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Monthly Summary: December 2020

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Portfolio Notes

Huntington Bancshares (HBAN)

On December 13, 2020, Huntington Bancshares Incorporated (Nasdaq: HBAN), the parent company of The Huntington National Bank, and TCF Financial Corporation (Nasdaq: TCF), the parent company of TCF National Bank, announced the signing of a definitive agreement under which the companies will combine in an all‐stock merger with a total market value of approximately $22 billion to create a top 10 US regional bank with dual headquarters in Detroit, Michigan and Columbus, Ohio.

HBAN is held in Income-Equity Strategy (both with and without MLPs).

Old Republic International Corp (ORI)

On December 18, 2020, the Board of Directors of Old Republic International Corporation (NYSE: ORI) declared a special, one-time cash dividend of $1.00 per share. The dividend will be paid on January 15, 2021 to shareholders of record on January 5, 2021.

ORI is held in Income-Equity Strategy (both with and without MLPs).

Strategy Tables

Income-Equity Strategy*
(Preliminary numbers)
As of December 31, 2020 YTD MTD
Dividend Increases: 25 4
 
% of Holdings to Declare Dividend Increase YTD: 71
% Approx. Indicated Yield: 3.6
Portfolio Changes
Buys: CUZ: CUZ is an office REIT with properties focused in the high-growth cities in the Sun Belt. Migration to these cities should allow rents to continue to grow, particularly post-COVID.
Increases: None.
Sells: BCE: BCE’s dividend is not well-covered by earnings, making it too risky for Income-Equity.
Trims: None.
Income-Equity Strategy (No MLPs)*
(Preliminary numbers)
As of December 31, 2020 YTD MTD
Dividend Increases: 24 4
 
% of Holdings to Declare Dividend Increase YTD: 71
% Approx. Indicated Yield: 3.5
Portfolio Changes
Buys: CUZ: CUZ is an office REIT with properties focused in the high-growth cities in the Sun Belt. Migration to these cities should allow rents to continue to grow, particularly post-COVID.
Increases: None.
Sells: BCE: BCE’s dividend is not well-covered by earnings, making it too risky for Income-Equity.
Trims: None.
Infrastructure*
(Preliminary numbers)
As of December 31, 2020 YTD MTD
Dividend Increases: 27 4
 
% of Holdings to Declare Dividend Increase YTD: 65
% Approx. Indicated Yield: 3.5
Portfolio Changes
Buys: SBAC: We increased our towers allocation after a period of weakness. We believe the tower companies are well-positioned to continue to benefit from the carriers’ need to spend on spectrum and densify the capability and robustness of their networks.
Increases: CCI: We increased our towers allocation after a period of weakness. We believe the tower companies are positioned well to continue to benefit from the carriers’ need to spend on spectrum and densify the capability and robustness of their networks.
AMT: We increased our towers allocation after a period of weakness. We believe the tower companies are positioned well to continue to benefit from the carriers’ need to spend on spectrum and densify the capability and robustness of their networks.
SRE: We continue to like the long-term story, outlook, and capital allocation decisions. The recent plans for rolling in IEnova/Mexico should act as a near-term catalyst.
NI: Recent weakness looks overdone; we continue to like the longer term outlook and upside potential.
ETR: Recent weakness looks overdone; we continue to like the longer term outlook and upside potential.
Sells: T: Freeing up cash for new ideas. We believe data consumption will continue to keep the carriers on the capex treadmill.
POR: Freeing up cash for new positions. Exiting after recent relative outperformance.
Trims: VZ: Freeing up cash for new ideas. We believe data consumption will continue to keep the carriers on the capex treadmill.
WTRG: Trimmed as name approaches full valuation, especially considering that their gas utility asset dilutes their water asset premium valuation.
MLP Strategy*
(Preliminary numbers)
As of December 31, 2020 YTD MTD
Dividend Increases: 13 1
 
% of Holdings to Declare Dividend Increase YTD: 76
% Approx. Indicated Yield: 9.5
Portfolio Changes
Buys: None.
Increases: TRGP: Increased as the company was selling at a discount on EV/EBITDA compared with the portfolio average; NTM FCF yield was also higher than the portfolio average. TRGP also provides exposure to Permian volumes.
WES: WES trades at a discount to peers and provides exposure to Permian volumes.
DCP: Increased as the company was selling at a discount (inline) on EV/EBITDA compared with the portfolio average; DPM NTM FCF yield was also higher than the portfolio average.
Sells: PBA: Exited as this large-cap Canadian C-corp was trading at premium valuations on EV/EBITDA and FCF yield when compared to portfolio averages.
Trims: KMI: Trimmed as this large cap C-corp was trading at premium valuations on EV/EBITDA and FCF yield when compared to portfolio averages.
WMB: Trimmed to raise capital.
Drill Bit to Burner Tip®*
(Preliminary numbers)
As of December 31, 2020 YTD MTD
Dividend Increases: 13 2
 
% of Holdings to Declare Dividend Increase YTD: 52
% Approx. Indicated Yield: 4.8
Portfolio Changes
Buys: PSXP: DAPL uncertainty opens up attractive risk/reward in an otherwise quality midstream name.
CLR: Significant operational leverage to oil price recovery. Concerns on Bakken takeaway capacity overblown.
Increases: EOG: Among the highest quality US E&Ps. Shares discounted on concerns over drilling restrictions on Federal lands. We believe recent Biden administration appointments seem unlikely to materially impair EOG’s drilling inventory.
CNQ: High dividend well covered at low oil prices and high upside to rising oil prices. Significant insider ownership and alignment with shareholders.
Sells: WMB: Freeing up cash for better risk/reward alternatives. Oil price recovery likely leaves NE natural gas development sluggish.
Trims: FANG: Freeing up cash for new positions. Remains core holding.
CXO: Freeing up cash for new positions. Remains core holding.
PXD: Freeing up cash for new positions. Remains core holding.
EMN: Freeing up cash for new positions. Trimming after strong relative price performance.
PAA: Freeing up cash for new positions. Remains core holding.
Drill Bit to Burner Tip® (No K-1s)*
(Preliminary numbers)
As of December 31, 2020 YTD MTD
Dividend Increases: 12 2
 
% of Holdings to Declare Dividend Increase YTD: 46
% Approx. Indicated Yield: 4.6
Portfolio Changes
Buys: OKE: Company has operational leverage to recovering NGL prices. We believe the company has quality integrated assets and an improving cash flow outlook.
CLR: Company has significant operational leverage to oil price recovery. We believe concerns on Bakken takeaway capacity overblown.
Increases: CNQ: High dividend well covered at low oil prices and high upside to rising oil prices. Significant insider ownership and alignment with shareholders.
Sells: None.
Trims: FANG: Freeing up cash for new positions. Remains core holding.
PAGP: Freeing up cash for new positions. Remains core holding.
CXO: Freeing up cash for new positions. Remains core holding.
PXD: Freeing up cash for new positions. Remains core holding.
EMN: Freeing up cash for new positions.
Utilities Plus*
(Preliminary numbers)
As of December 31, 2020 YTD MTD
Dividend Increases: 28 5
 
% of Holdings to Declare Dividend Increase YTD: 71
% Approx. Indicated Yield: 3.4
Portfolio Changes
Buys: None.
Increases: NI: Recent weakness looks overdone. We continue to like the longer-term outlook and upside potential.
ETR: Recent weakness looks overdone. We continue to like the longer-term outlook and upside potential.
VST: Valuation looks attractive. We believe they will be prudent and patient with substantial free cash flow that could reposition them to fund greater renewables.
Sells: None.
Trims: POR: Trimmed after period of relative strength; allocating to new ideas.

* Representative account performance and yield are preliminary.

FOR INVESTMENT PROFESSIONAL USE ONLY.
This information is for your use only and may not be forwarded or distributed.

To receive a list of all recommendations for the previous year, please email compliance@mhinvest.com.

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DISCLOSURE
Past performance is not indicative of future results.
Miller/Howard Investments (MHI) Strategy Performance is preliminary and based on a representative account from each strategy. The performance in this report is gross performance and does not reflect the deduction of investment management fees and other expenses.

Dividend yields shown for Miller/Howard portfolios exclude cash. Common stocks do not assure dividend payments. Dividends are paid only when declared by an issuer's board of directors and the amount of any dividend may vary over time. Dividend yield is only one component of performance and should not be the only consideration for investment.

Securities shown as Buys and Sells are being shown for informational purposes only. Buy and sell rationales are the expressed opinions of MHI's investment team. These securities should not be considered a recommendation to buy, sell or hold any of the securities and is not intended to imply that any one security listed above, or the portfolio as a whole, is appropriate for a particular client. There is no assurance that the securities purchased have remained or will remain in the portfolio or that securities sold have not been or will not be repurchased. To receive a list of all recommendations for the previous year, please email compliance@mhinvest.com.

The information and analyses shown are not intended as tax, legal or investment advice and may not be appropriate for your specific circumstances; accordingly, you should consult your own tax, legal, investment or other advisors, at both the outset of any transaction and on an ongoing basis, to determine such appropriateness. The views expressed here represent Miller/Howard Investments' views and are subject to change at any time. Nothing stated herein, including the mention of specific company names, should be construed as a recommendation to buy, hold, or sell any security, sector, or MLPs in general. The material may also contain forward-looking statements that involve risk and uncertainty, and there is no guarantee they will come to pass. It is not possible to invest directly in an index.

Past performance is not a guarantee of future results.

Risk Factors to Consider When Investing in Master Limited Partnerships (MLPs)
  • Cash distributions are not guaranteed and may fluctuate with the MLP's operating or business performance.
  • MLPs have a General Partner. Unit holders will have limited voting rights and do not own an interest in, vote with, or control the General Partner. The General Partner often cannot be removed without its own consent, and the General Partner has conflicts of interest and limited fiduciary responsibilities, which may permit it to favor its own interests to the detriment of unit holders.
  • The MLP may issue additional common units, diluting existing unit holders' interests.
  • Unit holders may be required to pay taxes on income from the MLP even if they do not receive cash distributions.
  • The IRS could reclassify the MLP as a taxable entity, which could reduce the cash available for distribution to unit holders.
  • If at any time the GP owns 85% or more of the issued and outstanding limited partner interests, the GP will have the right to purchase all of the limited partnership interests not held by the GP at a price that may be undesirable.

Tax Considerations of MLPs
The tax treatment for investors in MLPs is different than that of an investment in stock, including (a) the investor's share of the MLP's income, deductions and expenses are reported on Schedule K-1, not Form 1099, (b) because of the possibility of unrelated business taxable income, charitable remainder trusts should not invest in this strategy, and other non-taxable investors (such as ERISA and IRA accounts) should carefully consider whether to invest in this strategy, (c) investors may have to file income tax returns in states in which the MLP's do business and (d) MLP tax information is sent directly from the partnership, which generally has until April 15th to provide this information. You should discuss these and any other tax implications with your tax advisor.

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