OK, I am not a micro-investor; Nano sounds closer. Where is Cheniere likely to go? I look at this position like a pile of chips on the poker table. As long as they keep sending the dividends I am no worse. Long term I need that dividend income for my retirement hedge against inflation. I did see the comment from “Barrons.” I would like to know your opinion of Cheniere and its industry segment?

I love your blog. It is top-of-the-list of a group of blogs I read daily and is the one I like the most.

Wayne.

Dear Wayne,

I love MLPs because they typically pay out great dividends. In this case, Cheniere (CQP) is paying a 16% dividend. That’s not nearly enough for me to love them.

First of all, they aren’t making any money yet. Their future revenues will come from a 100% interest in the Sabine Pass gas terminal, which is 99% complete.

I call this risky because if construction is delayed or they get a hiccup during operation, their earnings will be affected immediately and you’ll see the stock take a hit. If earnings take a big hit and it affects their cash flow, then it’ll be hard for them to scrounge up enough money to continue paying that 16% dividend.

If they stop paying the dividend, the stock will fall faster than Fat Albert skydiving without a parachute.

To make matters worse, they barely have any cash (what they do have is restricted to pay off bonds), they have over two billion in debt, and their dividend history stretches only five quarters. Typically, we look for eight quarters of steady or increasing dividend payments.

Listen, if you’re looking at this as a gamble, then that’s exactly what you’ve gotten yourself into. This certainly wasn’t the safest income investment to get into.

As a gamble, this company should begin performing well once they have their gas terminal up and running. But for growth to continue, they will need to start acquiring or building more terminals and pipelines.

As an income investment, this company isn’t conservative enough. This is certainly no ride. But as a gamble, why not ride it? If they don’t begin appreciating after their gas terminal starts operation, then let it slide.

P.S. Want to see me cover a stock? Send an e-mail to feedback@investorsdailyedge.com

Source: Ride or Slide: Cheniere Energy Partners (CQP)