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A stock that pays an 8.8% dividend with significant upside potential

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June 23, 2011 – Comments (4) | RELATED TICKERS: ATPAQ , ATPGQ

Here's an interesting new stock, ATP Oil & Gas Series B Convertible Preferred stock. I know that this is a favorite company of many here at The Motley Fool so I thought that it was worth mentioning.

This new issue trades OTC under the symbol ATPGP.PK. At its $100 face value, it pays an 8% dividend and it is convertible to ATP common stock (ATPG) at a ratio of 4.5045 shares per B share.

The B shares are already down to $90.50, making the effective dividend payment equal to around 8.8% and the ATPG break even conversion price $20.09. This compares to ATPG's current share price of $14.82.

There was a detailed article about this new stock over on Seeking Alpha today for anyone who's interested:

ATP Preferred Convertible: For the More Risk Averse Investor, Worth a Serious Look

http://seekingalpha.com/article/276261-atp-preferred-convertible-for-the-more-risk-averse-investor-worth-a-serious-look?source=email_most_popular

Here's the prospectus for the shares:

http://phx.corporate-ir.net/phoenix.zhtml?c=123846&p=irol-SECText&TEXT=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDExOTMxMjUtMTEtMTY3OTA4L3htbA%3d%3d#supprom197039_9

In gonig through the prospectus and I did find one catch that makes the ATP Preferred shares slightly less desirable than I had originally thought:

Our ability to declare and pay dividends may be limited by applicable Texas law and by the terms of our existing and future financing arrangements. Specifically, our existing credit agreement and the indenture governing our outstanding 11.875% senior second lien notes due 2015 limit our ability to pay cash dividends or distributions in respect of our capital stock, including the Series B Convertible Preferred Stock. As a result, we do not expect to pay cash dividends with respect to the Series B Convertible Preferred Stock until we have generated sufficient “Consolidated Net Income”, as defined in the credit agreement and indenture, to allow us to do so, which we do not expect will occur for at least one year following the anticipated Issue Date.

In short, ATP has the right to pay its 8% dividend payment on the B Series Preferred shares in ATP common stock instead of cash. To me this makes the dividend a little less attractive than if it was straight cash, but it probably isn't a deal breaker...particularly if one is bullish on ATP's prospects.

I know that there's lots of people out there in CAPS Land who follow ATPG a lot more closely than I do.  I'd love to hear others' thoughts on the company.

Deej

4 Comments – Post Your Own

#1) On June 23, 2011 at 4:05 PM, ikkyu2 (99.35) wrote:

Are these in fact qualified corporate dividends or are they MLP royalty payments?

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#2) On June 23, 2011 at 4:34 PM, TMFDeej (99.28) wrote:

Hi ikkyu2.  I believe but am not 100% positive that these are qualified dividend payments.  They aren't MLP royalty payments.

Deej

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#3) On June 23, 2011 at 7:40 PM, awallejr (83.26) wrote:

Good piece.  If I wasn't already exposed enough to the company I would be interested.  It should be noted that dividends could be paid in stock.

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#4) On December 01, 2011 at 2:15 PM, torpeydo (< 20) wrote:

hi Deej-
Just wanted to revisit this with you. Do you still think this has a big upside? Can you explain how the current price affects your view? Thanks!

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