Make an extra 5% on Linn Energy

This article also appears at The Motley Fool.

I have been following the prices of LinnCo (NASDAQ: LNCO) and Berry Petroloeum (NYSE: BRY) for the last few months. LinnCo is basically a holding company for shares of Linn Energy (NASDAQ: LINE) and a means to invest in Linn Energy without the hassles of a K1.

Linn Energy expects to merge with Berry Petroleum, with the deal closing in the third quarter, a delay from the original expected close by the end of June caused by an SEC review. Investors in BRY will receive 1.25 shares of LNCO for each share in BRY. However, BRY has consistently been trading at at least a 5% discount to the deal value. On Friday, buying BRY at close would have netted you LNCO at 34.80, an 8% discount.

To add to that, thanks to persistent negativity by some analysts, including Barrons and others, both Linn energy and Berry have been tanking lately providing a great opportunity to get into an MLP with extraordinary dividends. Currently (as of Friday, May 31) the dividend for LNCO stands at 8.1%. Add to that the 5% extra you get from buying BRY instead of LNCO and you have a great deal.

The management of Linn has also announced that they plan to boost dividends further once the acquisition completes.

If you don’t care about the simplicity of LNCO or the hassle of a K1, then you could directly buy LINE for an even better deal. LINE closed Friday at just 32.90, another 5% off the price of LNCO and a dividend of 8.8%.

In short, if you were planning on acquiring shares of LNCO to take advantage of the current negativity in the stock, you would be better off buying BRY or LINE instead.