My Comment On A Foolish Article

by golbguru on July 10, 2009

Read this article on Fool.com:

Rocket Stock or Dud?

A couple of years ago I would not have noticed anything amiss with this article.. and would have probably blindly agreed with the argument because it comes from some investment-savy dude on Fool.com.

Without much ado, here is what I commented on that article:

On July 10, 2009, at 11:01 PM, Golbguru wrote:

Rich, it is extremely misleading to talk about MLPs like NGLS (Targa Resources) without even mentioning “distributable cash flow” and “coverage ratio”.

2009 Q1 distribution was $0.52 per common unit (share). For 47.16 million shares, that’s a total distribution of $24.5 million.

2009 Q1 distributable cash flow was $33.6 million. Gives a coverage ratio of little over 1.3. Most MLPs are in this range - and it is not bad at all.

Plus it is well within the limits set in its debt covenant (please see the balance sheet).

In summary, your statement “Seems to me that while Targa may not be able to sustain its current dividend, it could cut the divvy substantially”, is essentially baseless.

Moreover, you need to do more homework on MLPs and stop calling distributions as “dividends”.

I will leave it to my astute readers to figure out what MLPs are … till I come back and write a little more about them.

Looking back, I cannot believe that I am actually taking the efforts to read and understand company balance sheets now-a-days. I am glad I am doing it now.

I still don’t have a good grasp of the macro-market-economics yet, but after reading views of various economists and chartists, I am not sure anyone understands that well anyways. May be someday I will understand and appreciate it, but till then I am not going to sit on a pile of cash and do nothing (and see the cash get devalued as the inflation catches up with us eventually).

Disclosure: Long on NGLS and a whole bunch of other MLPs.

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{ 11 comments }

1 Dividend Growth Investor 07.12.09 at 11:30 am

I have found that the Motley Fool simply writes about stuff in order to promote their stock trading services.
As far as MLPs are concerned I own some Kinder Morgan, which is a decent allocation to the sector. I won’t hold all my eggs in the MLP basket however, as they are subject to specific risks. I like being diversified in other income plays too.

2 newbie 07.23.09 at 6:19 am

Be careful who you hate as you can turn into them more easily than you imagine. Motley Fooha started out railing against stock research and now that is what they do…with no improvement in quality only the shrillness of the hype…

3 michael thornton 08.31.09 at 10:11 am

yeah i so support this. I mean there are alot of articles in the stock! I hope that the your gut is right this time because one false move from the governmentand every thing will fell.

4 Oil Price 10.05.09 at 4:34 pm

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5 Sabrina Bremmer 11.12.09 at 4:29 pm

Here are some links for understanding banking:

7 Page article in The Times on Goldman Sachs
http://www.timesonline.co.uk/tol/news/world/us_and_americas/article6907681.ece?token=null&offset=0&page=1

Article in Rolling Stone on Goldman Sachs
http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine

The great American bank robbery:
http://vodpod.com/watch/2040248-how-to-rob-a-bank

How banks gained control of America:
http://video.google.com/videoplay?docid=-515319560256183936#

How to fix bad commercial banks that take in money from depositors. Simple. People power. The Dutch brought an arrogant bank to its knees in twelve days:

http://news.bbc.co.uk/2/hi/business/8323991.stm

6 johnnyD 11.16.09 at 11:33 am

Do you get the best insurance deals online? I found this site http://www.theidol.com and wondered if I should use them or my broker?

7 SSLSolutions 03.11.10 at 2:53 am

Hi, I really would love to sign up for Tycoon Cashflow…but need some people who are doing it to give me some info about it. Does it really work like they say? I mean, do you get a check every two weeks (if you make money within those weeks)? This isn’t a scam in any way?

8 Saint of Bad Credit 03.19.10 at 2:13 am

I really don’t think anyone who writes about MLPs really 100% appreciates how complex the instrument can be. On the surface it might be simple but there are alot of hidden variables that can’t be readily observed or accounted for.

9 Victorino 03.25.10 at 1:34 am

Balance sheets show the financial condition of a company or an entity. But though, we still need to read other supporting statements of BS like statement of changes in equity to understand the flow the a company’s equity shown in the balance sheet.
The difference between distribution and dividend may lies on taxability. A dividend can also be a kind of distribution.

10 Leesha 04.26.10 at 7:21 am

Good for you!! I think I will follow your lead and do some things I have been avoiding!See you later!

11 Guy G. 04.27.10 at 7:26 pm

Hey,
I think I’d agree that most economists don’t understand the macro economic indicators. If they did, we would see more rare bear markets, and quicker returns to bull markets.
Anyway, thanks for sharing,
Guy

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