Tag Archives: Yield

Best In Class Dividend Aristocrat For Income Investors, Yield 6.5%
November 4, 2018 12:00 am|Comments (0)

Co-produced with Nicholas Ward for High Dividend Opportunities.

AT&T (T) has caught the eye of many income-oriented investors throughout 2018 because of its share price weakness. We have been long the stock as long-term investors and have been pounding the table due to the market’s irrational treatment of this company for a year now. We said that AT&T is cheap at these levels in the low $ 30s and that we think the Time Warner Acquisition will be a major boon for the company long term. In this regard, I personally have recently added a position recently. With all of this in mind, we thought it made sense to update on AT&T, which is yielding 6.5% after its recent sell-off.

Dividend Sustainability

The fact that the AT&T’s dividend yield is now more than double the interest rate on the U.S. 30-year bond seems to point towards the fact that the market believes AT&T’s yield is unsustainable. In short, we disagree. In this piece, we will examine the income-oriented metrics surrounding AT&T’s yield, as well as the value proposition that the shares present to investors at today’s beaten down levels. To us, the market’s current treatment of AT&T is irrational. T’s relative strength index has fallen well into oversold territory, and this treatment of the stock may be creating an attractive long-term opportunity for income-oriented investors.

We feel compelled to write this bullish report about AT&T because this is a company that so many love to hate, and honestly, we don’t see why. To a certain extent, we think AT&T has been politicized, either subconsciously or not, because of the current administration’s attacks on CNN and AT&T’s new ownership of that network via Time Warner. In this day and age, it seems that everything is overly politicized in this country. We think it is too bad. But, regardless of whether or not you watch CNN and enjoy the content it provides, the network continues to be profitable, which is what matters most for AT&T. Instead of focusing on sentiment-driven things like political opinions, we think investors are much better served focusing on T’s cash flows, its underlying fundamentals, and the valuation that its shares present.

Compelling Valuations

With this in mind, we want to highlight the fact that due to its current weakness, AT&T is now trading at valuations not seen since the trough of the Great Recession. As you can see on the F.A.S.T. Graph below, AT&T is currently trading for less than 8.8x Trailing 12 Months (‘TTM’) earnings, which is below the level that the stock hit in the spring of 2009!

Source: F.A.S.T. Graphs

We can’t rationalize that. Sure, AT&T has an enormous debt load which we will touch on, but as far as corporate outlook goes, we are not sure why the market is placing the same premium on shares today as it did when some believed that the modern financial system could potentially collapse.

On a forward looking basis, T is even cheaper. This is another reason that we believe the stock is being irrationally discounted. Analysts aren’t expecting to see a ton of EPS growth in 2019 and 2020, but they are expecting growth. This stock is being priced as if it’s going into a significant earnings recession, and that’s not the picture that the 30 Wall Street analysts who cover the company are painting. Right now, the average EPS estimate for 2019 is $ 3.61. The consensus EPS estimate for 2020 is $ 3.67. This means that the stock is trading for just 8.3x 2019 estimates and 8.17x 2020 estimates!

Recent Earnings Report

AT&T just reported its 3rd quarter results. During the earnings report and accompanying conference call, AT&T management reiterated full year EPS guidance of $ 3.50. That was slightly below the market’s expectation of $ 3.53; however, it still represents a strong, double-digit growth over 2017’s $ 3.05 figure. At this point, we think it is fair to note that not only did AT&T’s EPS increase by double digits during Q3, but sales, cash from operations, and free cash flows did as well. This $ 3.50 EPS guidance is well above the company’s $ 2.00 annual dividend, representing a payout ratio of 57% (or a dividend coverage of 174%).

Management also reiterated full year free cash flow (or FCF) guidance of ~$ 21b. This is well above the $ 17.6b of FCF that T generated in 2017. This figure is also well above T’s dividend responsibilities. In the recently reported Q3, T’s free cash flow dividend payout ratio was 56.1%. It’s worth mentioning that this ratio is lower than the 54.2% a year ago. That’s because T’s dividend related expenses growth outpaced free cash flow growth during the quarter. This large bump in both figures y/y is due to the Time Warner acquisition.

Continued Growth Moving Forward

Moving forward, we think it is likely that this trend reverses. We suspect that AT&T will increase its quarterly dividend by the normal $ 0.01/share when it announces the December dividend which should only increase the dividend expense in the low single digits while we think it’s possible that free cash flow growth at a mid-high single digit clip as AT&T further integrates Time Warner’s assets into its distribution model.

A Dividend Aristocrat

Speaking of T’s $ 0.01 dividend increase, now’s the time to mention that we’re talking about a dividend aristocrat here. AT&T has increased its dividend for 34 consecutive years! The nice thing about adding reliable dividend growth to a high-dividend yield is that investors not only receive the passive income that they’re looking for, but the purchasing power of that income stream is protected from inflation. This is why we prefer owning equities to bonds when looking for passive income. Sure, bonds offer more security, but they don’t offer protection from the erosion caused by inflation over time.

This long history of increases is yet another reason why we believe that AT&T’s dividend is safe. Shareholders, both institutional and retail, rely on AT&T for income. They have had for decades. The company knows this. And therefore, it knows well that any dividend cut would lose the faith that it has built up with the income-oriented market and cause significant damage to the stock price.

No CEO wants to be the one in charge when a multi-decade dividend growth streak is at hand. Sure, this is all speculative and isn’t back up by concrete figures, but we are fairly certain that AT&T CEO Randall Stephenson would do whatever it takes, even if that meant selling off assets, to preserve the sanctity of T’s illustrious dividend (in the Q3 conference call slide show, AT&T management notes that non-core asset sales and capital market considerations are potential options, should free cash flow not cover debt requirements, yet they made no mention of cutting the dividend).

A Closer Look at the Debt

Thankfully, the CEO shouldn’t have to come to those drastic measures as to cut the dividend. The primary threat that many see when it comes to T’s yield is the company’s enormous debt load. At the end of Q3, T reported a total debt load of $ 183.4 billion and a net debt load of $ 174.7 billion. This is a worrisome figure, without a doubt. However, roughly 90% of the company’s debt is fixed rate, meaning that the company is protected from rising rates. Furthermore, as management noted in the recent conference call, rising rates are actually somewhat bullish for the company (so long as they rise at a slow and steady rate) because rising rates decrease the company’s pension liability, which serves as a bit of a hedge against the trouble that rising rates may have on the non-fixed portion of T’s debt portfolio.

Right now, T’s net debt to pro forma adjusted EBIDTA ratio is 2.85x. The company plans to pay down debt in the short term to reduce this figure to 2.5x by the end of 2019. Management expressed confidence that they’re on schedule to do this in the recent quarterly report. They also noted that they plan on returning it to normal historical leverage ratios by 2022.

Looking at AT&T’s debt maturities, we see that the company will need to retire $ 73b of debt during the next 5 years. That seems like an enormous amount, but it’s important to realize that this company is on schedule to produce $ 21b in free cash flow in 2018, and by 2023, it’s possible for that figure to be nearly $ 30b/year.

So, as long as T’s free cash flow growth outpaces the company’s dividend growth, it seems very likely that T will be able to both continue to provide investors with a reliably growing dividend and reduce the debt on schedule. The company currently receives a BBB credit rating from Standard & Poor’s. While this isn’t exactly stellar, it is investment grade, which will help them to receive competitive rates should they have to roll over any maturities moving forward.

An Unjustified Selloff

If debt doesn’t appear to represent a dire threat, then what other reason might have caused the stock to sell off nearly 22% year to date?

In a large part, it appears to be because of the company’s exposure to the media business. AT&T has chosen to go down the path of integrating media/entertainment assets into its existing distribution system. Some (like us) view this as a bullish divergence by management. The content that T can provide with its distribution network differentiates it from its competition.

We’re living in a digital age now. The 5G revolution appears to be just around the corner which will totally disrupt the traditional media landscape. High quality streaming content will be easily accessible once the 5G infrastructure is put in place. This, alongside the rise of the “internet of things”, should create immense demand for data from the providers. We believe that this demand will commoditize data over time. As the world becomes more dependent on broadband, I can foresee a time when these providers will be regulated like the utilities are with electricity. In this situation, having a diversified revenue model and access to alternative growth markets will lead to valuation premiums. AT&T should have this with its media/entertainment content as well as the advertising platform that it is developing alongside the Time Warner assets.

Outlook

In the short term, we suspect that T’s exposure to media could continue to act as a headwind. The markets hate uncertainty, and the cord cutting phenomena is creating quite a bit of that in the media landscape. However, once that process plays itself out, we suspect that the leaders left on the playing field will be those who have the strongest content portfolios. Historically, we’ve seen consolidation happen in the entertainment industry, and I don’t think that’s going to change. Scale is important when selling advertisements and, ultimately, the brands with the largest eyeball appeal will win out.

T is well on its way to becoming one of those successful giants with the Time Warner assets, which include CNN, TNT, TBS, the Warner Bros studios, and one of the most successful over the top platforms in existence: Home Box Office (‘HBO’). With Time Warner, AT&T now has exposure to a nice variety of programmed and live television, including extensive sports rights (especially with the NBA, which is probably the hottest sports league in America with regard to growth), and major film productions. Very few media names can compete with T’s portfolio at the moment, and we expect to see it continuing to build out that portfolio over time with excess cash flows (once debt is reduced to normal levels in the medium term).

Media names are very attractive now. This is in large part due to what we call the Wall-E thesis, which is based upon the future reality depicted in the Disney animated film where it got its namesake where humans essentially sit around all day, get fat, and consume content while robots take care of them. We don’t think it will necessarily play out exactly like that, but as 5G ushers in increased automation, human society will become ever more efficient. This should lead to more free time for individuals, and that should result in increased demand for entertaining content that will fill a lot of this void. We want to own the companies who will benefit from this trend. The vast majority of them are low yielders like Walt Disney (DIS) or Comcast (CMCSA), but for those seeking high-dividend opportunities, AT&T is one of the best options out there.

Bottom Line

So, in conclusion, we think AT&T offers investors an intriguing opportunity in the high-yield space. The company is yielding 6.5%, offers a safe dividend with a 174% dividend coverage, a long history of dividend growth, showing that the company has a culture of generosity towards its shareholders, and a dirt cheap valuation. It’s rare that a single investment checks all of these boxes. The debt is the major downside to AT&T at the moment, but as discussed, management appears to have a plan to reduce it, and the company’s massive cash flows support this plan. Any equity investment comes with risk. No dividend in the market is inherently safe; they’re all at risk of being cut. However, companies like AT&T don’t become dividend aristocrats on accident and when looking for reliable high yield, we have been willing to bet a portion of our savings on this wonderful company. The recent pullback creates a unique entry point for conservative dividend investors; A high quality 6.5% yield selling on the cheap.

A note about diversification: To achieve an overall yield of 9%-10% and optimal level of diversification, we recommend a maximum allocation of 2%-3% of the portfolio to individual high-yield stocks like AT&T, and a maximum of 5% allocation to high-yield exchange traded products (such as ETFs, ETNs and CEFs). For investors who depend on the income, diversification usually results in more stable dividends, mitigates downside risk, and reduces the overall volatility of your portfolio.

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Disclosure: I am/we are long T.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Treasury Snapshot: 10-Year Yield At 2.87%
August 11, 2018 12:00 pm|Comments (0)

By Jill Mislinski

Note: We’ve updated this commentary with data through market close on 8/10/18.

Let’s take a closer look at recent activity in US Treasuries. The yield on the 10-year note ended Friday at 2.87% and the 30-year bond closed at 3.03%. The 2-10 yield spread is now at 0.26%.

Here is a table showing the yields, highs and lows, and the FFR since 2007 as of Tuesday’s close.

The chart below shows the daily performance of several Treasuries and the Fed Funds Rate (FFR) since the pre-recession days of equity market peaks in 2007.

A Long-Term Look at the 10-Year Note Yield

A log-scale snapshot of the 10-year yield offers a more accurate view of the relative change over time. Here is a long look since 1965, starting well before the 1973 Oil Embargo that triggered the era of “stagflation” (economic stagnation with inflation). Note the 1987 closing high on the Friday before the notorious Black Monday market crash. The S&P 500 fell 5.16% that Friday and 20.47% on Black Monday.

The 30-Year Fixed Rate Mortgage

The latest Freddie Mac Weekly Primary Mortgage Market Survey puts the 30-year fixed at 4.59%. Here is a long look back, courtesy of a FRED graph, of the 30-year fixed rate mortgage average, which began in April of 1971.

Now let’s see the 10-year against the S&P 500 with some notes on Federal Reserve intervention. Fed policy has been a major influence on market behavior.

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Should We Be Concerned About The Yield Curve?
July 21, 2018 12:00 pm|Comments (0)

On the latest edition of Market Week in Review, Senior Quantitative Investment Strategy Analyst Kara Ng and Sam Templeton, manager, global communications, discuss why we should pay attention to the US yield curve, President Trump’s tariff talk, and the latest corporate earnings reports.

US yield curve getting close to inverting

The slope of the US yield curve has fallen to just 24 basis points and getting close to inverting. Ng says “we should pay attention because an inverted yield curve is historically one of the best predictors of a downturn.” She notes over the last 5 economic cycles, an initial inversion preceded an economic recession between 9 and 18 months, while equity markets tend to peak about 6 months before a recession. This means there’s a large negative impact in being defensive in your portfolio too late, but also a cost in being defensive too early, and missing out on the late-cycle gains. Ng says savvy and timely investment strategy is everything. And while the slope of the yield isn’t inverted yet, it has uncomfortably flattened. She is currently expecting a recession in late-2019 or 2020, so believes it’s still too early to go completely defensive.

Should the Federal Reserve be more concerned about the yield curve?

Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee in Washington this week and didn’t express a lot of concern about the flattening yield curve. Ng says Powell was upbeat about the economy and affirmed that gradual rate hikes are appropriate; for now it’s the neutral rate he’s more focused on than the shape of the yield curve. The neutral rate isn’t something you can observe, but is the theoretical rate where interest rates neither hurt nor help the economy. Ng is concerned that the Fed hasn’t paid enough attention to the slope of the yield curve historically and has argued “this time is different” too often. She explained it contains lots of information. For example, when the 10-year rate falls lower than the current short-term rate, it may be that the market expects lower short-term rates in the future, possibly because of a future growth slowdown resulting in the Fed cutting rates to stimulate the economy. Meanwhile, she says the shorter end of the curve is heavily influenced by the current Fed policy. If the Fed raises interest rates too far above sustainable fundamentals, then the restrictive monetary policy might start a recession. Ng says not to ignore the yield curve.

Trump threatens more tariffs on China

Ng says a month ago it looked like a US trade war with China was a risk, but not our central scenario. Now, she says the odds of a full-blown trade war are closer to 50/50. Ng says the tariff announcements are probably a “maximum pressure” negotiation strategy, because the US wouldn’t benefit from closed trade. She notes a lot of the tariff goods are intermediate, not final goods. That means that those goods are an input to some final product that could be made in the US. In the short run, US companies would have trouble finding substitutes for those intermediate parts, which would hurt US businesses. Ng says to keep an eye on how consumer and CEO confidence develops given potential disruptions to global supply chains.

Second-quarter earnings

It’s still early days in the reporting season, but so far Ng says the Q2 earnings season is surprisingly strong. Only 17% of US companies have reported so far, so Ng isn’t extrapolating too much from the small sample size, but of those companies, about 95% have beat expectations. She says that’s high, especially since earnings expectations were optimistic to begin with. However, market response has been relatively muted. Ng expects the Q2 earnings season will be strong, but not as strong as the Q1 season. Some of the macro tailwinds that previously helped Q1 earnings are fading – global growth is moderating and the US dollar strengthened, which impacts US multinational companies’ earnings.

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A Discounted Backdoor Into An 18% Yield – Buyout Should Close Very Soon
June 23, 2018 6:13 pm|Comments (0)

Due to a generous 8.7% discount to its post-buyout price/unit, we just increased our holdings of Southcross Energy Partners (SXE), a smaller midstream LP, which is being bought by American Midstream Partners LP (AMID).

The deal is supposed to close by the end of Q2 2018, and it has already been approved by SXE and AMID unitholders, and has received final state approval.

Deal highlights – Among many other positive attributes, AMID’s mgt. sees this deal as being immediately accretive to its Distributable Cash Flow. This makes sense – SXE used to pay $ .40/unit quarterly, but eliminated its payout in February 2016. However, SXE generated $ 25.36M, and AMID generated $ 89.88M in DCF over the past four quarters.

(Source: AMID site)

The new entity will also have a simpler structure, with four segments: Gas G&P, Natgas Transportation, Liquid Pipelines, and Offshore Pipelines, with the offshore segment being its largest, contributing 57% of gross margins:

(Source: AMID site)

AMID Assets

AMID has significant offshore assets in the eastern Gulf of Mexico, an area which is projected to see 32% production growth over the next 3 years. Technological advances should also reduce production costs for Gulf oil.

AMID’s CEO detailed this growth on the Q1 ’18 earnings call:

“In February of this year, the Gulf of Mexico produced 1.7 million barrels per day of crude oil and 2.6 Bcf a day of natural gas. To put this in perspective, the Gulf of Mexico is the second largest crude oil producing base in The United States behind only the Permian Basin. It is producing roughly 30% more oil than either the Bakken or the Eagle Ford basins and 3 times more than the Anadarko basin, home of the SCOOP.”

“In Q1 ’18, AMID’s Okeanos pipeline had volume increases of over 10% vs. Q1 ’17, and were up 6% vs. Q4 ’18, due to additional volumes from dedicated wells tied into the system.”

AMID’s Delta House asset has been under maintenance, which has reduced its output. On the Q1 call, management pointed out that “current production is just under half of pre-maintained levels or about 55,000 to 60,000 barrels a day equivalent. However, by July, we anticipate the crude oil and natural gas volume should increase from current levels by 64% and 155%, respectively”.

In addition, AMID is receiving support from ArcLight Partners’ affiliate, Magnolia Infrastructure Holdings, LLC, “to provide additional capital and corporate overhead support to us during the first three quarters of 2018 in connection with temporary curtailment of production flows at Delta House. Pursuant to the agreement, Magnolia has agreed to provide support to us in an amount to be agreed, up to the difference between the actual cash distribution received by us on account of our interest in Delta House and the quarterly cash distribution expected to be received had the production flows to Delta House not been curtailed. Subsequent to the balance sheet date of March 31, 2018, we have received $ 9.4 million for such support”. (Source: AMID Q1 ’18 10-Q)

(Source: AMID site)

AMID has over 1,565 miles of natural gas and crude oil gathering systems, 8 processing plants with ~325 MMcf/d of capacity, 4 fractionation facilities, a fleet of 75 crude oil transportation trucks and 95 trailers, and ~20 NGL transportation trucks. Its onshore assets are located in some of the most prolific production areas, including the Permian and Eagle Ford basins:

(Source: AMID site)

(Source: AMID site)

AMID’s natural gas transmission segment has significant firm, take or pay contracted volumes in Arkansas, Alabama, Mississippi, and Louisiana, with a balanced customer mix.

Management commented upon the uptick in volume on the Q1 ’18 earnings call:

“AMID’s Southeast Natural Gas Transportation assets performed very well, establishing a new throughput record of over 835 million cubic feet a day. This segment experienced 75% growth in gross margin over 2017, as a result of the acquisition of the Trans-Union pipeline in the fourth quarter of 2017 and strong demand as a result of exceptionally cold weather across the Southeast US.”

A Backdoor Discount

SXE continues to sell at a discount to its post-buyout price, which is equivalent to .16 units per AMID unit. With AMID at $ 10.00 on 6/21/18, SXE should have been trading at $ 1.60, but it closed at $ 1.46.

Distributions

SXE doesn’t currently pay a distribution, but after the buyout, the converted SXE units will receive the same $ .4125 quarterly payout as current AMID unitholders.

At $ 1.46, SXE is trading at a post-buyout equivalent of $ 9.13, which translates into an 18.08% yield. AMID’s next ex-dividend date should be ~8/3/18, with a pay date of ~ 8/14/18:

Deal Terms

“AMID has agreed to acquire equity interests in certain Southcross Holdings’ subsidiaries that directly or indirectly own 100% of the limited liability company interests of the general partner of SXE and approximately 55% of the SXE common units by issuing 3.4 million AMID common units, 4.5 million new Series E convertible preferred units (the ‘Preferred Units’), options to acquire 4.5 million AMID common units (the ‘Options’) and the repayment of $ 139 million of estimated net debt. The Preferred Units will be issued at a price of $ 15.00 per unit and may be paid-in-kind at the AMID common unit distribution rate at AMID’s option for two years. AMID will have the right to convert the Preferred Units to AMID common units if the AMID 20-day volume weighted average price exceeds $ 22.50. The Options are American-style call options with an $ 18.50 strike price that expire in 2022.” (Source: AMID site)

There shouldn’t be any immediate threat of the Series E convertible preferreds converting into more AMID common units since they can’t convert unless AMID’s common price goes higher than $ 22.50, which is over twice its current price level.

Here’s the breakdown of pre- and post-buyout units, which will total ~63.22M after the deal goes through:

We calculated what the post-buyout distribution coverage should look like, using the combined trailing Distributable Cash Flow/Unit of both companies as of 3/31/18 vs. AMID’s current $ 1.65/year payout.

The initial post-deal coverage should work out to about 1.10X, which is what AMID’s press release listed:

“AMID expects the transaction to be single-digit accretive to DCF/unit in 2018 and 2019, approaching double-digit accretion in 2020. AMID expects to maintain a pro forma distribution coverage of 1.1 to 1.3 times”. (Source: AMID site)

Trailing Earnings

Judging by AMID’s and SXE’s trailing figures, this deal should be just what the Dr. ordered – both companies should emerge stronger as one entity.

Due to non-core divestitures, AMID has had declining DCF and distribution coverage, with coverage falling to 1.04X. EBITDA has been down slightly over the past four quarters as of 3/31/18.

SXE’s EBITDA has been just about flat, but its DCF fell -17.82% over the past four quarters.

In addition to its divestitures, AMID’s management has made a series of acquisitions in order to transform the company into a more stable cash flow model. AMID hasn’t gone to the equity markets to fund these acquisitions.

(Source: AMID site)

Valuations

The market has pressured SXE’s price/unit to an extreme point – it’s currently selling for just 15% of Book Value and .11X Price/Sales. SXE’s Price/DCF of just 2.81X is also the lowest valuation we’ve seen in many moons.

Debt

Another part of the rationale for this buyout is for the combined company to emerge with lower debt leverage. Since AMID hasn’t funded its growth via issuing more units, its debt leverage has increased:

“In conjunction with the transaction, AMID will continue executing against its stated capital optimization strategy to deliver a strong pro forma balance sheet with substantial liquidity. AMID is targeting an additional $ 400 to $ 500 million of non-core asset sales primarily related to its terminaling services segment.”

“These proceeds, incremental debt financing and modest equity will allow the combined entity to target closing pro forma trailing debt to EBITDA of near 4.5 times with a 12- to 18-month goal of near 3.5 times and target pro forma liquidity of $ 300 to $ 400 million.” (Source: AMID site)

In February, AMID announced a definitive agreement for the sale of its refined products terminaling business to DKGP Energy Terminals LLC, a joint venture between Delek Logistics Partners LP (DKL) and Green Plains Partners LP (GPP), for approximately $ 138.5 million in cash, subject to working capital adjustments. The transaction is expected to close in the first half of 2018.

AMID’s management just announced on 6/18/18 that it has “entered into a definitive agreement for the sale of its marine products terminaling business to institutional investors advised by J.P. Morgan Asset Management, for approximately $ 210 million in cash, subject to working capital adjustments. The transaction is expected to close in the third quarter of 2018.” (Source: AMID site)

We assembled this table to get an idea of how the proposed debt leverage is working out. As of 3/31/18, AMID had Net Debt/EBITDA leverage of 6.63X, its leverage was 8.03X, and the combined leverage was 7X.

In this table, we used AMID management’s Net Debt/EBITDA targets in tandem with its asset sales to see if the targets are realistic. Management is targeting annual post-deal EBITDA of $ 300M and a 12-month goal of ~4.5X leverage.

With the sale to DKL of $ 138.5M, and the $ 139M paydown of SXE’s debt, the initial Net Debt/EBITDA may be ~5.88X, which is much better than the Q1 ’18 figure of 7X.

Moving forward to Q3 ’18, with the JPMorgan $ 210M sale, the debt could reach $ 1,250.99M, with a Net Debt/EBITDA ratio of 5.04X. This is assuming a devil’s advocate scenario in which trailing EBITDA merely stays flat, at $ 248.52M, which may be too conservative seeing that mgt. is targeting $ 300M annually.

Management addressed post-deal debt and DCF on the Q1 ’18 call, asserting that it should generate $ 300M in EBITDA and hit $ 140M in DCF, which is much higher than the combined $ 115M AMID and SXE generated in the most recent four quarters:

“Following the closing of the Southcross acquisition and combined with a positive impact of recent growth initiatives, we remain on track to generate pro forma annualized EBITDA in excess of $ 300 million and approximately $ 140 million in distributable cash flow.”

It looks like the combined companies could hit that 12-month leverage target of 4.5X if they’re able to increase their EBITDA:

Risks

Debt Leverage: AMID’s 2018 Q1 10-Q states that, as of 3/31/17, its total leverage ratio was 5.23X. However, we came up with a higher figure of 6.6X. One of the distinctions that management makes is not counting non-recourse debt in its presentations – it refers to “compliance leverage”:

(Source: AMID 2018 Q1 10-Q)

Moody’s downgraded AMID on May 4, 2018, but note the reference to the financial support from ArcLight Partners:

“Speculative Grade Liquidity (SGL) Rating to SGL-4 from SGL-3. Other ratings remain on review for downgrade. The downgrade of the liquidity rating to SGL-4 reflects deterioration in liquidity and Moody’s expectation that AMID will have weak liquidity over the next 12 months as the partnership continues to rely heavily on its revolver while executing on aggressive growth strategies and repositioning of its asset base”.

“The SGL-4 liquidity rating reflects Moody’s expectation that AMID will have weak liquidity over the next 12 months. At year-end 2017, the partnership had $ 9 million of cash and only $ 48 million available under its $ 900 million revolver. Financial covenants limit access to less than the full revolver which expires in September 2019. ArcLight intends to support the partnership through April 2019 to comply with its financial covenants, if necessary. Also supporting the partnership’s liquidity is its ability to monetize assets. Moody’s notes that the partnership anticipates it will close on the sale of its refined products terminals during the second quarter of 2018 for $ 138.5 million (subject to working capital adjustments).” (Source: Moody’s)

Deal Execution – There’s always a chance that the buyout won’t go through. However, it has been approved by both boards, by the unitholders of both AMID and SXE, and 4/10/18 they received the final state-level regulatory approval for the merger. On the Q1 ’18 call, management said that “at this time, we expect to close this transaction during the second quarter.”

Summary

We increased our holdings of SXE, based upon the current post-buyout price discount, and the very attractive 18% post-buyout yield. Another plus is that a very supportive, veteran energy investing firm, ArcLight Capital Partners, owns ~27% of AMID’s units.

(Source: AMID site)

All tables furnished by DoubleDividendStocks, unless otherwise noted.

Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

Disclosure: I am/we are long SXE, DKL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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AT&T: The 6% Yield Window Is Closing
June 12, 2018 6:00 am|Comments (0)

Without doubt AT&T (T) has been generating substantial income for dividend investors. Equally indisputable is the fact that the development of the stock price has been consistently and greatly lagging the overall market. More importantly, with AT&T trading 15% below its 52-week high investors, in the worst case scenario, would currently require around three full years of dividends to just compensate for the capital loss.

The number one rule in investing is always to at least preserve capital and while a 6% yield looks good on paper it does not help if your principal declines almost three times more.

Chart T data by YCharts

I have been caught on the wrong foot with AT&T as well as I quickly grew it into my largest portfolio position, both in terms of income and capital, as I focused too strongly on the former. It’s mind games here. With AT&T paying such a high yield you can easily get double and triple-digit income per quarter with relatively little capital which in turn motivates you to invest even more. What is largely neglected at this stage is that as the yield increases and reaches the illustrious 6% barrier this is also means that the markets place higher risk into the stock.

However, despite all the capital losses I have incurred (but not realized) so far, the stock’s current yield could still be a great long-term opportunity provided the outlook is not as bad as expected. Now that the Time Warner (TWX) trial is approaching its end (outcome remains as uncertain as always) and the proposed Sprint (S) and T-Mobile (TMUS) deal also receiving regulatory scrutiny, this 6% yield window is closing with the stock now trading below 6% for the first time in almost two months. Let’s review the investment case for a dividend investor.

What is going on at AT&T?

Source: AT&T Investor Relations

The stock is currently trading at a lackluster 7 times earnings implying almost no growth whatsoever as the company finds itself right in the middle of a complex and challenging business setup.

The outcome of the Time Warner trial, which is expected to close this week on Tuesday, has been lingering over the stock and the company like a Damocles sword with investors fearing the excessive post-merger debt load of AT&T in a hawkish interest rate environment but equally expecting that AT&T needs some sort of vertical integration in order to compete with one of its fastest growing competitors Netflix (NFLX). Regardless of the outcome investors react as if AT&T will lose either way. Also, if the trial does not get approved AT&T will have spent hundreds of millions on lawyers, bankers and penalty statements and even worse it will cast a big shadow of doubt across the entire M&A sector in a Trump-led U.S. administration.

It is highly subjective to speculate on the stock’s reaction to whatever decision is being taken but given Time Warner’s booming business and vertical integration opportunities I am certainly rooting for the DoJ to approve this deal. Everything else, not only for AT&T but in general for the M&A landscape, should be rather detrimental. AT&T is not building a monopoly here but simply complementing its very own chain of distribution with very useful content.

Speaking in terms of Time Warner, the company is really rocking. Revenues are up 9% in the fourth quarter and EPS came in at $ 1.60. That strong revenue growth was driven by all segments with Turner up by 22%, HBO up by 13.3% and Warner Bros. growing 10.8%. This has been of the strongest quarters for Time Warner and bodes extremely well for AT&T should the acquisition get approved.

In fact, despite the seemingly high acquisition price of $ 85B, Time Warner could be worth much more given that despite that impressive growth it is only valued at 14 times sales. On top of that Time Warner also generated strong FCF of $ 4.4B.

It will probably be painful to watch the court’s decision and investor’s reaction to the verdict but it should help the stock thereafter, possibly after some sort of algo-driven panic sell-off, as uncertainty decreases and the focus returning to fundamentals.

Speaking of fundamentals the first quarter of 2018 was a big disappointment with revenue missing by a whopping $ 1.27B. Following the completion of the costly DirecTV deal AT&T has grown its top line by more than $ 30B over the last 8 years but organically growth has been virtually flat. In terms of profitability AT&T has been able to post the obligatory $ 0.01 to $ 0.03 EPS increases which helped raise its dividend by $ 0.04 per share. However, cord-cutting has been a major issue for the company. Its customer base is growing strongly every quarter but so far this growth has come at the expense of cannibalizing customers with a higher customer lifetime value. In Q1 187,000 in the higher-margin linear video business were lost whereas AT&T added 312,000 in the OTT video segment yet overall its margin still declined by roughly 1pp Y/Y or around $ 1B in sales.

You don’t have to be an expert to recognize this setup is losing money right now but whether it is still a “LOSE” or rather a “WIN” over the long-term is a completely different question. In an earlier earnings call from last year management stated the following on that:

Our wireless customers are really valuable in the extension of their life through the lowering of their churn, and the ability to get entire families or entire groups of phones is really important to us. And so we strongly believe that that is value-accretive to the total operations of the total organization, and we monitor it on a very regular basis.

Source: AT&T Earnings Call Transcript – Q3/2017

What could be even more value-accretive is how millions and millions of connected cars may lead to higher sales.

So we have millions and millions of connected cars out there, over 10 million connected cars out there. So we built this platform, and those are down in our Internet of Things in our connected device category.

But now what we’re finding is that 65% of the people who drive cars aren’t our wireless customers, so we’re finding a real opportunity to connect tens of thousands of those, almost 100,000 this quarter, with a prepaid offering to the connected car. And when they do that, they will pay us. It’s not a $ 4 or $ 5, it’s a $ 15 or $ 20 connection. And so it not only gives us a really great revenue opportunity and high margin, and that’s a lot better than a resale opportunity at a much lower, but it’s also an opportunity to show them what we can do and then potentially get the rest of their wireless business or get the rest of their video business.

Source: AT&T Earnings Call Transcript – Q3/2017

This is a tremendous opportunity that so far I believe has been more or less completely overlooked by the market which gets easily caught up on sequential and Y/Y comparisons. While that might be important for traders, for long-term investors, it is just noise to be ignored.

An Income Strategy Session

Now that the stock is trading at a 5.9% yield as of its close, long-term oriented investors should really welcome that opportunity to add to their position. In essence, if you are a long-term investor, this is exactly the kind of market reaction you would like to see. It allows you to lower your cost basis while the business is making the necessary transformation steps towards the future. The day-to-day noise with heavily followed stocks like AT&T is tough to ignore, and it may be one of the most difficult challenges to have the conviction to hold and add to your position in these times.

To help cope with these unrealized losses, investors should take a step back and concentrate on the bigger picture. Long-term investors know how powerful dividend reinvesting really is, but in the heat of the moment, it is only natural to temporarily blend this out. If we project the 5-year returns with reinvested dividends of an initial $ 5,000 investment in AT&T at $ 33.83, we end up with the following metrics:

  • Initial investment: $ 5,000 @5.9% yield assuming 2% dividend growth, 15% tax rate, quarterly reinvestment, 0% stock price appreciation, purchases of partial shares
  • Investment value after 10 years: $ 12,243 or an almost 144% gain with the respective yearly net dividends depicted below, thereof $ 3,624 in net dividends and $ 3,619 worth of additional stock from reinvested dividends.

After 5 years the net YoC has already risen to above 6% and after 10 years it has almost reached 10%. This is a very conservative scenario as it does not factor in any stock price appreciation and only minimal dividend growth. In that scenario CAGR would only be 10.5% and is basically a worst-case scenario given that it is unlikely that T’s stock price will remain flat over the next 10 years. And even if it does it is a great way to accumulate reliable and substantial income for long-term oriented dividend investors.

Assuming the stock appreciates by 5% every year over the next ten years with all other parameters being unchanged we would end up with the following metrics:

  • Investment value after 10 years: $ 15,899 or an almost 218% gain with the respective yearly net dividends depicted below. The total returns breaks down into $ 3,457 in net dividends received, $ 4,298 worth of additional stock from reinvested dividends and $ 3,145 worth of stock appreciation on initial investment. Naturally, as the stock prices rises the yield declines and as such quarterly reinvestment of dividends yields lower net YoC compared to the upper scenario. However, capital appreciation vastly overcompensates this effect.

If you want to easily run these calculations on your own, I’d be happy if you try out this Excel-based long-term dividend projection calculator.

Investor Takeaway

I am still bullish on the stock but as mentioned in a previous article have become a little bit more cautious as well as both the outcome of the Time Warner trial and AT&T’s ambitious 2018 FCF guidance have potential to further weaken the stock.

Still, over the long-run, as the two calculations above show, the prospects are very promising provided investors remain patient and not get overly obsessed about short-term fluctuations. You will probably not get rich with AT&T anymore but you can build up a growing stream of reliable and substantial income over time. Starting with an almost 6% yield appears to be a good opportunity to start and continue this journey.

For investors having been invested into the stock in the mid-to-high 30s patience is required even more but first one has to make up one’s mind as to what one expects from this investment. If you are expecting market-like or even market-beating returns in this environment you should definitely look elsewhere. If you treat the stock as one pillar of your portfolio targeted to generate reliable income this is the highest-yielding Blue Chip stock in America and based on market cap alone probably also around the world.

The 6% yield window of opportunity could close any time and if it does you may have to wait a very long time to get that opportunity again.

What do you think about AT&T and its prospects? Are you investing more on recent price weakness, holding your position or selling out and moving on to other investments?

If you enjoyed this article, the only favor I ask for is to click the “Follow” button next to my name at the top of this article. This allows me to develop my readership so that I can offer my opinion and experiences to interested readers who may not have received them otherwise. Happy investing.

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Disclosure: I am/we are long T, TWX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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A 10% Yield, 11 Straight Hikes, No K-1, IDR Swap Deal Coming In Q2, Goes Ex-Dividend Soon
April 14, 2018 6:07 pm|Comments (0)

Looking for a new deal? In MLP land, there have been a few GP/Yieldco consolidations over the past few months, and we just came across another one, which looks rather interesting for income investors.

Tallgrass Energy GP LP (TEGP) is the parent/GP of Tallgrass Energy Partners LP (TEP) and has interests in a group of energy-related entities. On 3/26/18, TEGP announced a merger with TEP, in which TEP unitholders will receive two TEGP units for each TEGP unit they own.

TEGP’s earnings are virtually synonymous with TEP’s, which stem from midstream operations in the western U.S.

(Source: TEGP site)

Tallgrass Energy GP LP, through its interests in Tallgrass Equity LLC, provides crude oil transportation services to customers in Wyoming, Colorado, and the surrounding regions of the United States. The company operates through three segments: Natural Gas Transportation; Crude Oil Transportation; and Gathering, Processing & Terminalling.

Tallgrass owns and operates more than 6,700 miles of natural gas pipeline and about 760 miles of crude pipeline across a broad portion of the U.S. It also has one of the industry’s leading water reclamation programs situated in close proximity to producers. (Source: TEGP site)

To say that the Tallgrass corporate setup was complex would be an understatement – trying to decipher this setup reminded us of those Franz Kafka novels we read in English Lit. 101:

(Source: TEGP site)

This is one of the reasons that management is doing this merger deal – to simplify the group’s structure for investors, in addition to reducing its cost of capital:

(Source: TEGP site)

As mentioned above, TEP unitholders will receive two TEGP units for each unit that they own. In addition, management raised TEGP’s quarterly distribution to be exactly half of TEP’s, so there will be no distribution loss to TEP unitholders.

Tallgrass Energy Partners LP will be merged into a new entity, Tallgrass Energy LP, which will trade on the NYSE under the ticker “TGE.”

The new entity will be taxed as a C-Corp, which eliminates K-1 hassles for investors, and can give the combined companies broader market exposure.

The deal has already been approved by the boards of both TEGP and TEP, in addition to the TEP conflicts committee.

(Source: TEGP site)

On the Q4 ’17 earnings call, management referenced the fact that there’s a potentially valuable tax shelter available for the company.

“TEGP has a deferred tax asset of $ 313.0 million which is the expected tax benefit of available future deductions that offset future taxable income. It is currently expected that no cash taxes will be paid by TEGP for a period estimated to exceed 10 years”.

However, it’s uncertain if regulators will allow the new entity to use this asset or not.

Distributions

Here’s how the upcoming May distributions look for TEGP and TEP.

TEGP increased its quarterly payout by 37%, from $ .3675 to $ .4875, and was currently yielding 9.87%, at a price/unit of $ 19.75, as of 4/12/18 intraday. TEP’s distribution is $ .975, (2x TEGP’s). Both payouts go ex-dividend on 4/27/18.

Both companies have good quarterly distribution hike streaks going – TEP has raised their payouts for 19 straight quarters, while TEP has an 11-quarter streak.

We’ve added these two tickers to our High Dividend Stocks By Sectors Tables, in the Basic Materials section.

Arbitrage anyone? Unlike many mergers, in which the acquiring company pays a fixed price/share for the target company, this one is based upon a 2X multiple of the buying company’s price, TEGP, which arbitrage players may want to try to profit from. As of 4/12/18 intraday, there was a -$ .30/unit variance between the two unit prices, including the effect of the upcoming distributions:

Earnings

The yieldco, TEP, had huge growth in 2017, as new assets kicked into earnings. EBITDA rose 57%; DCF grew 50%; and revenue grew a more modest 7%. Management continued raising the quarterly distributions, which grew 20% in 2017, while TEP’s distribution coverage improved by 16%.

You can see part of the reasoning for the merger in the GP Interest & IDR payout figures below. These payouts grew by 43% in 2017 and were ~24% of TEP’s DCF. The total distributions payout was ~$ 563M, which should decrease after the elimination of the GP and IDR payouts post-merger.

Looking back further, it’s clear that TEP has produced some outstanding results, with EBITDA growing by over 6X from 2014 to 2017:

(Source: TEGP site)

This filtered into the Tallgrass group’s earnings:

(Source: TEGP site)

This is what supported all of these distribution hikes for TEP, which had a CAGR of 31% since 2013:

(Source: TEGP site)

Analyzing the Deal

Here’s how the merger shakes out, if management leaves the new entity payout at $ .4875/quarter, ($ 1.95/year). There will be 152.2M publicly held units and 126.7M LLC equity exchanged units, which would receive a total of ~$ 546M in annual distributions:

Can they afford to pay $ 1.95/year to all of those units? Management guided to a range of $ 755-835M in adjusted EBITDA for the new entity, with a coverage ratio of 1.20x or better:

(Source: TEGP site)

They had slightly different guidance figures on the S-4 document for this deal – $ 807M for adjusted EBITDA, and a DCF figure of $ 662.00 for 2018.

(Source: TEGP S-4 2018)

We looked at it three ways, using low, high, and S-4 guidance figures. Since there wasn’t a DCF figure given in the deal presentation, we used a 90% multiple of EBITDA guidance, (which is the same as 2017’s ratio), in the low-end and high end columns.

As the merger presentation stated, the new entity should have solid distribution coverage:

On the low end, using a $ 1.95/unit annual payout, the new entity would have coverage of ~1.24X. The high end coverage would be ~1.20X, if management raised the distribution to $ 2.24/year (which they haven’t stated as of yet).

If they hit the high end of their EBITDA target, and DCF is 90% of it, and they leave the payout at $ 1.95/year, their coverage would be a very robust 1.38X.

Using the S-4 doc’s guidance figures of $ 807M in EBITDA, and $ 662M in DCF, we inferred that coverage would be ~1.21X, if the distribution was $ 1.95/year for the new entity:

A good part of TEP’s EBITDA stems from unconsolidated investments. In 2017, TEP received $ 306.6M from these sources, which include the Rockies Express and the Pony Express Pipelines:

(Source: TEGP site)

Here’s a look at the 2015-2017 income statements for Rockies Express Pipeline LLC, often referred to as “REX” in the company docs. After a revenue and operating income dip in 2016, REX came roaring back in 2017, with revenues up 18.7% vs. 2016, and up 8.7% vs. 2015. Operating income also bounced back, rising 36% in 2017 vs. 2016, and 10.8% vs. 2015:

(Source: TEGP 2017 10K)

Risks

Deal Execution

TEP unitholders must approve the deal. However, Tallgrass Equity owns ~35% of the TEP units, so the deal should go through. The TEP and TEGP boards, and the conflict committee also already approved the deal. The other holdup might be regulators, but as of yet, we’ve heard no negative news about this.

New Entity Debt Load

The new entity would own 75% of Rockies/REX, so we took a look at how the combined debt loads of TEP, TEGP, and REX would affect the new entity’s debt leverage and interest coverage.

Both TEP and REX had good interest coverage in 2017, at 8.12X and 5.48X, respectively. The new entity would have ~3.6X interest coverage, based upon 2017 figures, which, of course, will change. It’ll be lower coverage, but still reasonable.

They also had reasonable debt leverage of 3.17X and 2.76X, respectively, which is roughly in line with other midstream companies we follow. (See Financials section for more on this.)

The new entity’s Net Debt/EBITDA leverage looks like it’ll range from ~5X to 5.6X. The company’s 10-K mentioned that there’s an upper end limit of 5.5X leverage. Timing is often tricky in these deals – the new entity may experience higher levels of leverage initially for 1-2 quarters, depending upon when the deal is finalized. However, it doesn’t appear that operations management will be changing, so that’s an advantage.

Management also mentioned on the earnings call that,

“REX’s board has agreed to repay the July 2018 maturity of $ 550 million. At TEP and Tallgrass equities current ownership that will amount to approximately $ 275 million and $ 137.5 million, respectively. This debt reduction will further strengthen REX’s balance sheet for the long-term and should be the next step towards returning REX to an investment grade pipeline. The less interest at REX is paid at the entity, the more cash there is to distribute.”

Other Developments

On the earnings call, management detailed several new growth projects:

On January 3, we announced an agreement to buy 51% interest in the Pawnee Terminal from Zenith Energy from $ 31 million and also announced the acquisition of a 38% interest in Deeprock North for $ 19.5 million. This past week TEP announced the acquisition of water infrastructure assets in the Bakken for $ 95 million, a prime customer there being XTO with an additional $ 45 million of capital expenditures expected.

We also announced the formation of a joint venture in the Powder River basin with Silver Creek midstream for the development of the Iron Horse crude oil pipeline. Iron Horse will transport crude oil from the PRB to Guernsey and then on into Pony Express. We expect to invest approximately $ 150 million into the joint venture and its associated Guernsey terminal.

Analysts’ Estimates And Price Targets

TEGP has received some upward earnings estimate revisions over the past month, as details of the deal were digested. 2018 estimates rose from $ 1.30 to $ 1.44, while 2019 estimates rose from $ 1.25 to $ 1.61.

(Source: Yahoo Finance)

At $ 19.75, TEGP is ~23% below analysts’ average price target, and ~42% below the $ 28.00 highest price target:
Performance

TEGP (candlesticks) and TEP (lavender line) are both down in 2018 but have moved higher since the March 26th merger announcement.

Options

Two other strategies to potentially profit from the merger deal, on a short-term basis, are selling covered calls and/or cash secured puts.

If you want to be aggressive but still get a lower breakeven, this in the money May put trade offers a $ 1.25 bid premium, roughly 2.5X TEGP’s $ .4875 quarterly payout, with a breakeven of $ 18.75.

Our Cash Secured Puts Table can give you more details for this put trade and over 25 other put-selling trades.

Conversely, you could hedge your bet by buying TEGP and selling covered calls against your units.

We’ve added this July trade to our Covered Calls Table, which tracks over 25 covered call trades on a daily basis. With the heightened volatility in 2018, we’re finding higher option premiums, which help to hedge vs. price declines.

The July at the money $ 20.00 call strike pays $ 1.20/unit, for an annualized yield of ~22%.

Here are the 3 main profitable scenarios for this trade:

  1. Static, in which TEGP doesn’t rise to or above $ 20.00 near the ex-dividend date or the expiration date, and you keep your TEGP units. In this instance, you’d collect $ 1.69/unit, the combination of the option $ and the distribution.
  2. Assigned pre- ex-dividend date. You’d collect the $ 1.20 option premium, and $ .25, the difference between TEGP’s $ 19.75 price/unit and the $ 20.00 strike, but no distribution.
  3. Assigned after the ex-dividend date. You’d collect all three profit streams, for a yield of 9.81% in this 100-day trade, or ~35% annualized.

You may be wondering why we didn’t detail selling options for TEP. The problem is that, since TEP’s eventual buyout price is tied to 2X TEGP’s price, you could end up with a downdraft once you buy TEGP. We’ve been down that road before, and it wasn’t pretty.

Since you’ll end up with TEP’s assets anyway, we prefer to own TEGP. Although the conventional wisdom is often to short the acquiring stock, and buy the target stock, we don’t feel that this will work in this case.

Valuations

Since it’s TEP’s earnings and operations that are mainly driving the Tallgrass group, we compared TEP’s valuations and yield to those of other midstream high-yield stocks we’ve covered in other articles. These include DKL Logistics Partners LP (DKL), Summit Midstream Partners (SMLP), Holly Energy Partners, L.P. (HEP), MPLX LP (MPLX), PBF Logistics LP (PBFX), Martin Midstream Partners L.P. (MMLP), and Green Plains Partners LP (GPP), Energy Transfer Partners LP (ETP), and Williams Partners LP (WPZ).

in 2017, TEP had far and away the best distribution coverage, at 1.47X. As detailed above, the new entity, TGE, will probably have coverage of ~1.20X, which is in line with this group’s average. TEP’s Price/DCF of 7.41X is lower than the group’s 8.82X average, as are its Price/Book of 1.97X, and its EV/EBITDA of 7.54X:

Financials

TEP’s Net Debt/EBITDA of 3.17X is the second lowest in this group, and its ROE and Operating Margin are above average. Its Debt/Equity leverage is also better than the group average.

Debt And Liquidity

On the Q4 earnings call in February (which was prior to the merger deal announcement), management detailed TEP’s liquidity status, as of 12/31/17:

At the end of the fourth quarter, TEP had nearly $ 1.1 billion of liquidity available on its revolver. TEP’s leverage as of quarter end was approximately 3x based on the trailing 12-month adjusted EBITDA as calculated according to our credit agreement provisions. As you know, this continues to be on the low end of our 3x to 4x long-term leverage target indicating ample leverage capacity at TEP to fund third-party acquisitions, organic growth projects, and TEP’s share of REX’s July 2018 debt maturity of $ 550 million.

Summary

We rate TEGP a buy, based upon its attractive, well-covered and improved yield, its sound management, and the oncoming merger deal, which will lower the cost of equity, and its ultimate overall organizational simplification – it’ll remain a C-Corp as the new combined entity, with no K-1 hassles for income investors.

All tables furnished by DoubleDividendStocks.com, unless otherwise noted.

Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

CLARIFICATION: We have two investing services. Our independent, legacy site, DoubleDividendStocks.com, has been specializing in increasing yields via selling options on quality high dividend stocks since 2009. Option yields have improved a great deal in 2018, due to higher market volatility.

Disclosure: I am/we are long DKL, TEGP, MMLP, PBFX, ETP.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Posted in: Cloud Computing|Tags: , , , , , , , ,