While "Ultra Safe" US Treasury Bonds Crash, Here are 3 MORE 18%+ Dividend Plays with 50%+ UPside by 2023
Hey Subscriber,
After my "Please Don't Be Greedy" with all the profits and dividend checks we have cashed since 2020 sermon yesterday, why am I adding 2 New 18%+ Yielding Energy and Seaborne Shipping Play this week to our raging hot Ultra Income Portfolio.
Remember--regardless of if the Russians admit defeat tomorrow and turn tail for their homeland in shame, the modern WORLD has changed forever when it comes to
1) where it gets its nat gas/coal/oil energy/wheat/corn from and
2) companies in the seaborne shipping world with high cash flow business models have transformed from the BUY BUY BUY more and more shiny new ship hoarders they WERE into shareholder-friendly dividend-paying machines who finally understand that suppressing the supply of seaborne bulk shipping boats to keep demand HIGHER than supply is the real game.
We added $GOGL to our Ultra Income plays on March 3 update without a lot of background...so let me make the recommendation again
Action To Take: BUY $GOGL Up to $13.25 with a $17.50 target price and lock in a 30% Yield (.90 per quarter)
When the seaborne shipping industry gave up their fetish for taking almost all their profits and buying MORE SHIPS...the industry that was NOT investable (unless you like losing money) became highly investable. We have done extremely well with our $SBLK investment--up from $22 ish from December 2021 to $30ish today while paying us an astounding $8 annual dividend (36% yield!).
We bought pure LNG shipping play $FLNG a bit later near $21 (with $3 dividend or 14% yield) and it now trades for $25 (let's take Buy Under to $25.50--we did not count on Russia turning LNG into a $trillion industry as Europe joins Japan and China as LNG co-dependent for the rest of my years on earth.)
Net Net: $GOGL--the largest bulk shipping owner/operator in the world, is paying us $3.60 per year in dividends (30% ish at today's value) instead of BUYING more bulk shipping boats.
In talking with bulk shipping brokers, I asked them "What changed--when did bulk shippers decide to value shareholders over owning the shiny bright newest boats?"
The unanimous answer is similar to the dividend-paying conversion in the US energy space--the old Greek or Norwegian shipping magnates have died or retired and the younger generation of managers have had a "come to Jesus" moment and NOW understand supply-demand of vessels really matters and shareholder dividends matter too.
The math is just compelling in bulk shipping...and that was BEFORE Russia invaded Ukraine.
Simply said, Golden Ocean Group GOGL vessels have a breakeven rate of $12,800 a day for their Capsize vessel and $8,400 on their Panamax vessel. The latest quarterly report states that the company is seeing time charter equivalent (TCE) rates of $33,500 per day on their Capesize vessels and $22,900 per day on their Panamax vessels, meaning that the company is currently profiting over $20,000 per ship per day for their Capesize vessel and about $15,000 per ship per day for their Panamax vessel.
Key point: Platts Time Charter Equivalent (TCE) assessments reflect the net daily revenue of vessels operating on key dry bulk routes across the globe.
Note that the total TCE rate average across all Golden Ocean Group vessels was roughly $34,920 per day in Q4 of 2021. This is up from $15,886 per day during the same time last year. According to Platts "The ongoing conflict had a substantial impact on the oil tanker market as Russia is a key player in the oil and gas sector, but the impact on the dry bulk sector remained muted because of the limited contribution of both Russia and Ukraine in the overall dry bulk trade (less than 3%)."
In the meantime, long haul bulk shipping of substitute tonnage of coal and grains and iron ores from regions NOT trading with Russia means (in many cases) LONGER bulk shipping days to bring iron ore, coal or wheat from say Brazil or United States to China vs. Russia or Ukraine.
Buy $GOGL and let the dividends flow!
Dividend King #2--SJT San Juan Royalty Trust--SJT is a rare pure play on a very long-lived US natural gas region. The San Juan Basin contains the largest coal-bed methane field in the world and ranks second in total gas reserves
Action to Take: Buy SJT Under $8.50 with a $15 target
SJT is an interesting story about how social media conspiracy theories can ffff up a great stock.
First off, because by law SJT can't raise new money or sell new shares they of course get ZERO Wall Street coverage. It was the first US energy trust I recommended in my ChangeWave Research days in 2003...it's been around since the 80s.
The San Juan Basin is a huge geologic structural basin located near the Four Corners region of the Southwestern United States. The basin covers 7,500 square miles and resides in northwestern New Mexico, southwestern Colorado, and parts of Utah and Arizona. Specifically, the basin occupies space in the San Juan, Rio Arriba, Sandoval, and McKinley counties in New Mexico, and La Plata and Archuleta counties in Colorado. The basin extends roughly 100 miles (160 km) N-S and 90 miles E-W.
FYI the San Juan Basin ranks second in the WORLDS total gas reserves!
SJT typically has traded in a 6-10% yield range; today the MONTHLY dividend is around 20%.
A unique one-off situation earlier in 2021 where the trustee changed accounting systems and OVER paid 3 monthly dividends (and then halted dividend for two months) scarred and scared a lot of people out of the trust
Here is why I loved SJT in the early 2000 natural gas boom and why I love it in the 2022 LNG boom.
The SJT energy trust owns over 150,000 acres of land in the San Juan Basin in New Mexico with roughly 3,800 producing natural gas wells. It has no employees. Its wells are operated by a $billion private energy company Hilcorp which is paid to pump our gas and sell it to the best bidder and then hand over the monthly profits to the SJT trustee which is PNC Asset Management out of Houston, TX.
The SJT has enough drillable coal bed methane locations to last many more decades. The wells are 100% certain to pay out...there are no dry holes ok?
Key Point: The trustee has one job--collect the payments from Hillcorp from selling the nat gas and then to pay distributions on a pro-rata basis to shareholders monthly--easy peasy. It's important to understand that SJT trust cannot by law issue more shares or borrow money and it can't acquire new assets and grow. Thus, its balance sheet is very simple and it's an extremely low-risk company given no debt.
It just pumps gas, sells it, pays expenses, distributes profits to shareholders. No management salaries, pensions, share buybacks, borrowing to expand, etc.
The operator Hillcorp has full control of the assets. The trustee monitors the operator and has the ability to audit results which it does on behalf of the shareholders. Over the years, the operator has, from time to time, made business decisions to do maintenance work on the wells in order to boost production. In theory, the cost of doing the work will be more than earned back via increased production but the cost of the work is paid out of cash on hand immediately while the increased production and profits come back over time in the future.
The result of necessary maintenance is sometimes the dividends are turned off for a month or two in order to pay the operator back for the cost of work done which has created selling panics. The selling panics take place because the trust is 90+% owned by retail investors and as mentioned with zero Street analysts following it--when a steady dividend goes to zero--the retail response is usually to sell immediately given they have no clue why.
Really Key Point: These sorts of panics are fabulous for well informed investors like us to take advantage of! Now the real bizarre story. In May 2021, something weird happened. The operator Hilcorp announced it had switched to a new accounting system which required them to determine the dividend that month off estimated production and revenues from the month of March (SJT dividends are paid out on a 2-month lag thus any monthly dividend is a function of prices and production from 2 months ago).
That particular dividend was disappointing in that it was a 50+% decline from the previous one and there was a double-digit % drop in price. Then the June dividend was very disappointing and caused a huge 15% price drop and that's when the buzz began on various social media sites over the Hilcorp accounting system being a problem.
Then came the July dividend which was much higher than expected and we saw a 15% rise in SJT price which was actually underperformance given natural gas prices, in general, were rising. Then the July 2021 divvy was a disaster. The Trustee announced no dividend due to Hilcorp announcing it had overpaid the previous month and was clawing it back (again off estimated production and pricing). This was where SJT plunged 20+% in a day and social media sites went wild with accusations that Hilcorp was openly looting the trust, that the trustees were in on the looting, and that SJT was going to announce the gas had run out and was being closed down. I started following my old friend SJT with the September 2021 dividend. Hilcorp had said in a previous press release that they were still clawing back some additional overpayments so there was a chance the dividend could be $0 again. When a positive dividend was announced along with the fact the new accounting system was up and running using real production and pricing, SJT moved about 15% higher over the next few weeks.
The last 3 dividends of 2021 were all fabulous and pretty much what was expected given ever-higher natural gas prices. The November dividend, in particular, was the highest in 4yrs yet the share price has lagged greatly thus the opportunity in buying SJT.
WE have to assume that SJT currently trades to an absurd yield and valuation relative to other natural gas trusts because social media-based investors are still uncertain about future dividends. Given the 2mo lag between production and dividend payout at SJT and the fact Jan/Feb/March nat gas prices are through the roof, the next 3 dividends in the pipeline are a LOCK to be double digits in size (say 10-15 cents).
Final point: SJT is trading at an absurdly cheap valuation vs all other names in space on ANY valuation metric. My assumption is the nat gas price explosion with LNG demand now skyrocketing, with 12 monthly dividends paid at 30% ish rates. the price of the SJT stock will move up A LOT to reflect a 15% ish yield.
So there ya go! The United States is now the LARGEST exporter of Natural Gas in the world. Europe is soon to surpass China and Japan as the biggest LNG consumer--what a great time to be an owner of the natural methane gas field in the world!!
ALL the SJT natural gas is shipped via pipeline to the Gulf Coast to go somewhere--usually to the highest bidder. As the lowest-cost natural gas producer in the US--SJT is in the nat gas catbird seat for the next decade at least as Europe hoovers up US nat gas via our $FLNG LNG ships--it's a match made in heaven!
Let's stay on this amazing Ultra Income portfolio roll--buy $SJT at the open!
As I love to say--"it beats working" cashing all these huge dividend checks while natural gas producers in the United States are saying "nyet" to borrowing another $trillion from banks to "drill baby drill" and crash energy prices again...they have learned their lesson!
Go get 'em!
Toby
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