We have opined that we have made more money on ERF than any other stock in our portfolio ever. Now we can say we have also lost more money on ERF than any other stock in our portfolio, assuming we follow through on making our current paper loss and real capital loss. Maybe the fact that over a couple of decades we have about broke even on this stock would make others happy, but not us. The idea of course is to produce premium income without undue risk.
Yesterday after the closing bell ERF did what most thought they would be doing next year in 2013 and cut their dividend. The cut was 50%, which is what we had thought would be the cut, since that would provide the needed cash flow to make the company able to operate totally in the black again with the continue asset sales currently in the pipeline. ERF should be able to continue the 9 cents per share monthly payout for the foreseeable future and could be buoyed some if natural gas prices recover any at all.
The best point here is that the 9 cents per share payout equals a nice just over 8% annual dividend. If as would be expected the short sellers finally start getting out of the security the next week or so the stock could find a footing finally here around or just below $13 per share. The risk reward at this price looks to be good and worth taking a position if you are considering doing so.
We continue to like the option premiums here too. One could buy the stock today at $12.65 per share and write a $13 call for 40 cents per share. That is a 3.16% monthly premium plus the 35 cents per share kicker. If you have to own the stock you get $9 per hundred shares monthly dividend.
Yes, we have been fooled by ERF before, but this finally looks to be a bottom. We continue to own a large several thousands share position and will at some point be taking a large loss in this stock, but only fools do not continue to take advantage of opportunities when offered. ERF at this price looks like an opportunity.
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