Escalera Resources Suspends Preferred Dividend

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Earlier today Escalera Resources (ticker:ESCR) announced a suspension of dividends on their Series A preferred shares (ticker:ESCRP) and we have had notes from Fred and Vern on the issue.

As you recall we chickened out of this issue a few months ago and sold our holdings (at around $12 or so for a loss). After we sold the shares rebounded to $17 after falling as low as $6.70 on 1/23/2015.

These shares are cumulative and we look to prior cumulative issues with suspended dividends. In particular we look to Supertel (ticker:SPPR) which we argued for liquidation–many quarters before they suspended their preferreds. Since that time the common shares are off 90% and they suspended preferred dividends.  After a year of suspended dividends the preferred now trades at $18 and they teetered on chapter 11 all of 2014.

So what is one to do? 1st off these things almost always start with this reaction (plunge in price). For me personally I would hold what I have, but I would not buy more. The problem with energy companies we don’t know what the future (the next 12-18 months) holds price wise and all the energy companies have hedges and they are already beginning to expire meaning they will lose some — and eventually all their protection. One needs to watch the balance sheet closely for ESCR at the next release. They had positive cash flow previously and this will indicate to us their future prospects.

We believe that Miller Energy and Goodrich will be the next to suspend dividends on preferreds. After that we expect a number of the MLPs to eliminate their common unit dividends and if crude and natural gas don’t turn around by years end we believe they will start suspending preferred dividends—Breitburn may come sooner as they likely are against a credit line cut right now and they are up against the ceiling right now

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