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Strategies & Market Trends : Value Investing

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To: Spekulatius who wrote (55503)	6/20/2015 9:39:41 AM
From: E_K_S	Read Replies (2) of 78673

Re: ONEOK Inc. (NYSE: OKE) - Started small position in this NG company Williams Partners L.P. (NYSE: WPZ) - Peeled off 40% of shares to buy OKE I decided to follow you into OKE w/ a buy @ $38.95/share. I had owned OKS (their MLP) earlier but sold out as I want to focus on owning the General Partners. I also own the larger WMB and KMI roll-ups. I was going to have all my WPZ roll-up into WMB but decided to take 40% of those shares and put into OKE. OKE (6.2% yield); KMI (4.9% yield); WMB (4.7% yield); WPZ(6.4% yield) This should give me exposure to three GP's in the sector: KMI, WMB and OKE. I think there is better value in owning the GP's as well as less accounting headaches dealing w/ their K1 reports. My strategy is to continue to reduce my MLP basket and deploy those funds into qualified dividend paying companies that yield 5% or higher. As the FED begins to normalize rates, I am starting to see more of the utilities and energy infrastructure companies I sold in 2010/2011 begin to yield 5% again. The MLP distributions have a nice tax advantage and typically yield a higher rate than qualified dividends but the unit holder is at a disadvantage to the GP and/or senior debt holders. New units seemed to be issued more (and/or merger/restructuring) often to raise capital that result in unit dilution and/or lower distribution payouts. Management claims this is necessary to reduce debt benefiting the senior debt holders (ie FISH now AZUR) and/or merger/restructure of the incentive over ride payments by the GP (benefiting the GP). Both have happened recently to MLP's I own w/ the later (CMLP merged into CEQP) done by the GP since they were the majority unit holder and could approve/vote the change in payment structure. These incremental moves out of MLP's and into qualified dividend paying companies come at a cost since selling the MLP's trigger a tax event that requires the payment of tax on the accumulated distributions made. This begins to be quite large the longer you hold the MLP and collect their distributions. These distributions are typically taxed at the ordinary income rates vs the 20% max rate for qualified dividends. Part of my strategy is to replace the income streams w/ (1) structured Bond interest from distressed E&P senior debt and (2) qualified dividends from GP's. I think there s/d be some good speculative senior E&P debt opportunities next year (2-3 year maturity) that may/could provide a good risk/reward for either (a) YTM >20% and/or (b) default conversion into new common issue. I currently own Senior Debt in SFY and am watching XCO and MHR 2018/2020 bonds. Therefore, the value opportunity for me is to own both (1) the equity interest in the GP and (2) the senior debt bonds while maintaining and/or increasing my dividend/interest income streams. EKS

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