By Nathan Slaughter, globaldividends.com
When it comes to income-paying energy stocks, most investors think about oil giants like ExxonMobil or Chevron that pay just 2%-3%. But why would you buy those low-yielding stocks, when these securities pay up to 13%?
A little over a week ago, I told you about a striking discovery that caught my team and me a little off guard.
Of the 21 best-performing income stocks of the past decade, 12 of them — 57% — come from the energy sector. (You can visit this link to see the full list of all 21 stocks.)
Here’s a sample of the high yields and strong returns we found in the energy sector…
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You can view the rest of the list here. If you haven’t heard of these energy companies, you’re not alone. And if you have heard of them, you’re ahead of the curve.
The truth is, when you mention income-paying energy stocks, the first thing that comes to most investors’ minds are the oil giants like ExxonMobil (NYSE: XOM) or Chevron (NYSE: CVX). But Exxon pays just a 2.5% dividend yield. Chevron pays 3.3%.
However, the yields you can find in the energy sector can be much more rewarding, if you know where to look.
Let me explain…
Last week, I told Dividend Opportunities readers about the #1 performing asset class over the past 10 years — it’s up 288%. But MLPs, or master limited partnerships, are some of the easily overlooked links in the energy chain.
Many income investors have heard of these partnerships, but I know most haven’t. MLPs run critical “midstream” energy infrastructure — the pipelines, storage tanks, terminals and ships that move energy from producer to user. It’s not a glamorous business. But the fact that most MLPs pay steady yields in the 5%-7% range, and some as high as 13%, sure make them stars for income investors.
And if you really start digging for income, you can come across even more opportunities that blow away the dividend yields most people associate with energy investments.
There’s the little-known class of just two dozen companies that T. Boone Pickens pioneered in 1979. They’re called royalty trusts, and they allow anyone to collect royalties from some of the world’s most prolific oil and gas fields. Simply put, royalty trusts allow you to buy a stake in the production of an oil field, just as simply as you would any stock.
I already mentioned two royalty trusts above, but you almost can’t talk about this asset class without mentioning BP Prudhoe Bay (NYSE: BPT). One of the largest and most well-known trusts, BPT gives you an interest in the legendary Prudhoe Bay oil field in Alaska. Thanks to its 8%-plus yield, BPT has returned 2,440% since 2001. It also distributed payments of almost $10 per share in 2010 and is on track to pay out a similar amount in 2011. That’s nearly $10,000 in income each year for every 1,000 shares you own.
Then there are the tanker companies. Every day the U.S. imports 12 million barrels of oil, up 50% from a decade ago. Europe imports about the same amount. That’s great news for the tanker business because the majority of the world’s oil is transported by ship — usually across thousands of miles of ocean. When business is good, profit margins are embarrassingly large. An oil tanker that holds 2 million barrels of oil costs about $18,000 per day to run — and can fetch $180,000 per day on the charter market. These stocks can be volatile, but double-digit yields aren’t uncommon.
And the truth is, these types of securities are just the tip of the iceberg when it comes to energy-focused investments that pay strong dividends. Yet, many investors don’t know they exist… much less that they are offering such appealing dividend opportunities.
As editor of StreetAuthority’s newest advisory — Energy & Income — I’m focused on the energy sector and its dividends. And In the weeks and months ahead, I’ll be bringing you more about the opportunities for income in the energy sector.
Stay tuned…
Good investing!
Nathan Slaughter
Chief Investment Strategist
Energy & Income
P.S. — If you’d like to know more about the income opportunities available in the energy sector right now, you can visit this link to watch a presentation I recently put together. Included are the names and ticker symbols of every one of the 21 best-performing income stocks that I mentioned earlier. I also go into more detail about the high-yield opportunities like MLPs and royalty trusts that I featured above. Visit this link to watch now.
Disclosure: Nathan Slaughter does not own shares of the securities mentioned in this article.
