What to do with NIT? Sell
I was all set to close out the 30 Day Dividends position in Northern Tier Energy LP (NYSE:NTI) today and lock in a small profit before the stock goes ex-dividend next week on November 12th. But then I started thinking… which is always a dangerous thing.
With the buyout offer from Western Refining (NYSE:WNR), the Northern Tier Energy unit price is now tied to the WNR share price. Northern Tier reported excellent third quarter results and declared a $1.04 distribution. In a normal situation, the NTI unit price should open on the ex-dividend date $1.04 lower than the previous closing price. With the NTI price tied to the WNR share price, a $1.00 drop in NTI would provide an attractive arbitrage opportunity and the unit price could quickly be bid back up.
However, I just calculated the conversion value, and NTI is trading about $0.75 above, so the distribution is mostly priced in. So I am issuing a recommendation to close out the open 30 Day Dividends position in Northern Tier Energy.
Recommendation: Close any NTI positions today. With a unit price above $28.50, the trade will result in a 3.7% gain in 81 days or 16% annualized.