s an up and comer in large scale electricity storage battery complexes of the future. In and out on a small scale, it’s been moving up lately. Also, got out of LYB when it was still in the 90s, made good money with it past couple of years and it has now fallen to upper 70s, 6% + yield, but way too early to re-enter in my opinion. Good to see a few posts in here lately, sign of the crazy times.
Robinhood now publishes an index of its customers’ favorite stocks. The Robinhood Investor Index is weighted by sentiment or “conviction”, the percent of a stock held in an investor portfolio. The biggest surprise for me is that RH customers prefer large caps, 75% of index.
Robinhood gets in the news a lot. It caters to a younger demographic, RH investors average 31 years. 50% are first timers. It has 15 million active-monthly traders and 22 million accounts as of March.
I couldn’t readily locate the actual top 100 list, but was able to find the top ten stocks. Here’s how the RH index picks did YTD, according to IBD data.
AMC Enter (AMC) -62.4%
NIO (NIO) -31.3%
Ford Motor (F) -25.2%
Walt Disney (DIS) -24.9%
GameStop (GME) -21.2%
Microsoft (MSFT) -20.7%
Amazon.com (AMZN) -18.2%
SPY -17.71% (for reference)
Tesla (TSLA) -13.6%
Apple (AAPL) -8.0%
AMC Enter Pref (APE) -4.5%
Just my opinion.
Sitio Royalties STR and Brigham Minerals MNRL are reported to be merging, with Sitio controlling slightly more than half of the combined entity. We’ll see how the market views this deal in a few hours. Neither stock has a particularly large following.
Sitio was Falcon Minerals before its complicated merger with Desert Peak Minerals earlier this year. Falcon was IMHO unusual in that it had a shareholder friendly variable dividend policy of paying out an actual spendable cash dividend. (Disclosure: I use FLMN/STR dividends to hedge the cost of my 4WD fill-ups. This may not work for your investing program.)
Both Sitio and Brigham have been doing acquisitions this year. With oil prices bouncy recently, it remains to be seen how well the combined entity does. STR has returned 22% YTD: MNRL, 34%.
DYODD.
Just my opinion.
>We’ll see how the market views this deal in a few hours.
This was announced yesterday before the market open.
For those who may be interested, insurer Old Republic (ORI) announced special dividend, ex 8/30, something they do almost annually though irregularly. Commons popped to 24. 5 or so, has traded 21-26 range past year – https://eresearch.fidelity.com/eresearch/evaluate/news/basicNewsStory.jhtml?symbols=ORI&days=&category=&sb=&st=&san=&sc=&storyid=202208190700PR_NEWS_USPR_____NY49510
ORI is a Sock Drawer investment for me. The regular dividend at $0.92 per year equates to approximately 3.8%. The special dividend in Sept 2021 was $1.50. ORI issued a $1.00 special dividend in Jan, 2021, Sept 2019 and Jan 2018. This brings the recent total dividend to the range of 8%. Additionally, I look for a selling opportunity for ORI at $26.+ and look for a buying opportunity below $24. For what it is worth, Jim Cramer believes ORI is a candidate to be bought out.
thumbs up to Original D& Larry L, just bought a small position 250 shares @24.17 in my Ira with intent to move to my regular taxable account with a in kind distribution of some of my RMD after first of the year perfect for that strategy. Thanks guys, its now in my sock drawer also. picked up $315 steak in process
And a neat whiskey to wash it down. Bon appetit. ✌🏻
I picked up ORI in late 2020 when I heard about the special dividend paid in January 2021, thanks I’m pretty sure to someone mentioning it on this board. Have held since, no regrets.
Larry, what’s your definition of ‘Sock Drawer’? For me it means ‘set and forget’, sort of synonymous to SWAN. But your $26 sell point isn’t that far off…
Bur, Sock Drawer and SWAN are one and the same to me. I do not worry about ORI, but I monitor all of my investments. ORI does not move above $26.00 very often. But, when it does, I typically sell and look for a entry point below $24.00. I have enjoyed a lot of filets and single malt scotch off this stock in the last 2-1/2 years.
When I saw this this morning, OD, it made me wonder whether or not I should post news on WTM, another insurer, that came out today….. They announced a Dutch Auction worth $500 mil for their own shares today…. That could be for up to 12-14% of their outstanding shares.. Set range is $1250-1400 with auction ending Sept 20 and price closed last Friday at $1305. Given I have no clue how best to play this, I didn’t mention it, but WTM closed today at $1347.66. To me, it seems like a very shareholder friendly move… WTM is one of those under the radar companies frequently compared to Berkshire and is usually bunched with MKL and Y when being compared to others….. very quiet company, conservatively run… I’ve owned since 2014 and will probably do nothing…
https://investor.whitemountains.com/news-releases/news-release-details/white-mountains-commence-self-tender-offer-purchase-500-million
Hi 2WR, can’t comment really, it’s too complicated for me. I tend to play in a pretty small area within the markets where I kind of sort of know what I’m doing and occasionally get lucky. Btw, I am just about done selling out of the last of my K-1 holdings, positions I opened years ago before I understood what UBTI meant. Live and learn. Thanks for all your detailed and informative posts.
I have a question about a Dutch Auction tender offer. SuRo capital (SSSS) is offering to buy up to 2MM common shares at a price between $6 and $7. Current shares are at about $6.50. They say their last NAV was $9 and change.
They say this offer is beneficial to shareholders BECAUSE they are trading at a discount to NAV. (I have other questions related to that statement, but won’t complicate this post with those at this time)
My main question is: Why do the tender offer when they could just buy them on the open market – share repurchase? I get that buying 2 million shares in short order will have an effect on the share price, but it has been trading at this level for a while – with an average volume of 250K, so they could accomplish this within a matter of weeks without affecting the share price significantly.
Also, they talk about adding value and increasing liquidity for their shareholders by doing the tender offer. They obviously state that they think their shares are undervalued compared to NAV, so how do I see that “added value” by tendering?
What am I missing? I feel like this is more like pulling the rug out from under me than “adding value”. I have a pretty small position (125 shares) and do not plan to tender. I am just trying to get a better understanding of the methodology.
Mark – I’m kind of curious as to why you consider this having the rug pulled our from under you? As you stated, you don’t have to do anything nor does anyone else, so in a way, it seems as though what SSSS is doing is offering a fair way for weak hands to be eliminated by offering to purchase thru a mechanism that will treat all potential sellers equally while also being accretive to those who choose not to sell…. My initial reaction is that it’s a good thing all around should they actually find enough shareholders willing to sell… Their price assumptions based on the current going price certainly don’t seem to provide much incentive to participate…..
Well, I guess the pricing is what seemed like the rug pulled out. With the range of 6-7 and currently trading at $6.50 ish, and not knowing what the final buyout will be, if I was inclined to sell, I feel like I’d get a better offer on the open market. Maybe they’ll be generous and tender closer to the $7 mark, but my cynical nature makes me think it will be closer to $6.
I need to do a deeper dive into this company, but so far have been a bit underwhelmed. I will keep my common and small number of BB’s as place holders to remind me to do more research. With a share price at a 50% discount to NAV, it doesn’t instill a lot of confidence.
In the meantime, thanks for your thoughts.
I wasn’t aware of SuRo modified dutch action. I also don’t understand the offer of $6 to $7 when that is the recent price range. The only advantage I see is buying without pushing the price above $7. Any experts out there understand the strategy?
I wasn’t aware of the SuRo modified dutch action in the $6 to $7 range. I see can it would work as a buy without forcing the price above $7. I not familiar enough with this to confidently understand its purpose.
Walmart WMT reportedly just struck a deal with Paramount PARA to add its streaming services to WMT’s subscription service. PARA bested Disney and NBC Universal.
IMHO, a decent match. WMT needed to do a little something to help its subscription service other than keep its price below the Big A. PARA could use a little boost in its fight with the other streaming services. PARA pays a 3.7% divvy. WMT 2.2%
If nothing else, the match-up will result in an endless stream of woulda-coulda-shoulda articles from the stock message board pundits.
Disclosure: Watched Midway twice last week. Regular Perry Mason watcher. Free is a good price and, being a boomer from the DuMont B+W TV era, ads are okay with me.
Marathon Oil MRO Earnings Call transcript, 8/4/22
“…returning cash to shareholders…remains our top priority…”
“And the variable dividend idea is something we — it’s a tool in the toolkit. But given what I have said about how compelling share repurchases are to us right now, it’s going to just be on the back bench.”
“Here they talked of cash returns.
Here it was they lit the flame.
Here they sang about tomorrow.
And tomorrow never came.”
Continue for Sinema?
Oh my constituents forgive me
That your buybacks now are gone
“Carried Interest” can’t be spoken
But the tax goes on and on
Nothing like discouraging capital efficiency. Now instead of good stock returns driven by buybacks when prices are low, they want the companies’ stock price to languish while they waste their money on higher taxes, higher wages, hoarding cash for questionable M&A, etc. stakeholder capitalism sounds bankrupt to me.
https://ca.movies.yahoo.com/democrats-drop-carried-interest-change-024452088.html
Totally agree
EDITED BY TIM FOR DISALLOWED NASTY LANGUAGE
Blackstone would like to extend a sincere token of thanks to the Senator.
Seriously though folks.
Apollo, Blackstone, KRR — buy these suckers on any big pullbacks and thank me later.
Private equity is going to have a field day with this one.
She must have “friends” on the street, that do her “favors”, making her a “street” walker
Equitrans ETRN is trading up sharply after hours as the business press discovers what was obvious to any observer – ETRN’s stalled Mountain Valley pipeline is a likely beneficiary of new legislation coming out of Washington.
ETRN yields about 7.5% and has gone up 8% in the last 5 days. I understand its a C-Corp, which some may prefer.
Although the MV pipeline is nicely positioned, the project seems to have had delays and cost overruns. One of its partners took a large write off, $800 million. Also there was a report in Feb 2022 of adverse state decisions, North Carolina and Virginia, which federally greased skids may not overcome. There is a cash payment in lieu of fee relief that may reflected in upcoming deferred revenue guidance.
FWIW, I’m not advocating ETRN. (I follow other companies.) Juicy dividend, but DYODD and caveat emptor.
don’t go chasing ambulances body parts usually fall out.
Looks like this bear market rally is running into some resistance right at the S&P 500 4,000 level. I was hoping that if it could get above the 4,000 level it might make a run at 4,200. That might be wishful thinking. With many traders keeping a weary eye on the deteriorating Chinese economy, chances are not many people are willing to take long positions ahead of the weekend not wanting to guess what the unpredictable Chinese government might do. I cashed out of all but one of my common stock positions and have been adding, in small batches, to my short term prefs and BBs. What else could I do?
Signature Bank of New York (SBNY) is getting slammed today (-9%) after reporting record earnings for the second quarter. Hard to fathom what is going on with this one considering it easily beat the estimates. 🤔
https://finance.yahoo.com/news/signature-bank-reports-2022-second-090000749.html
From Barrons:
Signature Bank Beats Earnings, but Stock Plunges Anyway. Here’s Why.
By Luisa Beltran
July 19, 2022 11:33 am ET
.
Signature Bank SBNY – reported second-quarter results of $5.26 a diluted share, beating Wall Street expectations by 20 cents. But a drop in total deposits has caused shares to fall 9%.
Signature (ticker: SBNY) on Tuesday reported second-quarter net income of $339.2 million, or $5.26 diluted earnings per share, compared with $214.5 million, or $3.57 diluted earnings per share, for the same period in 2021. Signature had been expected to produce $5.06 a share, according to analysts polled by FactSet.
Signature’s stock have plunged 8.8%, to $178.92, in recent trading. The S&P 500 SPX +2.01% was up 1.9%.
The earnings beat was driven by a lower-than-anticipated provision of $4.2 million for credit losses and stronger fee income of $38 million, according to Stephens analyst Matt Breese.
However, Signature’s total deposits in the second quarter declined by $5.04 billion to $104.12 billion, driven mainly by a drop in client balances for Signature’s New York banking teams, which decreased by $2.4 billion, and its digital-asset banking team, which also fell by $2.4 billion, the statement said. This resulted in lower cash balances, which dropped by about 45% quarter over quarter, said Breese, adding that the decline was more than expected.
“Overall, we believe shares could be weak today on deposit flows, higher expenses and a smaller balance sheet,” Breese said in the note. He has an Overweight rating on Signature’s stock and a $415 target price.
Signature, of New York, is a commercial bank. It was one of the first FDIC-insured banks to launch a blockchain-based digital payments platform. Total assets rose nearly 20%, to $115.97 billion, as of June 30 compared with the same period in 2021. This represents a drop of 2% from Signature’s total assets of $118.45 billion as of Dec. 31.
On Tuesday, Signature said it would pay a cash dividend of 56 cents a share, payable on or after Aug. 12, to common shareholders of record on July 29. The bank said it would also pay a cash dividend of $12.50 a share, payable on or after Sept. 30, to preferred shareholders of record on Sept. 16.
Signature’s net interest income rose by 42%, to $649.1 million, in the second quarter. Analysts had expected $641.5 million, according to FactSet.
is that a cut in their preferred div??
they have been paying $.3125 per quarter
The SBNY sell-off seems like an extreme over reaction…even the analyst Barron’s quoted has an overweight recommendation and a much higher price target. Unless there is some additional bad news coming out of the earnings call this morning, I’d be a cautious buyer when the dust settles.
Squeamishness about the terms ‘blockchain’ and ‘digital asset’?
I don’t think that is the reason…for example another regional bank that deals in cryptocurrencies Silvergate Capital (SI) , has been on a tear since it reported earnings Tues morning…up double digits for two days straight.
I think SBNY represents pretty good value here…especially with that fat $12.50 special dividend being paid to record holders in mid-September.
Unless I am confused, that $12.50 is just a 5% coupon. There are 40 depositary shares per preferred share and the depositary shares are what you can buy as SBNYP.
$12.50/40 gives you $0.3125
I closed a trading position in SBNY on Friday, after buying the selloff that occurred when Signature Bank reported Q2 earnings two weeks ago. Total return ~14%. There may be more meat on this bone, but I’m satisfied to ring up a short term double digit gain in this volatile market.
I took a similar trading position in NYCB, which has now evolved into a longer term position with a solid 6.3% dividend yield. Fwiw, there are a number of other regional bank stocks that look promising in this rising interest rate environment, including PACW which I currently have a long trade on.