Gastar Preferred Stock

[dan_s]

Gastar's preferred Series A has dropped below par. At today's share price ($23.85) the annual yield is over 9%. The dividends should be tax free return of capital this year and in 2015. I have adjusted my forecast model to assume their realized oil price is $80/bbl in Q4 and 2015. Even at that oil price, Gastar should generate strong cash flows from operations. More than enough to service their debt and pay dividends on their preferred stock. - Dan

HOUSTON, Oct. 3, 2014 /PRNewswire/ -- Gastar Exploration Inc. (NYSE MKT: GST) ("Gastar") announced today that it has declared monthly cash dividends on its 8.625% Series A Preferred Stock ("Series A Preferred Stock") and its 10.75% Series B Preferred Stock ("Series B Preferred Stock") for October 2014.

The dividend on the Series A Preferred Stock is payable on October 31, 2014 to holders of record at the close of business on October 15, 2014. The October 2014 dividend payment will be an annualized 8.625% per share, which is equivalent to $0.179688 per share, based on the $25.00 per share liquidation preference of the Series A Preferred Stock. The Series A Preferred Stock is currently listed on the NYSE MKT and trades under the ticker symbol "GST.PRA."

The dividend on the Series B Preferred Stock is payable on October 31, 2014 to holders of record at the close of business on October 15, 2014. The October 2014 dividend payment will be an annualized 10.75% per share, which is equivalent to $0.223958 per share, based on the $25.00 per share liquidation preference of the Series B Preferred Stock. The Series B Preferred Stock is currently listed on the NYSE MKT and trades under the ticker symbol "GST.PRB."

[dan_s]

An updated Net Income & Cash Flow Forecast model for GST has been posted under the Watch List Tab.

[kenm]

Dan, I'm sure you saw the pressure exerted on the Preferreds Friday. Can you explain this. I have found in my years of following Preferreds of all kinds, that Fridays are typically the day when institutions make their moves. These volume spikes were very troublesome. Do you still find most of the oil and gas Preferreds eg CPE, GST Etc "ROCK SOLID"
Can you suggest a reason for the very sudden sell off?
Kenm

[dan_s]

I know this sounds silly, but for any single day the only reason is "more sellers than buyers". Volume on the pfd stocks for these small-caps is always light. When someone dumps a bunch they are going down.

I cannot see any near-term risk for GST, CPE or ENRJ of them not being able to pay the dividends on their pfd stock. Oil & gas prices would have to go a lot lower and stay low for it to be an issue. GST is the safest of the bunch. The recent common stock offering made it even safer.

[kenm]

Yes I understand the more sellers than buyers concept. Just wondering though, how, all of a sudden, these things all traded 5 to 10 times their normal volume on the same day. From CPE, MHRC, MHRD, GRH, MILLC, MILLD, GSTA, GSTB, and on and on. Just seems weird that these have been sound asleep for the whole energy pullback, then in one day they all get quintuple plus volume. Could this be some fund? Can't imagine 1000 retail guys woke up and said I think I'll sell my small cap energy Preferreds today. Whadaythink? Any connections to large holders?

Thanks again,
Ken

[dan_s]

Could have been one large fund. All I can tell you is that GST, CPE and ENRJ have no near-term issues that I know of which should keep them from paying the dividends on their preferred stocks. Actually, the fact that the whole group went lower on the same day should tell us that it is not a company specific issue.

The same has been happening to the common stocks in the energy sector. Some companies have reported great news, but this market does not care. For example, Continental's Analyst Day presentation was very bullish but the stock went down and has continued to drift lower with the pack.

My forecast models for GST, CPE and ENRJ are all under the Watch List Tab. We published a profile on MHR last week. I do not recommend MHR pfd because the company has a lot of debt, but I do not see any near-term issue for MHR.