AMZA ETF - 18% Yield

[Trader200K]

In Jan2015 AMZA sold for ~$22 with a 50 cent, quarterly dividend. So the annual yield was $2/$22 = 9.1% and it didn't stand out greatly.

Now there are people in the market willing to push the button on their laptop and sell AMZA shares for $11.40. Div was raised by 8 cents during the oil debacle. Yield now is $2.08/$11.40 = 18.2%

The drop in oil scared most folks out of energy. Think baby/wash water. The key point with this ETF is that the MLPs that it invests in are largely midstream companies like pipelines and have little exposure to commodity prices. When oil choked, the E&P sector choked too, but they didn't stop producing. They moved largely the same volume of O&G as before because they still had their expenses to cover. Midstream companies charge by the volume of what they carry/process, not by the value of what the handled product is worth. So these revenues changed very little. So even though oil is down, AMZA MLP cash flow is not. They actually raised their div a couple times while oil was in its steepest decline phase.

With no insider info, I can't tell if there is something hidden wrong with AMZA. There is always risk. On the other hand their data shows MLP income to support the div. So it simply appears there are way too few folks risk-on enough to step up right now ... though the trend is upwards since Jan20 2016. Ultimately mispriced? I think so.

It reminds me of Host Marriott Corp after the markets started trading again following 9/11. (HMT was the REIT that held the RE assets separate from the hospitality company.) HMT fell in half, even though it was clear that only one hotel property out of their 120+ fleet of buildings was destroyed. Less than one percent of the asset base was spectacularly gone, but the market suddenly valued the remaining, serviceable 119, obviously operating, buildings at half price. Economically rational?

Not only no.

And as it further turned out, HMT not only had the building insured for full replacement value, but they had business continuation insurance on it too. All the info available in public docs. Within months it was fully valued again as rational folks returned.

The key is to have true information and base your inv decisions on rational logic, not the madness of talking heads or crowds. It is hard work, but pays off nicely. Give this a good go:

http://www.infracapmlp.com

(I hold this, but don't work for them. Am a long retired ex-urban :^)

Best regards,
T200

 

[vanzandt]

In Jan2015 AMZA sold for ~$22 with a 50 cent, quarterly dividend. So the annual yield was $2/$22 = 9.1% and it didn't stand out greatly.

Now there are people in the market willing to push the button on their laptop and sell AMZA shares for $11.40. Div was raised by 8 cents during the oil debacle. Yield now is $2.08/$11.40 = 18.2%

The drop in oil scared most folks out of energy. Think baby/wash water. The key point with this ETF is that the MLPs that it invests in are largely midstream companies like pipelines and have little exposure to commodity prices. When oil choked, the E&P sector choked too, but they didn't stop producing. They moved largely the same volume of O&G as before because they still had their expenses to cover. Midstream companies charge by the volume of what they carry/process, not by the value of what the handled product is worth. So these revenues changed very little. So even though oil is down, AMZA MLP cash flow is not. They actually raised their div a couple times while oil was in its steepest decline phase.

With no insider info, I can't tell if there is something hidden wrong with AMZA. There is always risk. On the other hand their data shows MLP income to support the div. So it simply appears there are way too few folks risk-on enough to step up right now ... though the trend is upwards since Jan20 2016. Ultimately mispriced? I think so.

It reminds me of Host Marriott Corp after the markets started trading again following 9/11. (HMT was the REIT that held the RE assets separate from the hospitality company.) HMT fell in half, even though it was clear that only one hotel property out of their 120+ fleet of buildings was destroyed. Less than one percent of the asset base was spectacularly gone, but the market suddenly valued the remaining, serviceable 119, obviously operating, buildings at half price. Economically rational?

Not only no.

And as it further turned out, HMT not only had the building insured for full replacement value, but they had business continuation insurance on it too. All the info available in public docs. Within months it was fully valued again as rational folks returned.

The key is to have true information and base your inv decisions on rational logic, not the madness of talking heads or crowds. It is hard work, but pays off nicely. Give this a good go:

http://www.infracapmlp.com

(I hold this, but don't work for them. Am a long retired ex-urban :^)

Best regards,
T200

What else do you like?

 

[Trader200K]

Paying/maintaining a good dividend requires a competent, disciplined mgmt team and biz margin that can produce real cash flow for common shareholders. Zinga white shoe, boys (and their ilk) reselling stripped, private data bits from "The Ghetto" (their name for flyover country) can't qualify to play on this field.

I like infrastructure operating, reliable, div payers whose businesses are based on necessities selling at a bargain. Had a good number of Canadian energy/electric/REITs 2008-2013, but they are pretty overvalued now with poor yields ... not to mention the Trudeau Tragedy. Might be a look again someday, but for now US energy is out of favor and their yields seem to indicate that sentiment is undervaluing that space. Here are three closed end funds that fit the Contrarian bill of good yield until full value returns without the MLP tax filing headaches.

CEN http://www.centercoastcap.com/closed-end-fund

KYN http://kaynefunds.com/kyn/fact-sheet

INF https://publicsecurities.brookfield...l-listed-infrastructure-income-fund?id=190655

Also just took a longer shot at SSW: http://www.seaspancorp.com

SSW is the largest, non-operating container ship lessor out there. 10 Yr lease contracts make it insensitive to short term charter rates similar to a pipeline take-or-pay contract or a triple net lease for commercial real estate. They seem to have efficient equip, decent mgmt and capital depth to buy good assets from struggling smaller operators at bargain prices as the market is crushed by reduced shipping (Baltic Dry Index). Their last conf call indicated a determined approach to the biz and the CEO used the words "light at the end of the tunnel". Container ship capacity is being scrapped at historic record rates with almost zero new builds. We will see. If SSW mgmt maintains the div payout at the Feb meet for 2017 (18% at $8.20 today), I think we could see $11-12 in the short run. Equity/sh from the last balance sheet was way above that. Decent media/data on their site.

Smidge higher risk, but potential is there for a three bagger plus income while I wait ... if the world doesn't completely lose its economic mind.

 

[bigspeculate]

https://www.fool.com/investing/2017/02/01/why-seaspan-corporation-stock-is-down-nearly-13.aspx

"With Seaspan currently burdened with nearly $2.7 billion in debt, with only $540 million in cash to pay it -- and that cash evaporating at the rate of $200 million a year (or more) -- the analyst isn't 100% sure the company will survive to see the recovery."

You think this is a good play?

 

[Sig]

Also just took a longer shot at SSW: http://www.seaspancorp.com

SSW is the largest, non-operating container ship lessor out there. 10 Yr lease contracts make it insensitive to short term charter rates similar to a pipeline take-or-pay contract or a triple net lease for commercial real estate. They seem to have efficient equip, decent mgmt and capital depth to buy good assets from struggling smaller operators at bargain prices as the market is crushed by reduced shipping (Baltic Dry Index). Their last conf call indicated a determined approach to the biz and the CEO used the words "light at the end of the tunnel". Container ship capacity is being scrapped at historic record rates with almost zero new builds. We will see. If SSW mgmt maintains the div payout at the Feb meet for 2017 (18% at $8.20 today), I think we could see $11-12 in the short run. Equity/sh from the last balance sheet was way above that. Decent media/data on their site.

Smidge higher risk, but potential is there for a three bagger plus income while I wait ... if the world doesn't completely lose its economic mind.

Yeah, you may have 10 year lease contracts but they're on a pipeline, i.e. you signed 20 of them 10 years ago (they all roll off this year), 22 of them 9 years ago(they all roll off next year), 21 of them 8 years ago.....4 of them last year, 2 this year. Just because you have long-term contracts doesn't mean you don't need to keep signing new contracts when the old one's roll off in order to stay in business. They haven't been signing a lot of new contracts and their richest contracts have all been rolling off without renewal due to the protracted shipping glut.

 

[Trader200K]

I read that $200MM/year eye opening comment and decided to look closer.

I asked how well are they covering their last quarter interest payments on that debt?

$43.6MM int paid with $90MM left over for divs. So how well is the div covered?

So their div payout ratio is only 42%.

With interest covered three fold (assuming div to zero), I have to question the analyst's methodology or motives for broadcasting doubts that SSW as a going concern.

Years ago I gave up on analyst reports because I once got two reports within 15 min of each other from major players, one touting and one panning the company I was looking at. Clearly one was BS, but the question was who can I trust? No one was my final answer and I started doing my own diligence. I can't count the number of times I have seen inv bank 'gurus' simply talking their book. I encourage everyone to do the same.

SSW could take on water from a number of directions, but, unless I missed something big there, I just don't see them going down by the head right away. Especially if they maintain the div payout at the Feb meeting.

 

[Trader200K]

Yeah, you may have 10 year lease contracts but they're on a pipeline, i.e. you signed 20 of them 10 years ago (they all roll off this year), 22 of them 9 years ago(they all roll off next year), 21 of them 8 years ago.....4 of them last year, 2 this year. Just because you have long-term contracts doesn't mean you don't need to keep signing new contracts when the old one's roll off in order to stay in business. They haven't been signing a lot of new contracts and their richest contracts have all been rolling off without renewal due to the protracted shipping glut.

Good point for a more in depth analysis ... as well as when their long term debt has to be dealt with.

Might just have to be happy with a short term bounce if that turns ugly.
T

 

[Sig]

I read that $200MM/year eye opening comment and decided to look closer.

I asked how well are they covering their last quarter interest payments on that debt?

View attachment 170854

$43.6MM int paid with $90MM left over for divs. So how well is the div covered?

View attachment 170857

So their div payout ratio is only 42%.

With interest covered three fold (assuming div to zero), I have to question the analyst's methodology or motives for broadcasting doubts that SSW as a going concern.

Years ago I gave up on analyst reports because I once got two reports within 15 min of each other from major players, one touting and one panning the company I was looking at. Clearly one was BS, but the question was who can I trust? No one was my final answer and I started doing my own diligence. I can't count the number of times I have seen inv bank 'gurus' simply talking their book. I encourage everyone to do the same.

SSW could take on water from a number of directions, but, unless I missed something big there, I just don't see them going down by the head. Especially if they maintain the div payout at the Feb meeting.

Exactly, reading the entire quarterly report. Like the part where they have upcoming CAPEX costs of $470M but only $240M of available financing. That kind of eats into the "extra" $46.4M. And the $184M loss in just Q3 ($1.86/share)? Also not sustainable to say the least. Like I stated earlier, they're milking the remaining lucrative leases from 10 years ago which are rapidly rolling off with no replacements. This isn't the low risk play you think it is, if shipping doesn't turn around they're not going to make it, so you're really doing the same thing investing in this as you would be investing in the Baltic Dry Index futures. That's not necessarily a bad thing (It's hard for a retail investor to do that directly), just go in eyes open as to what you're doing.

Edited to add that they're in a kind of strange place where they fall slower when the market falls because of the inertia of the leases, but they'll also rise slower when it recovers for the same reason.

 

[sooka]

Cool ETF, but I do not like that they have a fixed pay-out no matter what - means they are having to sell more shares in a correction/bear market in order to fund distribution.

Cool investment though.


Quote from seeking-alpha:


Based on an exclusive interview I had with the managers of the ETF, "Infrastructure Capital Management," AMZA seeks to pay a steady distribution of around $2.08/share per year (current yield 20%) and to keep a stable Net Asset Value. It seems that management seeks to achieve this return based on the following sources of income:

1. The distribution yield of the underlying stocks, which currently comes to 9%.
2. A 1.5% extra income from leverage.
3. Writing covered calls, which can possibly achieve around 2% return when the markets are not volatile.
4. It seems that management seeks to fund the shortfall of 6.2% from capital gains achieved on the underlying holdings to shareholders.

 

[Trader200K]

Exactly, reading the entire quarterly report. Like the part where they have upcoming CAPEX costs of $470M but only $240M of available financing. That kind of eats into the "extra" $46.4M. And the $184M loss in just Q3 ($1.86/share)? Also not sustainable to say the least. Like I stated earlier, they're milking the remaining lucrative leases from 10 years ago which are rapidly rolling off with no replacements. This isn't the low risk play you think it is, if shipping doesn't turn around they're not going to make it, so you're really doing the same thing investing in this as you would be investing in the Baltic Dry Index futures. That's not necessarily a bad thing (It's hard for a retail investor to do that directly), just go in eyes open as to what you're doing.

Edited to add that they're in a kind of strange place where they fall slower when the market falls because of the inertia of the leases, but they'll also rise slower when it recovers for the same reason.

I wasn't saying SSW was low risk. Clearly it isn't, for far more reasons than just missing their capex nut. I am looking for risk ... maybe in the wrong place here LOL, we will see.

However, the Net Income loss of ($184MM) includes a one time, non-cash impairment charge of $203MM and $52MM of non-cash depreciation. That cash would seem to be at least a start towards the $230MM hole they need to fill for the CAPEX requirement ... and maybe they have some moxie left up their sleeve in raising money too.

I pulled their charter revenue by vessel data (Feb29 2016) into a spreadsheet, calculated/sorted by charter days remaining. 84% of those vessels are still under lease today (9 of that group expire in 2017, but mgmt is guiding that 8 are in the pipeline for redelivery in 17 ... but nothing about at what rates they landed).

The sort shows that charter vessels as of last Feb should contribute about $186MM of the ~$211MM revenue guidance mgmt forecast for Q4 ... leaving them $25MM to have added hopefully in the last 12 months. It is a plus that on-charter vessels with at least two years to run produce almost twice the charter revenue per day on average than those that the last annual report would now show as out of lease.

We are definitely converging on a better picture of the risk here ... I appreciate the point counterpoint to sharpen the focus. Getting the update on where they stand with new charter$/day, new vessels and capitalization from the Q4 results will be interesting.

Management has their hands full here. We get to see how good they are very shortly.

Best regards,
T200