We are selling 650 shares of Coterra Energy (CTRA) at roughly $23.80 apiece, and 75 shares of Pioneer Natural Resources (PXD) at roughly $209.10 apiece. Following the trades, Jim Cramer’s Charitable Trust will own 1,000 shares of CTRA, decreasing its weighting in the portfolio to about 0.81% from 1.33%, and 125 shares of Pioneer, decreasing its weighting in the portfolio to about 0.9% from 1.42%. The Club is trimming oil-and-gas holdings Pioneer and Coterra on Friday, while downgrading both of their ratings to a 2 — meaning we’ll be on the sidelines until a further pullback. However, we’re not going to sell shares of Devon Energy (DVN) and maintain a 1 rating on the stock for now, given it already moved significantly lower this week in the wake of its fourth-quarter results . Pioneer and Devon both report Wednesday and we suspect the market will react similarly. At the same time, we’re conscious that we added to our PXD and CTRA positions earlier this month and that Friday’s sales come after a week in which the stocks have been dragged down by sliding oil and and natural-gas prices. But we will always take action if we have a concern about any of our stocks. Fortunately, our collective positions in Devon, Pioneer and Coterra represent less than 4% of the total Club portfolio prior to these trades, making this week’s energy carnage well contained. Our primary concern is around how the market will react to these exploration-and-production companies lowering their quarterly payouts due to the softer commodity-price environment. Each has adopted a fixed-plus-variable strategy to reward shareholders with huge dividend payments when oil prices are booming and protect their cash flow in a leaner environment. The variable component is based on a percentage of cash flow left over after paying the fixed dividend. So with oil prices much lower than a year ago, those payouts to investors are going to be much less — even if oil is still well above break-even levels. West Texas Intermediate crude — the U.S. oil benchmark — is down more than 6% over the past month, trading at around $76.52 a barrel. Most oil stocks with a fixed-plus-variable dividend generated yields for shareholders well above 8% last year. Pioneer’s yield was even higher than that, with CEO Scott Sheffield aiming to provide the highest payout in the S & P 500. But when Devon announced its dividend on Tuesday, the yield based on the prior close was only 6% — a level not particularly attractive for investors when the U.S. 6-month Treasury yields 5%. That precipitated a rapid sell-off in the stock that has readjusted the dividend yield higher. With Coterra and Pioneer scheduled to report earnings next week, we’re concerned that their new dividend payments also won’t be enough to satisfy investors, potentially leading to another nasty round of sell-offs. That’s why we’re making these tough sales Friday afternoon. We’ll take a loss of around 20% on Coterra and 23% on Pioneer. But, notably, those figures don’t account for the hefty divided payments we collected last year. (Jim Cramer’s Charitable Trust is long CTRA, DVN, PXD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Oil wells pumping outside of Midland Texas.
Joe Sohm | Visions of America | Universal Images Group | Getty Images
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