Bryan Perry’s “#1 recommendation pays over 20%”

Sniffing out a high-yielding refiner from the Cash Machine newsletter teaser ad

By Travis Johnson, Stock Gumshoe, June 11, 2013

Irregulars Quick Take Paid members get a quick summary of the stocks teased and our thoughts here. Join as a Stock Gumshoe Irregular today (already a member? Log in)

Bryan Perry runs the Cash Machine newsletter, looking for high-yielding investments — and recently a lot of those investments have been MLPs or similar equity investments in the oil and gas business. We sleuthed out his “top pick for 2013” back in December and that turned out to be a pretty nice pick so far, up better than 25% with what looks like a continuing yield of about 10%, so what’s his “secret” number one pick this time?

Oh, that one back in December was Niska Gas Storage Partners (NKA), by the way — our article from six months ago is here if you’re curious.

This latest pick of his is in the refining sector, which has yielded quite a few high-income picks of late — particularly as companies have spun off their refining operations to call attention to their solid current profits and “unlock value.”

He’s not the only one sniffing around this sector, of course — Keith Schaefer has been touting the small refiner Northern Tier Energy (NTI) for more than six months as well (that one’s been up and down, but also has a high yield), and there’s been a lot of attention paid to pretty much all refiners over the past (very profitable) year for them that has yielded high-profile refinery spinoffs from Marathon and ConocoPhillips and new (post-crash) highs for old refining standbys like Tesoro (TSO) and Valero (VLO).

With Master Limited Partnerships (MLPs) becoming incredibly popular among investors, the trend has been for companies to spin off partnerships with high income yields and appeal to the yield-starved individual investors who have few other places to turn for current income. And it’s just such a situation that Bryan Perry is teasing … so which one is it?

Here’s a taste from the ad:

“I’ve discovered a brand-new oil refinery partnership, with operations smack dab in the middle of Oklahoma’s new oil industry—and it’s making HUGE amounts of money.

“This small, undiscovered company has the one thing all the big oil producers need: refineries!

“In the short time since it went public in late January, its reported profits of $197 million for the quarter, paid out its first quarterly dividend on May 17 and is projecting an annual yield as high as 21%… and is likely to KEEP that yield for the foreseeable future! …

“This is one of the best opportunities I’ve ever seen in my more than 20 years writing about, and investing in, income investments.

“With Carl Icahn as the largest shareholder in this investment, I’m confident that he will continue to make proactive changes that will benefit shareholders in the months ahead.”

OK, so putting together the newness and the Carl Icahn connection means we needn’t even really drag the Thinkolator out of the garage for this one … but just in case, here are a few more clues:

“Headquartered in Texas, this MLP owns an 115,000 barrel-per-day (BPD) crude oil refinery in Kansas and another 70,000 BPD refinery in Oklahoma.

“Having a refining capacity like that is virtually a license to print money!

“The partnership’s subsidiaries also operate supporting logistics assets including approximately 350 miles of pipelines… more than 125 crude oil transports… a network of strategically located crude oil gathering tank farms… and more than 6 million barrels of owned and leased crude oil storage capacity.

“In other words: It has the whole enchilada. It won’t take much to drive this stock from $30 a share to as high as $60.”

OK … so who is it? This is CVR Refining (CVRR), the company recently spun off by the Carl Icahn-controlled CVR Energy (CVI) after he failed to find a buyer for the refineries last year. CVR Energy controls two partnerships, CVR Partners (UAN), which is primarily a nitrogen fertilizer producer, and now CVR Refining (CVRR), which is a downstream and refining business that is focused on two refineries, one in Kansas and one in Oklahoma, and on the pipelines and transport and storage networks associated with those refineries.

CVR Energy (CVI) owns the general partner and a controlling stake in both MLP subsidiaries. The IPO was not to raise money for the refineries, but to reward CVR Energy shareholders by helping to boost the perceived value of this asset, and they will probably continue to sell down that stake in public offerings if the share price climbs (they most recently sold some around $30).

And yes, CVR Refining does indeed pay a very large dividend — much like NTI that I mentioned near the top. In CVRR they’ve only been around to pay out one dividend so far, and (like NTI) they are not guaranteeing a steady payout, which probably leads investors to be a bit skeptical and keep the share price relatively low, but at $1.58 for the first quarter an annualized yield would be now almost 24%. That payout exceeded the first quarter outlook the company had given for the IPO and reflected a strong, high volume quarter at the refineries according to their press release.

Their estimated distribution for calendar year 2013 was $4.72 back when they were making investor presentations early in the year, and the shares are just over $30 now, so if they do roughly that well that would be a distribution yield for the balance of this year (not annualized) of a bit over 10% (that’s just subtracting the first quarter payout from that $4.72). Not bad, though after this first quarter report it sounds like they were sandbagging a bit and aiming low so they could beat the numbers and keep the price rising throughout the year. Or maybe they were just being conservative, who knows — it’s a volatile business (no pun intended), and returns vary greatly as crack spreads wax and wane.

(You hear a lot about crack spreads when you’re looking into refineries, that’s what creates their profit margin — the difference between the refined products they sell and the price of their feed stock of crude oil … with oil supply strong in the mid-continent CVR Refining probably get input prices as good as or better than WTI Crude pricing, which is much lower than international Brent crude, and refined products can be exported so sometimes receive international pricing that’s substantially higher).

The parent also has a decent yield thanks, in part, to the shares of UAN and CVRR that they’ve been selling — CVI just announced a special dividend of some of the funds they gained by selling shares of those MLPs, so you’ll see CVI with an indicated yield of 5% based on their indicated 75-cent quarterly dividend but that doesn’t include the $12 they’ve paid out this year in special dividends (so far). Don’t know whether they’ll continue selling down those stakes and paying those special dividends, but Carl Icahn has certainly had a great year from these assets (helping his own publicly traded MLP, Icahn Enterprises (IEP) to a nice year again … though it can be a bumpy ride).

I have not participated in this bull run for refineries over the last year or two, but almost all of them have done very well — rising crude supplies in the US and a lack of refinery capacity mean there’s abundant opportunity for profit (no one likes to have a refinery near them, there was one small one built in Wyoming about five years ago but the last big, modern one to be built was in the 1970s … many others have been meaningfully expanded or modernized since then, of course, mostly on the Gulf Coast and in Alaska, but with crude output climbing it doesn’t seem that refining capacity is keeping up).

From my quick glance today, I’d be inclined to give CVR Refining a chance and research it up if you’re inclined to look for high-yielding MLPs — I like it better than Northern Tier Energy (NTI) which has a similar implied yield, though both will have variable payouts, because NTI is reliant on just one refinery. There may be pressure on the stock as additional shares are sold by Icahn and his controlled entities, but if they can keep the payout even close to this current range and the business operates well (as they seem to indicate it will in their presentations — though there’s no reason they’d be motivated to say otherwise), then investors will probably keep snapping up the shares for that substantial dividend.

It is a MLP and they haven’t been public for long so we don’t know what the tax treatment will be (earnings versus return of capital), but we can probably expect the typical MLP tax benefits (deferral, mostly) and record-keeping/filing obligations that this structure typically provides.

So what do you think? Does CVRR make you sit up and take notice with a likely yield of somewhere between 15-25%? Think the ebullient refinery sector has more “room to run?” Let us know with a comment below.

Related Gumshoe Articles

Double-Digit Monthly Dividend Payers for 2015.

What's being teased now by Bryan Perry's Cash Machine?

23 Comments Read More

“Once You Grab Your First Payday, You’ll Never Put Your Money in a CD Again”

21 Comments Read More

Leave a Reply

28 Comments on "Bryan Perry’s “#1 recommendation pays over 20%”"

avatar

Deborah G Flynn
Guest
0
June 11, 2013 5:37 pm
I have both and have been watching them closely and will continue to do so. IF I can hold them for a few years at those rates I’ll do well IF they atart toi go below my 15-20% loss decision making line thn I’ll sell them and break evern. That being said with a conservative mainly portfolio of dividend growth stocks I like to add a bit of adventure once in a while to see if I can increase my portfolio worth a bit. AT my age there aren’t a lot of years left to sit it all out all… Read more »
Deborah G Flynn
Guest
0
June 11, 2013 5:37 pm

OOOOOOOOOps typos sorry cat across keyboard

blufox
Member
12
June 18, 2013 1:25 am

Hello Deborah,
I have owned CVRR since January and it has done quite well since then and at one time nibbled on a decent amt of NTI but dropped it when it dropped lol. If you’re interested in decent dividend stocks, I have lately been focussing on them as I sold a major asset and need to replicate the income I was getting from it prior to the sale, so I have been spending a lot of time researching them.

blufox
Member
12
June 18, 2013 2:09 am

Sorry, meant to cite some of them that I bought yesterday: ALDW, ARP, PDH.
/* Phil */

Lorne Cutler
Guest
0
Lorne Cutler
June 11, 2013 5:39 pm

Does anyone know the tax implications of investing in MLPs for those of us living in Canada, particularly if we do it in a Registered Retirement Savings Plan?

barndoor
Irregular
14
barndoor
June 11, 2013 7:47 pm
Sorry, I’m not a Canadian but here (US) here are the issues. In an IRA….. 1) I don’t get any tax advantages (return of capital is untaxed until you later sell and have a now lower cost basis and therefore larger gain thus deferring taxes) 2) Canada withholds 15% of any dividends from US owners and I can’t get a tax credit to recover them. So yield is 85% of other folks (but then who doesn’t pay 15% on taxable dividends? so it really can make sense…except that you are taxed again when you take $ out of the IRA)… Read more »
Slick Rick
Guest
0
Slick Rick
June 12, 2013 7:35 am

What if the LP is in a Roth Ira …..my understanding is that there are NO Tax consequences.

danielj1960
Irregular
17
June 11, 2013 5:42 pm

I noticed that both of their refineries are located in tornado country one in Coffeeville, KS and the other in Wynnewood, OK. Does anyone think this adds considerable risk ?

friepen
Guest
0
friepen
June 11, 2013 5:55 pm
Re: CVI and CVRR – Playing along side a corporate raider can perhaps be lucrative – and also risky. Icahn has unlocked cash flow and perhaps value here which prior management seemed unable or unwilling to do. Yet, we’ll not know Icahn’s next move, made certainly for his own benefit and not necessarily ours, until after we see the resulting market value changes in our shares. I own CVI and NTI – both half positions, both considered quite speculative moves. Frankly, I wish I’d sold CVI right after the last special dividend was announced. Now – the fear starts, as… Read more »
bruce
Guest
0
bruce
June 11, 2013 6:15 pm

i like these 2 and ALDW and CLMT too. obviously more risk than a 4% div stock so you go in with your eyes open. CLMT has been around for a while

shredder
Guest
0
shredder
June 11, 2013 7:27 pm

CDN’s get raped holding MLP’s in non-registered accounts and why would you want to put them in a RRSP….? MLP’s are designed to flow $$ to shareholders….remember Income Trusts that Harper promised would never be taxed..and then he did just that.

wookie
Irregular
0
wookie
June 11, 2013 7:47 pm

shredder: Do you happen to know exactly what is held back for dividends paid on a U.S.
stock like CVRR.? I mean if it is held in a CND non-registered account. Much obliged.

Lorne Cutler
Guest
0
Lorne Cutler
June 11, 2013 9:32 pm
If shares are held in an Canadian RRSP then under the Canada-US tax treaty there is no withholding tax on U.S. stocks. The same occurs for Americans who hold Canadian stocks in their IRA. The only exception seems to be if you hold non-U.S. companies in your RRSP purchased from a U.S. exchange. For some reason, the long arm of the original country of that company still seems to be able to charge tax. If you hold U.S. stocks outside of a registered account, the typical withholding tax is 15%. That being said, my understanding of MLPs was that the… Read more »
Paul Hay
Guest
0
Paul Hay
June 17, 2013 2:18 pm

Hi Lorne see my response further down

barndoor
Irregular
14
barndoor
June 11, 2013 7:30 pm
CVRR and ALDW are my favorites. Be prepared to sell though. Crack spread could easily halve, dividend halve, and stock plummet. You could keep a stop loss order behind them if you want but remember to adjust it the day before a dividend ex date. You won’t have much time to notice.–CVRR’s notice date was May 2nd after close and the ex date was May 10th. I think ALDW actually gave no notice–i.e. they announced (after market) that today’s shareholders would get the dividend. I’m not aware of any broker that would not transact your limit order (stop loss) under… Read more »
baygreen
Member
32
June 11, 2013 9:01 pm
HFC and HEP will be a good play on dips and there shut down is 2 1 /2 weeks from back online 100% , they take care of there share holders and there clients . CVI/CVRR good play but Holly shines when all cylinders are running just a local preference that I have always been lucky enough to get in and out at right time. The Warren/Obama Oil Train does not affect them as much as the other refineries. Get some PBKEF while it is still low it might dip back to $7’s but there will be a 1 in… Read more »
sooku
Irregular
36
June 18, 2013 1:07 am

Please respect your readers enough to learn how to spell “their”. It’s not “there”.

baygreen
Member
32
October 27, 2013 1:21 am
Sorry if that there was hard on you their being one handed does get me a little lazy some time but I feel goo if I can take a big blunder and I am so sorry that your perfection is none forgiving, but if that set you off pleas respect my disability and accept my apology, for if I ever saw some thing that bad from you I would just let it roll by. Sounds like it will be a good talk at a St Judes session that I am (there) implant experiment to help the kids. Just in case… Read more »
B. J. Italian
Guest
0
B. J. Italian
June 12, 2013 12:54 am

I am US citizen and The MLP yields sound VERY attractive BUT!!!??? I CANNOT understand the tax implications of owning MLPs. What does the $1000 limit mean? What is this I read about having to file tax returns in every state the MLP does business in? HELP!!!

P. Fischer
Guest
0
P. Fischer
June 12, 2013 1:46 pm
I hold several MLPs in a self-directed IRA. And while there may be some tax advantages to holding them in a taxable account, I’ve found that the ones I hold have been good investments for my long term goals, regardless of whether a tax accountant says they should be held inside or outside of an IRA/401(k). Personally, from a tax return filing viewpoint I find the MLPs *EASIER* to deal when they are held inside my IRA than outside! Any investment I put into the IRA gets taxed as income on the way out, so while there may be some… Read more »
barndoor
Irregular
14
barndoor
June 12, 2013 2:22 pm
In addition to what P Fischer has offered… There are some tax advantages for a taxable account. See my post above about IRA’s. But there are complications in preparing your taxes, namely the handling of K1 forms versus the normal 1099’s you get for investments. I can’t comment on how difficult that is if you do your own taxes nor what a tax professional would charge for your 1st K1. Additional K1’s though should be easy and/or cheap. The ‘filing in every state’ is unlikely to bother you. I have a bunch of different income on K1’s and none have… Read more »
B. J. Italian
Guest
0
B. J. Italian
June 12, 2013 2:53 pm
Thank you both, P. Fischer and Paul Schmitt! Any difference in tax treatment for holdings in a ROTH IRA? I have a Savings and Loan variable rate conventional CD IRA paying a MINIMUM of 3%! I use this account to take my RMDs for all my IRAs instead of selling stock and bond holdings in my other IRAs. I have enough cash in the S&L CD to pay my RMDs for probably 10 years. In order to get a better yield would it be a good idea to transfer some of that cash into a conventional IRA holding MLPs? I… Read more »
LAYNE
Guest
0
LAYNE
June 12, 2013 7:01 pm

IT IS GENERALLY NOT A GOOD IDEA TO USE A TAX SHELTER TO BUY A TAX SHELTER, BUT IT IS LEGAL. IF YOU HAVE TOO MUCH UBTI IN A SHELTER (IRA/401K) IT MAY HAVE TO FILE A TAX RETURN AND PAY A TAX. TX CPA

Paul Hay
Guest
0
Paul Hay
June 17, 2013 2:16 pm

To Lorne Cutler,

Unfortunately MLPS do have the witholding tax applied in RSPs. As you correctly state regular dividends from U.S. stocks do not.

See this Globe and Mail article for more info: http://m.theglobeandmail.com/globe-investor/investor-education/answers-to-your-tangled-tax-questions/article1372575/?service=mobile

Lorne Cutler
Guest
0
Lorne Cutler
June 18, 2013 12:39 am

Thanks Paul. Finally a clear answer to my question. With a 35% withholding tax on MLPs, I think I am going to take a pass.

Caulker
Guest
0
Caulker
August 14, 2013 1:30 pm

High yields and then lose big on the stock. Won’t be renewing my subscription.

baygreen
Member
32
October 27, 2013 1:39 am

I am sorry for letting something get in our way I guess one of those nights accept my apology please! Subhash Garg

wpDiscuz