Sunday, January 5, 2014

Linn Energy: Swapped LINE for LNCO


I did this switch because I no longer want to fool around with extra tax forms.  When I first started dividend investing I planned to own a bunch of MLPs.  The past year or two I've had a change of heart, not to mention there are many ways to invest in the same businesses without added tax work.  Fast forward to today and LINE is the only holding left that still issues a K-1.  Doesn't make sense to do extra work for just one holding. For those who don't know, LINE and LNCO are the exact same company.  LINE units pay distributions and issue a schedule K-1 tax form.  LNCO is registered as a C-corp and actually just owns LINE units.  LNCO shares pay dividends and issue a 1099-DIV tax form.

Since LINE and LNCO are the exact same company, with exactly the same monthly payout, I don't consider this a sale.  It won't be listed as such on my monthly reports.  However I suppose for tax purposes it really is.  I'm going to list LNCO's cost basis on my portfolio page when I update it, but to be fair I'm also going to expunge LINE distributions from my progress page too.

2013 was a rough year for Linn with bad news ranging from a scathing Barron's article, to short sellers stirring up fear, to a poor earnings release, all the way to an actual SEC inquiry!  Hard to believe this company used to be loved by dividend investors.  I managed to hang on believing most of the "hot news" was just a bunch of hot air.  I never discovered anything actually wrong with Linn other than a falling share price.  My beliefs seemed to have been vindicated so far as Linn was cleared of the SEC inquiry, it was given the nod of approval to acquire Berry Petroleum, the Berry acquisition was approved by shareholders, and dividends were never cut.

I'm taking a loss (for tax purposes) with LINE, including distributions I'm down approximately $240.  Honestly I thought it would have been worse... actually that's a really cheap education.  LINE was quite the learning experience!  I now know the difference between a SEC inquiry and a SEC investigation.  I uncovered some Seeking Alpha authors (ie. James A Kostohryz) who write articles for shock value and should be avoided at all costs.  Anyone can write articles for Seeking Alpha, and there are some real shysters on there, please use caution!  I discovered MLP accounting is confusing and had the opportunity to vote on the BRY acquisition.  I found out hedge fund guys/short sellers can impact share price in a major way.  Above all else, I learned to trust my instincts.

Well it was definitely a roller coaster ride, but I still like Linn Energy and think it has a lot of potential.  LNCO is one my (two) speculative positions so if it doesn't work out I'll simply replace it.  Not a big deal.  So far it has performed as intended, except that dividend increases were affected by the madness last year.  I'm looking for a small dividend raise soon though.

Symbol: LNCO
Core Position: No
Speculative Position: Yes
Expectations: High income
Automatic Sell: Substantial dividend cut
Consider Selling: I lose faith in the company, small dividend cut, dividend freeze, management becomes untrustworthy

Weekly Purchases
On an unrelated note, I plan to start implementing small weekly purchases in my Scottrade account.  I know other investors like to average into the market using weekly purchase plans with Sharebuilder.  Think I'll try it too.  I'll be doing weekly purchases for the next 2-3 months using up a bunch of free trades before they expire.

I'm currently interested in TGT, MCD, and UL.  I believe TGT is still undervalued.  MCD seems fairly valued.  UL looks a bit over valued, but appears to command a premium similar to PG.


  1. I'm glad it turned out ok for you. I've had several of those "cheap education" moments. Like chasing a high flying stock in college or making major macro bets that turned out to just be bets. I'd like to say I'm older and wise, but time will tell. I was in Colorado last week when some snow was rolling in. Did you guys get some more in the last few days?

    1. I live in Colorado Springs. Not much snow here, but it's dang cold. However Breckenridge was pummeled with snow last weekend. It was awesome, except we had to drive home in it too.

  2. I'm still interested in LNCO and I think you made a good switch. Taxes are complicated enough without further complication from extra tax forms. That's awesome that you have some free trades to use up. When I first read it, it didn't make sense because commissions would eat up so much of the capital, but then I noticed it said free trades.

    1. Personally, I don't mind having a couple speculation stocks. I still think Linn will do well medium term and offers a crazy monthly dividend payment in the mean time. Long term I'm not so sure. There is a lot of hype from the bulls and fear mongering from the bears/short sellers with LINE/LNCO. It can be hard to sift through it all, but the truth lies somewhere in the middle!

      For some reason LNCO stock seems to be very polarizing. Weird.

      Best wishes!

  3. Nothing wrong with making the switch. You'll have to deal with the K-1 for two more years (2013 and 2014) since you sold it after the first of the year, but simplification is never a bad way to go if you aren't sacrificing quality.

    1. True.

      I'm giving myself a present next year when I do my taxes though. I'll benefit from taking a loss. I don't need the extra tax $ this year since I'm very solid financially right now. Who knows what will happen in the future.. lot's of things can go wrong.

      One other reason that I should have mentioned in the post. LNCO currently trades at a discount to LINE. I would have done this sooner, but LNCO shares commanded a large (usually 10+%) premium over Linn units almost all of last year. I actually received a few extra bucks from switching, and the monthly payments stay the same. I didn't notice the discount till the past weekend. Not sure when it started, but I assume it has to do with the BRY acquisition which was approved only two weeks ago. I think LNCO will get its premium back when the dust settles. Not dealing with K-1s is a bonus and the stock market will remember that.

      Ok goodnight! Why am I still up?

  4. Was this considered a wash sale?