18% Pure Colombian Dividend Yield Ladies & Gentlemen. Disco Sh*t!
1k Subscribers special edition $EC: ¡Que Viva El Desmadre!
Hello and welcome to the ROI Club.
The publication dedicated to the art of increasing your returns and your personal freedom.
There’s not much that will increase a man’s individual sovereignty more than a juicy dividend stream. With your purchase entity structured correctly, you can enjoy a steady stream of income from anywhere in the world without surrendering an outrageous amount to the bad guys via taxation. Combine this with a man’s best friend, geo-arbitrage, and you can find yourself living the maverick life, with your income in a stronger currency than your expenses.
A truly wonderful set of circumstances.
I myself have been fortunate to live this very lifestyle on more than one occasion, retiring to Latin America, then reversing the decision twice, because too much free time simply isn’t good for my mental health.
Seriously, I had an anxiety attack in a 5 star hotel in Panamá City where I was residing for a month whilst obtaining my permanent residency I felt so lost living such an aimless existence.
Not all was lost however. I managed to shake off the depression and join a tour to Toboga Island where I was unceremoniously abducted by 2 Brazilians and a German girl, one of whom happened to be the LATAM director of ‘Climate change’ for the UN. The irony being that this yacht-trip was being funded by Ecopetrol and Petrobras dividends.
God does have a sense of humour..
But I digress.
Today’s focus is on a company I’ve held in the past which has made me a lot of money and funded some truly epic adventures. I’ll touch on both the adventures and my valuation of the company today and make the post free for all as a thank you for reaching 1000 subscribers.
In contrast to the young Maverick who recklessly assertively allocated 6 figures into the aforementioned names to enjoy what was a truly pleasant even if short lived retirement, how does the grey-haired Don Benjamin of today view the opportunity in EC 0.00%↑ given its recent price decline?
Its latest closing price puts it close to when I first started accumulating shares in Colombia’s crown jewel?
Investment Idea: Ecopetrol. SA. ADR: EC, NYSE.
Executive Summary:
Colombia’s largest integrated oil and gas company standing among the top companies in Latin America by revenue. 88% State-owned yet publicly traded, Ecopetrol operates across the hydrocarbon value chain with activities spanning: upstream, midstream and downstream in addition to low emission solutions and toll roads.
Investment Thesis:
Ecopetrol is very much a ‘cigar-butt’ deep value, cyclical play. Market fears of a lack of maintenance capex and the current political regime in Colombia have led to the stock being currently offered at a ~30% free cashflow yield, ~18% dividend yield. Current reserve life estimates imply 8 years of stay-flat production which should provide a satisfactory return in and of itself, with strong tail wind catalysts likely to be realised with upon an anticipated change of government in the May 2026 presidential elections.
Benjamin’s Brainstorm:
It’s true that EC has underinvested in new well development (besides PBR, who hasn’t?) so to make this a successful cigar-butt play, the reserve life needs to exceed the free cashflow rate which appears to be the case.
EC gains revenue from midstream and refining so the worst-case, profit in the event of liquidation play remains solid. I also don’t believe that even Gustavo Petro, the current president, could/would ransack his own government’s (official) supply of funding for the social rents that keep him in office.
Colombia is a difficult business environment currently thanks to the government ergo it behooves foreign investors to side with the too-big-to-fail bullies more so than the well-run companies such as GPRK IMHO.
Colombian wells however are quite decent quality grade and EC normally receives good prices for the production. I took the liberty to draw up a little comparison table below for your perusal:
The investment thesis was never about increased production, so the declining reserves don’t bother me much given the price today. In the event of an oil price spike (thanks to the very dearth of capex mentioned) this thing may have some call optionality to it. Similar to theses I’ve seen surrounding TGA in the coal space (not one I’m a fan of).
Valuation:
For a back of the envelope asset val..
So, in summary, yes whilst Don Benja is certainly very happy with his royalty holdings, setting aside a small amount of collateral to enter some covered calls on EC might yield 30% annually and lead me to enjoy leaving some obnoxious tweets like the below for years to come.
Thank you once again for supporting me in this publication.
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Until next time - ¡Que viva el desmadre!