What do you guys think of BPL?

[HiggiePiggy]

Buckeye Partners L.P.  (BPL)

It's close to its yearly low right now. 41.55.   It's yearly low is 35 and yearly high is 69.

It has a very nice dividend right now at 1.26 a share every quarter.  I could only look back to 2013, but it's dividend has been going up every quarter almost since then. 

Here is a description of it for those that aren't sure what it is and don't want to look it up.

Buckeye Partners LP is a holding company, which engages in the provision of mid-stream energy logistics services. It owns and operates petroleum products common carrier pipeline networks providing refiners, wholesalers, marketers, airlines, railroads and other commercial end-users with all-weather transportation of refined petroleum products .It operates its business through the following segments: Domestic Pipelines and Terminals; Global Marine Terminals; and Merchant Services. The Domestic Pipelines and Terminals segment transports liquid petroleum products from refineries, connecting pipelines, vessels, and bulk and marine terminals. The Global Marine Terminals segment provides marine accessible bulk storage and blending services; and rail and truck rack loading or unloading along with petroleum processing services. The Merchant Services segment is a wholesale distributor of refined petroleum products in the continental United States and in the Caribbean. The company was founded in December 1986 and is headquartered in Houston, TX

[ricepig]

It's worth the risk, even if it treads water it's paying a 12% dividend. I've got a few similar to this, some paying more, some paying less, I had some actual money made in the stock last year, most have pulled back close to a wash on my cost. I love dividends being put into my account every month, this may be one I need to look lower at.  I think Berkowitz or whatever his name is had them as a buy the other day, he publishes a column in a local paper a couple of times a week.

[Vantage 8 dude]

I would advise you to just be very careful when approaching many of these MLPs. While the fundamentals of the industry are generally improving-better commodity prices, demand and slowly (for the most part) improving earnings, there are still a lot of issues to be faced.

First of all, the MLPs got whacked a month or so back when the FERC (Federal Energy Regulatory Commission) issue a ruling that is likely to negatively impact many of the partnerships by eliminating the income tax allowance (ITA) for regulated MLPs, ruling that such structures to be a double recovery of income taxes. And while this negative ruling has already impacted the price of most partnerships, and the ruling is being appealed, it does add an additional layer of uncertainty to the fundamentals of many going forward.

Secondly, in the specific case of BPL let's look at the current yield that's approaching double the MLP average of 6.98%. And while one could argue that the company is being unduly punished for past transgressions and weak cash flow, as many in the industry have over the past several years, I would be wary of buying into the fact that this substantially higher yield is merely the fact the company's fundamentals are being overlooked/underpriced to that extent. In other words, I stick by the adage that "if it looks too good to be true (or out of line with similar investments and companies) it usually is". 

IMO there are other opportunities such as EPD and MPLX that have far better balance sheets, stronger cash flow, dividend coverage, etc. that still offer very attractive yields. Remember too that in the markets "Bears can make money; bulls can make money; however, pigs typically go to the slaugherhouse". In any event, good luck with whatever you decide.

[ricepig]

I would advise you to just be very careful when approaching many of these MLPs. While the fundamentals of the industry are generally improving-better commodity prices, demand and slowly (for the most part) improving earnings, there are still a lot of issues to be faced.

First of all, the MLPs got whacked a month or so back when the FERC (Federal Energy Regulatory Commission) issue a ruling that is likely to negatively impact many of the partnerships by eliminating the income tax allowance (ITA) for regulated MLPs, ruling that such structures to be a double recovery of income taxes. And while this negative ruling has already impacted the price of most partnerships, and the ruling is being appealed, it does add an additional layer of uncertainty to the fundamentals of many going forward.

Secondly, in the specific case of BPL let's look at the current yield that's approaching double the MLP average of 6.98%. And while one could argue that the company is being unduly punished for past transgressions and weak cash flow, as many in the industry have over the past several years, I would be wary of buying into the fact that this substantially higher yield is merely the fact the company's fundamentals are being overlooked/underpriced to that extent. In other words, I stick by the adage that "if it looks too good to be true (or out of line with similar investments and companies) it usually is". 

IMO there are other opportunities such as EPD and MPLX that have far better balance sheets, stronger cash flow, dividend coverage, etc. that still offer very attractive yields. Remember too that in the markets "Bears can make money; bulls can make money; however, pigs typically go to the slaugherhouse". In any event, good luck with whatever you decide.

I doubt he is going to invest solely on the advice of posters on here, but some of your points were worth looking into. Everyone has a risk tolerance, there's another adage, "nothing ventured, nothing gained".

[Boardon Hamsay]

I would advise you to just be very careful when approaching many of these MLPs. While the fundamentals of the industry are generally improving-better commodity prices, demand and slowly (for the most part) improving earnings, there are still a lot of issues to be faced.

First of all, the MLPs got whacked a month or so back when the FERC (Federal Energy Regulatory Commission) issue a ruling that is likely to negatively impact many of the partnerships by eliminating the income tax allowance (ITA) for regulated MLPs, ruling that such structures to be a double recovery of income taxes. And while this negative ruling has already impacted the price of most partnerships, and the ruling is being appealed, it does add an additional layer of uncertainty to the fundamentals of many going forward.

Secondly, in the specific case of BPL let's look at the current yield that's approaching double the MLP average of 6.98%. And while one could argue that the company is being unduly punished for past transgressions and weak cash flow, as many in the industry have over the past several years, I would be wary of buying into the fact that this substantially higher yield is merely the fact the company's fundamentals are being overlooked/underpriced to that extent. In other words, I stick by the adage that "if it looks too good to be true (or out of line with similar investments and companies) it usually is". 

IMO there are other opportunities such as EPD and MPLX that have far better balance sheets, stronger cash flow, dividend coverage, etc. that still offer very attractive yields. Remember too that in the markets "Bears can make money; bulls can make money; however, pigs typically go to the slaugherhouse". In any event, good luck with whatever you decide.

I tend to agree. I proceed with caution when I see yields this high due to sustainability concerns. Yield growth from '17 to '18 has been cut in half (4% to 2%) for BPL but in fairness, that's around industry average.  Looks like 55% of 2017 revenue (Merchant Division) was tied to terminal locations in the Caribbean (Puerto Rico, St. Lucia, Bahamas, etc.). I'd dig into that a bit more to make sure there are not any lingering hurricane impacts to their operations there before getting too deep in this one.  I'd also dig into their last annual report to see how levered to natural gas they are.  Natural gas right now is just ugly and if they have too much in that space, the stock will probably get punished.  Just my thoughts from a quick glance.

[HiggiePiggy]

I actually have EPD from earlier advice you have given me.  I will probably buy a small amount of BPL and pick up more of EPD.

Thanks guys for the advice. 

[Vantage 8 dude]

I doubt he is going to invest solely on the advice of posters on here, but some of your points were worth looking into. Everyone has a risk tolerance, there's another adage, "nothing ventured, nothing gained".

My whole point is that with the type yields available on even the strongest MLPs these days to stretch just to get the absolute highest current yield isn't particularly necessary. Heck, 6-7% isn't uncommon at all; with interest rates and borrowing costs rising for ALL companies, the balance sheet strength (along with the price and demand of the particular commodity) of each partnership is also a major component and concern. One of the specific problems I have with BPL is the questionable ability of the free cash flow and earnings being able to sustain the current dividend. My information shows the company earned something like $3.34 a share last year with a dividend of $5.05. And while EPS isn't the only potential source of funding a dividend, it sure the heck gives SOME indication of what's going on with the company. And yes, I also realize that special items or one time events can distort or unduly influence a company's earnings per share, as well as its cash flow.

[Vantage 8 dude]

As a follow-up to last week's discussion concerning BPL, on Friday the company reported both weaker earnings and discretionary cash flow per unit. A major reason the stock fell by some 6.5% on the day. Relevant to the topic and debate concerning the company's ability to maintain its current payout, while BPL did pledge to continuing the present dividend, one must be aware that the current coverage of the payment has now declined BELOW 1x. Obviously a yellow signal that indicates it can't be maintained indefinitely. The current cash flow now stands at between .90x and .95x. Additionally, the company's earnings per share are expected to decline about 10% this year to an estimated $3.21; even with some expected slight improvement in 2019 to approximately $3.39 per share, the current payout of $5.05 doesn't appear to be "in the bag" by any means. As I said earlier, this far above average yield (roughly double the industry average) has "danger" written all over it. Tread lightly!

[ricepig]

As a follow-up to last week's discussion concerning BPL, on Friday the company reported both weaker earnings and discretionary cash flow per unit. A major reason the stock fell by some 6.5% on the day. Relevant to the topic and debate concerning the company's ability to maintain its current payout, while BPL did pledge to continuing the present dividend, one must be aware that the current coverage of the payment has now declined BELOW 1x. Obviously a yellow signal that indicates it can't be maintained indefinitely. The current cash flow now stands at between .90x and .95x. Additionally, the company's earnings per share are expected to decline about 10% this year to an estimated $3.21; even with some expected slight improvement in 2019 to approximately $3.39 per share, the current payout of $5.05 doesn't appear to be "in the bag" by any means. As I said earlier, this far above average yield (roughly double the industry average) has "danger" written all over it. Tread lightly!

Time to double down!

[Vantage 8 dude]

Time to double down!

Yeah, with SOMEONE ELSE'S money. 

[HawgWild]

That's never a good sign when a company is paying out more than it's making.

[vandybuff]

You post mentions "mid stream".  That being the case, while I have no idea about Buckeye, there should be vastly more energy produced and piped in the years to come.

[Vantage 8 dude]

You post mentions "mid stream".  That being the case, while I have no idea about Buckeye, there should be vastly more energy produced and piped in the years to come.

Well.....the law of economic still applies. You'd better be able to earn more than you're paying out AND manage to stay in business with massive debt on the balance sheet.

[vandybuff]

Well.....the law of economic still applies. You'd better be able to earn more than you're paying out AND manage to stay in business with massive debt on the balance sheet.

"like" cause you express a concept that many miss .... which is why I could never under Tesla

[Vantage 8 dude]

"like" cause you express a concept that many miss .... which is why I could never under Tesla

Yep, as great of a "thinker" and "salesman" as Elon Musk is he's still not able to turn the production of his auto venture Tesla into gold. His solar panel venture is helping keep his other businesses afloat while the car company that brought us the amazing Model S several years ago continues to bleed red ink. While his production snafus have been well documented with his Model 3, unfortunately for him other car manufacturers are rapidly closing the gap when it comes to electric vehicles roll outs and production.

Musk's recent puzzling/strange response to analyst's questions concerning production issues and the likelihood that Tesla will need to come back once again to raise additional capital in the markets was a blunder by almost all accounts. While his ego may tell him that things are fine, the financial facts, what ultimately counts in the public opinion/mind of investors, paint a far different picture. At the end of March this year the company's working capital had declined from some $1.44 billion in June 2016 to a NEGATIVE $2.27 billion. In addition, while the cash/ cash equivalency portion of the company's balance sheet claimed there was some $2.7 billion on hand, this figure includes "INVENTORY" of vehicles on hand. Anyone want to count they have cash on hand just because they may have vehicles sitting on their lots? BTW another very disturbing fact is that this amount includes some 35% of customer deposits that have been placed on preordered vehicles yet to be produced/delivered.

Not surprising that the company's debt portion has worsened to the extent that its corporate debt (bonds) are being drastically discounted in the market. For instance, their 5.3% (barely investment grade rated) bond is selling at a discount of some $860 per $1,000 face maturity. With such little faith being reflected in their debt there's very little chance the company, which will obviously need to raise additional operating capital before the end of the year, will be selling debt instruments in the open market. Which means yet another equity sale, in turn further diluting existing share holder equity. A vicious loop that obviously needs to be addressed. All-in-all perhaps Warren Buffett actually hit on something when he recently downplayed Tesla's play sheet and possible future direction.   

[vandybuff]

Yep, as great of a "thinker" and "salesman" as Elon Musk is he's still not able to turn the production of his auto venture Tesla into gold. His solar panel venture is helping keep his other businesses afloat while the car company that brought us the amazing Model S several years ago continues to bleed red ink. While his production snafus have been well documented with his Model 3, unfortunately for him other car manufacturers are rapidly closing the gap when it comes to electric vehicles roll outs and production.

Musk's recent puzzling/strange response to analyst's questions concerning production issues and the likelihood that Tesla will need to come back once again to raise additional capital in the markets was a blunder by almost all accounts. While his ego may tell him that things are fine, the financial facts, what ultimately counts in the public opinion/mind of investors, paint a far different picture. At the end of March this year the company's working capital had declined from some $1.44 billion in June 2016 to a NEGATIVE $2.27 billion. In addition, while the cash/ cash equivalency portion of the company's balance sheet claimed there was some $2.7 billion on hand, this figure includes "INVENTORY" of vehicles on hand. Anyone want to count they have cash on hand just because they may have vehicles sitting on their lots? BTW another very disturbing fact is that this amount includes some 35% of customer deposits that have been placed on preordered vehicles yet to be produced/delivered.

Not surprising that the company's debt portion has worsened to the extent that its corporate debt (bonds) are being drastically discounted in the market. For instance, their 5.3% (barely investment grade rated) bond is selling at a discount of some $860 per $1,000 face maturity. With such little faith being reflected in their debt there's very little chance the company, which will obviously need to raise additional operating capital before the end of the year, will be selling debt instruments in the open market. Which means yet another equity sale, in turn further diluting existing share holder equity. A vicious loop that obviously needs to be addressed. All-in-all perhaps Warren Buffett actually hit on something when he recently downplayed Tesla's play sheet and possible future direction.   

Since I am a basic industry guy I have missed many opportunities -- to name a few FB (why would anyone want to see aunt Sally's pet chicken); AMZN (Jeff is laughing loudly - at people like me); NLFX (does no one read anymore); etc.  But at the end of the day Tesla is a car .... and while I do fantasize about strapping my mother in law into one and setting it on 'auto-drive', it is just a car.  IMO with a market value of $48B or so, they should find some shmoe at GM or F and sell it to them.

[Vantage 8 dude]

Since I am a basic industry guy I have missed many opportunities -- to name a few FB (why would anyone want to see aunt Sally's pet chicken); AMZN (Jeff is laughing loudly - at people like me); NLFX (does no one read anymore); etc.  But at the end of the day Tesla is a car .... and while I do fantasize about strapping my mother in law into one and setting it on 'auto-drive', it is just a car.  IMO with a market value of $48B or so, they should find some shmoe at GM or F and sell it to them.

At this point it appears to me that the main thing that Musk has going for him is his pride and arrogance. He may be a smart guy, wouldn't necessarily deny that, and his work in the area of solar energy and rocket science is for the most part successful, his inability or unwillingness to face reality when it comes to the nuts and bolts of car production and demand for his vehicles may very well be his downfall in that area. You have to wonder how long his schtick will resonate with investors. While some may call Buffett old fashioned (EM is one of them), the one economic fact that hasn't change over time (and never will) is that sooner or later the investing public will catch on IF you can't deliver a product in high demand and more importantly, profits to the bottom line. Musk is quickly exhausting his credibility and mojo.

[vandybuff]

I agree and readily confess I have a blind spot for my only concern is 'the numbers'.  Musk does have connection, appeal, panache.  That is great to entice a venture cap., but then something tragic happened - he had to make the car he promised -- in California, no less.  Geez, there may be a nice pocket of crude under the intersection of 57th and Fifth Ave in NYC, but it is not going to be cheap to drill there! 

[Vantage 8 dude]

I agree and readily confess I have a blind spot for my only concern is 'the numbers'.  Musk does have connection, appeal, panache.  That is great to entice a venture cap., but then something tragic happened - he had to make the car he promised -- in California, no less.  Geez, there may be a nice pocket of crude under the intersection of 57th and Fifth Ave in NYC, but it is not going to be cheap to drill there!

Part of his problem is that Elon thought he could out smart everyone else by building a completely robotic- oriented production facility to produce the Teslas. Come to find out that his arrogance in thinking he could lower the costs by increasing the efficiency by going to strictly automotive assembly hasn't worked out. Who knew that such a plant would actually turn out to be "overthinking/overbuilding" the production process. Instead of streamlining the production to the point of wringing out every last penny of cost/inefficiency, he's actually had to face the fact that in some cases human involvement is still necessary and even beneficial. Hubris does have its costs.

[vandybuff]

hahaha --- hubris is never cheap nor short-lived. 

[Vantage 8 dude]

hahaha --- hubris is never cheap nor short-lived.

Yep, what's the old saying: "Pride goeth before the fall"?

[HawgWild]

Elon has been acting a little weird lately. I hope he can hold it together. I'm wanting to get a couple of his wall batteries as a back-up for my home.

[Vantage 8 dude]

Elon has been acting a little weird lately. I hope he can hold it together. I'm wanting to get a couple of his wall batteries as a back-up for my home.

I think he's starting to feel some major heat from his lack of actually making $$ at Tesla. While the guy is obviously extremely smart and talented, what I perceive is his excessive confidence (hubris ?) has contributed to his making some promises and statements that he hasn't yet backed up. There are a TON of folks out there who have tremendous ideas and concepts; however, a huge difference is often being able to translate that into actually making it both practical AND self-paying. I think Elon made a MAJOR blunder when he not only shut down LEGITIMATE investment questions from several analysts/reports but also got into it with Warren Buffett. Not that I think WB walks on water, however, he has continually shown that he not only knows a good investment when he sees one, but he can make money for both himself and his shareholders. Musk obviously has a lot to learn to become anything approaching the Oracle of Omaha.