Veresen Inc (VSN.TO)

Was short this a couple of years ago based on its high valuation, but has recently covered it. This has poor price momentum. Price momentum matters because it can become a self-fulfilling prophecy. Valuation is still not supportive even at this low price. Trading at 10X cash flow and 46X EBITDA and 28X PE. Despite how much it’s dropped, it has too much debt, and he would question if the 14% yield is sustainable.

You have to be a bit careful in the energy space. Energy stock could cut their dividend. He would not count on any big entity holding the line on their dividends.

Has questions whether they are covering their dividend or not. Not as confident in this company, as in others.

When something gets out of favour and does not have diversity, it gets hit. He would not try to pick the bottom. The 11.5% yield says it should be cut.

11.6% dividend is in the range where you have to be very, very careful. This has 2 stories. It is sort of the alliance pipeline moving gas from Alberta to the Midwest, where they have a fractionating facility. A good business and roughly covers the $1 of dividend. However, their LNG facility in Oregon keeps getting delayed and delayed which is why the stock price has come down. This gives him concern. (See Top Picks.)

(A Top Pick Nov 18/14. Down 47.88%.) The whole midstream space is really being challenged. Yield has gone up to about 11%.

Finds all the pipeline companies to be monopolies, because we don’t have capacity. One of the only LNG projects that are continuing to be built south of Vancouver. Because of that, they will be one of the 1^st ones to market. This is one that he is getting very itchy to buy, but the prices continue to decline. At the current yield of about 9.5%, it is a strong argument to start to acquire it. The dividend is sustainable.

The LNG facility they want to build in Jordan Cove in Coos Bay, Oregon is complicated. They don’t necessarily drive the boat on these projects, which makes it more complicated. Prefers Alta Gas (ALA-T). Also, there is too much gas. (See Top Picks.)

(Market Call Minute) Likes other better.

(A Top Pick Nov 12/14. Down 30.89%.) This is one of his core holdings. He likes that they are still building the LNG plant in Oregon. As some point that is going to come online. Has a good dividend yield.

He feels good about the energy sector. It just broke support, but he feels it will rally now. He thinks we just had a bear trap. It reacted well today with the rest of the group. It has had an A, B, C correction.

They are trading well below his NAV, but a lot of pipelines are. They have a high payout ratio, over 100% next year. The dividend is not safe. It is still not cheap. There are better pipelines. ENB-T is preferred.

Be cautious. He is not in any pipelines except ENB-T. There is a feeling that these mid-stream players are more insulated than E & P companies but it affects projects and long term capital allocations. He prefers ENB-T. It has less risk to the dividend. He was short VSN-T for a while.

They pay out fairly fully on their cash flow, but it is sustainable for now. Offtake agreements are not in the name and when there is certainty on them that could be the next lever in the name for growth.

It has transformed itself quite sharply. It will be one of the first west coast North American LNG facilities. They are well positioned to be a prime beneficiary of the LNG movement. He is concerned the valuation could be too high.