Hi Lou,
I would appreciate your views on Longview Oil.
Despite rising, if not fairly stable world oil prices in the mid 90 dollars, the stock has slipped below $7 and hovered in the low $6 range for past several weeks. It offers an attractive dividend, despite recent news it was cutting back on its expenditures when oil was in the $80 range.
What do you see as the prospects for the stock price to rise and for the sustainability of the dividend over the next 6 to 12 months?
Thanks,
Steve in Winnipeg
Hey Steve,
Thanks for the assignment.
Your description of the events that have transpired surrounding Longview Oil Corporation indicate that you are somewhat frustrated by the situation. When I examined the charts it's clear why you might be anxious. 2012 has not been kind to investors who have held on as the company had to deal with limited pipeline capacity to take their production to market. The situation is creating problems for the entire oil patch but the pain is amplified for smaller producers.
When it comes to the sanctity of the dividend I have to say that I honestly don't know. Dividends on common stocks are issued at the discretion of the board of directors and the decision is constantly under review. Currently the dividend yield on the common shares of LNV is 8.86 per cent. Given today's interest rate environment a 8.86 per cent yield would suggest that there could be room to cut. A recent example of the same issue concerned the shares of Enerplus Corp. which were offering a 15.3 per cent dividend yield earlier in 2012. Unfortunately in that case the board decided to cut the payout to conserve cash. In summary there is no indicator that I know of that will signal a change in dividend policy.
A review of the charts will provide insight into the potential for a trend reversal in the case of LVN.
The three-year chart illustrates the pain that the shareholders of LNV have endured since the IPO. Worth mentioning is that the MACD has generated a number of buy and sell signals over the last 17 months. The downtrend that began in March of 2012 really greased the skids as the shares gave up just over 50 per cent of its market value as it hit the rock bottom in August.
The six–month chart will provide the information you need as how best to proceed at the moment. The advance off the 52-week low of $5.90 on Aug. 1, 2012, met resistance along the 50-day moving average and is currently making an attempt to get over the hurdle. The MACD signalled the the move off the lows and is currently indicating that the uptrend has more in it, but keep an eye on resistance that comes in at $7.00.
I don't think any of the transportation problems that have plagued the shares of LNV have been resolved but the last round of monetary easing announced by the U.S. Federal Reserve on Sept. 13 did goose the price of oil to over $95.00 a barrel. A rising tide will raise all boats but what I have observed is that the lift provided by the first two rounds of monetary easing quickly dissipated. There is currently no indication that a return to the IPO price of $10.00 is imminent.
Make it a profitable day and happy capitalism!
Have your own question for Lou? Send it to lschizas@globeandmail.com.
Lou Schizas