Twin Butte Energy (TBE.TO)

8.5% yield. Business model is to keep production flat to low growth and then pay a dividend. But it is an exploration company. They get assets that are already in decline. He expects distributions can stay where they are. He prefers companies that can hit it out of the park rather than dividend payers. Last acquisition lowered their payout ratio.

(Market Call Minute) Recent acquisition has lowered their payout ratio and increased net backs. Lowered percentage of heavy oil to light oil.

Waiting for it to go down a bit more pennies. Thinks it is due for a re-rate. A recent acquisition improves the outlook even if they lost production from an asset.

Have some operational issues in one of their projects. They’ve had 2 quarters now where they haven’t been able to solve the problem in terms of increasing recoveries and increasing production. Thinks the dividend is okay, primarily because he thinks they will fix the problems, but it might take a period of time before the market believes they are fixed. This would be one of the more risky dividends out there. 8.2% dividend yield.

(A Top Pick Aug 1/13. Up 31.38%.) Just made a huge acquisition of some lighter oil assets and financed it themselves. This has one of the most sustainable dividend models of all the companies he follows. Believes they have more than sufficient cash flow to cover the dividends. Still feels the stock has a long ways to go.

Chart shows some support at around $1.90 and a trading range between that and $2.80. The smaller energy stocks are primarily event driven. If you are going to own the drill bit, you might be better off to buy a little bit of a basket, say, 4, 5 or 6 of them with the attitude that 2 of them are going to be home runs. He would say you are okay on this one and it will probably work up to the upper end of the channel.

Payout ratio is about 100%. Had an issue where they lost production in an area called Primate but at the same time they are having some success in another area through horizontal drilling. Thinks their guidance to the street is a little on the conservative side. Feels it is kind of stuck in a holding pattern with maybe 10%-20% upside. Exposed to heavy oil differentials.

(A Top Pick September 10/12. Down 21.93%.) Heavy oil. Pays a fairly hefty dividend and it looked like they would not be able to pay it, so the street turned negative. He bought more at $1.75. Doesn’t think the dividend is going to be cut.

(Top Pick Sep 06/12, Down 19.88%) He got out and was back in. Heavy oil producer that had a problem with an asset. Put them under pressure. Stock has gone down twice. Asset has been written off and other sites are being drilled to make up production. They are doing all the right things. Don’t have a big weight but you could see this grow.

Stock was cratered on certain production issues. The guidance forward is not totally comforting. Usually when you get to this size of a 10.5% dividend yield, you have to start worrying about performance.

10.6% dividend yield probably should get cut. This one probably needs to prove itself and turn production around. Had a couple of operating hiccups. Once you get in the penalty box, it is difficult to raise money. They are at a disadvantage to all their competitors.

Big problem with a stock like this is that they disappointed in the last little while with production volumes. Did better in Q2. Q1 was a bit of a problem, but the real issue is if you take $10-$15 off the current price of oil, that will impact their cash flow and how much money they need to replace declines and cover the dividend. These kinds of stocks, where there is a very high payout ratio with vulnerability because of the commodity prices, can be vulnerable. Hold off purchasing until the Oct/Nov lows on the commodity and heading into the next winter.

(Market Call Minute) Going to be in the penalty box for a while.

This is trading as though the dividend was going to be cut, however management has other options to allow the dividend not to be cut. Have some production problems at Primate and he thinks this tends to be overdone in the stock market.

(Top Pick Apr 16/13, Down 24.34%) The thesis was always heavy oil. Sustainable dividend. $0.19/year. Primate play was under fire twice for water intrusion in the bore. They had to deal with water. A second source caused them to lose confidence. Company has conservative guidance. Thinks the market has it wrong.