Valuentum Exclusive Analysis for the Discerning Investor

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Oct 23, 2023

Kinder Morgan Now Covers Cash Dividends with Traditional Free Cash Flow
On October 18, Kinder Morgan reported third-quarter results that came in lower than expectations, but we’ve taken note of the company’s improved free cash flow generation that now runs in excess of its cash dividends paid, a huge change from a decade ago, where capital spending and cash dividends paid far outweighed its operating cash flow capacity. The company’s dividend stands at $1.13 per share on an annualized basis, and Kinder Morgan now has an forward estimated dividend yield of ~6.7%, which is quite attractive. Shares are trading meaningfully below our estimate of their intrinsic value, too, and we’re warming up to the company’s financials. Its net debt position likely precludes it from being added to any simulated newsletter portfolio at this time, however. Our $21 per-share fair value estimate remains unchanged.

Oct 3, 2023

We Like NextEra Energy’s ESG Focus But Capital Market Conditions Now Showing Cracks
Image Source: NextEra Energy. NextEra Energy operates a complex business structure, and the firm’s equity is facing pressure on news that its subsidiary NextEra Energy Partners is cutting its distribution per unit growth rate to the range of 5%-8% annually through 2026, which is materially below its prior expectations of growth in the 12%-15%. Since most partnerships are owned primarily for their distribution yields, the revision has sent units of NextEra Energy Partners tumbling, hurting its partner along the way. The news, while not tragic, wasn't very welcoming, and reading between the lines, it appears that we’re starting to see some cracks in the capital markets, as most partnerships are debt-heavy, relying on continuous, affordable access to the capital markets to fund and grow their operations (distributions), which isn’t guaranteed.

May 17, 2023

Magellan Midstream Soars on Takeout Deal
Image: Magellan Midstream Partners soars on a takeout offer from ONEOK, Inc. We’re as happy as we can be to see a midstream energy master limited partnership (MLP) takeout. On Sunday, May 14, it was publicly announced that Magellan Midstream would be bought by ONEOK, Inc. in a cash and stock deal worth ~$18.8 billion including assumed debt. According to the deal terms, the transaction would give $25 per share in cash and 0.667 common share of ONEOK for each MMP common unit. Though many are questioning the rationale behind the deal, energy infrastructure rollups continue to reduce the number of energy MLPs trading on public markets, as we predicted years ago.

Mar 23, 2023

The Dividend Cushion Ratio: Unadjusted Is Less Subjective, Adjusted Is More Subjective
Image Source: Mike Lawrence. Question: I'm a subscriber. I'm looking at your Dividend Report for Enterprise Product Partners. It says your Valuentum Adjusted Dividend Cushion ratio for EPD is 1.8 (a ratio that includes future expected proceeds from capital raising endeavors in the coming years), but several lines below it says the Unadjusted Dividend Cushion ratio, which is your regular normal ratio (a ratio that does not include future expected proceeds from capital raising endeavors in the coming years), is 0.22. Please explain the difference between the two ratios, and what is considered a good ratio for the Unadjusted Dividend Cushion ratio, what is an excellent score, what is neutral and what is poor? Also, how much relative importance should I give to each ratio? Also, further down in the section on Unadjusted Dividend Cushion, the chart of EPD has a large negative number in the blue bar, and your text says: "Generally speaking, the greater the 'blue bar' to the right is in the positive, the more durable a company's dividend, and the greater the 'blue bar' to the right is in the negative, the less durable a company's dividend." So that means that EPD's dividend isn't durable, yet your report earlier says that EPD's Dividend Safety rating is GOOD. Can you elaborate?

Jan 20, 2023

Energy Pipelines: What a Difference A Few Years Have Made!
Image: Midstream energy companies have significantly improved their free cash coverage of their payouts in recent years. We’ve taken note. Source: Relevant 10-Q filings. We can hardly believe how much better things are looking for midstream pipeline companies these days, particularly as it relates to free cash flow coverage of their payouts, but also as it relates to improved financial transparency. Many midstream MLPs continue to be saddled with huge net debt positions, but what a difference a few years have made! Capital discipline is making their dividends/distributions incrementally more attractive, and we’ve taken note.

Dec 22, 2022

Be Careful With Celebrity Endorsement of Investment Products
Image Source: EpicTop10.com. Have you ever wondered why so many trust the TV for financial advice or stock tips? You guessed it: It comes back to "brain science" or the concept of familiarity. When we see a celebrity or our favorite stock guru on the television, it arouses our emotions and connects us with the idea, making the experience more memorable. The brain tends to treat our favorite newscaster or celebrity as a trusted, familiar friend, and therefore we translate those feelings into expertise and a "valid" endorsement. Be sure to use caution with celebrity endorsements of investment products, however.

Nov 13, 2020

Dividend Increases/Decreases for the Week November 13
Let's take a look at companies that raised/lowered their dividend this week.

Oct 27, 2020

Energy Transfer’s Dividend Cut Not Enough, Needs to Slash It More
We expect another distribution cut from Energy Transfer in the not-too-distant future. Its traditional free cash flow generation is still too meager to cover its now-reduced distribution level, and the energy markets are simply not cooperating. The energy sector has been among the worst-performing equity sectors for some time now, and investor appetite for new equity and debt issuance is waning as return expectations are ratcheted down in a troubled energy resource environment. We expect more pain to come for Energy Transfer’s stock. Our fair value estimate stands at $4 per share.

Sep 10, 2020

High Yield Dividend Income Investing in a Time of Need
Image: EpicTop10.com. The skills to successfully invest for long-term capital gains or long-term dividend growth are much different than those required for generating high yield dividend income. Income investing is a much different proposition. However, the skills do center on a similar equity evaluation process, but one that requires an acknowledgement and heightened awareness of considerably greater downside risks. Income investing, or high yield dividend income investing, should at times be considered among the riskiest forms of investing, as many high dividend-yielding securities tend to trade closer to the characteristics of junk-rated bonds than they do most net cash rich and free cash flow generating powerhouses that we like so much in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio.

May 8, 2020

Dividend Increases/Decreases for the Week Ending May 8
Let's take a look at companies that raised/lowered their dividend this week.