Veresen Inc (VSN.TO)

High yield of around 7.7%. This is one of those infrastructure stocks that is very expensive on a lot of other metrics. Scores in the bottom 15% on valuation. It clearly has very good price momentum, but pretty lousy valuation. Low ROE’s and very high EBITDA ratio. PE at 68X. Too expensive, despite the high price momentum. He would look elsewhere.

(Market Call Minute.) This is interesting. Higher risk with about 100% payout ratio, but all in he thinks that business does improve, and you can own this if you don’t mind taking a bit of risk.

There are things on how this company evolved that he doesn’t like. This has a great business in the Port Chicago pipeline, and historically they have taken their money and kind of blown it. Their LNG workings on the West Coast seems to always have pipeline issues in the forest, and along with lower global natural gas prices he questions if it gets built. Prefers TransCanada (TRP-T). Dividend yield of about 9.5%.

They have been in the news quite a bit because they are looking for an answer to Jordon Cove. Their dividend is very safe according to Management, but there will be pressure on it if they don’t get approval for Jordan Cove. Results are expected sometime this fall.

There are other names that would be better. Had a big project at Aux Sable which they had some trouble with. They got partial financing for it. If Aux Sable went forward, that would be a positive. Prefers companies that have smaller and more manageable bets.

Has about a 100% payout ratio, so wouldn’t call the dividend safe. Their US LNG project, Jordan Cove, might not really come to fruition. Trading at a reasonable price to cash flow versus its five-year average. If everything goes right, he thinks their payout ratio will fall to about 90% next year, and you will probably get paid your dividend. They also have some midstream projects that are under construction. Dividend yield of 9.3% could be at risk.

(Market Call Minute.) Have had some trouble in Jordan Cove. Given that uncertainty he would prefer Pembina.

This has a high yield. They are basically paying out all of their cash flow currently. Their big asset is a portion of the Alliance Pipeline and the Aux Sable fractionation facility in the US. The pipeline is going along very nicely, but the fractionation business is terrible right now and has hurt them. They are also doing a potential LNG project in the US, which is waiting for approval from the regulators. If they get the approval, that is good, but if they don’t, that is bad. 9% dividend yield, so the market thinks they will probably have to cut.

(Market Call Minute.) Debt would be better than the equity.

The LNG landscape has changed so much in the last 6 months, and it is what you can sell your product for on the international market, so you start putting yellow flags beside some names. This company is in limbo in that category of investment, so he prefers Altagas (ALA-T), which cancelled their LNG project. Veresen is on Jordan Cove, and he can’t figure out if this is a good or bad idea economically. Also, have many environmental issues as to how to get the gas there. Too many question marks about their business plan.

The removal of the Jordan Cove upside has affected the stock price. The dividend is still payable at almost 12%. It has been a 98% payout ratio for years. If you are constructive on the energy patch then you can own this name.

The 11% dividend yield is a risk, and reflects the fact that there is uncertainty related to its pullback. One of the issues is the planned LNG facility on the West Coast, which was rejected primarily because they didn’t have enough off-takers and shippers on their little spur line that would lead to Jordan Cove. Have done a pretty good job in the last month or so, and are going to reapply. If they can get it approved (a big if) the stock is undervalued by $3-$4. At these low prices, it is fairly attractive.

It was going to be quite active in the export of LNG. The plant has been delayed and it created a setback. You have to questions the dividend going forward. He prefers pipelines companies.

There has been a little bit of caution in the last couple of months because of the Jordan Cove project, an LNG plant south of Vancouver in Oregon. When that starts up, they will be able to play the differential between North American gas. Payout ratio is kind of high, but commodity prices should firm up going forward, and it is a pipeline. Great yield of 11.49% which he thinks is safe.

It has been very newsworthy in the last few weeks. The US Government rejected an application for off shore work. The stock had returned to the $8 range. The dividend is too high. If they don’t move Jordan ahead they may choose to cut their dividend and that would be good for the company to do. They are religious on paying down their debt and he thinks they should continue to do that.