Opinions
Robert Lauzon
Argent Energy Trust
AET.UN-T
COMMENT
Mar 13, 2014
Stock price when the opinion was issued
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This is one of the most recent poster childs for the kind of financial engineering that gets sold to investors. It paid out a dividend it could not afford for far too long. They could not keep the game going because they could not find new things to buy to get financing to keep the scheme going. Don’t even count on it being taken over.
This along with Eagle Energy Trust (EGL.UN-T) and Parallel Energy Trust (PLT.UN-T) are Canadian trusts that have operations in the US, mostly in Texas. This one and Parallel had big stumbles lately which pulled down Eagle a little. People are concerned a little bit about the dividends in all 3 cases. Yield of 8.5%.
There are a lot of better places to put your money. Have had a lot of trouble in the past, which is not going away, because they are having difficulty with asset sales. It got to a point where they had way too much debt and had to do a big write off of their assets. Their CapX is actually smaller than their interest payments.
If the stock stays flat here and you clip an 18% yield, which is not a bad return. The risk is that eventually they may have to cut the dividend. Pretty hard for them to raise equity here to do more acquisitions or finance growth for issuing equity with an 18% yield. Have gotten themselves into a bit of a corner here with some poor operational results and packed on too much debt. $5 is probably the right price for the stock but your 18% yield could become 10% pretty quickly if they decide to cut it later this year. There are lots of companies out there that give you that same total return potential of 15%-20% without the risk of a dividend cut. These would be names such as Whitecap (WCP-T), Torc (TOG-T), Crescent Point (CPG-T), Twin Butte (TBE-T), Peyto (PEY-T) and ARC (ARX-T), which can give you 15% total return without a potential dividend cut.