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Why Crosstex Energy Shares Dropped and Then Recovered

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Crosstex Energy (Nasdaq: XTEX  ) opened 17% lower before bouncing back to a modest 2% loss today, following its earnings release yesterday afternoon.

So what: The midstream natural gas company, which has struggled to maintain profitability, reported a net loss of $2.4 million down from a $1.7 million profit a year ago. Its adjusted loss per share was $0.13, worse than the $0.11 analysts were looking for. Management blamed "sharply lower natural gas liquids prices" for the disappointing results, but pointed to new operating areas that should spur growth.

Now what: With an 8% yield, this is clearly a dividend play for most investors, and some probably took the opportunity to snatch up some shares at a discount just after the market opened. But with negative free cash flow this quarter and natural gas prices likely to stay suppressed, this looks like a risky play. Look for share dilution or additional debt offerings in the future or this high-flying dividend could get dinged.

Want all the news on Crosstex? Stay connected by adding Crosstex Energy to your watchlist.

Fool contributor Jeremy Bowman holds no positions in the companies above. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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