What really matters each quarter
A company only reports earnings once a quarter and has the opportunity to raise its distribution, typically, once a quarter. Focus on what matters. Outside of these key events, prices will fluctuate.
Earnings
The end of a quarter is always exciting. For three months, the market goes up and goes down on opinion on value, often with no impact on the distribution to the shareholder, often with a lot of speculation, and often with a lot of reliance on the prediction of what growth will be in the future.
To us, an end of a quarter means being closer to those distributions again and those distribution announcements that sometimes means an increase in distributions. For example, see Enterpise Product Partners distribution announcement, a 5.3% increase compared to the same period a year ago. press release
Below are three companies we are monitoring for their acceptable debt levels, consistency in revenue, and fair valuation compared to their yield.
| Ticker | Earnings Date | Distribution Date | Result |
|---|---|---|---|
| OKE | 10/31/2023 | ||
| EPD | 10/31/2023 | November 14, 2023 | Acutal 5.3% increase |
| ET | 11/1/2023 | Expect 3-5% annual increases |
What is the expectation here? While it would be great to see more distribution increases, the timing of announcements depends on the firm. Based on Energy Transfer’s press release last quarter, the timing of the press release scheduling the earnings call was about two (2) weeks in advance of the distribution announcement, which last time had a slight increase.
News
OKE bought MMP Oneoke, a corporation, bought Magellan Midstream Partners, a master limited partnership. The merger was approved by both entities’ shareholders on September 25, 2023. We shall see what that means for distribution increases. Summary statistics for OKE below:
- 50,000 miles of pipelines
- Access to 50% of Refining in Lower 48
- Aside, Mont Belvieu 5 Fractionator is supposed to come online in Q3 and add >10% of its NGL capacity.
- Pays a 6% Dividend, PE < 12, 70% Distributed to Shareholders
- Trailing 5 years, ~3% increase in dividends from $0.825 a quarter to $0.955.
Notes on Energy - Politics Impact
- Refining Capacity is a chock point.
- While this was an interesting learning, it will be more interesting if the US approaches a binding contraint of refining capacity. Refining capacity is reported by the Energy Information Administration.
- Politics plays into an investment strategy for Energy, think 2024 Elections, as this can impact Long Term Capital Project decisions. We all want lower prices at the pump, more capital projets are likely with a Republican win over a Democratic win. This would translate to a strategy for the short term investor to:
| Red Whitehouse | Blue Whitehouse |
|---|---|
| Hold/Buy Midstream | Hold/Buy Midstream |
| Sell Upstream | Buy Upstream |
- For the conservative investor, this might mean just invest in midstream.
- At some point, Mistream will have less options for investment and need to return more capital to shareholders.
- Energy Prices
- $90 oil does not erode demand but effects the most vunerable.
- $100-$110 oil could start to erode demand.
- High Oil Prices improves Upstream Profits and lowers Midstream Profits, though likely marginally as profits are based on volumes over commodity prices.
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