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Linn Energy Is Saving Its Cash, Not Its Stock


Linn Energy tries to find ways to cut back its cash burning rate.

The company aimed to save up on cash even by eliminating its distribution -- a move that hurt its stock.

Even if oil prices rally, the stock isn't likely to rise much without a high-yield dividend and a reduced debt burden.

The recent fall in the price of oil has brought down shares of Linn Energy (NASDAQ:LINE) again. The soft natural gas market also keeps Linn's shares low. With an average target price of only $2.84, the company's stock isn't expected to rise even if oil prices were to rally again. As long as there is no distribution -- it isn't likely return anytime soon (if at all) -- the company's shares are likely to remain between the $2 and $3.5 mark.

Bigger oil producers, such as BP (NYSE:BP) and Chevron (NYSE:CVX), have been aiming to support their stocks by keeping their dividends unchanged, even as their free cash flows dropped and couldn't cover the dividend payments. As I noted in a recent article, higher yields didn't coincide with stock performance. In any case, these oil producers, much like the smaller oil companies such as Linn Energy, experienced a rise in their debt burdens. They have been trying to cut back on spending, becoming more efficient, and stocking up on cash by selling non-core assets. So the main differences, besides market cap, are...