Tuesday, May 15, 2012

Swapped LINE for TCP

This afternoon I made a lineup change.  I benched TC Pipelines and brought in the 6th man, Linn Energy.  I rarely sell stocks, but I felt it was time to do something about TCP's poor performance.  TCP has been disappointing ever since I bought it May of last year.  I like what LINE has to offer and feel more comfortable owning a slice of their business.  TCP was sold @ $41.50 and I bought 60 shares of LINE with the proceeds.  TCP is a pipeline company while LINE acquires and develops oil & natural gas properties.  The business models are different, but they are both MLPs.  Reasons why I did this swap:

#1 Linn Energy is more diversified.  Their main business is natural gas, but they also deal in oil.  TCP is natural gas pipelines only.  While Linn is not a pipeline company they managed to hedge 100% of expected natural gas production until 2015.  This is a smart move because natural gas is very cheap right now.

#2 Linn does not have a general partner (TC Pipelines does).  They will not have to pay incentive distribution rights, always a plus when evaluating MLPs.  It is typical for a MLP to issue new shares to expand business.  Sometimes I feel like they do this to pad the profits of the general partner, more than act in the best interest of the unit holders.  No need to worry with LINE.

#3 LINE has a higher yield.

#4 I anticipate Linn increasing distributions at a faster rate.  They recently hiked the distribution by 5%, which is nothing to sneeze at for a yield above 7%.

The only thing that bugs me is that I sold TCP near the 52 week low.  Maybe I would be better off waiting, but unfortunately I don't have a crystal ball to tell me the right answers.  My total return with TCP was -5.67% including distributions received.

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