How to Know If You Should Sell or Buy More When a High-Yield Stock’s Share Price Drops

Last week a popular high yield stock was hammered after the release of the company’s first quarter earnings report. The background facts for this stock are very similar to another widely held high yield stock that crashed in July 2017. The lessons of a year ago provide good insight on whether the price decline is a sign to buy or sell this currently troubled stock.

On May 31, Golar LNG Partners LP (Nasdaq: GMLP) reported the company’s 2018 first quarter results. Cash flow for the quarter was just 32% of the dividend rate. Management noted that the Board of Directors would review future dividend payments. The GMLP share price dropped by 29% over the next two trading days. Many investors who contacted me were convinced that a dividend cut was imminent. After reviewing the earnings report, management comments and any other facts I could find, my analysis is that the current GMLP situation is similar to what occurred with Uniti Group (Nasdaq: UNIT) in July and August 2017.

Last year the UNIT share price crashed from over $26 to a low of $13.81. The near 50% decline was due to the belief that UNIT’s primary customer Windstream Holdings (Nasdaq: WIN), which provides 70% of revenue, was soon to declare bankruptcy. A review of the financial situation and prospects for both companies revealed that possibility a bankruptcy by Windstream was unlikely, and even if, the UNIT cash flow was very well protected. This did not stop the financial press from continuing to predict the worst case.

It took six months for the market to figure out that the fear mongering was unjustified, and the UNIT share price started to recover. It is now back up to $21.80 and climbing. Investors who understood the fundamentals and bought shares at $15, $16, $17 and $18 are now very pleased with their investment decisions. Through this rough patch UNIT has continued to pay its $0.60 per share quarterly dividend.

The GMLP situation is similar.

Read More: The 10 Highest Yield Dividend Stocks Going Ex-Div This Week

Golar LNG Partners owns a fleet of LNG carrier ships and Floating Storage Regasification Unit (FSRUs). The company has a contract with its sponsor Golar LNG Limited (Nasdaq: GLNG) to purchase 50% of the initial production of a Floating Liquefied Natural Gas (FLNG) vessel. For the first quarter, distributable cash flow came up short because several vessels in the fleet have come off lease and the company is working to get them re-contracted. Management has been forthright in telling investors that this would be the case for the first half of 2018. That did not stock the GMLP share price from cratering on last week’s news.

A look at the fundamentals show that there is no reason to panic. The company has started the drop down process for its interest in FLNG Hilli Episeyo. The company has signed a 15-year Atlantic FSRU contract that will put an idle vessel back to work in the second half of 2018. These two contracts will provide enough cash flow to more than cover the current dividend rate. When other uncontracted vessels get signed with customers, GMLP will again be generating excess cash flow, and likely to raise the dividend, not cut it.

I expect that GMLP will do what management has stated and continue to the current dividend while we wait for the new contracts to bring on cash flow to make that payout secure. Even if the company does reduce the dividend it would be just for a few quarters, and then the company would be able to reinstate the payout at the current, or even a higher level.

GMLP is a stock on sale like where UNIT was in the Fall of 2017.

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Is This What Will Save Apple?

Apple’s annual developers conference kicks off on June 4. Apple watchers always keep a close eye on the conference for a sense of the company’s priorities for the next year. In the past, Apple has used the conference to roll out new products for developers to build augmented reality applications, medical research apps and more.

So what can we expect this year?

I think there will be a lot of news surrounding the true growth area of Apple’s business – the company’s software and services segment. There may be a new version of the software that runs the iPhone and iPad (iOS 12?). And a new version of the operating system for MAC is also likely as well as new software for the Apple Watch and Apple TV. Hopefully, there will be an upgrade to Siri’s intelligence – it is so much ‘dumber’ than Alexa right now.

Apple’s Growth Driver – Services

While most on Wall Street are focused on iPhone sales, I’m much more interested in Apple’s “Services” business which has become the company’s second-largest source of revenues. Businesses such as the App Store, Apple Music and iCloud storage brought in more than $9 billion last quarter, a 31% year-on-year gain. CEO Tim Cook has set a target for the business of $50 billion in annual revenues by the end of 2020.

Unlike the volatility surrounding iPhone sales, Apple’s services business has been a model of consistency, averaging a year-on-year growth rate since 2006 of 23%. It is interesting to note that according to Gene Munster – the former Apple analyst turned tech investor through Loup Ventures – that if Apple’s services businesses were valued like other SaaS (software as a service) companies, it would have a valuation of about $380 billion!

The reason why revenues at Apple’s services business has doubled in four years is straightforward – it has an installed base of more than 1.3 billion devices worldwide, up from one billion devices at the end of 2015. Tim Cook said, “With that kind of change in the installed base, with the services we have now and others that we are working on, I think this is just a huge opportunity for us.”

And it is, as Apple joins in on the fast-growing ‘subscription economy’. Subscriptions are a big part of the services business predictability. The number of paid subscriptions to Apple’s own services, including Music, as well as third-party apps that charge through the App Store (such as Netflix and Spotify), has grown to 270 million. That total has soared by 100 million in the last year alone!. Apple gets a cut of subscriptions sold through its App Store.

The Future for Apple’s Services Business

Some on Wall Street believe the current growth spurt in services will not last much longer, as growth in the installed base flattens out.

I disagree… I think Apple has more “tricks up its sleeve.” In other words, more levers to pull to grow in services. One of these is ‘Project Titan’…

Wall Street may be disappointed that Apple has toned down its ambitions with regard to self-driving vehicles (Project Titan). I am not… it’s not easy building cars from scratch… just ask Elon Musk and Tesla about that.

Instead, Apple is focusing on providing software to vehicle makers – it is currently working with Volkswagen – to give riders an ‘Apple experience’.  Apple also now has the second-biggest fleet (55) of autonomous vehicles that is being tested on California roads. Apple’s fleet has expanded quickly over recent months. After first receiving a permit to test just three autonomous vehicles in April 2017, the number of vehicles jumped to 27 in January. It has more than doubled since then to 55 vehicles. That leaves Apple second only to General Motors Cruise, which has 110 cars testing on California’s roads.

I find myself in agreement with a recent note to clients from Morgan Stanley that said Wall Street is undervaluing Apple’s services business that includes healthcare, augmented reality and original content too. It called services Apple’s “primary growth engine”, predicting the company’s services business will represent 67% of Apple’s sale growth over the next five years.

Morgan Stanley added that “We don’t see services growth slowing anytime soon.” And they’re right – it won’t be the iPhone that pushes the company through the $1 trillion valuation, it will Apple’s fast-growing services business.

Plan B Investing: Mark Zuckerberg’s Secret Plan to Make 2,524%

Famed Facebook founder and CEO Mark Zuckerberg has been in the hot seat over privacy issues. First the U.S. Congress and now European regulators.

He’s been telling them anything they want to hear because he’s already got Plan B in place and it’s promising to be even bigger than Facebook.

He’s already put $19 billion into and has been joined by some of America’s wealthiest people including Warren Buffett, Bill Gates, Michael Dell, and Mark Cuban.

Just what is Plan B?

It’s not gold, crypto or any mainstream investment but it’s set to be the most valuable asset on Earth. And if you act fast, you could earn as much as 2,524% before the year is up.


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