A Micro-cap Dividend Investment (ECTM, $.52)

A bird in the hand is worth two in the bush.

It’s easy to get caught up on Twitter (X = Twitter, Meta = Facebook, sorry) and forget how to value a business. As Benjamin Graham stated, ‘in the short run, the market is a voting machine but in the long run, it is a weighing machine.’ That weighing machine should evaluate the company’s future cash flows and discount them back to the present value to come up with a reasonable value.

So, next time you take a look at Nvidia after watching Jensen’s latest pump on CNBC, think in these terms.

If this company is valued at 5,000,000,000,000 and I require a 10% return, then they’d need to line my pocket with $500B this year. They don’t pay this year? Next year the bill comes due and now I need $550B. Let the compounding continue until shareholder returns start balancing the account and you get the point… how in the hell am I ever going to get my money out of this thing? Now this is the best company in the world we’re talking about, but in these bubbly markets, the most charismatic leaders/politicians get people to buy what they’re selling until reality weighs in. Cash is king.

Any investor wants their money compounded. Sometimes that is best by finding a company that offloads cash to you to reinvest into the best opportunities at your disposal over their operating life. This is what Buffett does with his cash cows at an unbelievable scale.

I use that oversimplified example to bring you this opportunity.

Introduction to ECTM

A defensive cash machine that should benefit from the continued ramp in Natural Gas demand.

At times, I like companies that are giving me a return through cash as dividends. This nat gas royalty company has returned multiples of my cost basis since I invested in 2021. Introducing, ECA Marcellus Trust 1 (Ticker: ECTM)…

Taken for dead multiple times over the course of its corporate life, Marcellus is simple, they’re a nat gas producer with declining production that has an interest in 54 wells (I think you can guess what basin they’re in). These have varied ownership based on whether they were in production before or after the trust was begun.

• 14 producing wells @ 90% interest

• 50 developed wells @ 50% interest

The trust dissolves at the earlier of (1) last four quarters having proceeds sub $1.5M (almost breached multiple times) OR (2) March 2030… so time is ticking. At that point, the interest drops in half to 45/25 and the operator, Greylock Production, gets right of first refusal during their sale.

So yeah, normally I like things that grow as well. Why in the hell is this a good investment?

• MC = $9.5M

• Net cash = ~$2.8M + net AR of $.5M = $3.3M

• EV = ~$6.2M

The Set-up for Nat Gas