Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Independent U.S. oil and gas producer Linn Energy LLC. (LINEQ) stock is down more than 8% in mid-afternoon trading on February 10, recovering a bit after being down more than 10% early in the day.
So what: The stock is down 45% over the past few months, and on a day when crude oil futures drop 5%, it shouldn't be a surprise that Linn Energy gets hit. Furthermore, the stock has rallied since mid-January, gaining more than 50% over that time, so at least some of today's price drop could be the product of profit-takers selling early in the day.
Now what: Oil producers like Linn are going to see plenty of volatile days in coming months as oil prices fluctuate. However, only higher oil prices will lead to steady long-term returns for Linn investors. The company has already slashed its dividend by half -- and cut its drilling program 50% as well -- in an effort to prepare for a very tough 2015. There is some good news, however, as Linn announced last week that an informal SEC inquiry has ended and doesn't intend to recommend any enforcement action. That's a major distraction that management and investors no longer have to worry over.
While even the reduced dividend is an attractive 9% yield on today's share price, it's possible that oil prices could stay down for a prolonged period. If that happens, Linn's dividend would likely be subject to another cut, and that would further punish the share price as well. Income seekers are probably better off putting their money somewhere besides oil and gas producers like Linn -- at least for now.
