I’ve written before about TC Pipelines MLP (NYSE: TCP), which is an MLP created by TransCanada (TSX: TRP) consisting of certain US operating gas pipelines.
Today they issued Form 8-K announcing that the FERC hit on their earnings, which they previously estimated was $40 to $60 million a year, will be $20 to $30 million instead.
A bit of history:
At the end of 2017, TCP was earning $252 million net income to its controlling interests, or about $3.60/unit. Their common units were trading at around US$50/unit at this time. Distributions were $1/unit/quarter.
When we work the impact of FERC, on an annualized basis net income will be going down to $220-230 million. This will be about $3.15/unit. Distributions were decreased to $0.65/unit/quarter. Right now the common units are trading at US$29. Management is not increasing the distributions because they want to chip away at debt. It’s kind of surprising considering that this puts the distribution range below where the general partner (TRP) would receive significant incentive distributions.
Risk-free 10-year government bond yields are up about 75 basis points from December 31, 2017 to today, but does this really warrant this much of a haircut?
My guess is that the MLP sector is just highly unfavoured at the moment and that underlying assets are simply too “boring” in relation to cash, which starts to become a more viable option (2-year yields are roughly 287bps at the moment).
But considering the business is very stable (gas pipelines aren’t going anywhere and have significant regulatory burdens to construct, even in the USA), there appears to be much worse places for investment capital. Am I missing anything?
I think this is attractive for US investor. For Canadians, what’s a good way of working around the 30% with-holding unless you want to get a ITIN number? Once the 30% withholding comes into play, the yield doesn’t look that attractive. Single Stock Futures no longer works because of the ‘withholding tax on dividend equivalents’. What is a good way of beating that?
Long-dated options.
Isn’t the furthest date in the options of TCP in may 2019 ?
Less than a year does not seem like a lot of time for a mispriced stock to improve.