You are viewing the chat in desktop mode. Click here to switch to mobile view.
X
Return toCapitalist Times
9/25/25 Capitalist Times Live Chat
powered byJotCast
AvatarRoger Conrad
1:55
Hello everyone and welcome to our Capitalist Times live webchat for September. We very much appreciate your participation today and look forward to lively and informative session.
1:56
As always, there is no audio. Just type in your questions and we'll get to them as soon as we can concisely and comprehensively. As always we'll send you a link to the transcript of the complete Q&A tomorrow morning. And we will stay on the chat so long as there are questions left in the queue, as well as from the mailbag we received prior to the chat.
We'll get started first with some of those.
1:57
Q. Roger: can you shed light on the particulars regarding K-1 packages?

1. What makes a company have to issue these?
2. Are K-1 taxes onerous?
3. Any advantages in investing If one knows the package will arrive?
4. Do all accounts have to report/pay tax on dividends? Traditional IRAs?
5. What date of ownership of shares triggers the arrival of a package?
Set by law or Company choice?
6. Any advantage to own in a ROTH?

Many thanks.—Jimmy C.

A. Hi Jimmy

I'll answer your questions as best I can.

First, all partnerships issue K-1s. Enterprise Products Partners et al
are master limited partnerships, traded on major exchanges. But if you
were a partner in a business--either actively or by holding shares
under a private arrangement--you would also receive a K-1 at tax time.
In brief, the K-1 highlights your share of all the business' income
offset by your share of expenses. And the result is your share of the
business' taxes--which is likely to be somewhat less than what you've
received in cash or stock
distributions,

Second, the K-1 is not the tax, just the document you receive at tax
time from the partnership (private or MLP), which shows you what you
will owe. The amount of taxes due obviously depends on the
partnership. But I would not consider the tax owed to be particularly
onerous. in fact, as I said, it's likely to be less than if the same
company paying you were organized as an ordinary C-Corp and subject to
full corporate taxes.

What some do consider onerous is that a K-1 is a considerably longer
document than the 1099 you receive for payments from a C-Corp. And
accountants will charge extra for including them in your
return--though in a decently profitable partnership the tax savings
will more than offset the fees. Some people also don't like the fact
that K-1s at tax time tend to arrive after 1099s, which means filing
closer to April 15 and waiting longer for a refund if one is due. But
again, my view the return on a good partnership and the tax advantages
are more than worth these
1:58
inconveniences.

The rule with IRAs is if UBTI--unrelated business taxable
income--generated across the entire account is $1,000 or higher, there
will be filing requirement and a tax due. This is NOT to be confused
with distributions made or even the unitholder's share of net income
in the partnership. And in fact, some MLPs generate negative UBTI,
which you could subtract against positive UBTI generated by other MLPs
in your IRA. But the reality is you'll likely have to own millions of
dollars of MLPs that generate UBTI in your account for this to be a
concern.

If you owned a partnership for any portion of a calendar year, you
will receive a K-1 that covers the portion of the year you owned it. I
think the same rules apply for a Roth as a traditional IRA.
Bottom line, I think the advantages of holding the right MLPs far
offsets any disadvantages. And I think sometimes investors overly
magnify the disadvantages while under appreciating the advantages.
 
Q. Hello. I have a question about the recent announcement related to HESM and the drop on the stock price:
Hess Midstream Cuts Outlook As Chevron Scales Back Bakken Drilling
Hess Midstream Cuts Outlook As Chevron Scales Back Bakken Drilling
 
Are you guys still recommending this one as a buy? I'm asking because I follow the model portfolio and I'm not sure if this is the right time to take a new position on HESM
 
Thanks.—Victor T.
 
A. Hi Victor

Hess Midstream has basically been a hold for some time, as we have not
changed our highest recommended entry point from 35. Now that the
stock is back around that level following this selloff, we consider it
suitable for building a new position.
We discuss the new guidance at length in the September issue of EIA,
which will post later this week. But the long and short of it is this
move to hold back capital spending on oil infrastructure actually
should make the dividend safer by increasing Hess Midstream's
available distributable cash flow and reducing its need to borrow.
Current cash flow is insured by the fact Chevron has to keep paying on
the minimum volume contracts even if it stops producing altogether in
the Bakken (extremely unlikely). Hess' yield is attractive at 8.4% and
rising at a 3-5% annualized rate with quarterly increases. Also, while
oil volumes will flatten next year, natural gas will continue to rise
under the MVCs, which expected to result in overall EBITDA increases
starting in 2027--all under contract and mostly to Chevron.

The other reason we like HESM is we believe Chevron will make a
takeover offer for the 62% of shares held by the public. Doing so
would enable it to end the MVCs, cutting costs and boosting
1:59
flexibility of production. A takeover would cost less than $5 bil even
with a premium, and would likely be paid in stock avoiding cash and
debt. And it's what Chevron did with Noble Midstream after acquiring
Noble Corp earlier in the decade.
 
Q. Dear Roger. Is Entra-1 a public entity or is it owned by one of the firms in your coverage Universe?
 
https://www.prnewswire.com/news-releases/tva-and-entra1-energy-announc...
 
https://www.local3news.com/local-news/tva-entra1-energy-sign-agreement...
 
Thank you.--John A.
 
 
A. Hi John

It's a privately held entity. The way to bet on the success of this
project would be to buy its publicly traded partner NuScale (NSDQ:
SMR).
However, I would tread with care in the nuclear development sector.
First, there's been at least as much hype for new nuclear as there was
for green energy before the bubble started to deflate in 2021. And as
then, it's very, very political--the buyers aren't exactly picking
over these companies' ability to actually make money. And the prices
these stocks have risen to are completely unmoored from any measure of
real business value.

Second, even NuScale--which has been around a while--is nowhere close
to generating positive cash flow let alone real earnings. in fact,
even in a best case it won't have actual orders and sales for its
products for years. Mainly, small scale reactors are all in the
prototype stage--there are no commercial scale available models. And
the most recent large reactors went into service last year in Georgia
at twice their original budget and time needed to build.
The nuclear industry is going to have to deliver a product that a
utility can go to its regulators and investors and credibly say
(1)Here's how long it will take to build this, (2)Here's what it will
cost and (3)Here's how we're protected if it takes longer and/or costs
more. Until that happens, don't hold your breath on orders for nuclear
plants--or earnings for companies like NuScale. And that means these
stocks are going to be extremely vulnerable to swings in investor
sentiment, and to a large extent politics.

It's just so much cheaper and faster to keep building natural gas,
solar, wind and energy storage instead. And without a viable nuclear
power supply chain at scale--something that takes many years to
build--that will be the case no matter how much government subsidy is
thrown at the industry and despite the phase out of renewable energy
tax credits.
 
Q. Hi Roger. My 2:36 question, on your talk, mistakenly asked about AEP. I meant current thoughts on AES Corp (NYSE: AES). I've been with both of you
2:00
since your Personal Finance days (when we were all much younger), and you have been just great, in both your knowledge, insight, and patience. Thank you!--Mr G.
 
A. Hi Mr. G,

Nice to hear from you. Those Personal Finance days were good times.
Thanks for sticking with us at Capitalist Times.

There's not much to report on AES Corp since they released Q2 results
and affirmed 2025 and long-term guidance in late July. The company is
still reportedly the target of private capital takeover interest,
though no solid offer has yet emerged. And Q3 results in early
November should be pretty much what we saw the first half of the year,
with investment driving underlying earnings growth at the regulated
utilities and contract power business, which has a focus on delivering
renewable energy generation to Big Tech.

My view is investors
are going to remain skeptical of the company's
guidance--that it can keep growing despite anti-renewable energy
federal government policy--until it posts a few quarters that prove
it. But if it can as I think they will, the current low valuation
pretty much guarantees a big recovery. And this stock has a history of
making big moves all at once. We're staying with it.
 
Q. My understanding is that Space X purchase of AWS-4 and H-block spectrum licenses from EchoStar could allow it to develop its own cellphone service or lease the spectrum rights to other carriers.
What is your view regarding Space-X as a potential new 4th player national competitor (vs T, VZ and T mobile) and acting as a market disruptor? Could this threaten the current 3 largest players' forecasts of improving revenues, Free cash Flow and deleveraging for the coming years?—P.H.
 
A. Great question.

I don't think we'll see Space X as a fourth US national wireless
competitor/market disruptor for two main reasons.
First, the model of 3 competitors is proven to generate solid (not
spectacular) margins for operators and it encourages investment. The
model of 4 or more has shown itself to crimp margins for all
competitors and discourage investment, especially by new entrants who are
forced to mainly compete on price at least initially.

Governments can’t manufacture real competition. DISH/Echostar failed miserably to win customers--let alone even approach profitability or be cash flow positive--despite great spectrum. And at the end of the day, trying to do so eventually
exhausted Charlie Ergen's ability to keep raising large amounts of
capital, which forced these sales. I don't claim to read minds. But
Mr. Musk has never struck me as someone who would tie up
valuable/expensive spectrum for years while spending potentially
trillions of dollars trying to break into a business that will
ultimately be unprofitable, even if it succeeds where DISH failed in
taking significant market share?
Second, this is a different kind of spectrum from the wireless/5G
network friendly spectrum AT&T bought. And there are other uses to
which it could be put. Mr Musk has great interest and a huge
investment already in artificial intelligence, robotics/automation and
"autonomous" vehicles. Again with the caveat I'm not a Space X board
member, I would expect what was purchased to be deployed for those
uses, which if successful will ultimately be extremely high margin,
transforming breakthrough technologies.
 
Q. For the mailbag...I have held Enterprise Products Partners (EPD) for nearly 20 years. It has been a steady performer (other than 2007-2008) with a growing distribution over the years. However, I have noticed that this year's distribs are being classified as "Return of Capital". I am not a fan of investments which distribute my investment back to me in the form of ROC. Parsing a K1 is difficult at best and when ROC is added to the mix it causes a redo of the invetment's cost basis. Do you have any idea why
2:01
EPD is classifying its distributions as ROC? I'm familiar with ROC in many closed-end funds but rarely see it outside the closed-end space.—James G.    
 
A. Hi James
 
I don't think this is anything to worry about. In fact, if you hold Enterprise outside of a tax deferred account (IRA etc), the return of capital dividend further tax advantages your payout--no taxes due until you sell.
 
MLPs like Enterprise are organized differently to capitalize on the tax advantages of owning certain types of assets, in Enterprise's case midstream energy infrastructure like storage, gathering/processing and pipelines. The "return of capital" designation of the dividend is not the same as it would be for an ordinary C-Corp--i.e. actually selling assets and returning the cash proceeds to investors for example.
Rather, Enterprise continues to reinvest in its business--with CAPEX this year and next the highest this decade. The assets it develops and deploys add to cash flow, which increases its ability to pay dividends.
 
 
Q. If you do not mind, could the team provide your best takeover candidate(s) within the next 12 months for Oil and/or Natural Gas Stocks. I am not requesting the best Master Limited Partnership pipelines.—Kurt C.
 
A. Hi Kurt

I think there are many candidates for deals.
 
Our rule for seeking takeover targets is to never buy any company we wouldn't want to own if there were never any deal. That does significantly narrow the field, as we pretty much ignore willing sellers more likely to fetch a "take under" offer
rather than a high premium bid.
Both Expand and Permian Resources are attractive producers now that we
intend to own for a while. And both would be attractive takeover
candidates as well.

Feel free to post your question again during the chat--we should have
more for you with the producers and service companies then. And this
is also a theme we're working on in EIA.
 
Q. Hello. I have a few questions for the September 25 chat. I may not be able to attend. Thoughts about these names:
ATNI -- telecom Company
EOG resources
RGCO resources
 
Thanks--John C.
 
A. Hi John

We don't currently cover ATNI, though it's one we could pick up at
some point for Conrad’s Utility Investor. It's a minnow in a business dominated by whales. But it has a niche that's held so far and the dividend increase this summer
was promising.
EOG is a top recommendation in Energy and Income Advisor and a buy at
125 or less. We reviewed Q2 earnings and guidance in the most recent
issue of EIA.

RGCO is a small gas utility I believe will eventually get a takeover
bid. It also owns 1% of the Mountain Valley Pipeline--a very valuable
asset that's likely to be of increasing interest. I've recommended it
a buy under 20 in the past. It's currently a hold and is tracked in
the Utility Report Card in Conrad’s Utility Investor each month.
 
Q. Hi Roger,
I always look for double confirmations on companies I'm looking at. I thought of you with your comments on SHEN and wanted to send you the below:
 
The modern executive isn’t really paid in salary anymore. That shift goes back to 1993, when Congress capped the tax deductibility of executive pay at $1 million. Companies wanted to keep paying their top brass, but anything over that cap wasn’t deductible.
The “fix” was stock.
2:02
Stock grants and options became the loophole, and it was pitched to shareholders as “aligning incentives.”
Three decades later, stock is the bulk of executive pay. Which means selling is baked into the system.
Buying is different. That’s conviction. That’s when they’re telling you they think the stock is going higher.
That’s why we write this letter. It’s not about chasing every tick. It’s about spotting the big themes before they become obvious.
We’ve watched that play out in Shenandoah (SHEN).
Energy Capital Partners, backed by Abu Dhabi, has been buying shares almost daily. This is just August. A couple hundred thousand here. A couple hundred thousand there. It adds up. They’ve partnered on $25 billion to scoop up U.S. infrastructure. And why wouldn’t they? Fiber optic lines are the highways of the digital economy. Shareholders paid to build it. Now sovereign money comes in to own it.
We’ve been watching it unfold for months. And SHEN is starting to show strength again, battling back above its 20- and 50-day averages. The story hasn’t gone away. If anything, it’s getting bigger. Obviously, the idea has to have enough merit to attach your name and newsletter to it - hope it adds a bit more context. Regards—Frank L.
A. Thanks for sending Frank. 
 
I think deep value will always find a buyer. ShenTel is certainly building the best landline communications network in the rural/small town places in Appalachia where it primarily operates. And it's not wracking up a huge amount of debt that would discourage a future buyer. 
 
I don't know when we'll see a takeover offer. But the company meets my main criterion for betting on M&A--which is I wouldn't be too disappointed if no deal ever happened.
 
Q. In looking at your energy actively managed portfolio, I noticed that most of the holding are in the range of 4-6% of the total portfolio. However, there a several that have significantly lower
weightings and I am curious as to the reasoning. The one of specific interest to me are:
1.   EOG (2% of the original buy)
2.   SOBO (0.2% of the original buy)
 I know you consider EOG to have an extremely healthy balance sheet – what is it that has you underweighting it, especially in comparison to PR? SOBO is not a name I am familiar with; I do note it has a very high dividend which might suggest there is balance sheet/business risk.
 
A. Hi Alan
Thanks for your questions. We sometimes pare back the size of positions when a stock has a big run and we don’t want to sell the whole position. That happened with EOG, though the price has since come off the high.
 
2:03
The South Bow shares are the spinoff of TC Energy’s liquids pipeline operations—which is -basically the Keystone XL pipeline systems. The small size is not a comment on the strength of the company—which is a very solid cash generator. It reflects the number of shares received in the spinoff. We may top it off or sell it—SOBO could also be a good High Yield Energy stock.
 
 
Q. Hi Roger:
1.   Any idea on what the dividend increase may be that PAA will declare?
2.   And approximately when will PAA declare it? 
3.   I obviously would like to buy PAA in advance of their declaration unless you believe that such anticipated increase has already been factored into its share price.
Thanks. Best--Barry J.
 
 
A. Hi Barry
 
For the past several years, Plains has declared dividend increases in January. I would expect that to be the case for their next increase. And the quarterly amount declared in early October should be at the same 38 cents per share rate.
The current rate compares to just 18 cents at the cyclical low point in 2020-21. It’s slightly above the 36 cents per share quarterly distribution paid most recently in February 2020 just before the worst of the pandemic. But it also compares to 70 cents paid as recently as August 2016, just when the last energy downcycle was beginning.
 
Plains’ dividend and share price are more sensitive to commodity prices than for example is Enterprise’s, mainly because its revenue is more volume sensitive. But the company is in a far stronger position now than it’s been at any time in the last 10 years plus, as it’s now focused on the Permian Basin. And the sale of Canadian NGL (natural gas liquids) will further focus operations.
 
As for the size of the next dividend increase, the company exited Q2 with a leverage ratio of just 3.3 times EBITDA—at the low end of the 3.25 to 3.75 times long term target. That implies considerable financial flexibility, even as the company appears to be stepping up the pace of acquisitions. We highlighted these moves in the Energy and Income Advisor that posted yesterday.
 
Plains’ adjusted free cash flow after dividends was $28 million. That’s after all CAPEX and debt service. Q2 distributable cash flow per share covered the current dividend by 1.74 times. That’s plenty of cushion to cover a mid-single digit percentage increase in the payout next year, with 40 cents per share a pretty conservative rate.
 
I don’t have a seat on the Board. So this should be taken for what it is—an educated guess. But I think it’s a reasonable expectation. And the yield already pretty generous at around 8.6%.
 
Q. Was I seeing things but I thought I saw an Investment Advisory suggesting NRG could get to $300 in a few years?—Bill G.
 
A.  Hi Bill
 
Non-utility power producers like Constellation Energy, NRG Energy and Vistra Corp were virtually ignored by investors up until a couple years ago—when they became associated with AI related electricity demand. Since then, they’ve basically become momentum stocks.
 
Business is good, especially for now heavily subsidized nuclear energy. And these companies are raising already very robust guidance as power prices rise, especially in the PJM. But at current prices, yields are minimal and measures of standard valuation are at historic highs.
2:04
I would not be surprised to see NRG at 300, CEG at 500 or VST at 500 later this year or next. On the other hand, I would also not be shocked to see them at half current prices. We did extremely well with CEG—which was trading in the low 20s after being spun off from Exelon. Also with VST—which traded in the teens when I first recommended it. But right now, I think the play with these stocks is to do a little harvesting of gains. And that’s what I continue to advise in CUI when certain price levels are reached.
 
Q. Thanks for your note last night that helps me better understand HA Sustainable (NYSE: HASI). I strongly agree with your emphasis on management's track record of accurately evaluating project risks; that record was probably the most important factor in my decision to initiate a position in HA.
 
I am still unclear, though, on what kind of entities are receiving funds from HA. An example or two would help.
 
Finally, my guess is that even after OB3, there will remain a complex thicket of incentives and regulations for green energy projects. HA's expertise in this niche would thus be expensive to duplicate for other financial intermediaries. And that should be a durable competitive andvantage for HA. Does this guess make sense to you? And thanks again for your CUI piece on HA.--Roy W.
 
A. Hi Roy

Following up on your questions, the federal government has a great
deal of influence over what happens on public lands, not so much on
private lands without an act of Congress. But in any case, HA's
project risk is not as great as it might appear. First of all, it has
over 550 investments in 9 different categories, including storage and
renewable natural gas which are actually favored in the federal budget bill (OB3). 47% of the portfolio is behind the meter--adding another layer of privacy for
customers. That's a great deal of diversification and portfolio
protection from a wide range of risks including regulatory.
As for individual customers. HA provides a great deal of color in its
10K. though details of individual contracts are considered
confidential for the most part. I would suggest that as a starting
point for a deep dive. The company also lists the companies in which
it has equity investments, along with details of its controls and
procedures. The presentations on the company website are also useful.
 
 
2:05
We have a couple more questions from the mailbag today that we haven't yet had time to answer. We'll insert these and our answers during the chat. Now let's get to some live questions.
JT
2:11
HI Elliott, question regarding CW newsletter.  We typically get at least 2 corrections in the stock during each year. As we enter October when a low typically occurs, what is your prediction and strategy for the rest of the year?  Where should we be looking to add and cut exposure?
AvatarElliott Gue
2:11
Corrections of around 5% can occur at any time and are notoriously tough to predict ahead of time. Meanwhile, we typically only get 1 large correction 10% to 20% in any 12-18 month period.

We could be seeing the start of a small correction right now. However, I suspect we'll see any dips get bought pretty quickly and I'm generally constructive on the broader market through year-end.

As I've been saying since July, I expect the Fed to cut a total of 3 times this year and more cuts are likely in 2026, especially with a new Fed Chair by summer.  At the same time, the jobs numbers the main reason the Fed is cutting have always been of dubious quality but have deteriorated even further since 2020-21. So, I don't think there's real risk of a recession. Easier Money + OK Economy = Rally is the lesson of the past few years.
Jack A
2:13
Hi Elliott:

I just received notice that there is a class action lawsuit by shareholders of ET in a certain date range of ownership of shares of ET... Is this anything to concern ourselves with?

Thanks
AvatarElliott Gue
2:13
Class action lawsuits are generally just a nuisance in my experience. I rarely even bother to read the notices I receive as anything truly important shows up in the price of the stock long before a class action suit notice shows up in my mailbox. I see no reason to believe this is any different.
Susan P.
2:15
Stumbled on a Berkley Lab's 2024 Data Center Energy Usage Report that led me to wonder about investing in "off-grid" power? It highlighted why hyperscalers are looking to get energy directly from their own sources instead of waiting years to be plugged into the grid. For example, Meta's Hyperion (their AI lab the size of Manhattan) got Louisiana Public Service Commission to approve 3 nat gas turbines to provide 2 gigawatts of power...Are any of the companies tracked by Elliott and Roger in a position to benefit? Thanks to both of you
AvatarRoger Conrad
2:15
Hi Susan. Thank you for joining us today.

There are several major (non regulated utility) power producers contracting directly with data center customers on a very large scale--all of which we track in Conrad's Utility Investor. They include AES Corp (NYSE: AES), Brookfield Renewable (NYSE: BEP/BEPC), Clearway Energy (NYSE: CWEN), Constellation Energy (NYSE: CEG) and NextEra Energy (NYSE: NEE). All except Constellation are at good buy-in prices. The contracts are for renewable and nuclear energy, which Big Tech prefers for three reasons: Costs don't vary with commodity prices, they're less likely to run afoul of future regulation and generating capacity can be added relatively quickly. That even appears to be true now for restarting shuttered nuclear plants, with CEG now expecting to get Three Mile Island 1 restarted in 2027, several years ahead of the initial schedule. We're also seeing interest from data centers in technologies like fuel cells.
AvatarRoger Conrad
2:20
Continuing with Susan's question on gas generation at data centers, Vistra and NRG Energy in Texas are likely to become major players. And private capital has been getting involved as well. I don't think we're going to see anything close to the degree of self generation that we saw in the 1980s--which was eventually unwound because of commodity price volatility. And most data center operators don't want to be in the business of generating electricity permanently. But there is a huge opportunity for gas midstream companies and producers. The EQT/National Fuel Gas venture to supply a future industrial site in western PA is a good example. But the best power plays on data center supply are going to be IPPs that have already secured significant contracts, regardless of fuel source.
Susan P.
2:32
The utilities serving states where data centers cluster (e.g. VA, TX, AZ, IL, CA, etc.) are likely to experience increasing backlash for price increases and/or restrictions on use. So, wondering if investing in "off-grid" power makes sense and if yes, which companies? This could involve the equipment and construction required, the water needed to cool the power generation, storage equipment, viable energy sources such as nat gas and solar (to lesser extent) and the list goes on. Thanks to both of you
AvatarRoger Conrad
2:32
Hi Susan. I don't agree with the argument that backlash is inevitable, provided companies and their regulators plan well for the new demand. Several states, for example, have allowed utilities to charge special rates for large load that should shield other ratepayers from the costs. Northern Virginia is still the epicenter of the data center boom, served by Dominion Energy. And rates are still very competitive.
There is onsite generation being built by the companies I highlighted answering your previous question in the chat. And there's a lot of opportunity for pipelines as well to transport gas to specific sites. Water too has a growth opportunity. And communications spectrum as well. But grid connection is still by far what data center customers prefer--they get to not have to be in the electricity business and benefit from the scale advantage of large systems.
AvatarRoger Conrad
2:33
The biggest challenge for new natural gas generation is a lack of available turbines. A huge player like Meta or Elon Musk's companies can afford to pay the premium prices to get at the front of the line. But that too is a cost they would not have if they get a grid connection.
Load More Messages
Connecting…