Why the Kinder Morgan Merger Makes It One of the Best Stocks in America

The Kinder Morgan empire of companies includes Kinder Morgan Inc (NYSE: KMI  ) and its three subsidiaries: Kinder Morgan Energy Partners (NYSE: KMP  ) , Kinder Morgan Management (NYSE: KMR  ) , and El Paso Pipeline Partners (NYSE: EPB  ) . Over the last three years Kinder Morgan has under performed many of its large peers and the market in general, stoking fears that America's fourth largest energy company will fall prey to the law of large numbers and see growth permanently slow. 

KMI Total Return Price Chart
KMI Total Return Price data by YCharts

In the past I've written about how Kinder Morgan's $30.4 billion in current and potential expansion projects will be enough to ensure strong distribution growth and market outperformance for decades to come. I've also written about how a potential Kinder Morgan merger could greatly increase growth, should it ever occur. Well on Sunday night news broke that Kinder Morgan was consolidating all its MLPs under its parent company in the second largest energy merger in history (the 1998 Exxon and Mobil merger worth $110.1 billion in 2014 dollars remains the largest).

Terms of the deal
The $71 billion deal is composed of $40 billion in Kinder Morgan Inc shares, $4 billion in cash, $27 billion in assumed debt. 

Existing shareholders of Kinder Morgan's MLPs will receive the following premiums for their units (based on friday's closing price):

  • Kinder Morgan Energy Partners: 12%
  • Kinder Morgan Management: 16.5%
  • El Paso Pipeline Partners: 15.4%
Existing unit holders of Kinder Morgan Energy Partners and El Paso Pipeline Partners are allowed to choose to receive payment in both cash and Kinder Morgan Inc shares or all cash. 

The new Kinder Morgan

Source: Kinder Morgan Merger Presentation

With 80,000 miles of pipeline and 180 terminals, the merger will create the third largest energy company in America by enterprise value ($140 billion) or fourth largest by combined market cap ($92 billion) -- behind only ExxonMobil, Chevron, and ConocoPhillips. The deal is set to close by the end of the year pending regulatory and shareholder approval. 

Why the deal is great for investors
There are three reasons why existing shareholders should be overjoyed by this deal.

First, it greatly lowers Kinder Morgan's cost of capital by eliminating El Paso Pipeline Partners and Kinder Morgan Energy Partners' incentive distribution rights and structurally subordinated debt. It will also save Kinder Morgan about $20 billion in taxes over the next 14 years. 

The second reason to celebrate this merger is that Kinder Morgan plans on turning on the growth engine in a big way, with plans to "to pursue expansion and acquisitions in a target-rich environment," according to founder, chairman, and CEO Richard Kinder.

In fact, there are a combined $1.5 trillion in potential acquisition and investment targets for Kinder Morgan to pursue through 2035 including over 120 MLPs with total enterprise values of $875 billion and $640 billion in expected midstream infrastructure investments. 

Organic growth projects and accretive acquisitions are the name of the game when it comes to growing dividends and distributions, and that is where this merger should make income investors happiest. 

Dividend growth restored
Kinder Morgan has announced its intentions to raise its 2015 dividend by 16%, with subsequent 10% annual raises through 2020.

Source: Kinder Morgan Merger Presentation

As seen above, Kinder Morgan's new dividend growth plan outperforms all but Williams Companies, whose growth is coming from its own megamerger and investment binge. With a current 4.7% yield and a long-term 10% dividend growth rate, income investors could reasonably expect around 14.7% total returns from Kinder Morgan through 2020. Given the stock market's long-term average compound total return of 9.2%, this expected total return should put Kinder Morgan on every income investor's radar. 

However, Kinder Morgan isn't just for dividend seekers. Because of management's long-term dividend visibility, we know that Kinder Morgan's dividend is expected to be around $3.22/share at the end of 2020. This provides an 8% future yield that is likely to see shares appreciate in value perhaps faster than dividend growth. 

In fact, strong capital gains are likely due to the fact that Kinder Morgan has met or exceeded its dividend/distribution guidance in 18 out of the last 19 years.

With Kinder Morgan's dividend growth plan expected to result in $2 billion in excess dividend coverage by 2020, an anticipated six-year coverage ratio of 1.1, and a 94.7% success rate of meeting or beating distribution/dividend growth guidance, actual dividend growth may prove to be higher than advertised. 

Foolish takeaway
Kinder Morgan's exit from the MLP industry it helped pioneer is a surprise, but one that's very likely to benefit current investors in both Kinder Morgan Inc and all its MLPs. The new Kinder Morgan is likely to achieve sustained and strong dividend growth that will not just generate strong income over the next decade, but also strong capital gains should Kinder Morgan live up to its historical precedent of beating dividend growth expectations. Long-term investors of all kinds should consider this bluest of energy infrastructure blue chips for their portfolio. 


Read/Post Comments (162) | Recommend This Article (78)

Comments from our Foolish Readers

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  • Report this Comment On August 11, 2014, at 3:53 PM, bdh2067 wrote:

    Thank you for this great summary, Adam. And thank you, Motley Fool, for the tip a year ago on KMI. I bought after a little investigation. Then bought more on a dip. Then more when I saw Rich Kinder was buying tons of his own company's stock (always a good sign when the CEO believes enough to want to own more of it).

    I now wish I'd bought more (and held off on the TCS tip from MF, but that's a separate post...). I'm confident, though, KMI's ample and growing dividends, reinvested, will add up over the long term.

    Anyway... thank you.

  • Report this Comment On August 11, 2014, at 6:43 PM, ezchair wrote:

    I own both kmi and kmp. Happy times! Mötley fool recommends selling El Paso shares.

    What would be the best move with KMP shares? Sell them or wait and let the conversion happen. The kmp shares are hel in an IRA.

  • Report this Comment On August 11, 2014, at 8:33 PM, AdamGalas wrote:

    Not sure about the EPB sell recommendation but at this point, at least in my opinion, I wouldn't recommend selling KMP, KMR, or EPB and here's why:

    No matter which you own if you hold onto your units you'll get cash and KMI shares come January.

    KMP and EPB are MLPs, so almost all your previous distributions are tax deferred return of capital.

    That is deducted from the cost basis for tax purposes and you only pay those taxes if and when you sell.

    Thus, if you never sell the units that distribution income is permanently deferred. The merger is a unit for share swap, so as far as I can tell, holding onto your units will save you a bunch in taxes.

  • Report this Comment On August 11, 2014, at 10:26 PM, Cadyrn wrote:

    I've only been investing for approx 4yrs. anything I learned was through MF. I purchased the shares of KMP and EPB for my 94y/o mothers portfolio thereby tripling her income for the amount of money invested. I bought the two MLP's specifically for the income, the tax advantage, & the stepped up basis when inherited; thereby continuing the tax advantage and delaying any tax payment.

    This move by KMI, as I currently understand it, will mean that the MLP units vs stock will no longer have a tax advantage or a stepped up value on inheriting.

    I hope that you are correct & that the government will consider this a swap with no taxes due. Any idea when we will find out?

  • Report this Comment On August 11, 2014, at 11:45 PM, AdamGalas wrote:

    Based on the Kinder Morgan Merger presentation, page 11, the merger is a taxable event with an estimated tax cost of $12.39-$18.16/unit in tax cost, depending on tax bracket.

    That seems rather steep but the fact remains that Richard Kinder is a bright guy and wouldn't have agreed to the merger if it wasn't in the best interest of the company and therefore shareholders (of whom he was 24% owner of KMI and will now retain 10%).

    The event seems likely to trigger some amount of tax cost selling but the fundamental strengths of the company remain and still make Kinder Morgan a buy on any dips, including those caused by tax selling.

  • Report this Comment On August 12, 2014, at 2:59 PM, scostello1965x wrote:

    Great summary Adam. I have January 2016 call options with a strike price of $85. The options are for KMP and are currently valued at around $11.24. Being somewhat new to this, what does one do with these? Sell at $11. Buy the stock now at $85? Or just wait for the merger to go through? Would I then have options on the new stock (stock symbol unknown)? Or will these options basically disappear in the next few months?

  • Report this Comment On August 12, 2014, at 3:49 PM, nahag wrote:

    As I understand your article, owners of KMI do NOT receive any money, is this a correct assumption?

    Thank you.

  • Report this Comment On August 12, 2014, at 4:12 PM, AdamGalas wrote:

    As far as I know KMP options won't roll over to KMI and so you'd have to sell before the merger closes, which is by the end of the year.

    If you sell now, you're locking in the time value of the options which will decay every day you hold them.

    Selling the options will trigger a taxable even, but as mentioned above, the merger is itself a taxable event.

    If you call the option early then you'll still end up paying taxes on the value of the KMI shares you receive (and cash).

    In my opinion the best thing to do in such a situation is sell the option, then buy shares of KMI.

    This will create one taxable event (locking in gain from call option) but avoid another, (receiving KMI shares and cash if you bought KMP after selling the call).

    As to Nahaq's question, you are correct, KMI shareholders benefit not one lick from this merger, other than a soaring stock price, a much stronger company and faster dividend growth:)

  • Report this Comment On August 12, 2014, at 8:01 PM, EvanBuck wrote:

    So how does this deal affect people who do not own shares of any of these stocks currently but are interested in potentially investing? What is the best way to profit off of this deal?

  • Report this Comment On August 12, 2014, at 8:18 PM, EvanBuck wrote:

    Because I'm thinking just buying KMI shares would be the best bet here.

  • Report this Comment On August 12, 2014, at 8:58 PM, AdamGalas wrote:

    Absolutely, KMI is the way to go.

    Buying one of the MLPs will trigger a taxable event when the deal closes and the shares/units swap is executed.

    With no more than 2 tax deferred distributions left before the merger closes there is simply not enough of a benefit to owning KMP, KMR, or EPB over KMI at this point.

  • Report this Comment On August 13, 2014, at 9:23 AM, RedandBlack wrote:

    I'd suggest the "Theorem of a Large Denominator" or the "Slower Growth/Mega Market Cap Rule" instead of the "law of large numbers." The LLN is a statistics rule and doesn't apply to what's described by slower growth from a larger denominator.

  • Report this Comment On August 13, 2014, at 6:51 PM, AdamGalas wrote:

    Indeed one thing that people fail to realize is that bigger companies can put together bigger deals and usually with cheaper costs of capital.

    The new Kinder Morgan is going to become the Berkshire Hathaway of midstream companies and start buying up some big assets.

    I've heard analysts mention Targa Resources and MarkWest as possible buyout targets.

  • Report this Comment On August 14, 2014, at 6:43 AM, VerySERIus wrote:

    As far as growth....that is the primary reason for the consolidation....there exist major acquisitions that can be pursued as a larger company at lower cost. KMI will be the GOOGLE of the energy sector.

  • Report this Comment On August 14, 2014, at 8:36 PM, AdamGalas wrote:

    I agree, within 10 years Kinder Morgan will be bigger than Exxon.

  • Report this Comment On August 15, 2014, at 1:33 PM, docdocatl wrote:

    It would have been helpful to have conversion units of each MLP in the article, so here goes, from an article on Yahoo Finance:

    KMP: 1 share = 2.1931 KMI + $10.77/share in cash

    KMR: 1 share = 2.4849 KMI but no cash

    EPB: 1 share = 0.9451 KMI + $4.65 in cash

    And, in another article (on another finance website), a Wells Fargo analysis states these sobering facts of the final effects of the conversion, because converting MLPs operate as a sale, therefore triggering tax events.

    Wells Fargo states the after-tax benefit -- or loss -- for each holding:

    KMP: - 4% (yes, that's a loss)

    KMR: + 21% because conversion does not trigger

    a tax event

    EPB: + 7%

    I own shares of KMP and am now at a loss as to what to do.

    Sell KMP and buy KMR before conversion?

    But selling KMP now triggers tax event

    And KMR is priced higher than KMP

    So what to do?

    Am welcoming comments/advice, and thanks in advance


  • Report this Comment On August 15, 2014, at 2:02 PM, captr18 wrote:

    I now have a cosiderable number of KMP shares and will have to select cash, or KMI shares or some of each! I've had KMP for over 5 years some in my trust, and some in my Roth IRA

    Which would be in my best interest:

    Tax wise?

    Net money now?

    Futurer benefits for my estate?

    the choise that's best for my Roth IRA?


  • Report this Comment On August 15, 2014, at 7:00 PM, AdamGalas wrote:

    KMI and KMR are best to have in tax deferred accounts because MLPs earn some UBTI, which if over $1,000/year results in you having to pay taxes, even out of a tax deferred account like a Roth.

  • Report this Comment On August 17, 2014, at 3:45 PM, captr18 wrote:

    thank you for the quick reply,but!

    I don't understand your reply!

    33% of my current shares of KMP are in my Roth IRA account!

    Should I sell the Roth IRA shares now and buy KMR ,or KMI with the proceeds? ( which one to buy)

    Should I hold my KMPshares that I have in my Trust Acct, and let the transaction disbursment take place!


  • Report this Comment On August 18, 2014, at 7:00 PM, AdamGalas wrote:

    My apologies for the misunderstanding. I am not a tax expert and you should definitely consult with one if you're Roth IRA position is large enough to incur UBTI.

    From what I do know, UBTI is the biggest problem with Roth IRAs and MLPs. The merger's conversion, though a taxable event, may not create UBTI and so you may not need to sell your KMP units at all.

    As to the trust? Well I won't even attempt to address that, as its way above my pay grade.

  • Report this Comment On August 21, 2014, at 3:04 PM, kbyrne6 wrote:

    What is the risk that this proposed transaction does not proceed?

    As I understand it, the KMP holders have to vote on it and many seem to be upset over the tax consequences. Could there be enough of them to scupper the deal ?

  • Report this Comment On September 01, 2014, at 7:59 AM, AdamGalas wrote:

    I think the odds are great that the deal goes through. Richard Kinder's blessing will go a long way to alleviate concerns about the deal and though the tax consequences might be painful the promise of a 16% dividend hike and 10% growth through 2020 will be too much to pass up.

    After all 10% dividend growth is double what KMP was guiding for, in terms of distribution growth.

  • Report this Comment On September 03, 2014, at 6:18 PM, dspreeuw wrote:

    so it looks like since KMR is an LLC, and there's no cash involved, it's just a swap: shares of KMI for shares of KMR……not a taxable event?

  • Report this Comment On September 03, 2014, at 6:42 PM, dspreeuw wrote:

    also, you mention that KMI will save $20b in taxes over next 14 years due to this deal….….how will that happen?

  • Report this Comment On September 26, 2014, at 2:21 PM, simplemark wrote:

    on Aug 12 2014 Adam Glass wrote

    ""As far as I know KMP options won't roll over to KMI and so you'd have to sell before the merger closes, which is by the end of the year."

    Is this so??

  • Report this Comment On October 15, 2014, at 11:59 AM, DirtyDog wrote:


    As a T.A. guy, what are your thoughts that the 100 year rise in oil prices are over?

    Using Elliott Wave (oil prices) patterns, the structure is clearly a 5 wave(motive wave) in a parallel upsloping trend channel. We are in the c wave of the correction of the 8 wave pattern.

  • Report this Comment On October 18, 2014, at 12:27 PM, DirtyDog wrote:

    Adam..KMI, KMR, EPB, and KMP

    The daily Bollinger Bands with the SMA(20) are showing M7's in all of the above. As you know M7's formations are typical in right-shoulder patterns in actual head and shoulders tops. I feel we are now in the throwback rally's that will bounce off the neckline's and create a W1's or W2's. A downside bias is coming with a series of W's. jmo

    Using KMI..The head 8/20/14 @ H-41.82

    The last wave's 50% retracement is 38.51, a good place to sell as it bounces off the neckline area.

    As heard on the web.. Point Capital's new energy expert James Carroll has recommended the deal to his new bosses...a fool at foot! jmo

    Now I know why you have been silent lately.

  • Report this Comment On October 24, 2014, at 10:58 AM, DirtyDog wrote:

    Adam...KMI, KMR, EPB and KMP

    KMI(as is KMR, EPB and KMP) is a sell today...the throwback rally has ended. We will now see the slide down of a series of W's in the lower Bollinger band. jmo

  • Report this Comment On October 29, 2014, at 6:01 PM, DirtyDog wrote:

    Adam...KMI ect..

    James Carroll (rejected from Loomis Sayles) is now @ Pointe Capital Management(almost a year) is watching his Kinder Morgan (KMI) fall, as did LSGIX(100,000 min. investment) after been @ Sayles a year. History does repeat in stocks as in money manages. jmo

  • Report this Comment On October 29, 2014, at 6:11 PM, AdamGalas wrote:

    I highly doubt the long-term trend for oil is anything but up. According to both a study by Morgan Stanley and Rystaad Energy and the EIA oil prices in 2035 are expected to be $125-$150 and in 2040 $145-$205/barrel.

    As to technical analysis I don't put much stock in it. I invest purely on fundamentals and don't even track daily price movements. If it wasn't for updating the yields for my articles or writing the occasional valuation article I wouldn't be aware of the price of the companies I follow most of the time.

    As long as the yield is good, the payout safe, and the growth story intact I view price as largely irrevelant.

  • Report this Comment On October 30, 2014, at 9:56 AM, DirtyDog wrote:

    Adam...Thank you for making it clear what your conception of investing is (Pure Fundamentals).

    My thinking... is market perception (psychology) + fundamentals = price action. By studying price charts, you indirectly see the fundamentals and market psychology all at once. Collecting pennies from fund manages that make dollars from your investment is your concept I can not agree with. Long is wrong these days and more oil is coming...and lower prices. drillers are in...not pipe lines. jmo

  • Report this Comment On October 30, 2014, at 10:11 AM, AdamGalas wrote:

    I'm really hoping you're right about oil prices plunging.

    Not only might that help the market overreact on KMI, dragging the prices down and the yield up, but it won't really affect them much.

    20% of their business is tied to oil, through their CO2 injection segments. If oil stays at $80, management estimates it will hurt their cash flows by approximately 2.5%. Hardly something that will prevent the promised dividend growth.

    What really excites me is the prospect that more oil exposed MLPs like Linn Energy, Vanguard Natural Resources, and Breitburn Energy Partners would get whacked.

    Recently they plunged as much as 25%-30% in a month before recovering somewhat due to the oil price slide.

    Linn's monthly dividend/distribution is safe through 2016 due to hedging and Vanguard's long-term coverage ratio at today's energy prices is 1.07, while BBEP is also aggressively hedged and covering its payout at 1.06.

    All three are acquiring low cost, low decline assets that will only further solidify the payout and let it grow in the future. Meanwhile their average yield is 11% but was recently as high as 13.5%.

    If oil drops to $70, $65 or even, dare I hope $60, their yield could easily soar to 17.5%. Throw in a correction, 20-22.5%. Throw in a bear market, 25-27.5%.

    Those are the kind of yields that let a man retire early, not that I ever plan to stop writing for Motley Fool, but you get my meaning;)

  • Report this Comment On November 01, 2014, at 3:44 PM, DirtyDog wrote:

    Adam...I retired on trading SIRI during the bubble with T.A.(Elliott Wave worked great in that time zone of a rising market with Fibonacci's rabbits.) Hint... SIRI is a buy for a trade up the BB.

    Back to KMI...You are crowd leader(hold for dividends) and I a new guru for those that trade this stock for swing profit.

    KMI..I hope those that had a profit from the throwback rally have now sold,.. as the price has bounced off the neck line and the decline will now begin in earnest.

    The pattern.."Head and shoulders top" (KMI)

    Head....H-41.82 (8/20/14)

    Left shoulder....H-38.05(7/22/14)

    Right shoulder H-39.595((10/03/14)

    Neckline constructed through Left neck point L-35.20(8/07/14) and the Right neck point L-37.342(9/22/14). Extend this line to the right and see the throwback rally bouncing off as noted above. I see a return to the very low 30's to begin with, but the Bollinger will tell the tale when to re-up...ha-ha. jmo

  • Report this Comment On November 01, 2014, at 4:26 PM, AdamGalas wrote:

    While you may have done well with timing the market studies show that most investors even professional money managers lose or under perform utilizing trade heavy short-term approaches.

    I just wrote an article on this topic that will go out next week.

  • Report this Comment On November 03, 2014, at 10:16 AM, DirtyDog wrote:

    Adam...The DJI completed wave 5 on 9/19/14. This wave 5 is a Ending Diagonal in a fifth wave position. As there are generally 8 waves, 5 impulse and 3 corrective, we a now in the B wave that will end soon. The C waves time line of 5 lower degree waves down will first see the 15,400 area @ the end of wave 4 or the beginning of wave 5(10/8/13). The 62% retracement of the 5 wave is 12,500 on or about the time line of 1957 days or 6/29/15. Interestingly enough this all start after the election....a good time to be thinking about getting into cash...jmo

  • Report this Comment On November 03, 2014, at 10:41 AM, DirtyDog wrote:

    Adam...Are you in the random walk crowd that believe everything that happens in the market is random and that one must be invested at all times in order to capture the big moves. I hope this in part of your up coming article. Thank you..

  • Report this Comment On November 04, 2014, at 9:00 PM, AdamGalas wrote:

    I do indeed believe that one should be invested for the long-term in great companies.

    As my Motley Fool colleague Sean Williams pointed out in several articles:

    Market timing is a dangerous game for two reasons.

    First, as another colleague, John Maxfield pointed out:

    Investors are terrible at timing markets. The average investor has underperformed the market by 4.2% annually over the last 20 years.

    Second, as Sean explained in the above articles, if you missed just the biggest 30 market up days in between 1993 and 2013, your returns would drop from 483% to 20% (assuming investment in S&P 500 and comparing market timing to buy and hold).

    In fact, since 2009 .6% of trading days have accounted for 45% of total gains. Some of those gains came during times of peak volatility and market corrections, which are easy to miss if you're timing the market and sitting on the sideline.

    Throw in the tax implications of frequent trading and commission costs and studies show that its just not worth trying to time the market.

    I'll go more in depth into this very topic in a series of articles that will be published in the next week or two.

  • Report this Comment On November 05, 2014, at 9:40 AM, DirtyDog wrote:


    First let me give you the "time goal day", in the future, where a price event is expected to occur. That date is 12/09/14. The price may be high or low...but the trend in "price" will show as we approach the date with the use of the Golden ratio in retracements.

    If you look at the last 4 highs on a daily logarithmic line chart, the ratio's are 1,1.618,1. As the next ratio is 1.618 in the future that put us @ 12/09/14.

    As I called a sell on 10/24/14, we now have a possible buy of put options if we drop through support of L- 37.34 on 09/22/14. The market just opened below the above, but some puts...ha-ha.

  • Report this Comment On November 05, 2014, at 9:40 PM, AdamGalas wrote:

    Dirtydog I'm curious as to your investing approach. You seem to be tracking the technical analysis for Kinder Morgan very closely and I'm wondering what your method is.

    If you trade in and out of the stock with a time frame of a few weeks or months then why are you specifically trading in this company? I'm not trying to be argumentative but wondering if there is some technical characteristic of Kinder that makes it ideal (at least in your eyes) for this kind of short-term technical trading.

    When it comes to technical analysis and short-term trading it seems that you could literally trade purely on screens based on various break out or break down scenarios, without even knowing a companies name.

    So I'm curious if your approach is some kind of hybrid of a market timing and fundamental approach.

  • Report this Comment On November 05, 2014, at 9:54 PM, notyouagain wrote:


  • Report this Comment On November 06, 2014, at 8:19 PM, Heidikitty wrote:

    I own K MP at this point and time and as the board voted for this how will KMP be in terms of KMI share at this point. Is it 2.19 shares of KMI and ten dollars or do you have a choice Please explain.

  • Report this Comment On November 06, 2014, at 10:05 PM, AdamGalas wrote:

    Yes as a unit holder of KMP you have a right to vote yes or no on the merger, which is occurring on Nov 20 after a Delaware court just denied an injunction to stop the vote.

    If you can't be at the meeting you need to mail in a proxy vote through your broker.

  • Report this Comment On November 10, 2014, at 9:25 AM, DirtyDog wrote:

    Adam...I agree that traders and investors be aware of general fundamentals. But as price + time = value, human behavior tends to repeat over and over. My studies show that Fibonacci retracements used with wave actions, Bollinger Bands and Candles can show with great accuracy

    a possible beginning or end of a trend. Traders without a plan to guide themself is like throwing money out the window as you well know. showing a Advance Block pattern on the daily at the end of last week. A weakness. On the weekly a Falling Three Method pattern through the weeks 9/12/14 to 10/10/14. We are going down, get those puts.

  • Report this Comment On November 10, 2014, at 8:14 PM, AdamGalas wrote:

    I don't really see the point of knowing the fundamentals if you're basing buying and selling decisions on technical indicators.

    Are you saying to use fundamentals to screen for good companies and then trade them based on trends?

    I've considered using technical analysis to try to time opening positions but determined that valuation is a better method.

    I agree that you can't buy a great company at any price but I just don't see the point of your TA based approached which will result in far more trading than a buy and hold approach.

    Decades of studies show that market timing doesn't work, which includes TA.

  • Report this Comment On November 12, 2014, at 9:33 AM, DirtyDog wrote:

    Adam...Apparently you never watch weather reports that use weather models as to what happened in the used to predict the future.

    I use fundamentals to find stocks that everyone is bragging about. As YOU are a crowd cheerleader as is Points Capital Management's J.L.Carroll the die is set to benefit from swings created by greed and fever. jmo

  • Report this Comment On November 13, 2014, at 8:32 PM, DirtyDog wrote:

    KMI...Get your puts in the 38.00 area the 3 Buddha Top(Head and Shoulder Top) is heading to old support in the 31.00/32.00 area around 12/09/14 time line.

    38.00-31.00 = 7.00 or 7.00/38.00 = 18% profit


  • Report this Comment On November 13, 2014, at 8:53 PM, AdamGalas wrote:

    I wouldn't say that weather reports are equivalent to technical trading.

    Nor would I say I'm a cheerleader for Kinder. Cheerleaders are supposed to cheer for bad teams and I wouldn't ever recommend a company that I thought was a bad long-term investment.

  • Report this Comment On November 14, 2014, at 9:56 AM, DirtyDog wrote:

    Adam...Your heading says "One of the best stocks in America". I will make money on the put recommendation that will take us to 31.60 area.

    41.82 - 35.8 = 5.96 (a vertical line from the head to the up-slanting neckline)

    37.56(a horizontal line of the Measuring Formula) - 5.96 = 31.60 target (to buy)


  • Report this Comment On November 14, 2014, at 6:57 PM, AdamGalas wrote:

    My headline represents my view that Kinder Morgan is truly one of the best long-term investments you can make. That is my opinion, based on lots of well researched facts. That doesn't make me a cheerleader.

    As for your prediction that KMI is going to $31, I certainly don't think it's going to happen but I sincerely hope you are right.

    In fact I hope KMI dips below $30, as I'd love to pick up shares at a 7% yield.

    That's what's great about the market. Every trade represents two sides of the coin. For every buyer there must be a seller and in a way every transaction represents a bet against the future.

    We happen to be on different sides of the coin.

  • Report this Comment On November 14, 2014, at 7:53 PM, Foolistherule wrote:

    Thanks Adam

    I really like the side of the coin youve presented here these past few days. yes, your facts have been well researched and well explained. I agree that this stock is a good buy even if it goes down some (which makes it a better yield) and only temporary as the business looks solid. as soon as I free up some dough....

  • Report this Comment On November 15, 2014, at 9:42 AM, DirtyDog wrote:

    Adam... A little history on buy and hold.

    Portfolio manages for the University of Miami continued to accumulate Enron stock even as it neared earth at 100 miles an hour. Of course they had sophisticated (?) company. The Motley Fools had a death grip on the stock all the way to the bottom. Ref. Nine Edition-Technical Analysis of Stock Trends, page 365.

    The lesson is get out of a stock or get short when it reverses on a retail trader. jmo

  • Report this Comment On November 15, 2014, at 10:48 AM, DirtyDog wrote:


    Suppose a certain well-informed and well-financed coterie of mutual funds (that could include the Fool and Pointe Capital Management) decides that the shares of a certain company, now selling around 31, are cheap, that this company's affairs are progressing so satisfactorily that, before long, it will attract the attention of many investor and its stock will be in demand at much higher levels, perhaps 39-41 a share. This coterie realizes that if they manage their market operations skillfully, if nothing unforeseen intervenes to upset their calculations , they can " take" 40-31= 10 points out of the situation. That's called distribution. In this cast 10/31 = .32 or "30% profit" from 3/14/14 to the Climate Top on 8/20/14.

    You are still in the buy and hold and helped the coterie profit, as you were told to hold long.

    Conerie do this time after time with your invested money. jmo

  • Report this Comment On November 15, 2014, at 11:54 AM, fightnohog wrote:

    I own 1351 shares of KMP that are held in a Traditional IRA. If you were in my shoes, EXACTLY what would you do? Hold all shares until the merger goes through, sell ALL 1351 shares of the KMP at the current price of +$96.25, sell _____? shares of KMP and hold ______? shares of KMP, sell ____shares of KMP and buy _____? shares of KMI (or other). Dont give me a bunch of psychological forecasting. Please just give me the best option for me under the circumstances I have listed above.


  • Report this Comment On November 15, 2014, at 2:39 PM, Foolistherule wrote:

    Hi fightnohog,

    thanks for joining in. I'm not sure if Adam is allowed to tell you EXACTLY what to do because he works here. But I dont so maybe I can help. in the above comments (at the top ) It says you will get the new shares even if you do nothing in Jan. Always check with your tax expert re taxes. Giving you tax advice is above my pay grade, but based on your situation, you might want to do something this year if taxes wont be significant. Or defer them for another year if the move will be highly taxable. For me, I have a long eye regarding investing, and like to purchase companies to keep for a long time. Thats great that you have built up such a sizable position. I am bullish on KMI.

  • Report this Comment On November 15, 2014, at 2:49 PM, Foolistherule wrote:

    So if we remove taxes from the equation....and you're long term. sell the KMP buy the KMI

    Hope i'm not stepping on toes, Adam tell me if I'm on the right track

    I'm getting to fund a trust soon and KMI will get some of the trust money....

    hope that helped!

  • Report this Comment On November 15, 2014, at 3:35 PM, Foolistherule wrote:


    thanks for engaging in a lively conversation at the Fool. I like the the Fool just for this reason....lots of smart people with lots of opinions. Lincoln said 'none of us is as smart as all of us'. I'm a long term investor. and have seen the elegance and beauty of dividend growth investing. I've seen it work well first-hand. I like it because i can do work at the beginning finding great companies and know it's OK to ride through the twist and turns of the market gyrations. as long as the company doesn't come off the rails, which I keep half an eye on, I can go and do other things with my life.

    I dont know a thing about TA "I don't know nothin' bout birthin no babies Miss Scarlet!". But I'm keeping an open mind, knowing that I dont know everything. I will say, the "budda tops, fibbinocci rabbits, bollinger bands, golden ratio, ending diag, advance blocks, B waves......" sounds way too complicated for me. Frankly, it sounds like too much work! when I go to the the beach, I love to watch the interaction between the advancing wave and the retreating wave and the turbulence it creates. But when i'm investing I just want to know if the tide is going in or out. I know there are people who like to trade in and out of stocks and make money from those individual waves, but I don't want to stare at the screen all day. I know people make money trading in and out of a position I hold long term, but that's what makes investing what it is. It's OK if they make money as long as I make a decent return, too. I don't see them making money 'off' me as long as I get a decent return with less risk and work. Homer Simpson said, "I find your ideas intriguing and would like to subscribe to your magazine" and I'm hoping you can recommend a TA book for me to look at. I'm a guy, but sometimes I'll flip through Cosmo just to see the playbook of the other team. Lots of dating tips! Looking forward to more dialog. And I did already learn something from you: the word coterie- I looked it up - it means 'clique'. Thanks!

  • Report this Comment On November 15, 2014, at 7:06 PM, AdamGalas wrote:

    fightnohog unfortunately I am legally not allowed to give you specific investing advice.

    Your optimal decision is based on several factors including how long you've held the KMP, your cost basis, and your time horizon.

    As Foolistherule said, you'd have to consult a tax professional or certified financial adviser.

    Dirtydog, the example of Enron doesn't provide evidence to your point since it was a case of fraud.

    That is why you own a diversified portfolio in case one of your investments turns into an Enron.

  • Report this Comment On November 15, 2014, at 11:01 PM, DirtyDog wrote:

    foolistherule...Your first date(book) to get your brain in gear for the other side of the coin is...

    Technical Analysis of Stock Trends by Robert D. Edwards and John Magee. Charter 1-Technical vs. Fundamental Theory-- Philosophy of Technical Approach-- Drawbacks of Fundamental Approach.

    This book is the bible of price vs volume charting patterns. You'll get so excited reading this book that you wonder why you missed all that money holding for dividends. I will also show you how to get the dividend by buying(Record Date) just before the ex-dividend date and selling after it or the Payment Date, depending on the holding requirements. It fun making money...with knowledge.

    More great books on techniques if you like.

    Buy some SIRI

  • Report this Comment On November 15, 2014, at 11:41 PM, Foolistherule wrote:

    hi DD

    Is this the classic book thats been around for years? In college 30 years ago, I remember that title...I think I've seen it, but at the time i was more interested in bikini tops and bottoms. Now its more equal. thanks i'll take a look

  • Report this Comment On November 16, 2014, at 11:13 AM, DirtyDog wrote:

    rule...Yes!! this old book works today as it did then, as pure charting is the best way to start learning about crowd behavior. jmo

  • Report this Comment On November 16, 2014, at 7:00 PM, AdamGalas wrote:

    Dirtydog would you mind explaining your approach to your TA based dividend capture technique?

    You buy just ahead of record date, get the dividend and then sell, correct?

    What I don't understand is you secure a profit, since the ex-div date price drops by the exact amount of the dividend.

    Does you TA help you identify dividend stocks that typically rise after the ex-div date? And if so, how long do you hold the stock before selling?

  • Report this Comment On November 16, 2014, at 10:02 PM, DirtyDog wrote:

    Adam...Happy to introduce you to a dividend capture.

    Once a company declares a dividend, it sets a record date, the stock exchanges or National Association of Securities Dealers, Inc. fix the ex-dividend date. To save time....just go to It's been around 10 years and can show you how capture works. It one more way to make money without long term investment. enjoy!


  • Report this Comment On November 17, 2014, at 1:08 PM, DirtyDog wrote:

    Adam...What do think of dividend capture now that you have seen their site?

    AAPL's is a very good example, as it has been in up trend since it's double bottom (4/18/13, 6/28/13.


  • Report this Comment On November 17, 2014, at 6:34 PM, AdamGalas wrote:

    I've looked into the technique and while it may work there are a few issues I have with it.

    1. You need to do this across a vast array of stocks because you are counting on the price rebounding from the ex-div price decline.

    If the price declines after the ex-div date then you lose money.

    2. A very short-term strategy that results in massive trade volume, with negative tax and commission cost ramifications.

    3. Maybe it works for some but it seems like a very hard way to achieve a double digit yield.

    For example, the site talks about how a 10% MLP or BDC is high risk, but doing dividend capture on the likes of Apple or Microsoft is far safer.

    While that may be true of HOLDING these kinds of companies, when your goal is to own shares for only a day or two then the risk is no less.

    This is because on any given day or two the price can move without predictability.

    So I'd rather buy, hold and collect my payouts the easy way, without a massive risk of short-term price declines.

    However, dirtydog I do thank you for the info and the idea. Perhaps some of our readers will enjoy and profit from this method.

  • Report this Comment On November 18, 2014, at 10:23 AM, DirtyDog wrote:

    Adam...Making people aware of different technics builds one vocabulary and knowledge of trading. I tend to be a Countertrend trader and Swing trader all in one.

    APPL...The double bottom ("W") that was confirmed on 8/5/13 gave a buy signal for a trend reversal(Bollinger). The ex div date 8/8/13 and the pay date 8/15/13 @ 3.05 was well timed to capture the dividend, as a hold through wave 1(Elliott Wave) was the real goal. Wave 1's fifth wave end 8/19/12 @ H-73.39(a inverted Hammer bearish-candles). The sell signal was the next day(8/20/13) with a Dark Cloud Cover(a warning of weakness-Candles). A sell on the 8/21/12 was a given as the A/D indicator was dropping. The trade of wave 1 (12 day) yielded (C-71.77-C-67.06= 4.71) + 3.05 BONUS = 7.76 total profit or 7.76/67.06 = 0.116 >11.6% gain. T.A. rules.


  • Report this Comment On November 18, 2014, at 4:19 PM, DirtyDog wrote:


    Target 4.06(wave 1-161.8% retracement) to 3.96(wave 2-161.8% retracement)


  • Report this Comment On November 18, 2014, at 4:44 PM, Foolistherule wrote:


    I did well buying SIRI just as Stern hopped on from regular radio (I am sounding old saying that), rode the wave, stepped off. But, at 50+ PE, I dunno. does that even matter for TA? also, under $5 is out of range for the big boys. Are you saying to grab it now and sell it at $4 and lock in a quick 14% ? hmmmm.

    what is the time frame? thanks!

  • Report this Comment On November 18, 2014, at 9:58 PM, AdamGalas wrote:

    Ahhh XM satellite radio. It was my biggest ever winner. First got in around $3.5 and kept on buying up to around $45.

    Lucky for me I got out before it crashed down to $3 or so and got merged with SIRI and then kept sliding until $.1.

    I remember the investment thesis well. Supposed to break even at 3 million subscribers but had about 12 million when I sold it and hadn't yet earned a penny.

    Now its finally making money and generating FCF but trading at 30x forward earnings and about 20x FCF is too rich for my blood.

    Don't get me wrong, 23% EPS growth that wall street is predicting over next decade sounds good but the issue is two fold.

    First, can Satellite radio continue to gain subscribers and increase average revenue per subscriber and reach that target $.71/share in EPS and if so what valuation will wall street give it in 10 years time when growth is slowing.

    For sure 10, probably 15 and maybe 20.

    So that would give SIRI a price target of $7.10-$14.2/share in 10 years for a CAGR of 7.15%-14.84%.

    That's pretty good, an average range of about 10%-11% which beats the market.

    Only thing is that I can't really see SIRI doing better than 15% annually on the top end of expectations and it doesn't pay a dividend so you get nothing for your trouble if the growth story doesn't pan out over the next 10 years.

    With a ton of competition such as pandora, spotify, ect. I'm not sure I see the long-term potential I once did, (I used to think it could hit 50 million subs).

    Now with the recent buybacks bringing the share count down by 10% annually you might think SIRI could hit the EPS targets on share buybacks alone, after all 7.2 years at that rate and you cut the share count in half.

    Only thing is SIRI has issued $2.8 billion in debt over the last 12 months to fund those buybacks and that means the buybacks are unsustainable since FCF covers only about 50% of buybacks at this point.

    Right now interest expense expense is only $252 million and EBITDA covers it by 4.85x and EBITDA is taking off.

    That is great news for shareholders assuming the company can keep increasing its margins and growing FCF enough to eventually allow share buy backs to be 100% organically funded.

    I'm not saying SIRI is a bad growth company, but a Netflix its not, (meaning limited to little international growth potential and a limited subscriber potential in the US).

    Another thing to consider is rising interest rates.

    If they ever appear SIRI's interest expenses will balloon as it has to roll over its debt and that FCF growth will dry up in a hurry.

  • Report this Comment On November 18, 2014, at 10:33 PM, Foolistherule wrote:

    Hi Adam,

    I know what you mean. I have XM now as a leftover from when I was off grid. I wonder if pandora, spotify, and iheartradio are going to take a bite out of sirius. Did you see those two solar panel stocks take off today. Whats their story?

  • Report this Comment On November 18, 2014, at 10:38 PM, Foolistherule wrote:

    Have you heard of ONB? bank and brokerage 3%div

  • Report this Comment On November 18, 2014, at 10:51 PM, Foolistherule wrote:

    I dont think DD is concerned with details of PEs or FCF. I'm not sure but TA might just look at patterns. Makes me think it would make sense to go after the most volatile stuff. Also i've got PWR on my caps and someone said they spiked after hours. Care to opine?

  • Report this Comment On November 18, 2014, at 11:40 PM, notyouagain wrote:

    Hi Fool!

  • Report this Comment On November 18, 2014, at 11:44 PM, Foolistherule wrote:

    Hi NYA!

  • Report this Comment On November 18, 2014, at 11:49 PM, Foolistherule wrote:

    TSM semi only 1.8 div but...also NE.

  • Report this Comment On November 19, 2014, at 8:54 AM, DirtyDog wrote:

    KMI..Close 11/18/14

    Second hit of the H&S Top's neckline. The last 3 candles pattern now shows weakness. Over bought on the CCI.


  • Report this Comment On November 19, 2014, at 11:05 AM, DirtyDog wrote:


    Thank you Adam for your fundamentals on SIRI, but rule is right that I really go by the indicator for the buy and sell.

    For serious tech. on SIRI: Ichimoku Cloud

    On 10/31/12 the rising Tenken crossed over the still decending Kijun that occurred in a rising window or a gap up. The price and Tenken closed outside of the cloud on 11/10/14 with a Bullish Engulfing Line(unconfirmed). The BEL was confirmed the next day and the Kijun finally turned up @ close. Jumped in with both feet 11/11/12.

    Also the Chiku Span is above the cloud(bullish).


  • Report this Comment On November 19, 2014, at 8:01 PM, AdamGalas wrote:

    Foolistherule are you talking about SunEdison's breaking into the wind industry?

    I'm not sure what other solar stock you are talking about.

  • Report this Comment On November 19, 2014, at 9:11 PM, AdamGalas wrote:

    Foolistherule I'm curious as to why you like ONB?

    What's the investment thesis for choosing this bank?

    3% yield is nice, 7.3% expected dividend growth over the next decade makes is a likely market beater, but looking at its margins aren't anything special.

    19.2% net margin vs 22% industry average, ROA is 1%, same as average, while ROE is 7.7% vs average of 9%.

    It operates 169 branches in Kentucky, Illinois, Indiana and Michigan, so I'm not sure why one would own this regional bank vs some other ones like my personal favorite OZRK.

    Yield of 1.4% but dividend growth rate expected at 17% makes this one a great pick.

    Top notch management and 47% operating margin and 30% net margin to prove it.

    ROA is 70% above industry average ROE 35% above and debt/equity is 17% lower.

    Granted its not cheap at P/B of 3.3 but you have to pay for quality and there is no better regional bank than this dividend growth champ.

    Dirtydog, I must say if you are going to do technical analysis and mechanical trading the Ichimoku cloud can't be beat.

    I learned to love it when I tried FOREX trading and though it couldn't stop me from losing money on that, its still by far the best TA tool I've ever seen.

  • Report this Comment On November 20, 2014, at 1:18 AM, Foolistherule wrote:

    Yes, that was the solar article I was talking about...

    also.. on a juvenile side note you said breaking and wind in the same sentence(cue beavis and butthead)

    I'll check ozrk bank thanks

    I was looking at TSM but there are holes in the earnings and divs

    I grabbed some KMI and SDRL a cupla days ago

  • Report this Comment On November 20, 2014, at 9:47 AM, DirtyDog wrote:


    Setting up for a sell on the news. VT(low), third day price closed outside BB's upper band(daily). We are in last leg up of a "W3", a warning of a downtrend. See you when I collect in low 30's, as I'm not putting you off...


  • Report this Comment On November 20, 2014, at 10:44 AM, DirtyDog wrote:

    Adam...Some day I'll fly you and your better half out to my island for a ride on Save the Wave my Sunseeker. Life after trading DD

  • Report this Comment On November 20, 2014, at 8:09 PM, AdamGalas wrote:

    Dirtydog I'd definitely take you up on that;)

    Foolistherule I'm so jealous of you snatching SDRL at these crazy yields.

    Can't wait for earnings on that one. Should definitely make for some interesting analysis.

  • Report this Comment On November 20, 2014, at 8:15 PM, Foolistherule wrote:

    Adam...can you put kitty's mind at ease...


  • Report this Comment On November 20, 2014, at 8:24 PM, Foolistherule wrote:

    also I grabbed some OZRK, QCOM, VFC, SKWS

  • Report this Comment On November 20, 2014, at 10:25 PM, AdamGalas wrote:

    Ok so here is what I think about the Seadrill dividend issue (already responded to the article).

    Fredriksen, the founder of SDRL, owns 23% of the company and has been a big buyer as price has crashed.

    He's a resident of Cyprus where dividends aren't taxed so he loves the $1.17 million/day he's making in dividends.

    If he thinks the company can survive while keeping the dividend he'll likely advocate for keeping it.

    Keep in mind that the longer SDRL stays this low the better the chance for him, (who sits on the board and has insider info) has to reinvest that income and grow his stake in the company and his income stream.

    BUT he didn't become a billionaire by being stupid.

    If SDRL's financial health is threatened by the dividend then the dividend will be cut.

    That would hurt the stock for sure, but he's a wealthy man and could use the chance to increase his stake further.

    I'd certainly be willing to buy shares even with a dividend cut and here's why.

    1. Price gets crushed. Cheap stock now much cheaper on a P/CF basis.

    2. Long-term the outlook for industry is great.

    3. That means that dividend in a few years comes roaring back possibly $5/share by 2020 or so.

    If SDRL eliminates dividend entirely as Travis has suggested they do, I wouldn't be surprised to see SDRL hit $10 especially if oil stays low and correction occurs within next year.

    That would create an immense opportunity for a potential 50% or so yield on invested capital within 5 or so years.

    Not to mention the capital gains one could accrue.

    I'm watching the situation carefully and currently reading a great book on accounting that is easily understandable by anyone and worth a look.

    I'll be busting out my new skills to analyze Seadrill's cashflows and income statement after earnings to see how sustainable the dividend is after more info is released.

    Bottom line for now: SDRL is still the top of my "buy if you find a big bag of money buried in your back yard" list.

    As for VFC, nice find Foolistherule.

    1.8% yield and 42 years of consecutive dividend growth. Over last two decades nearly 11% CAGR dividend growth with management guiding for 10-11% EPS growth over the long-term and 40% payout ratio.

    Right now payout is 36% so I could see 11-12% dividend growth over the long-term.

    Right now over the next decade analysts are predicting 13% EPS growth with 11.64% dividend growth which is inline with management's guidance.

    I must say I really like what I see on an initial inspection of VFC.

    $880 million in FCF, 7.4% revenue/FCF conversion rate and net margins of 10.8% vs 7.5% for industry average.

    Current ratio of 2 indicates strong balance sheet.

    Debt/Equity of .2 vs .5 for industry average says company isn't overly leveraged.

    Credit rating is "A" according to S&P and total debt only $1.4 billion and EBITDA/Interest is 23.82.

    Overall a very stable balance sheet and seemingly safe dividend, which is what you'd expect from a dividend aristocrat.

    ROA: 12.2% vs 8.3%

    ROE: 22.5% vs 16.8%

    That tells me management is very good at generating net income from both equity and debt which is a great sign.

    My only concern might be valuation. At 20X cash flows VFC is trading at twice its historical P/CF valuation.

    But it definitely deserves a spot on one's dividend growth radar and is a great buy candidate for an inevitable market correction.

    Foolistherule did you mean Skyworks (SWKS) the semiconductor maker?

    Let's take a look.

    .8% yield, a bit low even for a dividend grower.

    That's because its at 18.9 P/CF vs 13.9 historical normal.

    That's probably justified by fast growth rate.

    Last 3 years the company's averaged 18.7% and 23.1% revenue and net income growth respectively compared to 3.9% and -7.1% for the industry.

    Net margins: 17.9% vs 14.1%

    ROA: 15% vs 9%

    ROE: 16.7% vs 15.3%

    Balance sheet is stellar. $0 debt but $806 million in cash.

    Payout ratio is at a very low 9%. That alone tells me we are likely to see dividend growth greatly outpace earnings growth over the next few years.

    Now lets look at the growth rate again.

    EBITDA: 37.2% CAGR over last 5 years.

    Operating cash flows: 28.3% CAGR

    Capex (Growth investment for expansion) 33.3% CAGR

    FCF: 27% CAGR

    Now dividend growth models are tricky because Skyworks has just started paying a dividend.

    $.11/share first two quarters then now a 18.2% jump to $.13.

    Given earnings growth estimated at 20.9% over next decade I'd say that 25% dividend growth isn't out of the question.

    That would mean a $4.84 dividend in 2024 for a 10 year yield on invested capital of 7.5%.

    Payout ratio is estimated to be 19.5% in that scenario given analysts are projecting (take this with a grain of salt) $24.83/share in earnings.

    I say to be somewhat skeptical because forecasting 10 years out for a fast growing tech company is a wildcatters game at best but the bottom line is that with its great relationship with Apple providing a solid foundation, and the explosion of the internet of things, Skyworks could be one of the best long-term dividend growth investments in tech.

    I'd love to get it cheaper, yield above 1% but I can't falt FITR (Foolistherule) for buying a great growth name that should be a big income winner over the next decade or two.

    Or it would be if it weren't likely to be acquired. If they continue to execute as they have they probably will be but hopefully that won't be for a few more years after they've gone up a bunch for you.

  • Report this Comment On November 21, 2014, at 1:26 AM, AdamGalas wrote:

    Been looking into Skyworks a little more and here are some more thoughts.

    1. I like that they've made $500 million in acquisitions in the last five years. Potentially could buy out Resonant in a few years and acquire some ground breaking tech.

    2. Just announced a buyback program over the next two years worth $315 million or 2.6% of current shares.

    I'm absolutely against this because if you look at Skywork's stock based compensation you'll see something that's all too frequent at tech companies.

    $346 million in stock options over the last five years vs $453 million in buybacks.

    So 76% of buybacks were doing nothing other than offsetting shareholder dilution.

    In fact if you look at sharecount it's been climbing steadily over the last few years.

    Up 21% in the last five even while Skyworks has been buying back hundreds of millions of shares.

    That's not returning cash to shareholders, not like the dividend.

    I'd really like to see the company put that cash towards the dividend which would cause a lot more investors (income minded folk like me) to consider and buy shares which would likely do a lot more to enhance shareholder value.

    Not to mention that they are buying back are going on at near all time highs. In fact the only time Skyworks has been higher was during the Nasdaq bubble and then only by a few dollars/share.

    Granted a TTM PE of 27 is a far cry from the 170 PE it was sporting back then and the investment thesis is a heck of a lot stronger now, but it still leaves a bad taste in my mouth.

    If Skyworks was able to reach the same payout ratio as Qualcomm, 33%, something that could be accomplished if it cut out the buyback nonsense, we'd be looking at a 2.4% yield and I imagine that might push the share price up even higher or at least higher than buying back 2.6% of outstanding shares at prices that could be argued to be overvalued or at least fairly valued.

    3. At least Skyworks isn't taking on debt for the express purpose of buying back shares.

    With FCF of $565 million over the last year, a figure that's likely to grow to $1 billion+ over the next 2 years, let's hope that the dividend seems some loving as opposed to more buybacks.

    Here's an article I wrote on the subject back when I wrote for SA.

    Needless to say I'm not a fan of Intel's, Microsoft's or Skywork's buyback programs.

    In fact I consider most tech based buybacks to be little better than dishonest theft from shareholders.

    The worst part is that wall street treats them as shareholder friendly when studies show that they are on par with poorly executed acquisitions (looking at you Microsoft) when it comes to destroying shareholder wealth.

  • Report this Comment On November 21, 2014, at 1:53 AM, Foolistherule wrote:

    As always, I appreciate your insight. Yeah it is too bad that money can't go back to the people who put money in their company. Maybe they will get it together soon. I have free trades for another month so although I usually like to keep stocks for a while.....they seem like they have a lot of irons in the right fires.....know any other co's like 'em?

  • Report this Comment On November 21, 2014, at 9:41 AM, DirtyDog wrote:

    KMI...The SAR has reversed...this is a sell signal.


  • Report this Comment On November 21, 2014, at 7:06 PM, AdamGalas wrote:

    Foolistherule when it comes to some dividend growth stocks taking advantage of the boom in cell phones/internet of things I have 4 names I like/plan to eventually invest in:

    1. AMT

    2. QCOM

    3. SWKS

    4. AAPL

  • Report this Comment On November 21, 2014, at 9:31 PM, AdamGalas wrote:

    Interesting article about QCOM which I know is of interest to dividend growth investors, especially myself and Foolistherule.

    Interesting fact: QCOM is now at an all time high in terms of yield.

    Due to the legal threats to the company its now trading at just 13.5 FCF when its traded at 23.5 over the last 21 years.

    Seems like a good time to buy.

  • Report this Comment On November 21, 2014, at 10:37 PM, Foolistherule wrote:

    Thanks Adam,

    That is a great list on the other post. I have the top three on this one. I havent been able to pull the trigger on AAPL..yet....I'm not sure what I am waiting for. I'll post my list soon

  • Report this Comment On November 21, 2014, at 11:49 PM, DirtyDog wrote:


    Today(11/21/14) they added 2,000,000,000 shares to make a total of 4,000,000,000 common shares of KMI. It was approved, as you know, by the stockholders. Will this effect the price of the stock fundamentally.

    Today the Daily PSAR(Parabolic SAR) reversed, as I reported this morning. This is looking like the start of the C wave. Need a little more data...


  • Report this Comment On November 22, 2014, at 2:07 PM, DirtyDog wrote:


    If B wave ended 11/20/14 @ H-41.45, the following price target(32.62) and the fib time zone(1/05/15) are the possible targets for end of C wave.

    Target price: Measuring Formula

    41.60(start of wave A and the top of the head of the H&S top) - 35.97(A vertical line distance between the top of the head and the neckline) = 5.63 diff. The penetration of the neckline was 10/8/13 @ 38.25. 38.25 - 5.63 = 32.62 target price

    Time zone: Pt = P2 - (P2 - P1) x 2.618

    Pt = 63 - ( 63 - 37) x 2.618

    Pt = 97 day from the "head" or 8 days added to fib 89 time line give you 1/05/15

    DD....32.62 / Jan 5th. 2015 jmo

  • Report this Comment On November 22, 2014, at 6:57 PM, AdamGalas wrote:

    DirtyDog as far as I know the share price won't be affected post merger by the extra shares.

  • Report this Comment On November 22, 2014, at 8:13 PM, AdamGalas wrote:

    Most likely you're hesitant because Apple is at all time highs in anticipation of the mother of all quarters, possibly 60 million iPhones sold.

    I think Apple is fairly valued at this price and look at the company two ways.

    1. Days of fast growth are gone but loyalty to IOS ecosystem will keep iPhone fans buying iPhones and sales growth in developing world should help them at least get to $225 to $250 billion in sales and something like $55-$60 billion in FCF.

    That alone will make the company worth owning because that cash can be used to buy back shares at a rate of 5% annually and grow the dividend at a healthy 10% rate.

    2. With Republicans winning the Senate I've heard talk about a repatriation holiday to let companies bring home their $2 trillion in overseas cash.

    If such a thing occurs than it will likely last for a year or two and in that time Apple will be able to not only bring home $160 billion but also the $50-$100 billion in FCF that it generates over the window the holiday lasts.

    Imagine what that could do for buy backs and dividends?

    Of course if Apple keeps climbing it will soon become overvalued and I can't support buybacks at that point but even if Apple just brings $260 billion in cash home to sit in a virtual vault, imagine how much better it would be from a dividend investor's perspective for the company to be able to tap that cash.

    Then again Tim Cook could lose his mind and decide to try to acquire something massive like Twitter.

    Or that might be interesting.

    In 2017 analysts are expecting sales of $240 billion and that could mean $65 billion in free cash flow.

    11.1% EPS growth predicted over next decade and 10.1% dividend growth.

    Given Apple's amazing cash generating capacity Apple could wind up yielding 4.62% on invested capital in 10 years time, all while delivering 12.5%-14% total returns.

    Of course if the Apple watch bombs and the market finally has its overdue correction than Apple might be on sale for $85, $80 or even $75 in the future, at which point I would be eagerly buying.

  • Report this Comment On November 22, 2014, at 8:56 PM, AdamGalas wrote:

    A great article about Verizon, which is probably my favorite high-yield telecom dividend growth company.

    I think if they were to follow T-Mobile's lead and do away with phone subsidies and just finance the phone like Tmo does it could help boost its margins which would be a great thing for investors.

  • Report this Comment On November 22, 2014, at 9:49 PM, AdamGalas wrote:

    I just finished reading a fascinating book on accounting.

    The biggest takeaway message is that earnings are largely symbolic. Cash is what matters to the business, whether its dividend payouts or growth, cash is king because earnings can't be spent on anything.

    In that light looking at Amazon, one of the few non-dividend payers I'd ever consider owning, I like what I see.

    In five years operational cash flows have grown from $3.3 billion to $5.7 billion today and over the last five years the company has plowed $15.1 billion into capex spending to grow its business yet still delivered $11 billion in FCF and converted 3.4% of sales into FCF.

    Another way to look at AMZN is through EBITDA.

    On a Price/EBITDA basis its trading at 35X earnings which is high but possibly a fair price for such an innovative company.

    Or how about Apple? $50 billion in FCF over the last 12 months, meaning 27% of sales converted to FCF which is cash left over after running and growing business.

    If you look at a company as a cash generating and dividend paying machine you'd be hard pressed to beat Apple.

  • Report this Comment On November 25, 2014, at 9:44 AM, DirtyDog wrote:

    rule and Adam..

    KMI.. Halted

    SIRI.. SAR reversed bullish...


  • Report this Comment On November 25, 2014, at 2:59 PM, Foolistherule wrote:

    Hey DD,

    Whaddya mean by "halted"...?

    also I bought AMBS yesterday....It's probably BS but the deal is its a pharma startup by an amgen dude. they're supposed to be working on a cupla drugs for "old timers" and a blindness drug. speaking of blindness...I dont have lots of data except a crazy chart. It's a perfect stock for TA...maybe...let me know what you think

  • Report this Comment On November 26, 2014, at 12:17 AM, DirtyDog wrote:


    They did not start trading KMI till 9:55AM. It appears there was either to many asks or to many bids. A uneven market?

    Adam should know...let ask him.

    By the way....AAPL had a Dark cloud cover(a bearish candle) @ close. So I did some fib. retracements for you.

    216.8% of wave 1 is 121.00 area

    161.8% of wave 3 is 120.00 area

    This could be the high target area for the price.

    Let see what happens to my estimate...?


  • Report this Comment On November 26, 2014, at 12:24 AM, Foolistherule wrote:

    Thanks DD!

  • Report this Comment On November 26, 2014, at 10:28 PM, AdamGalas wrote:

    Well I'll admit I'm a bit befuddled by the trading activity on KMI and its MLPs. 252 million shares traded yet KMP still trading as well.

    Merger supposed to close today, which explains the super high volume of shares since as DD pointed out new KMI shares brings total shares outstanding to 4 billion.

  • Report this Comment On November 26, 2014, at 11:26 PM, Foolistherule wrote:

    yes when he said there were extra shares I figured that was the case. maybe they stop trading at midnight for after hours

  • Report this Comment On November 28, 2014, at 4:45 PM, AdamGalas wrote:

    KMP and the rest of Kinder's MLPs have now officially stopped trading.

    Yahoo Finance has yet to update its shares outstanding but interesting price action today. I wonder if DD would care to comment.

    KMI down 2.3% today, possibly in response to the slaughter in the energy industry.

    VNR down 6.7% yielding 10%

    ARP down 7.7% yielding 14.2%

    SDRL down 8.3% yielding 0

    BBEP down 11% yielding 13.8%

    EMES down 16.7% 7%

    LNCO down 18.25% yielding 13.9%

    HCLP down 18.5% yielding 5.2%

    SLCA down 25% yielding 1.1%

    Oh to be sitting on some discretionary cash right now;)

  • Report this Comment On November 28, 2014, at 5:19 PM, Foolistherule wrote:

    What is your favorite right now with new money?

  • Report this Comment On November 28, 2014, at 6:09 PM, AdamGalas wrote:

    Tough choice but I'd say BBEP is my favorite for new money for 4 reasons.

    1. Tied for highest yield.

    2. Monthly distribution means best chance to reinvest and maximize the power of compound growth.

    3. A new potential growth catalyst in horizontal drilling in its Permian assets.

    4. Compared to VNR and LNCO, BBEP has the best opportunity to grow its distribution in the future at the fastest rate.

  • Report this Comment On November 28, 2014, at 7:51 PM, DirtyDog wrote:

    AMBS...Just reading the daily chart.

    The first thing I see is a double bottom. In a Bollinger band we look for the big 'W' to verify the trend reversal. That happened 11/26/ C-0.093 pierced the resistance H-0.092(10/27/14) of the first leg up of the "W". The BB's upper line finally turned up with the C- 0.090 above the upper line. Your buy is save, as you are now starting a ride up the Bollinger band. More data will tell the time zone possibilities.


  • Report this Comment On November 28, 2014, at 8:42 PM, Foolistherule wrote:

    Thanks DD!

  • Report this Comment On November 28, 2014, at 11:15 PM, Foolistherule wrote:

    Thanks Adam. I'm prob gonna wait for the oil thing to play out before I dive in but now I've got a pretty good idea where i'll go.

  • Report this Comment On November 29, 2014, at 12:55 AM, AdamGalas wrote:

    I also will wait for oil to bottom, by which I mean I'll pray it keeps dropping as long as I haven't got money to invest and as soon as I get a chance to buy some BBEP I'll confidently declare a bottom to the market;)

  • Report this Comment On November 29, 2014, at 1:17 AM, Foolistherule wrote:


    Did you see my DOW stock dropped by 6% for no apparent reason? I would have thought it would have gone the other way. I'll probably let it settle and buy it down

  • Report this Comment On November 29, 2014, at 8:57 PM, AdamGalas wrote:

    Indeed DOW's decline is a mystery, no news that I can see but volume was pretty much average.

    Interesting to note just how bloody friday was for oil stocks.

    Checking the biggest % losers of the day, they are all oil stocks, you have to go down to #25 UBS AG before you hit a non-oil company.

    Biggest loser of Friday's OPEC massacre was EXXI, a small cap oil and gas outfit that lost 36.7% on know news other than oil plunging nearly 10%.

    48 of the 50 worst losers that day were oil stocks.

    Man alive, Friday was a day we young oil men will be telling our grand kids about, that's for sure.

  • Report this Comment On November 30, 2014, at 4:19 PM, Foolistherule wrote:

    Yeah, it's too bad the market cant realize that things will turn around in oilville. A few days ago (tues or wed) I sold my HP and KMI. If this portfolio had a long horizon, i probably would have hung on. I can always buy it back. they do look way haggard right now. Mr Market is sometimes like a spoiled teenager

  • Report this Comment On November 30, 2014, at 9:25 PM, AdamGalas wrote:

    As Keynes said, "The market can remain irrational longer than you can remain solvent."

    That's worth remembering. Because its easy to say "its impossible for X to happen". Wait long enough and X will probably happen.

    Case in point, I had initially planned on following Buffett's lead and using 1.6:1 leverage since my broker is willing to lend on margin at 4% and I was planning a 12% portfolio.

    On paper it would have meant a 16.4% net yield and with a 25% margin requirement I calculated that I wouldn't receive a margin call until my holdings dropped by 50%.

    One of those holdings would have been Seadrill and with solid long-term growth prospects the thought of a 10+% yielder dropping 50% seemed ludicrous.

    "No way Seadrill will yield 20%, that's just insane, market can't be that irrational."

    Yet look what happened. Company suspended its dividend and I got a free lesson in the dangers of leverage.

    Had I had the cash and followed my plan I would have had to sell Seadrill at sub $20, at the exact moment that smart long-term money is buying.

    As Morgan Housel writes in many of his excellent articles, over confidence in one's abilities is one of the strongest mistakes even experienced pros make.

    I thought I had a perfect system, calculated, calibrated, balanced.

    Yet the market's irrationality would have cost me dearly.

    The point of the lesson is that the fundemental criteria of "invest only what you can afford to lose" and don't use leverage, is important.

    As long as the only money at stake is your own you have independence. No one can force you to sell when you know the right thing to do is to hold or add.

    I applaud you FoolistheRule for knowing the parameters of your portfolio and not blindly buying and holding in an account that doesn't qualify for the basic parameters of that strategy.

    If you need the cash in the next 1-3 years then it shouldn't be invested at all, because you never know when the overdue correction will happen, or in the case of energy companies, the price of oil will crash.

    If you had said 4 months ago, when oil was $115 that it would soon be at $70, most people in the business would have laughed you out of the room.

    Yet here we are, the "experts" humbled and perplexed and proven wrong with every $1/barrel decline.

    Yes these prices are temporary, but how long "temporary" is no one knows.

    Oil might bottom at $65 or $60 and bounce back to $70 only to sit there for a year. If that scenario causes you to sweat because your holdings will get clobbered and you need the cash in the next year or two, then the right thing is to take the lesson and sell.

    Yes it sucks that you lost money, but believe me I've made far worse mistakes in the past.

    Just to give you an example, I once made $75K in a day, then lost $130K the next speculating in apple options after the company missed earnings for the first time in 29 quarters.

    Seemed impossible that they would, but they did.

    Was the market acting irrationally that day? Sure, was the long-term trend for Apple positive? You bet, did I lose my shirt due to foolish hubris? Most definitely yes.

    At least I learned my lesson and was able to come back from that mistake.

    Now I truly have an unforgettable (and deeply ingrained) knowledge of the dangers of speculation and over confidence burned into my soul.

    Sadly, as with many things in life, hearing them from someone or reading them in a book isn't enough to internalize them.

    Sometimes the only way to truly learn a valuable investing lesson is the do so in "the school of hard knocks."

  • Report this Comment On November 30, 2014, at 10:43 PM, Foolistherule wrote:

    I looked at my acct. and during the oil drop DOW started to drop too, so i sold it at 51. but it was still on my watchlist. one cool thing about the Fool is to see everyones' different approach to investing. also to learn from them with respect to what works for each individual. 'to know thyself'...I think the biggest thing i've learned so far is asset allocation. when i read the horror stories re GTAT, most people got carried away and 'overinvested' in that one stock. the 1000 shares of AMBS are only 83 bucks. so as long as people dont get carried away, they stay out of trouble. I'm assuming you bought puts in AAPL. read about cobra(don't be like me) on the options board. also as long as i have free trades(cupla more weeks) I can afford to dance around a little more and be more nimble. Not so when i start paying for trades...hopefully I dont develop bad habits!

  • Report this Comment On November 30, 2014, at 10:54 PM, Foolistherule wrote:

    Sorry i meant to say wrote (sold) puts in apple. that is what cobra did anyway...

  • Report this Comment On November 30, 2014, at 11:11 PM, Foolistherule wrote:

    Also, I find the the dynamics of the whole market thing very interesting. I mean, if we all agree on the idea that the market will go up, then it will, until half of us think it will go up further and half of us dont. It is always in the zone of 'equal uncertainty'. and none of us have all the data to make a fully informed decision. with that in mind I think the market will stall for a few weeks, not drop, but hit some resistance at 17800. I also think volatility is going to increase. New data on the horizon may change the prognosis though...

  • Report this Comment On November 30, 2014, at 11:41 PM, Foolistherule wrote:

    I dont think a little margin is all that bad, especially if the market return trounces the interest on the margin, and the ratio isn't too high. and even more so if there is more money coming in to bring it down. or money set aside to avoid high ratios. but I think margin is like not diversifying... it works well until suddenly it doesn't...

  • Report this Comment On December 01, 2014, at 1:09 AM, AdamGalas wrote:

    Actually my strategy was to buy calls expiring right after earnings announcement, 6-8 weeks prior.

    That strategy was based on a cyclical pattern of Apple running up 10%-20% prior to earnings, popping after 28 consecutive earnings beats, then dropping down and repeating.

    I thought I could double my money each quarter. Great in theory, of course, when Apple missed for the first time in 29 quarters the stock fell some 10% and the calls got wiped out, along with nearly all my equity.

    I learned the painful lesson that speculation is a fool's errand.

    As for using limited margin, I can see your point.

    If you were to apply only 25% margin to a diversified portfolio of stocks/MLPs with VERY safe dividends/distributions, (ie MMP, EPD, KMI, NNN, WPC, O, BIP) then the math works out:

    4% yield*1.25=5% yield-1% interest cost= 4% yield.

    Yield is the same but now you have a 25% boost to capital gains.

    If you can borrow $1 million then option house will let you borrow at 1.5% annually, and your yield becomes boosted along with capital gains.

    Margin call won't occur unless portfolio suffers a 70% decline, which given the stocks we're talking about (low beta) is unlikely.

    That isn't to say impossible but I'm not really sure its worth even the minimal risk.

    When interest rates rise the benefits will decrease and during a market panic brokers can change margin requirements in an instant.

    I think the best option is to choose a collection of 20 high-quality high-yield/dividend growth names like:

    NNN, O, WPC, MAIN, TCAP, KMI, MWE, KMI, EPD, MMP, BIP, LNCO, BBEP, VNR, MCEP, ARP, ARCP, SDRL (looking for long-term dividend reinstatement) ETV, ect.

    In fact I could see a 25 stock/MLP/CEF portfolio being appropriate if you use the last few positions to diversify your assets into corporate, foreign bonds, and preferred stock.

    I think you could realistically achieve a 7%-8% yield with 3%-4% dividend growth that should be good for 10%-12% total returns over time.

    Of course there is something to be said for three different portfolios.

    1. High-yield, ala LNCO

    2. lower yield/faster dividend growth ala MMP/ATM/QCOM

    3. Pure growth, (SDRL as of now, and mix of rule breakers/stock advisor picks ala NFLX, AMZN, ect)

    Knowing myself, I'll probably end up going for a mix of high-medium yield picks unless I can figure out a certain tax strategy that would preclude the use of MLPs.

    In that case CEFs may be the best option for high-yield which is my goal because I'm trying to build a retirement portfolio as a backstop to losing my job. Unlikely given my employer and situation, but always a good idea to be prepared.

    Finally, here is a article that will be of particular interest to many of us.

    $40 oil? Unlikely, but then again I would have said the same about a 37% decline in oil prices off their peak sans a global recession.

    If oil were to truly decline that low OPEC might break apart as Venezuela, Iran and other higher cost producers would not be able to tolerate Saudi Arabia's intransigence.

    As for Russia, their economy would go into deep recession and we might see several petrostates face coups.

    As the Chinese curse states: "May your life be interesting.";)

  • Report this Comment On December 01, 2014, at 1:57 AM, Foolistherule wrote:

    Scary article from bloomberg. how is russias oil vs south americas? I can see how the pattern of apple would have worked though. And how you would have thought AAPL was bullet proof. Interesting how buying a call is about the same as selling a put. Same logic. would have made sense at the time.

    Also, margin would be good if you got a paycheck coming or if you have access to a HELOC on file to cover

  • Report this Comment On December 01, 2014, at 2:04 AM, Foolistherule wrote:

    Now that I read the bloomberg art, I think the ^vix is going up even higher!

  • Report this Comment On December 01, 2014, at 10:19 AM, DirtyDog wrote:

    rule...APPL The SAR reversed this morning(bearish) is now @ 119.75. This agrees with the Fib's.

    The Fib's retracements were right again 120-121 was the trend reversal area. (See Nov. 26th. to rule.) Nice to know what can happen before it happens....ha-ha.

    DD...SIRI around 4.00 coming!

  • Report this Comment On December 02, 2014, at 12:18 AM, AdamGalas wrote:

    FoolistheRule, you mentioned how you think the US market is likely to hit the top and trade sideways for awhile. While I'm not one to put much stock in short-term prognostication, typically a sideways market coincides with a decreased VIX.

    Interestingly enough, if you are write than that CEF I'm looking at, ETV, should do better, since buy/write covered calls do best in a sideways market.

    Of course if you are right about the VIX going on the rise, perhaps because of concern that a correction is coming, then option prices will increase and that fund will do even better because the call premiums will rise yet the options will expire worthless maximizing the short-term income.

  • Report this Comment On December 02, 2014, at 1:03 AM, Foolistherule wrote:

    I guess what I mean is there will be a certain amount of resistance at around 17800, and things will bounce wildly below that number. so i guess sideways doesnt describe it so well, but I'm guessing that this whole oil thing has shaken up things, so I think volatility will increase and when the dow tries to go past 17800 it will stall. I think we are at a balancing point right now with extra skitzo. naturally, I have no empirical evidence to back that up, It is just my thinking currently. the market has done so well for the last several years with low vix, and everyone has gotten used to that but it is not 'normal'

  • Report this Comment On December 02, 2014, at 1:13 AM, Foolistherule wrote:

    Increased vix is great for option buyers on the right side of the trade, but can be tough for sellers. option premiums go up but you are more likely to be exercised without rolling the writes, which often means you miss out on some time value. it is great for writers if you wanted to sell anyway b/c you get paid more to write. more likely to cap more gains though. overall i think higher vix is good for options though

  • Report this Comment On December 02, 2014, at 1:46 AM, AdamGalas wrote:

    Well option premiums are based on volatility and potential for strong price changes.

    If the market were to peak and trade sideways at the peak, but market worry over a potential crash increased, then VIX would decline, (since sideways trading = declining volatility) but option premiums would climb.

    I'd be interested in what Dirty Dog thinks of your market top theory. DD care to comment?

  • Report this Comment On December 02, 2014, at 9:38 AM, DirtyDog wrote:

    Adam...Glad to!

    Back soon...with magic numbers!


  • Report this Comment On December 02, 2014, at 3:22 PM, Foolistherule wrote:

    Thanks DD!

  • Report this Comment On December 02, 2014, at 5:54 PM, DirtyDog wrote:

    rule and Adam...more T.A.

    Before I give my own outlook, a good CYCLE to look into is the Kondratieff wave. The K wave is a forecast of the economic cycle. The theory forecasts that there will be a strong economic correction at the end 2016 and a major meltdown with plenty of panic by the end 2019. I have studied it and one must give it a possible outcome. Would Hillary Rodham C. still run for Pres. if she know of the K wave? outlook coming...

  • Report this Comment On December 03, 2014, at 12:11 AM, AdamGalas wrote:

    I look forward to seeing what your technical prowess tells us about the short-term market movements.

    Though I continue to believe that investors should not sell based on momentum trading principles, I do think that there may be something to entering a trade based on some of those principles.

    If for no other reason than "the trend is your friend" and the self fulfilling prophecy that occurs when enough people follow such truisms or systems.

    Especially today with energy stocks, which are being hammered in the short-term on oil price movements.

    When a great blue chip name like EPD drops 7% in a week on no news other than oil? Well that is a potential buying opportunity.

    If that trend continues for a month or two more, well that's an even better opportunity and one well worth considering.

    Of course I'm not saying that dollar cost averagers or dividend reinvestors should adjust their systems based on technical trading patterns, but for those like me, who don't (yet) have recurring investable income, this might prove profitable in the long-term.

  • Report this Comment On December 03, 2014, at 12:56 AM, AdamGalas wrote:

    A fascinating article that makes some very good points.

    Saudi Arabia can get oil out of the ground at gross cost of $2/barrel.

    As my TMF colleague Matt DiLallo put it, "They stick a straw in the ground and oil comes out."

    BUT the IMF estimates that in reality Saudi Arabia requires $91/barrel to remain solvent?

    So what gives?

    Turns out, as this article explains, that Saudi Arabia has a major demographic/economic/societal problem.

    About 40% of their population is under 25 and unemployment is very high.

    Add to this the Arab Spring's increasing desire among Arabs for democracy and the kingdom had a major problem.

    To keep the populace docile and from revolting they've spent a fortune on a generous welfare system to keep the unemployed youth off the streets and out of the palace halls.

    That means that in reality they need $91-$100 oil to keep things going smoothly.

    Throw in the fact that the founder of Saudi Arabia, Muhammad ibn Saud, made a deal with the devil when he recruited the Wahabis to help him rise to power and consolidate the nations tribes, and Saudi Arabia is holding the proverbial tiger by the tale.

    You see, the Wahabis are the most militant branch of Islam, real middle ages types.

    All those laws about women not being able to go out in public or drive? That's their influence. Osama Bin Laden? Wahabi.

    Over the last few decades the Wahabi clerics in Saudi Arabia have pretty much forced the government to spend hundreds of billions of dollars on world wide Madrasas and other militancy efforts to spread their version of Islam.

    Now you have a whole nation of unemployed young men, who've been brainwashed into the most violent form of Islam, and the only thing keeping them from burning the royal palace to the ground is the clerics who are being bought off.

    Oil prices fall too low then the Saudis have a major problem.

    Cut the welfare spending that will put the angry young men into the street calling for revolution, or cut the money to the Wahabi clerics... who will then denounce the government as a secular pawn of the west and put the angry young men into the street calling for revolution.

    Ironically enough, thanks to decades of poor economic/social planning the middle east, where oil is the cheapest to get out of the ground, actually is one of the most reliant on high prices.

    Iran for example, needs $136/barrel oil because of the absurd welfare state its running, with $.05/gallon gas as one key example.

    Looks like OPEC decided to play rough with US shale producers and brought out their knives looking to slit some throats...

    Only to discover that it was facing off against a bunch of Oklahomans and Texans who brought a bunch of very big guns to this knife fight.

    Let me know how that works out for you Saudia Arabia...meanwhile I just need this madness to go on long enough to save up some cash and lock in some of these absurdly high yields.

    13, 14, or even 15% yield paid monthly on some of the best upstream MLPs? Without a market crash? Never thought I'd see the day.

  • Report this Comment On December 03, 2014, at 1:35 AM, Foolistherule wrote:

    Very interesting

    Perhaps they dont care about anyone but themselves. based on what you say they dont care about the price they need the money and cannot afford to cut production. If oil stays low b/c we are producing, cutting production by them will just mean less for them

  • Report this Comment On December 03, 2014, at 3:22 PM, DirtyDog wrote:

    KMI...2015 div. @ 2.00 a share expected.


  • Report this Comment On December 03, 2014, at 3:52 PM, DirtyDog wrote:


    Just picked up AMBS @.0.0874 on the dip.

    Should be in 0.100 range 12/09/12 for the sell. JMO


  • Report this Comment On December 03, 2014, at 8:35 PM, DirtyDog wrote:

    Adam.. The .DJI( DJ Industrail Average)

    The 161.8 fib retracement from the bottom of the previous wave 9/19//2014 (H-17,275) to the top 10/16/2014(L-15,935) is...18,103

    17, 275-15,935 = 1, 340 x 1.618 = 2,168

    15,935 + 2,168 = 18,103 Possible top

    Fib Time Zones in the last 5 lows that were in the Ending diagonal that began 10/8/13 have 1 to 1.618 relationships. The next time zone would be on or about Feb 6th. 2015 for the next low. If you pass a downsloping support line through the last 2 lows it hits my date in the 15,600 area.

    Only numbers (next possible low 15,600 on Feb. 6th. 2015) jmo




  • Report this Comment On December 03, 2014, at 9:46 PM, AdamGalas wrote:

    FoolistheRule, the thing to understand about the oil markets is its much like the stock market.

    For example, if you had 10 shares of Apple and I had $10,000 I wanted to give you we could agree to exchange them by inputing limit orders for $1,000 Apple shares.

    At the moment the trade went through Apple would instantly jump to $1,000/share and Apple would suddenly become a $6 trillion company, the most valuable in history.

    The oil markets are the same.

    The price of oil is based on futures that are trading like stocks.

    If OPEC announced a 10% production cut then oil prices, thanks to speculative traders, would big up the price and Saudi Arabia would instantly benefit.

    That is why we are not seeing a race to the bottom where cash strapped OPEC nations are actually increasing production to offset falling prices, thus causing prices to fall further in a downward death spiral that would see them all slit their own throats trying to compete with North Dakota and Texas shale.

  • Report this Comment On December 04, 2014, at 2:02 AM, Foolistherule wrote:


    Thanks. That totally makes sense......AND as a matter of fact I DO happen to have 10 shares of Apple stock to sell at $1000. Heck....Ive even got room to haggle a : )

  • Report this Comment On December 04, 2014, at 11:48 PM, AdamGalas wrote:

    LOL;) If only I could find a spurned wife who just caught her husband cheating on her who'd be willing to sell me a few thousand shares of his Apple shares for $1 or so:)

  • Report this Comment On December 05, 2014, at 1:19 AM, AdamGalas wrote:

    Looks like my deepest wish may come true.

    "Oil prices will have to go below $30 for some of these wells to be shut in, and even then the owners need the cash to survive. They will milk the cow until the cow drops dead."

    Do I dare hope we see WTI drop to $30 as US Shale and OPEC slug it out in a grand free for all battle to the death?

    Can you imagine what a short-term (1 year) fall in WTI to $30 would mean for the likes of some of these MLPs? Buying opportunities the likes we haven't seen since the dark days of March 2009, at the low of the financial crisis!

    Do I dare whisper of such a dream?;)

  • Report this Comment On December 05, 2014, at 1:52 PM, DirtyDog wrote:


    On Aug.15,2014 I mentioned the end of high priced oil. The 8 wave pattern(now in wave C) has shown with Fib retracements a possible 30/35 oil. Yes a reason to buy then,,,ha-ha.


    KMI...looking for Wave C to begin. We are in the B Wave that can retrace(upward) between 100 and 138 of Wave A. Wave A, H-41.82 Wave B's latest H-42.41. The C wave will follow with the 8th. Wave's correction. Possible terminations of Wave C are the end of Wave A(L-33.25) and 1.618 x Wave A = below 31.00. A good time to sell putting on will be in. jmo

  • Report this Comment On December 05, 2014, at 7:28 PM, AdamGalas wrote:

    DD I'm curious as to what your TA says about the recent oil price decline? Could you tell us what you think the bottom may be? And when?

  • Report this Comment On December 06, 2014, at 10:49 AM, DirtyDog wrote:

    KMI..At close 12/5/14 we have a Western Inside day or a Harami Cross(candle pattern).

    Each warn of a possible trend reversal. The C Wave that can return to 33 or below 31, as it can eat up a few years of div.'s. 41-33 = $8.00. But it is up to the investor to sell now and loss a couple of Q''s and then reinvest as we bottom. The trend is your friend if you use T.A. jmo


  • Report this Comment On December 06, 2014, at 11:48 AM, DirtyDog wrote:

    Adam...WTI daily chart..

    161.8 @ 70.46 (fell through, RESISTANCE)

    261.8 @ 65.93

    12/05/14 (65.36)

    Probably will go up for the holidays, but will decline after tax season. jmo


  • Report this Comment On December 06, 2014, at 7:14 PM, AdamGalas wrote:

    I would truly love to see WTI drop to the kind of levels some analysts are predicting. I've heard as low as $30.

    Can't imagine how good of a buying opportunity some of my favorite stocks would become at those levels.

  • Report this Comment On December 06, 2014, at 8:00 PM, AdamGalas wrote:

    A great article that highlights a very interesting idea.

    Linn Energy's distribution is safe through at least 2015 thanks to their aggressive hedging.

    But what if they were to eliminate the distribution entirely and use the cash flow to buy back units that are trading at ridiculously low levels?

    A suspension of the distribution plus WTI continuing lower would send Linn's stock and units cratering. Right now at $15 but if WTI hits $30 as some think it might, and Linn suspends payments, (and then market corrects which its overdue to do) $5 isn't inconceivable.

    As Matt DiLallo points out they could buy back 15% of units outstanding within a year just using cash flows that are going to the distribution.

    If Linn falls to $5 that's 45%.

    When WTI recovers they would be able to reinstat the distribution at the current rate + 45% higher to get the same coverage ratio.

    Of course I'm not sure if that would be legally permissable given LINE's MLP status but its an interesting thought none the less.

  • Report this Comment On December 06, 2014, at 8:55 PM, Foolistherule wrote:

    I would guess even if oil doesnt drop any more, prices of stocks will stay low til oil actually goes up, eh?

  • Report this Comment On December 07, 2014, at 6:30 PM, AdamGalas wrote:

    According to IHS break even on average US shale is $57/barrel so oil might have further to drop.

    Then again 40% drop in drilling permits tells me we don't likely have long to wait for a bottom in the oil market.

    That should give a boost to the economy as lower energy prices should boost profits and spending above the loss of investment from the energy sector.

  • Report this Comment On December 07, 2014, at 6:48 PM, Foolistherule wrote:

    I'm thinking about just waiting until things start to move upward re the whole sector. I know I might miss out on a cupla bucks, but that way I can put my money to good use in the mean time. Do you think this sector is going to pop over night, or do you think things will rise in time to move in? I guess i could get part way in but if things take a while or go down i'll be glad I waited. I feel there will be time. How bout you?

  • Report this Comment On December 07, 2014, at 7:46 PM, AdamGalas wrote:

    I'd like to congratulate Tyler and Matt for their responsible restraint in forecasting the specific short-term price or trend for crude.

    In the past week I've read numerous stories from reputable sources like Bloomberg, Forbes, and the Economist that make great cases for Oil finishing 2015 both at $100 and $30.

    With billions of dollars on the line and energy investors fleeing en mass, these articles can make titillating reading but their value to investors is all but nill.

    The simple fact is that no one can predict where the oil market is going tomorrow, next week or next year.

    What does remain true however, is that this price collapse is no different than so many others. Oil is cyclical and the last few years of price stability have left many new investors to this sector expecting easy profits, rich dividends, and stock prices that move in just one direction, up.

    Today we are seeing a shakeout of these investors that are leaving great companies and MLPs that I've followed for a long-time trading at ridiculously low prices.

    Linn Energy is now yielding 20%.

    Mid-Con Energy is at 21% and New Source Energy Partners 23%.

    The last time this occurred, the financial crisis of 2008-2009, those brave enough to buy when no one else had the courage to are now sitting on 30%, 40%, or even 50% yields on invested capital.

    I can't say that this will necessarily hold true again, but with the earth's population growing, as is the global economy, chances are the price of oil in 5, 10 or 15 years will be far north of $100.

    In other words, Seadrill at $12 (down 75% from its all time high) and trading at 4X next year's expected earnings, could be a "Buffett investment" meaning the kind that you buy now and then hold for 10, 20 or 30 years and whose returns will boost your portfolio to the point of making you look like a genius for several decades to come.

    Remember people that stocks aren't digits on a screen or slips of paper, they are ownership stakes in living, breathing companies.

    Don't look at the share price but at the underlying growth prospects of the company.

    Look at the management and its quality (a good proxy is profitability above industry average in terms of returns on assets, equity and invested capital).

    If something is trading for less than its worth now, and a lot less than it will likely be worth in 5, 10, or 15 years, then buy only with money you won't need for that length of time and ignore the daily headlines.

    Unlike professional fund managers, individual investors who invest only their own money have no one to answer to but themselves. That means we can make the hard, but right call and make out like bandits.

    Back in the mid 1970's the stock market was going through a 6 year bear market. Oil prices were sky-high, inflation hit a record 13% and nearly every stock was dirt cheap.

    Warren Buffett was buying all the great companies he could get his hands on while professional asset managers were decrying a lack of "clarity about the future".

    As Buffett wrote in one of this earliest Berkshire shareholder letters "You pay a very high price for a cheery consensus."

    The same now goes with energy stocks especially those who've been so badly brutalized in recent weeks and months.

    FoolistheRule, the faster a sector sinks the faster it will rebound. I've seen a whole bunch of 10% up days on the slightest bit of good news.

    If you're a long-term investor and have discretionary money to invest, you can't go wrong getting in at these prices.

    As Buffett says, by the time its clear that the oil market has bottomed some of the best companies will have rebounded 20, 30 or even 40%.

  • Report this Comment On December 08, 2014, at 8:42 PM, AdamGalas wrote:

    Wow, another oil swoon another bloodbath. I actually have a 10% series article coming out about it.

    And here I sit with not a dime to invest into any of these potential gold mines.

  • Report this Comment On December 08, 2014, at 8:43 PM, AdamGalas wrote:

    bump to reveal above post

  • Report this Comment On December 08, 2014, at 9:02 PM, notyouagain wrote:

    Me too! I'm sitting on a little cash but have to hang onto it until I have more.

    I have learned one thing. Being forced to wait longer has only and always (so far) turned out to be a good thing.

  • Report this Comment On December 08, 2014, at 9:36 PM, AdamGalas wrote:

    Mostly in my case as well but I doubt my luck will hold out much longer.

  • Report this Comment On December 09, 2014, at 11:12 AM, DirtyDog wrote:

    Adam..I hope your seeing the presence of Fibonacci numbers in cycles that can predict tops or reversals. Time cycles between price reversals are also frequently apparent.

    APPL...Top 120/121 (see Nov.26th. and Dec.1)

    DJI......Top 18,103 (see Dec. 3rd.)

    KMI...We fell through the SMA(21) on 12/8/14. It looks like a third Black Crow for today. jmo


  • Report this Comment On December 09, 2014, at 8:46 PM, AdamGalas wrote:

    DD I'm not a TA trader so I'm not monitoring that stuff. In fact I'm not really monitoring daily price swings unless its to update yields for articles or because I'm writing a 10%+ promise article.

  • Report this Comment On December 09, 2014, at 9:07 PM, AdamGalas wrote:

    A very interesting article about how $250 billion of oil projects is threatened by oil below $70.

    Here's an article that seems to indicate that cheap oil is here to stay.

    That will make for some very interesting articles about the potential implications for upstream MLPs, frac sand suppliers and of course, offshore oil drillers.

    In fact Seadrill is being sued because some shareholders feel cheated that management said the dividend was safe through 2015.

    Its certainly an exciting time for the energy industry especially after what the CEO of Kuwait's national oil company said yesterday. He predicted $65 oil through OPEC's next meeting, on June 5.

    That will certainly help the economy, with some analysts estimating $1.8 trillion flowing to oil consumers.

    The question is how much of an economic boost will that give the world's economy given that last year the oil industry spent $700 billion on exploration and development of their projects.

    Ironically it seems that every penny of profit is being recycled into more E&P spending so if that proves true lower oil prices might actually result in a worse economic downturn, making this one of the few times (perhaps the only time) that lower energy prices are a bad thing.

  • Report this Comment On December 09, 2014, at 9:53 PM, AdamGalas wrote:

    Oh by the way John as I was adding stocks to our small cap dividend portfolio I noticed that MCEP and BBEP, the upstream MLPs were up 14% and 13.3% respectively

    That's on a small recovery in oil of less than 1%.

    It goes to show that trying to time your entry isn't a good idea. No one knows when the bottom will be and by the time we know its here the price will likely be up 50% on these excitable high-yielding puppies.

  • Report this Comment On December 09, 2014, at 10:13 PM, Foolistherule wrote:

    You are right sir!

    Looks like I missed the plane to Recoveryville.

    Now I gotta take the bus!

  • Report this Comment On December 09, 2014, at 10:57 PM, DirtyDog wrote:


    Good by!

  • Report this Comment On December 10, 2014, at 8:15 PM, AdamGalas wrote:

    Sorry to see you go DD.

    Oh and I didn't say you missed the recovery train, just look at today's oil prices. Down nearly 5% to $60.

    Another bad day for already bloody energy companies but so far not as many double digit declines. So it seems the bottom might not yet be here, or it might who knows.

    As this excellent article points out:

    You should always expect the unexpected.

    Stock speculation is rarely profitable.

    That's why we champion long-term investing at TMF because no one can predict the future and all we know with any confidence is which companies are likely to be good businesses over the long-term.

    That gives us the edge, of being able to buy when prices plunge and fear is at its greatest. If prices fall more we buy more as long as the fundamental story for the company hasn't changed.

    Eventually we hope to be proven right and things like high and rising yields and growing dividends/distributions are our greatest ally in that fight.

  • Report this Comment On December 15, 2014, at 10:40 AM, DirtyDog wrote:

    rule...My last note to you!

    The DJI bottoms the first week of Feb.( Feb. 6th., a Friday would be nice ) 2015 @ 15,600 area.

    I will be on Raging Bull Feb.1st. 2015 under Investment strategies....Look for the DirtyDog there for more trading fun without div. worries.


  • Report this Comment On December 15, 2014, at 10:53 AM, Foolistherule wrote:

    thanks DD

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Adam Galas

Adam Galas is an energy writer for The Motley Fool and a retired Army Medical Services Officer. After serving his country in the global war on terror, he has come home to serve investors by teaching them how to invest better in order to achieve their financial dreams.

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