• Buying a High dividend equity: TGP

    I performed the TGP analysis on March 20 but did not publish it because of more urgent issues.
    TGP is an example of an investment that could be a core part of a longer-term income based portfolio.
    The idea is to try to focus on the stability of the dividend, its sustainability and then only on the purchasing price.

    This is an equity that I would trade a few times a year, around a core position.

    1. What is the company doing?

    Very straightforward business: TGP rents out big ships that transport liquefied natural gas (90% of its business) and the remainder is tankers that transport oil.

    They sign multi-year contracts, and business is going well. Boats are fully booked.
    In theory, cheap Nat Gas is good for them, since it renders their customer's business model more profitable. Higher rates could have an influence on future investments into newer boats, but the company has ordered a few new boats with existing long-term financing.

    The company offers a 7% dividend yield and this dividend has been paid every quarter, even during the 2008 crash. (See the green arrows in the figure below from March 19.) But we can also see in the figure below that TGP crashed together with the rest of the market in 2008. (This tells you that if you are only interested in collecting a 7% dividend per year, then you can buy almost at any price and probably hold the stock for years.)

    2. Long term price evolution

    We can also see that TGP closely tracks the SPY. However, TGP also experiences pull-backs whenever there is fear of higher interest rates. The present pull-back looks rather strong and probably fully prices in a rate increase that might not come for a long time. Hence, the buying opportunity.

    The figures below date from March 20. Those who want to buy next week should run the Breakout Calculator using the data set below and see what results can be produced as an OS buy zone.

    There will be renewed price weakness around April 13, the date of the next dividend distribution.
    When studying a slow moving high yield equity, the first issue to to catch a good short-term trend to use for the envelope calculation.

    The idea is to find an envelope size that will offer a few trading opportunities every year.
    If we look at the 50MA shown below, the envelope (automatically calculated by the BC to include 90% of all price bars) shows that the lower section of the envelope was rarely reached between 2013-2014.

    However, a 20Days based envelope looks more interesting. Note that the Figure below was taken at the close of March 19.

    Since then, TGP has moved to the top of its 20 Days envelope. Probably not the best place to buy now. hence, this article is only to serve as a reference article for future opportunities.

    3. Using the Breakout Calculator

    I will now use the Breakout Calculator to compare a 20days to a 50days envelope settings.

    I will first start with a 20 days setting. The Tables below were produced at the close of March 19.
    Note that I use 2000 days (About 9 years of past data) to measure the trade statistics. This therefore also includes the 2008 crash. Note that we are measuring only trades on non-dividend adjusted prices. This means that dividend collection is an extra income that ha snot been factored in this trading strategy. The idea here is to find the best settings that would allow to trade one position, while keeping separately a core long-term position.

    To trade these slow moving income based equities, there is only one reliable strategy: buy when the equity is cheap and the price turns up. There is not much sense to go for trend following as most actors investing here are income seekers. TGP is a limited partnership that distributes most of the cash it generates. It is not a growth stock.

    Therefore, the setting should be either Long on a deep Pullback (PB) or Long on an oversold (OS) level. The difference between these two settings is that the "Pullback" type of trades only consider buying when the price is higher than the long-term average, while the OS setting does not look at the long-term average

    Let's look at these settings, using only the 20DMA as a short-term average.

    First, we can see below that an OS setting offers a relatively good R/R ratio of 1.95. This strategy generated 106 trades and had us invested 23.6% of the time (Ratio of invested days)

    If we however use the "Pullback" setting instead of the "OS" setting, we can see that the R/R ratio jumps to 2.79, but this strategy only produced 16 trades, for an investment ratio of 3.7%. This is certainly not the best strategy!

    We can then try 200 days as a long-term average. The strategy is better in terms of the number of invested days, but the R/R is weakening again.

    Even though this strategy allowed to avoid the 2008 crash, we can see below that avoiding to buy pull-backs when the price was below the 200DMA (or below the 10 MA using Monthly data) forced us to miss many interesting trades.

    It seems that the 20MA offers more trading opportunities. However, using 2000 days as a back period is not realistic, because it does not correspond to today's situation. I believe that we are in a "churning market" that could continue for some time to stay undecided. Hence, I think that we need to avoid taking into account data of 2008, but also in the early oversold bounce of 2009.

    I therefore decided to use 1124 days as a back period, which on March 19, corresponded to an analysis starting on October 1, 2010

    You can see below that avoiding the big down and up moves reduced the envelop width, which allowed me to lower the stop level from 5% to 2.5%.

    When dealing with slow moving equities that provide an income, the important feature in the sensitivity analysis is not really the entry price, but the holding period. Indeed, the longer one can hold to its investment, the better the long-term returns.

    The Table below however shows that the best holding period should be around 6 days. This is a rather short holding period.

    Below are the Tables for a 50 days short-term average.

    We can see below that holding for 20 days still produce acceptable R/R ratios, even though the Yearly return drops, but let's not forget that dividends are also provided in the meantime.

    4. The Effective Volume CombinationEV

    We can see below that Effective Volume had been positive for many days prior to the bottom formation.

    We can also see below that on March 23, there was a double bottom with a positive LEV divergence that pointed to buying the stock.


    Once again, this article is not to push anybody into buying TGP.
    We can see that the BC can be very useful for the analysis of this specific longer-term type of trade where income matters.

    For the next months, my probably strategy will be to open short positions on individual stocks that have lost their momentum while opening long positions on defensive stocks.
    Comments 1 Comment
    1. Pascal's Avatar
      This is an update on the TGP article posted early in April.
      I have been in/out of the stock.

      TGP is now pulling back , but we can see that LEV is not that negative.
      I believe that the selling will start fading as we come to support.

      TGP offers a very healthy and stable dividend, which should attract long-term investors.


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