- ESV: 100 shares @ $33.80 --- 8.88%
Total capital invested is $3400.00 including commission and will increase my yearly dividends by $300.00. Oil prices continue to plummet and anything even remotely associated with energy is getting decimated.
Please note this company is considered highly speculative at this point and the recent news of SDRL's dividend being eliminated is concerning. I personally feel that ESV's dividend will be covered, but a prolonged depression in oil prices could result in a dividend cut or outright elimination.
ESV's dividends are now responsible for about 5% of my total dividend income. This is about 2% higher than what I consider safe. Because I have the ability to equalize my dividends through rapid purchases in other companies within other sectors, I am not overly concerned with my portfolio being out of balance during the short run. In fact during the accumulation phase of a dividend portfolio, this is a pretty normal event. As of this purchase, energy/oil companies, including ESV and KMI, now represent about 11.7% of my portfolio. This is still within my tolerance levels.
Late last year when REITs and companies like TGT were being left for dead, I took opportunistic positions in them knowing there would be short term pain but long term benefits. If I did not have adequate liquidity or needed the money for normal living expenses, I would not have made those decisions then or this purchase now.
Great oil yields of late but I am a bit worried of dividend cuts. I guess stick with high quality and hope oil stablizes in the 70+ range
ReplyDeleteAG,
DeleteI agree with you about the potential risk here. Unfortunately bargain companies don't appear with nice pretty bows attached to them. Normally the bargains resemble a war zone. :-)
MDP
Asset-Grinder - Canada is going to take a big hit when the shale oil on the fence guys start to go belly up. You better get out of CADs.
DeleteI think the oil stocks will go the road of SDRL and NADL and suspend the dividend. I sold all my oil stocks after I saw Buffett got out back in August - follow the insider.
ReplyDeleteAnonymous,
DeleteThey may. If so, I will reevaluate my positions and probably sell and use the losses to offset gains in other sectors. In the mean time, they seem grossly undervalued and I will continue to accumulate.
MDP
If you think that they are undervalued, why would a dividend cut alone make you consider selling the stock? Surely its not necessarily a bad thing that the company are retaining more of their profits for future improvements or to not be financially irresponsible with distributing too much of their needed cash to shareholders?
ReplyDeletemoneystepper,
DeleteMy belief is that ESV is undervalued and will maintain its dividend. However, if oil keeps tumbling the dividend could be cut or eliminated. I am not sure that I want a non income producing company in my portfolio for very long. If I did, GOOG, TSLA, and BABA might be better options. Again I feel like the collapse of oil prices is a temporary event, but I may be wrong. It certainly wouldn't be the first time.
MDP
They were undervalued at $100 oil/half that - not so much.
DeleteInteresting purchase, definitely more of a speculative buy than your usual buys.
ReplyDeleteTawcan,
DeleteYeah I have a hard time staying away from the occasional speculative purchase. ESV is a relatively small part of my portfolio so I don't feel like I have gone too far out on a limb. I certainly wouldn't advise this type of a purchase for someone that doesn't have a more diversified portfolio with more stable companies. I will probably focus on the majors during the next few weeks.
MDP
A little Black Friday shopping I see :). I don't follow ESV but my December will be strong with purchases into BP, BBL, and CVX.
ReplyDeleteKeep it up!
AA,
DeleteThanks buddy. I will be snagging those names you mentioned as well next month.
MDP
MDP,
ReplyDeleteI wish you luck with this one, but I anticipate a cut or outright dividend elimination. I was telling people the same thing with SDRL. Like SDRL, ESV is not sporting very healthy free cash flow. The only thing that I like more about ESV than SDRL is the better balance sheet, but they've been following the "rack up huge long-term debt" model, and falling oil prices do not justify that strategy.
I wish you luck, but I think ESV's dividend is in trouble. Up until recently, they were paying $0.10 per year. Now they're paying $3.00 per year. They have no experience with managing an unsustainable dividend for any extended period of time. They could continue to pay it out by issuing debt or equity, but that just makes the investment case worse.
But you're acknowledging it's a spec play. Could work out well in that regard. :)
Best wishes!
DM,
DeleteI appreciate your concerns. If oil prices stay depressed for too long, the dividend will be in jeopardy. If prices start drifting back up and I think they will, then I think a year from now this company will have looked like a screaming bargain much like DLR and TGT did. Ultimately anything not named Exxon or Chevron in the energy space should be viewed very cautiously and that is why we diversify.
MDP
MDP,
ReplyDeleteInteresting move. I do not own any oil service names and I am just letting this storm pass by without too much concern for my own portfolio. The drop in oil prices is tempting me to pick up more CVX now. The stock is well in the "undervalued" territory with today's 5% drop. But considering my energy exposure is already 17% of my portfolio, and lack of new capital - I might have to pass up.
cheers
R2R
R2R,
DeleteSince your energy exposure is 17% I think you are probably making a good decision holding off on additional purchases. Fortunately my energy positions isn't too out of balance at around 12%. I think ESV will be a good purchase for me assuming oil prices don't stay too low for too long. Time will tell as they say.
Thanks for stopping by!
MDP
As others have pointed out you are taking on some risk with this company. The balance sheet is quite leveraged and cash flow isn't the strongest, so further decline in oil prices could really make for a bumpy ride. Good thinking in keeping ESV a relatively small part of your portfolio. Best of luck with your investment!
ReplyDelete/Regards
LI,
DeleteRegardless of where the price of ESV goes, this will be my last addition for a while. If oil rebounds relatively soon, ESV's price will snap back and the dividend will continue to be covered. If the oil market stays at these levels or lower all bets are off.
MDP
Interesting investment MDP. Others have mentioned the Dividend safety, so I won't elaborate on that topic. I am curious what took you to this stock over others in the industry such as BP, Shell, or Chevron, if you are already concerned about certain aspects of the company?
ReplyDeleteEnjoy the rest of your evening. I'm looking forward to hearing back.
Bert, one of the Dividend Diplomats
Bert,
DeleteGreat question. Actually I have been buying CVX, XOM, RDS-b, and BP for the last couple of months. I also plan on adding to these names at their current price levels and lower. I picked ESV today because it has been hammered far worse than some of the aforementioned companies. My thoughts are that oil will not stay at these levels for too long and ESV will continue making the dividend payments. I also tend to gravitate towards distressed companies as they provide the best value. Unfortunately when buying companies under intense pressure (and I do realize that ESV is under very intense pressure), they tend not to not look desirable at all. Remember Target at this time last year or BP after the 2010 oil spill? I think a year from now, we will look back and realize that it was a good time to accumulate energy companies.
Best wishes,
MDP
I gotta say, that oil is a tempting bargain right now. I say, why not? I'm with you in that recent moves with the industry won't last forever. I have to believe that oil will recover and hope that these companies will continue to push through. Let's hope that in the long run, everything will turn out well.
ReplyDeleteFD,
DeleteI think I see some blood on the street. Time to start buying!
MDP
I remember the blood int he streets when TGT had their issues and seemingly every DGI blogger was buying in. Same thing going on with oil and materials. Basically, commodities are all in the toilet. BBL is another hot name in recent days. Kudos on going a bit balls out with this purchase. The truth is no one really knows where oil is headed in the near term. As long as a dividend is covered get paid to wait.
ReplyDeleteDivHut,
DeleteThere is a lot blood in the energy sector and some of it definitely is mine and there may be more. With that said, for every CVX, BBL, BP or ESV where I am underwater I have companies like KMI, MO, MSFT, DLR, and TGT which continue to hover around their multi year highs. So I will continue to buy companies that are out of favor knowing that they are part of a diversified portfolio with many moving parts.
Thanks for the comment!
MDP
Hi, MDP.
ReplyDeleteCongrats on the purchase. I don't currently have ESV on my radar, but it appears to be a nice company and a nice opportunity. I failed to pull the trigger on anything on Friday, but there are definitely some bargains. NSC & UNP are at the top of my watch list right now. Take care.
Goosemann Jones
Flight to Dividends Blog
GJ,
DeleteI'll be sure to take a look at those two. I don't have a railroad company in my portfolio yet, but I just noticed they have come down in price recently.
MDP
I grabbed another 100 shares this morning for around $33.50/share. I agree this position has turned speculative but I believe these will be great entry prices in a few years as long as we don't have a prolonged period of depressed oil prices. It wasn't long ago that ESV reported a better than expected quarter. I like the management as well so I'm willing buy more and see what happens. I'm also looking at a purchase of HP instead of more ESV, it's hard to ignore over 40 years of dividend increases and a 4% yield. Oil service companies have just been hammered so there is definitely some value here.
ReplyDeleteAAI,
DeleteI couldn't agree more with you. These "scary" times are the best time to buy. It may not feel good now, but like the Target purchases late last year, this one should pay off.
MDP